FITBIT INC (Form: 10-Q, Received: 08/04/2016 06:09:37)

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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 July 2, 2016



	¨	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 þ	No ¨

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, 2016, there were 164,101,170 shares of the registrant’s Class A common stock outstanding and 58,052,784 million 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 —July 2, 2016 and December 31, 2015	4

	Condensed Consolidated Statements of Operations —for the three and six months ended July 2, 2016 and June 30, 2015	5

	Condensed Consolidated Statements of Comprehensive Income —for the three and six months ended July 2, 2016 and June 30, 2015	6

	Condensed Consolidated Statements of Cash Flows —for the six months ended July 2, 2016 and June 30, 2015	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

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

Item 6.	Exhibits	60
SIGNATURES		61

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. 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. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:


•	continued investments in research and development, sales and marketing and international expansion and the impact of those investments;


•	trends in our operating expenses, including personnel costs, research and development expense, sales and marketing expense and general and administrative expense;


•	competitors and competition in our markets;


•	our ability to develop new products and services or improve our existing products and services;


•	our ability to expand brand awareness;


•	our ability to detect, prevent, or fix defects;


•	our reliance on third-party suppliers, contract manufacturers (particularly Flextronics) and logistics providers and our limited control over such parties;


•	trends in our quarterly operating results and other operating metrics;


•	trends in revenue, costs of revenue and gross margin;


•	legal proceedings and the impact of such proceedings;


•	the effect of seasonality on our results of operations;


•	our ability to attract and retain highly skilled employees;


•	our expectation to derive the substantial majority of our revenue from sales of devices;


•	growing our sales of subscription-based services ;


•	the impact of foreign currency exchange rates;


•	releasing and shipping new products and services, and the timing thereof;


•	the sufficiency of our existing cash and cash equivalent balances and cash flow from operations to meet our working capital and capital expenditure needs for at least the next 12 months; and


•	general market, political, economic and business conditions .

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

FITBIT, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	416,142	$	535,846
Marketable securities	343,534		128,632
Accounts receivable, net	377,545		469,260
Inventories	190,644		178,146
Prepaid expenses and other current assets	59,782		43,530
Total current assets	1,387,647		1,355,414
Property and equipment, net	74,181		44,501
Goodwill	25,217		22,157
Intangible assets, net	15,090		12,216
Deferred tax assets	119,472		83,020
Other assets	1,504		1,758
Total assets	$	1,623,111	$	1,519,066
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	226,418	$	260,842
Accrued liabilities	231,921		194,977
Deferred revenue	46,420		44,448
Fitbit Force recall reserve	2,148		5,122
Income taxes payable	2,074		2,868
Total current liabilities	508,981		508,257
Other liabilities	47,473		29,358
Total liabilities	556,454		537,615
Commitments and contingencies (Note 6)
Stockholders’ equity:
Class A and Class B common stock	22		21
Additional paid-in capital	804,656		737,820
Accumulated other comprehensive income	1,684		691
Retained earnings	260,295		242,919
Total stockholders’ equity	1,066,657		981,451
Total liabilities and stockholders’ equity	$	1,623,111	$	1,519,066

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						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016		June 30, 2015
Revenue	$	586,528		$	400,412		$	1,091,884	$	737,166
Cost of revenue	341,559			212,870			613,160		380,415
Gross profit	244,969			187,542			478,724		356,751
Operating expenses:
Research and development	79,909			30,492			152,157		52,918
Sales and marketing	118,138			69,690			225,189		113,557
General and administrative	37,262			14,648			72,964		27,629
Change in contingent consideration	—			(7,704		)	—		(7,704		)
Total operating expenses	235,309			107,126			450,310		186,400
Operating income	9,660			80,416			28,414		170,351
Interest income (expense), net	839			(379		)	1,421		(846		)
Other income (expense), net	(463		)	(45,308		)	1,105		(58,385		)
Income before income taxes	10,036			34,729			30,940		111,120
Income tax expense	3,695			17,048			13,564		45,442
Net income	6,341			17,681			17,376		65,678
Less: noncumulative dividends to preferred stockholders	—			(1,212		)	—		(2,526		)
Less: undistributed earnings to participating securities	—			(11,244		)	—		(45,907		)
Net income attributable to common stockholders—basic	6,341			5,225			17,376		17,245
Add: adjustments for undistributed earnings to participating securities	—			1,862			—		7,003
Net income attributable to common stockholders—diluted	$	6,341		$	7,087		$	17,376	$	24,248
Net income per share attributable to common stockholders:
Basic	$	0.03		$	0.09		$	0.08	$	0.35
Diluted	$	0.03		$	0.07		$	0.07	$	0.29
Shares used to compute net income per share attributable to common stockholders:
Basic	218,850			58,548			217,431		49,922
Diluted	242,328			95,190			242,153		82,841

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					Six Months Ended
	July 2, 2016			June 30, 2015		July 2, 2016			June 30, 2015
Net income	$	6,341		$	17,681	$	17,376		$	65,678
Other comprehensive income:
Cash flow hedges:
Change in unrealized gain (loss) on cash flow hedges, net of tax benefit (expense) of $(245), $ —, $1,469, and $ — respectively	5,538			—		3,005			—
Less: reclassification for realized net gains included in net income, net of tax expense (benefit) of $(216), $ —, $509, and $ — respectively	(407		)	—		(1,978		)	—
Net change, net of tax	5,131			—		1,027			—
Change in foreign currency translation adjustment, net of tax	(88		)	41		(160		)	85
Change in unrealized loss on available-for-sale investments, net of tax	67			—		126			—
Comprehensive income	$	11,451		$	17,722	$	18,369		$	65,763

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
	July 2, 2016			June 30, 2015
Cash Flows from Operating Activities
Net income	$	17,376		$	65,678
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for inventory obsolescence	665			4,537
Depreciation	13,121			7,519
Write-off of property and equipment	649			—
Amortization of intangible assets	1,066			655
Revaluation of redeemable convertible preferred stock warrant liability	—			56,655
Stock-based compensation	38,170			12,650
Change in contingent consideration	—			(7,704		)
Deferred income taxes	(36,452		)	(20,111		)
Excess of tax benefit from stock-based compensation	(16,275		)	—
Other	(700		)	294
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	91,537			(12,834		)
Inventories	(13,351		)	(76,334		)
Prepaid expenses and other assets	(16,085		)	(2,495		)
Fitbit Force recall reserve	(2,974		)	(9,581		)
Accounts payable	(39,425		)	(5,561		)
Accrued liabilities and other liabilities	54,000			8,830
Deferred revenue	1,973			11,789
Income taxes payable	14,857			(29,836		)
Net cash provided by operating activities	108,152			4,151
Cash Flows from Investing Activities
Purchase of property and equipment	(36,745		)	(11,745		)
Purchases of marketable securities	(392,738		)	—
Sales of marketable securities	38,814			—
Maturities of marketable securities	140,262			—
Acquisitions, net of cash acquired	(5,600		)	(11,037		)
Net cash used in investing activities	(256,007		)	(22,782		)
Cash Flows from Financing Activities
Payments of offering costs	(1,236		)	(2,522		)
Proceeds from issuance of common stock	14,467			442
Taxes paid related to net share settlement of restricted stock units	(1,107		)	—
Excess of tax benefit from stock-based compensation	16,275			—
Net proceeds from initial public offering	—			420,885
Proceeds from issuance of debt and revolving credit facility, net debt discount	—			160,000
Repayment of debt	—			(294,503		)
Net cash provided by financing activities	28,399			284,302
Net increase (decrease) in cash and cash equivalents	(119,456		)	265,671
Effect of exchange rate on cash and cash equivalents	(248		)	(21		)
Cash and cash equivalents at beginning of period	535,846			195,626
Cash and cash equivalents at end of period	$	416,142		$	461,276
Supplemental Disclosure
Cash paid for interest	$	287		$	103
Cash paid for income taxes	$	16,196		$	94,966
Supplemental Disclosure of Non-Cash Investing and Financing Activity
Purchase of property and equipment included in accounts payable and accrued liabilities	$	17,227		$	2,714
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
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. 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, 2015 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, or 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 July 2, 2016 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission on February 29, 2016. There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K.

The Company’s fiscal year ends on December 31 of each year. In the first quarter of 2016, the Company adopted a 4-4-5 week quarterly calendar, which, for the 2016 fiscal year, is comprised of four fiscal quarters ending on April 2, 2016, July 2, 2016, October 1, 2016 and December 31, 2016. The Company did not adjust operating results for quarters prior to 2016. There were 91 days in each of the three months ended July 2, 2016 and June 30, 2015 , and 184 and 181 days in the six months ended July 2, 2016 and June 30, 2015 , respectively.

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

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 primary estimates and assumptions made by management related to revenue recognition, reserves for sales returns and incentives, reserves for warranty, valuation of stock options, fair value of derivative assets and liabilities, allowance for doubtful accounts, inventory valuation, accruals for the Fitbit Force recall, fair value of goodwill and acquired tangible and intangible assets and liabilities assumed during acquisitions, the number of reporting segments, the recoverability of intangible assets and their useful lives, contingencies, 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.

Out-of-Period Adjustment

During the first quarter of 2016, the Company identified an error, which resulted in an understatement of income tax expense by $3.0 million for the year ended December 31, 2015. The Company recorded an out-of-period adjustment to correct the error in the quarter ended April 2, 2016. The Company assessed the materiality of this error and concluded the error was not material to 2015 consolidated financial statements and is not expected to be material to 2016 consolidated financial statements, and therefore, the Company recorded the correction in the first quarter of 2016.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or 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

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

beginning after December 15, 2016. In April 2016, the FASB issued ASU 2016-10, which clarifies guidance on identifying performance obligations and licensing implementation. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases . This ASU requires lease assets and lease liabilities arising from leases, including operating leases, to be recognized on the balance sheet. ASU 2016-02 will become effective for the Company on January 1, 2019, and requires adoption using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718). This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 will become effective for the Company on January 1, 2017 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments. ASU 2016-13 will become effective for the Company on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

2. Fair Value Measurements

The carrying values of the Company’s accounts receivable, accounts payable, and accrued liabilities approximated their fair values due to the short period of time to maturity or repayment.

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):



	July 2, 2016
	Level 1		Level 2		Total
Assets:
Money market funds	$	162,633	$	—	$	162,633
U.S. government agencies	—		68,834		68,834
Corporate debt securities	—		384,429		384,429
Derivative assets	—		9,134		9,134
Total	$	162,633	$	462,397	$	625,030
Liabilities:
Derivative liabilities	$	—	$	5,964	$	5,964



	December 31, 2015
	Level 1		Level 2		Total
Assets:
Money market funds	$	248,128	$	—	$	248,128
U.S. government agencies	—		113,314		113,314
Corporate debt securities	—		193,964		193,964
Derivative assets	—		6,002		6,002
Total	$	248,128	$	313,280	$	561,408
Liabilities:
Derivative liabilities	$	—	$	2,640	$	2,640

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The fair value of the Company’s Level 1 financial instruments is based on quoted market prices in active markets for identical instruments. The fair value of the Company’s Level 2 financial instruments is based on 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.

In addition, Level 2 assets and liabilities include derivative financial instruments associated with hedging activity, which are further discussed in Note 3. 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, forward rates, and discount 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.

There were no Level 3 assets or liabilities as of July 2, 2016 and December 31, 2015. There have been no transfers between fair value measurement levels during the three and six months ended July 2, 2016 and June 30, 2015 .

3. Financial Instruments

Cash, Cash Equivalents, and Marketable Securities

The Company’s marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Because the Company views marketable securities as available to support current operations as needed, it has classified all available-for-sale securities as current assets. Realized gains or losses and other-than-temporary impairments, if any, on available-for-sale securities are reported in other income (expense), net as incurred.

Investments are reviewed periodically to identify potential other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables below as the Company believes that the decrease in fair value of these securities is temporary and expects to recover up to, or beyond, the initial cost of investment for these securities.

The following table sets forth cash, cash equivalents, and marketable securities as of July 2, 2016 (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	143,780	$	—	$	—		$	143,780	$	143,780	$	—
Money market funds	162,633		—		—			162,633		162,633		—
U.S. government agencies	68,767		67		—			68,834		—		68,834
Corporate debt securities	384,425		36		(32		)	384,429		109,729		274,700
Total	$	759,605	$	103	$	(32	)	$	759,676	$	416,142	$	343,534

The following table sets forth cash, cash equivalents, and marketable securities as of December 31, 2015 (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	109,072	$	—	$	—		$	109,072	$	109,072	$	—
Money market funds	248,128		—		—			248,128		248,128		—
U.S. government agencies	113,315		3		(4		)	113,314		63,464		49,850
Corporate debt securities	194,018		1		(55		)	193,964		115,182		78,782
Total	$	664,533	$	4	$	(59	)	$	664,478	$	535,846	$	128,632

The gross unrealized gains or losses on marketable securities as of July 2, 2016 and December 31, 2015 were not material. There were no available-for-sale investments as of July 2, 2016 and December 31, 2015 that have been in a continuous unrealized loss position for greater than twelve months.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The following table classifies marketable securities by contractual maturities (in thousands):



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015
Due in one year	$	341,041	$	128,632
Due in one to two years	2,493		—
Total	$	343,534	$	128,632

Derivative Financial Instruments

The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies. In order to manage this risk, the Company may hedge a portion of its foreign currency exposures related to outstanding monetary assets and liabilities as well as forecasted revenues and expenses, using foreign currency exchange forward or option contracts. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. The Company does not enter into derivative contracts for trading or speculative purposes.

Cash Flow Hedges

Beginning in the third quarter of 2015, the Company has entered into foreign currency derivative contracts designated as cash flow hedges to hedge certain forecasted revenue and expense transactions denominated in currencies other than the U.S. dollar. The Company’s cash flow hedges consist of forward contracts with maturities of 12 months or less.

The Company periodically assesses the effectiveness of its cash flow hedges. Effectiveness represents a derivative instrument’s ability to generate offsetting changes in cash flows related to the hedged risk. All elements of the hedged transaction are included in the effectiveness assessment. The Company records the gains or losses, net of tax, related to the effective portion of its cash flow hedges as a component of accumulated other comprehensive income (loss) in stockholders’ equity and subsequently reclassifies the gains or losses into revenue and operating expenses when the underlying hedged transactions are recognized. The Company records the gains or losses related to the ineffective portion of the cash flow hedges, if any, immediately in other income (expense), net. If the hedged transaction becomes probable of not occurring, the corresponding amounts in accumulated other comprehensive income (loss) would immediately be reclassified to other income (expense), net. Cash flows related to the Company’s cash flow hedging program are recognized as cash flows from operating activities in its statements of cash flows.

The Company had outstanding contracts with a total notional amount of $246.9 million and $50.8 million in cash flow hedges for forecasted revenue and expense transactions, respectively, as of July 2, 2016 , and $254.1 million in cash flow hedges for forecasted revenue transactions as of December 31, 2015 .

Balance Sheet Hedges

The Company enters into foreign exchange contracts to hedge certain monetary assets and liabilities that are denominated in currencies other than the functional currency of its subsidiaries. These foreign exchange contracts are carried at fair value, 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 Company had outstanding balance sheet hedges with a total notional amount of $104.3 million and $104.8 million as of July 2, 2016 and December 31, 2015 , respectively.

Fair Value of Foreign Currency Derivatives

The foreign currency derivative contracts that were not settled at the end of the period are recorded at fair value, on a gross basis, in the condensed consolidated balance sheets. The following table presents the fair value of the Company’s foreign currency derivative contracts as of the periods presented (in thousands):

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Notes to Condensed Consolidated Financial Statements (Continued)



		July 2, 2016				December 31, 2015
	Balance Sheet Location	Fair Value Derivative Assets		Fair Value Derivative Liabilities		Fair Value Derivative Assets		Fair Value Derivative Liabilities
Cash flow designated hedges	Prepaid expenses and other current assets	$	5,211	$	—	$	3,116	$	—
Cash flow designated hedges	Accrued liabilities	—		3,101		—		1,327
Hedges not designated	Prepaid expenses and other current assets	3,923		—		2,886		—
Hedges not designated	Accrued liabilities	—		2,863		—		1,313
Total fair value of derivative instruments		$	9,134	$	5,964	$	6,002	$	2,640

Financial Statement Effect of Foreign Currency Derivative Contracts

The following table presents the pre-tax impact of the Company’s foreign currency derivative contracts on other comprehensive income, or OCI, and the condensed consolidated statements of operations for the periods presented (in thousands):



		Three Months Ended					Six Months Ended
	Income Statement Location	July 2, 2016			June 30, 2015		July 2, 2016			June 30, 2015
Foreign exchange cash flow hedges
Gain (loss) recognized in OCI – effective portion		$	5,783		$	—	$	1,535		$	—
Gain (loss) reclassified from OCI into income – effective portion	Revenue	(1,380		)	—		(1,550		)	—
Gain (loss) reclassified from OCI into income – effective portion	Operating expenses	1,393			—		2,408			—
Gain (loss) recognized in income – ineffective portion	Other income (expense), net	(95		)	—		(185		)	—

Foreign exchange balance sheet hedges
Gain (loss) recognized in income	Other income (expense), net	$	(72	)	$	434	$	(209	)	$	2,454

As of July 2, 2016 , all net derivative gains related to the Company’s cash flow hedges will be reclassified from OCI into net income within the next 12 months.

Offsetting of Foreign Currency Derivative Contracts

The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. The Company generally enters into master netting arrangements, which mitigate credit risk by permitting net settlement of transactions with the same counterparty. The Company is not required to pledge, and is not entitled to receive, cash collateral related to these derivative instruments.

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Notes to Condensed Consolidated Financial Statements (Continued)

The following tables set forth the available offsetting of net derivative assets under the master netting arrangements as of July 2, 2016 and December 31, 2015 (in thousands):



	As of July 2, 2016
							Gross Amounts Not Offset in Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Foreign exchange contracts	$	9,134	$	—	$	9,134	$	4,960	$	—	$	4,174



	As of December 31, 2015
							Gross Amounts Not Offset in Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Foreign exchange contracts	$	6,002	$	—	$	6,002	$	2,100	$	—	$	3,902

The following tables set forth the available offsetting of net derivative liabilities under the master netting arrangements as of July 2, 2016 and December 31, 2015 (in thousands):



	As of July 2, 2016
							Gross Amounts Not Offset in Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
Foreign exchange contracts	$	5,964	$	—	$	5,964	$	4,960	$	—	$	1,004



	As of December 31, 2015
							Gross Amounts Not Offset in Condensed Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		Net Amount
Foreign exchange contracts	$	2,640	$	—	$	2,640	$	2,100	$	—	$	540

4. Balance Sheet Components

Revenue Reserve

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

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Notes to Condensed Consolidated Financial Statements (Continued)



	Three Months Ended						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016			June 30, 2015
Beginning balances	$	55,875		$	26,362		$	74,045		$	26,559
Increases	85,335			32,859			119,550			53,352
Returns taken	(60,933		)	(23,956		)	(113,318		)	(44,646		)
Ending balances	$	80,277		$	35,265		$	80,277		$	35,265

Inventories

Inventories consisted of the following (in thousands):



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015
Components	$	1,699	$	5,359
Finished goods	188,945		172,787
Total inventories	$	190,644	$	178,146

Prepaid Expenses and Other Current Assets

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



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015
POP displays, net	$	23,801	$	9,990
Derivative assets	9,134		6,002
Prepaid income taxes	638		11,889
Prepaid expenses and other current assets	26,209		15,649
Total prepaid expenses and other current assets	$	59,782	$	43,530

Property and Equipment, Net

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



	July 2, 2016			December 31, 2015
	July 2, 2016			December 31, 2015
Tooling and manufacturing equipment	$	74,198		$	53,092
Furniture and office equipment	8,483			6,809
Purchased and internally-developed software	6,770			3,794
Leasehold improvements	22,010			8,388
Total property and equipment	111,461			72,083
Less: Accumulated depreciation and amortization	(37,280		)	(27,582		)
Property and equipment, net	$	74,181		$	44,501

Goodwill and Intangible Assets

The carrying amount of goodwill was $ 25.2 million and $22.2 million as of July 2, 2016 and December 31, 2015 , respectively, and the increase in the carrying amount during the three and six months ended July 2, 2016 was attributable to an acquisition in May 2016. See Note 11 for additional information.

The carrying amounts of the intangible assets as of July 2, 2016 and December 31, 2015 were as follows (in thousands, except useful life). In-process research and development is not amortized until the completion of the related development.

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Notes to Condensed Consolidated Financial Statements (Continued)



	July 2, 2016							December 31, 2015							Weighted Average Remaining Useful Life (years)
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Weighted Average Remaining Useful Life (years)

Developed technology	$	12,640	$	(2,345	)	$	10,295	$	12,640	$	(1,442	)	$	11,198	5.8
Trademarks and other	1,278		(423		)	855		1,278		(260		)	1,018		3.7
Total finite-lived intangible assets subject to amortization, net	13,918		(2,768		)	11,150		13,918		(1,702		)	12,216
In-process research and development	3,940		—			3,940		—		—			—
Total intangible assets, net	$	17,858	$	(2,768	)	$	15,090	$	13,918	$	(1,702	)	$	12,216

Total amortization expense related to intangible assets was $0.5 million for each of the three months ended July 2, 2016 and June 30, 2015 , and $1.1 million and $0.7 million for the six months ended July 2, 2016 and June 30, 2015 , respectively.

The estimated future amortization expense of acquired finite-lived intangible assets to be charged to cost of revenue and operating expenses after July 2, 2016 , is as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total

Remaining 2016	$	903	$	118	$	1,021
2017	1,806		230		2,036
2018	1,806		230		2,036
2019	1,806		230		2,036
2020	1,806		47		1,853
Thereafter	2,168		—		2,168
Total finite-lived intangible assets, net	$	10,295	$	855	$	11,150

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015
Product warranty	$	76,841	$	40,212
Accrued sales and marketing	45,736		33,389
Employee related liabilities	23,421		27,394
Accrued co-op advertising and marketing development funds	18,879		29,077
Accrued sales incentives	17,670		24,324
Accrued manufacturing expense and freight	12,982		10,723
Inventory received but not billed	6,759		4,292
Derivative liabilities	5,964		2,640
Sales taxes and VAT payable	5,753		8,349
Accrued legal fees	3,326		3,138
Customer deposits	1,006		2,062
Other	13,584		9,377
Accrued liabilities	$	231,921	$	194,977

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Notes to Condensed Consolidated Financial Statements (Continued)

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



	Three Months Ended						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016			June 30, 2015
Beginning balances	$	50,669		$	23,251		$	40,212		$	20,098
Charged to cost of revenue	50,480			14,568			78,024			22,065
Settlement of claims	(24,308		)	(6,756		)	(41,395		)	(11,100		)
Ending balances	$	76,841		$	31,063		$	76,841		$	31,063


(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, or 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						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016			June 30, 2015
Beginning balances	$	4,339		$	15,104		$	5,122		$	22,476
Charged (benefit) to cost of revenue	—			—			—			(2,040		)
Charged (benefit) to general and administrative	—			69			—			(73		)
Settlement of claims	(2,191		)	(2,279		)	(2,974		)	(7,469		)
Ending balances	$	2,148		$	12,894		$	2,148		$	12,894

Accumulated Other Comprehensive Income

The components and activity of accumulated other comprehensive income, or AOCI, net of tax, were as follows (in thousands):



	Unrealized Gains (Losses) on Cash Flow Hedges			Currency Translation Adjustments			Unrealized Gains (Losses) on Available-for-Sale Investments			Total
Balance at December 31, 2015	$	751		$	(5	)	$	(55	)	$	691
Other comprehensive income (loss) before reclassifications	3,005			(160		)	126			2,971
Amounts reclassified from AOCI	(1,978		)	—			—			(1,978		)
Other comprehensive income (loss)	1,027			(160		)	126			993
Balance at July 2, 2016	$	1,778		$	(165	)	$	71		$	1,684

Other comprehensive income consisted only of currency translation adjustments of an immaterial amount in the six months ended June 30, 2015 .

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Notes to Condensed Consolidated Financial Statements (Continued)

5. Long-Term Debt

2014 Credit Agreement

In August 2014, the Company entered into an amended and restated credit agreement, or Asset-Based Credit Facility, with a borrowing limit of $180.0 million . The Asset-Based Credit Facility allowed 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. During the six months ended June 30, 2015 , the effective interest rate on the revolving line of credit was 4.25% . The Asset-Based Credit Facility was terminated in December 2015.

2014 Revolving Credit and Guarantee Agreement

In August 2014, the Company entered into a revolving credit and guarantee agreement, or 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 allowed 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. During the six months ended June 30, 2015 , the effective interest rate on the revolving line of credit was 3.59% . The Cash Flow Facility was terminated in December 2015.

2015 Credit Agreement

In December 2015, the Company entered into a second amended and restated credit agreement, or Senior Facility, to replace the existing Asset-Based Credit Facility and Cash Flow Facility. This Senior Facility allows the Company to borrow up to $250.0 million , including up to a $50.0 million for the issuance of letters of credit and up to $25.0 million for swing line loans. Borrowings under the Senior Facility may be drawn as Alternate Base Rate, or ABR, loans or Eurodollar loans, and matures in December 2020. 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 Eurodollar reserve requirements, but in any case at a minimum rate of 1.0% per annum.

The Company has the option to repay its borrowings under the Senior Facility without penalty prior to maturity. The Senior Facility requires the Company to comply with certain financial covenants, including maintaining a consolidated fixed charge coverage ratio of at least 1.15 :1, and a consolidated leverage ratio of less than 3 :1. The Senior Facility also requires the Company to comply with certain non-financial covenants. The Senior Facility contains customary covenants that restrict the Company’s ability to, among other things, 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. The Company was in compliance with these covenants as of July 2, 2016 . Obligations under the credit facility are collaterized by substantially all of the Company’s assets, excluding the Company’s intellectual property. As of July 2, 2016 , there were no outstanding borrowings under the Senior Facility.

Letters of Credit

As of July 2, 2016 and December 31, 2015 , the Company had outstanding letters of credit totaling $37.9 million and $17.1 million , respectively, issued to cover various security deposits on the Company’s facility leases.

6. Commitments and Contingencies

Leases

The Company leases office space in various locations with expiration dates between 2016 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. Rent expense is recorded over the lease terms on a straight-line basis. In April 2016, the Company entered into a sublease to expand the Company’s existing headquarters. The lease expires in 2024. Future minimum payments under the leases as of July 2, 2016 were $309.9 million .

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

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based on the Company’s sale and marketing of the Fitbit Force. The class action cases were settled in 2014. Certain personal injury complaints were filed in 2015, and the settlement of those claims is almost final. In the fourth quarter of 2015, the Company received proceeds from the insurance policies that apply to these claims and related legal fees, and the Company recorded an accrual for liabilities arising under these claims that was immaterial and falls within the amount of the insurance proceeds received.

Fitbit Zip, Fitbit One, Fitbit Flex, Fitbit Charge, Fitbit Charge HR, and Fitbit Surge. In 2014, one personal injury lawsuit was filed against the Company based upon claims of skin irritation from the Fitbit Flex. Additional lawsuits were filed in 2015 based upon claims of personal injury from the Fitbit Zip, Fitbit One, Fitbit Flex, Fitbit Charge, Fitbit Charge HR, and Fitbit Surge. Settlement of those claims is almost final. In the fourth quarter of 2015, the Company received proceeds from the insurance policies that apply to these claims and related legal fees, and the Company recorded an accrual for liabilities arising under these claims that was immaterial and falls within the amount of the insurance proceeds received.

Jawbone. On May 27, 2015, Aliphcom, Inc. d/b/a Jawbone, or 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 and unfair and unlawful business practices against all defendants, and alleging breach of contract and breach of implied covenant of good faith and fair dealing against the employee defendants. 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 to Jawbone’s complaint. The Company sought to dismiss both causes of action brought against it (those for misappropriation of trade secrets and unfair business practices). The employee defendants sought to dismiss the breach of implied covenant and unfair business practices causes of action. On October 2, 2015, Jawbone filed a First Amended Complaint asserting the same causes of action and adding additional allegations to those raised in the initial complaint. On October 21, 2015, the Company and the employee defendants demurred to the First Amended Complaint, in which the Company once again moved to dismiss the misappropriation and unfair business practices causes of action and the employee defendants moved to dismiss those for breach of the implied covenant and unfair business practices. A hearing on the demurrers was held on May 31, 2016, and the Court granted the demurrer on the unfair business practices cause of action as to both Fitbit and the individual defendants. On May 31, 2016, Jawbone again moved to amend its complaint to add another employee defendant to the lawsuit. The Second Amended Complaint, adding the employee defendant and additional allegations, was filed on June 23, 2016.

On June 10, 2015, Jawbone and BodyMedia, Inc., a wholly-owned subsidiary of Jawbone, or BodyMedia, filed a lawsuit against the Company in the U.S. 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 7, 2015, Jawbone and BodyMedia filed a complaint with 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 action brought against the Company in the U.S. District Court for the Northern District of California. 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 action brought against it and certain of the Company’s employees in the Superior Court in the State of California. The complaint seeks a limited exclusion order and a cease and desist order halting the importation and sale of the Company’s products

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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. The ITC instituted the investigation on August 17, 2015.

On February 8, 2016, Jawbone filed a motion for partial termination of the investigation as to the ‘522 patent after discovery showed the Company’s products do not actually practice the patent. On March 4, 2016, Jawbone filed a motion for partial termination of the investigation as to the ‘811 patent after a claim construction ruling that was favorable to the Company suggested non-infringement by the Company’s products. On March 4, 2016, the administrative law judge, or ALJ, issued an Initial Determination that granted a Motion for Summary Determination as to the ‘546 and ‘275 patents on grounds they are ineligible subject matter under 35 U.S.C. § 101. The Initial Determination was affirmed by the ITC on April 4, 2016. On June 3, 2016, Jawbone filed a notice of appeal in the Federal Circuit. On April 28, 2016, the ALJ issued an Initial Determination that granted a Motion for Summary Determination as to the ‘707 and ‘413 patents on grounds they are ineligible subject matter under 35 U.S.C. § 101. The Initial Determination was affirmed by the ITC on June 2, 2016. A trial on the trade secrets allegations took place from May 9-17, 2016. The Initial Determination by the ALJ is due August 19, 2016, and the target date for completion of the investigation is December 21, 2016.

On September 3, 2015, the Company filed a complaint for patent infringement against Jawbone in the U.S. District Court for the District of Delaware, asserting that its activity trackers (UP Move, UP24, UP3, and UP4) infringe U.S. Patent Nos. 8,909,543, 9,031,812, and 9,042,971. On September 8, 2015, the Company filed a complaint for patent infringement against Jawbone in the U.S. District Court for the Northern District of California, asserting that its activity trackers infringe U.S. Patent Nos. 9,026,053, 9,084,923, and 9,106,307. On October 29, 2015, the Company filed a complaint for patent infringement against Jawbone in the United States District Court for the District of Delaware, asserting that its activity trackers infringe U.S. Patent Nos. 8,920,332, 8,868,377, and 9,089,760.

On November 2, 2015, the Company filed a complaint with the ITC requesting an investigation into violations of the Tariff Act of 1930 by Jawbone and Body Media. The complaint asserts that Jawbone’s products infringe U.S. Patent Nos. 8,920,332, 8,868,377, and 9,089,760. The complaint seeks a limited exclusion order and a cease and desist order halting the importation and sale of Jawbone’s products that the Company believes infringe upon its patents. The ITC instituted the investigation on December 1, 2015. On July 20, 2016, the administrative law judge, or ALJ, issued an Initial Determination that granted a Motion for Summary Determination as to the ‘332, ‘377, and ‘760 patents on grounds they are ineligible subject matter under 35 U.S.C. § 101. As a result, the investigation was terminated and the August 4, 2016 trial date cancelled.

The case filed by Jawbone against the Company in the Northern District of California has been stayed, pending a determination in the ITC on the same patents.

The first case filed by the Company against Jawbone in the District of Delaware, asserting the ’543, ’812, and ’971 patents, has been transferred to the Northern District of California. The second case filed by the Company against Jawbone in the District of Delaware, asserting the ’332, ’377, and ’760 patents, has been stayed, pending a determination in the ITC on the same patents. In the case filed by the Company in the Northern District of California, on October 30, 2015, Jawbone answered and made an antitrust counterclaim, asserting that the Company’s infringement claims are somehow “sham litigation” and that by asserting them and hiring some of Jawbone’s employees, the Company is supposedly monopolizing a market of personal fitness trackers. In response to the Company’s motion to dismiss the antitrust counterclaim, on January 13, 2016, Jawbone amended its Answer and antitrust counterclaim. The Company moved to stay and bifurcate the antitrust claim, and on May 27, 2016, the Court granted the motion. On June 15, 2016, Jawbone filed a Motion for Summary Judgment, which the Company opposed. On July 12, 2016, Jawbone withdrew its motion.

The Company intends to vigorously defend and prosecute each of the Jawbone litigation matters and, based on its review, the Company believes it has valid defenses and claims 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. Regarding the six matters still in the early stages of litigation, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters. In addition, these litigation matters are complex, likely to involve significant management time and attention, and the cost of defending and prosecuting these matters is likely to be expensive, regardless of outcome.

Sleep Tracking. On May 8, 2015, a purported class action lawsuit was filed against the Company in the U.S. District Court for the Northern District of California, alleging that the sleep tracking function available in certain trackers does not perform as

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Notes to Condensed Consolidated Financial Statements (Continued)

advertised. Plaintiffs seek class certification, restitution, an award of unspecified compensatory and punitive damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. Plaintiffs have amended their complaint four times, and on January 15, 2016, the Company moved to dismiss the Fourth Amended Complaint. On July 15, 2016, the Court denied the motion to dismiss.

The Company believes that the plaintiffs’ allegations are without merit, and intends to vigorously defend against the claims. Because the Company is in the early stages of this litigation matter, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from this matter.

Heart Rate Tracking . On January 6, 2016 and February 16, 2016, two purported class action lawsuits were filed against the Company in the U.S. District for the Northern District of California, alleging that the PurePulse heart rate tracking technology in the Fitbit Charge HR and Fitbit Surge do not consistently and accurately record users’ heart rates. Plaintiffs allege common law claims as well as violations of various states’ false advertising and unfair competition statutes based on our sale and marketing of the Fitbit Charge HR and Fitbit Surge. Plaintiffs seek class certification, injunctive and declaratory relief, restitution, an award of unspecified compensatory damages, exemplary damages, punitive damages, and statutory penalties and damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. On April 15, 2016, the plaintiffs filed a Consolidated Master Class Action Complaint that combines the plaintiffs from the two previously filed complaints. On May 19, 2016, the plaintiffs filed an Amended Consolidated Master Class Action Complaint. Attached as an exhibit was a “study” commissioned by the plaintiffs and performed by two researchers at California State Polytechnic University, Pomona, which allegedly found that the Fitbit devices incorrectly measured heart rate by an average of 20 beats per minute during moderate to high exercise. The Company has not yet answered. On August 3, 2016, the parties appeared at a Case Management Conference to discuss whether the issue of arbitrability should be decided by the arbitrator.

Federal Securities Class Action . On January 11, 2016 a putative securities class action was filed in the U.S. District Court for the Northern District of California naming as defendants the Company and certain of its officers (the “Federal Securities Class Action”). On May 10, 2016, the Court appointed the Fitbit Investor Group (consisting of five individual investors) as lead plaintiff. The amended complaint, filed on July 1, 2016, names as defendants the Company, certain of its officers and directors, and certain financial institutions that acted as underwriters in connection with the Company’s June 2015 initial public offering, or IPO. Plaintiffs allege violations of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, based on alleged materially false and misleading statements about Fitbit’s products between October 27, 2014 and November 23, 2015. Plaintiffs seek to represent a class of persons who purchased or otherwise acquired the Company’s securities (i) on the open market between June 18, 2015 and May 19, 2016; and/or (ii) pursuant to or traceable to the IPO. Plaintiffs seek class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. The Company filed a motion to dismiss the Amended Complaint on July 29, 2016. The hearing date has not yet been scheduled.

State Securities Class Action . On April 28, 2016, a putative class action lawsuit alleging violations of the Securities Act was filed in the Superior Court of California, County of San Mateo, naming as defendants the Company, certain of its officers, its board members, the underwriters for the IPO, and a number of its investors (the “San Mateo Action”). On May 23, 2016, the Court granted plaintiff’s request to voluntarily dismiss the investor defendants. Plaintiff alleges that the IPO registration statement contained material misstatements about the Company’s products. Plaintiff seeks to represent a class of persons who purchased Fitbit common stock in and/or traceable to the IPO. Plaintiff seeks class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper.

On May 17, 2016, a shareholder class action lawsuit was filed in the Superior Court of California, County of San Francisco alleging claims similar to those at issue in the San Mateo Action and the Federal Securities Class Action (the “San Francisco Action”). The complaint alleges violations of the Securities Act based on alleged material misstatements in the registration statements for the IPO and November 2015 follow-on public offering and names as defendants Fitbit, certain of its officers and

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

directors, the underwriters for Fitbit’s public offerings, and two of Fitbit’s investors. Plaintiff seeks to represent a class of persons who acquired Fitbit common stock pursuant and/or traceable to the IPO and follow-on public offering.

The Company removed both the San Mateo Action and the San Francisco Action to the U.S. District Court for the Northern District of California. On July 27, 2016, the District Court remanded the actions back to state court. Defendants have not yet answered.

The Company believes that the plaintiffs’ allegations in these actions are without merit, and intends to vigorously defend against the claims. Because the Company is in the early stages of this litigation matter, the Company is unable to estimate a reasonably possible loss or range of loss, if any, that may result from this matter.

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, including the aforementioned cases, 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 loss or range of loss. The Company may incur substantial legal fees, which are expensed as incurred, in defending against these legal proceedings.

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 party 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.

7. Stock Plan

Equity Incentive Plans

In May 2015, the Company’s board of directors and stockholders adopted and approved the 2015 Equity Incentive Plan, or 2015 Plan. The 2015 Plan became effective on June 16, 2015 and serves as the successor to the Amended and Restated 2007 Stock Plan, or 2007 Plan. The Company ceased granting awards under the 2007 Plan, and any outstanding stock options and restricted stock units, or RSUs, granted under the 2007 Plan will remain subject to the terms of the 2007 Stock Plan. As of July 2, 2016 , 8.3 million shares were reserved and available for future issuance under the 2015 Plan.

Employee Stock Purchase Plan

In May 2015, the Company’s board of directors adopted the 2015 Employee Stock Purchase Plan, or 2015 ESPP, which became effective on June 17, 2015. A total of 3.8 million 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 through payroll deductions 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. 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 ended in May 2016.

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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, 2015	44,362		$	3.20
Granted	955		14.06
Exercised	(5,362	)	0.89
Forfeited or canceled	(1,578	)	4.51
Balance—July 2, 2016	38,377		3.74		$	343,154

Options exercisable—July 2, 2016	20,516		2.09		$	215,055
Options vested and expected to vest—July 2, 2016	37,783		3.70		$	339,241

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest as of July 2, 2016 were calculated as the difference between the exercise price of the options and the fair value of the Class A common stock of $12.48 as of July 1, 2016.

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, 2015	3,292		$	34.27
Granted	6,967		14.28
Vested	(243	)	21.05
Forfeited or canceled	(182	)	19.80
Unvested balance—July 2, 2016	9,834		20.70

Stock-Based Compensation Expense

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



	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015

Cost of revenue	$	1,084	$	825	$	2,393	$	1,271
Research and development	11,725		3,138		22,118		5,017
Sales and marketing	2,927		1,322		5,462		2,629
General and administrative	4,664		2,462		8,197		3,733
Total stock-based compensation expense	$	20,400	$	7,747	$	38,170	$	12,650

As of July 2, 2016 , the total unrecognized compensation expense related to unvested options and RSUs, net of estimated forfeitures, was $232.9 million , which the Company expects to recognize over an estimated weighted average period of 3.2 years.

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

8. 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 July 2, 2016 , the Company recorded an expense for income taxes of $3.7 million and $13.6 million , respectively, for an effective tax rate of 36.8% and 43.8% , respectively. The effective tax rate for the six months ended July 2, 2016 is higher than the statutory federal tax rate primarily due to the effect of an out-of-period adjustment recorded in the three months ended April 2, 2016, a change in mix of income between U.S. and foreign jurisdictions, and unrecognized tax benefits. 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 for the six months ended June 30, 2015 was 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.

As of July 2, 2016 , the total amount of gross unrecognized tax benefits was $28.5 million , all of which would affect the effective tax rate if recognized. The Company does not have any tax positions as of July 2, 2016 for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within the following 12 months.

9. 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. Prior to the Company’s IPO in June 2015, the Company considered its redeemable convertible preferred stock to be participating securities. In accordance with the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net income per share attributable to common stockholders.

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. The Company applies the two-class method of calculating earnings per share, but as the dividend rights of both classes are identical, basic and diluted earnings per share are the same for both classes.

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 such shares is dilutive.

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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					Six Months Ended
	July 2, 2016		June 30, 2015			July 2, 2016		June 30, 2015
Numerator:
Net income	$	6,341	$	17,681		$	17,376	$	65,678
Less: noncumulative dividends to preferred stockholders	—		(1,212		)	—		(2,526		)
Less: undistributed earnings to participating securities	—		(11,244		)	—		(45,907		)
Net income attributable to common stockholders—basic	6,341		5,225			17,376		17,245
Add: adjustments to undistributed earnings to participating securities	—		1,862			—		7,003
Net income attributable to common stockholders—diluted	$	6,341	$	7,087		$	17,376	$	24,248

Denominator:
Weighted-average shares of common stock—basic for Class A and Class B	218,850		58,548			217,431		49,922
Effect of dilutive securities	23,478		36,642			24,722		32,919
Weighted-average shares of common stock—diluted for Class A and Class B	242,328		95,190			242,153		82,841
Net income per share attributable to common stockholders:
Basic	$	0.03	$	0.09		$	0.08	$	0.35
Diluted	$	0.03	$	0.07		$	0.07	$	0.29

The following potentially dilutive common shares 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		Six Months Ended
	July 2, 2016	June 30, 2015	July 2, 2016	June 30, 2015

Stock options to purchase common stock	3,861	—	3,548	799
Restricted stock units	4,256	—	3,884	—
Redeemable convertible preferred stock	—	126,020	—	132,898
Redeemable convertible preferred stock warrants	—	1,808	—	1,808
Total	8,117	127,828	7,432	135,505

10. Significant Customer Information and Other Information

Retailer and Distributor Concentration

Retailers and distributors with revenue equal to or greater than 10% of total revenue for the three and six months ended July 2, 2016 and June 30, 2015 were as follows:



	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015

A	16	%	14	%	17	%	16	%
C	14		13		13		12
B	14		14		12		12

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Retailers and distributors that accounted for equal to or greater than 10% of accounts receivable at July 2, 2016 and December 31, 2015 were as follows:



	July 2, 2016		December 31, 2015
	July 2, 2016		December 31, 2015

A	23	%	15	%
B	18		19
C	15		23

Geographic and Other Information

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



	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015

United States	$	445,192	$	312,666	$	796,877	$	577,975
Americas excluding United States	27,375		16,799		50,769		30,228
Europe, Middle East, and Africa	99,471		39,712		174,195		74,768
APAC	14,490		31,235		70,043		54,195
Total	$	586,528	$	400,412	$	1,091,884	$	737,166

As of July 2, 2016 and December 31, 2015 , long-lived assets, which represent property and equipment, located outside the United States were $42.6 million and $28.9 million , respectively.

11. Acquisitions

2016 Acquisitions

In May 2016, the Company completed a purchase of certain assets from a privately-held company, which was accounted for as a business combination, for total cash consideration of $7.0 million , of which $3.9 million was allocated to in-process research and development intangible assets, and $3.1 million to goodwill. This acquisition was not material to the Company’s condensed consolidated financial statements.

FitStar Acquisition — 2015

In March 2015, the Company acquired all of the outstanding securities of FitStar, a privately-held company, for aggregate acquisition consideration of $32.5 million , 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. FitStar is 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. The acquisition is expected to enhance the Company’s software and services offerings.

Under the acquisition agreement, the Company was obligated to issue additional common stock or pay cash to FitStar stockholders. The actual amount of any contingent consideration depended on market-based events that may occur 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 was adjusted at each reporting period, and the change in fair value is included in total operating expenses on the condensed consolidated statements of 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 December 31, 2015, the fair value of the contingent consideration liability was zero . In addition, the terms related to the contingent consideration expired as of December 31, 2015 and no amounts were paid or shares issued for the contingent consideration.

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

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FITBIT, INC.

Notes to Condensed Consolidated Financial Statements (Continued)




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 statements of operations during the six months ended June 30, 2015.

The results of operations of both acquisitions are included in the accompanying condensed consolidated statements of operations from the date of acquisition. Pro forma and historical results of operations for both acquisitions have not been presented because they are not material, either individually or in the aggregate, to the Company’s condensed consolidated financial statements.

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

As discussed in the section titled “Note About Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below.

Change to Quarterly Reporting Calendar

Our fiscal year ends on December 31 of each year. In the first quarter of 2016, we adopted a 4-4-5 week quarterly calendar, which, for the 2016 fiscal year, is comprised of four fiscal quarters ending on April 2, 2016, July 2, 2016, October 1, 2016, and December 31, 2016. We did not adjust operating results for quarters prior to 2016. There were 91 days in both the three months ended July 2, 2016 and June 30, 2015 , and 184 and 181 days in the six months ended July 2, 2016 and June 30, 2015 , respectively.

Overview

Our mission is to help people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals.

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. Fitbit appeals to a large, mainstream health and fitness market by addressing these key needs with advanced technology embedded in simple-to-use products and services. 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.

The core of our platform is our family of eight wearable connected health and fitness trackers. These wrist-based and “clippable” devices automatically track users’ daily steps, calories burned, distance traveled, 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 floors climbed, 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

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text notifications and control music. To accompany certain of our products, we offer accessories that include interchangeable wrist bands and frames, colored clips, device charging cables, wireless sync dongles, band clasps, sleep bands, and Fitbit apparel. 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 54,000 retail stores and in 64 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 recent periods, we have experienced significant growth in international sales. In the six months ended July 2, 2016, 27% 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 enforcement of our intellectual property rights, more complex distribution logistics, and the complexity of compliance with foreign laws and regulations.

The following are financial highlights for the three and six months ended July 2, 2016 and June 30, 2015 :



	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015
	(in thousands)
Revenue	$	586,528	$	400,412	$	1,091,884	$	737,166
Net income	6,341		17,681		17,376		65,678
Adjusted EBITDA	48,322		86,245		93,433		179,628
Devices sold	5,673		4,458		10,515		8,234

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			Six Months Ended
	July 2, 2016		June 30, 2015	July 2, 2016		June 30, 2015

Devices sold	5,673		4,458	10,515		8,234
Adjusted EBITDA	$	48,322	86,245	$	93,433	$	179,628

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

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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, litigation expense related to matters with Jawbone, the revaluation of our redeemable convertible preferred stock warrant liability prior to our initial public offering, depreciation and intangible assets amortization, change in contingent consideration, interest income (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, the first quarter of 2014, and the fourth quarter of 2015 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, the first quarter of 2014, and the fourth quarter of 2015, and which had a negative impact on our revenue and expenses during these periods. In addition, adjusted EBITDA 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. Furthermore, we exclude litigation expenses related to matters with Jawbone because we do not believe these expenses have a direct correlation to the operations of our business and because of the singular nature of the claims underlying the Jawbone litigation matters. We began excluding Jawbone related litigation expense in the three months ended July 2, 2016 as these costs significantly increased during the second quarter of 2016, and may continue to be material for the remainder of 2016. 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						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016			June 30, 2015
Net income	$	6,341		$	17,681		$	17,376		$	65,678
Impact of Fitbit Force recall	(11		)	69			—			(2,113		)
Stock-based compensation expense	20,400			7,747			38,170			12,650
Litigation expense	11,558			—			11,558			—
Revaluation of redeemable convertible preferred stock warrant liability	—			46,320			—			56,655
Depreciation and intangible assets amortization	7,178			4,705			14,186			8,174
Change in contingent consideration	—			(7,704		)	—			(7,704		)
Interest (income) expense, net	(839		)	379			(1,421		)	846
Income tax expense	3,695			17,048			13,564			45,442
Adjusted EBITDA	$	48,322		$	86,245		$	93,433		$	179,628

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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, amortization of developed technology intangible assets acquired, 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.

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.

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, information technology, amortization of intangible assets acquired, and other administrative expenses.

Change in contingent consideration. The change in contingent consideration relates to the benefit received during 2015 from the reversal of a contingent liability incurred in connection with the acquisition of FitStar. See Note 11 of the notes to our condensed consolidated financial statements for additional information.

Interest Income (Expense), Net

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

Other Income (Expense), Net

Other income (expense), net consists of mark-to-market adjustments for the revaluation of our redeemable convertible preferred stock warrant liability prior to our initial public offering 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

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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, the first quarter of 2014, and the fourth quarter of 2015. 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						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016		June 30, 2015
Reduction of revenue	$	—		$	—		$	—	$	—
Incremental (benefit to) cost of revenue	—			—			—		(2,040		)
Impact on gross profit	—			—			—		2,040
Incremental general and administrative expenses (benefit)	(11		)	69			—		(73		)
Impact on income before income taxes	$	11		$	(69	)	$	—	$	2,113

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.



	Three Months Ended						Six Months Ended
	July 2, 2016			June 30, 2015			July 2, 2016		June 30, 2015
	(in thousands)
Consolidated Statements of Operations Data:
Revenue	$	586,528		$	400,412		$	1,091,884	$	737,166
Cost of revenue ⁽¹⁾	341,559			212,870			613,160		380,415
Gross profit	244,969			187,542			478,724		356,751
Operating expenses:
Research and development ⁽¹⁾	79,909			30,492			152,157		52,918
Sales and marketing ⁽¹⁾	118,138			69,690			225,189		113,557
General and administrative ⁽¹⁾	37,262			14,648			72,964		27,629
Change in contingent consideration	—			(7,704		)	—		(7,704		)
Total operating expenses	235,309			107,126			450,310		186,400
Operating income	9,660			80,416			28,414		170,351
Interest income (expense), net	839			(379		)	1,421		(846		)
Other income (expense), net	(463		)	(45,308		)	1,105		(58,385		)
Income before income taxes	10,036			34,729			30,940		111,120
Income tax expense	3,695			17,048			13,564		45,442
Net income	$	6,341		$	17,681		$	17,376	$	65,678


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

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	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015
	(in thousands)
Cost of revenue	$	1,084	$	825	$	2,393	$	1,271
Research and development	11,725		3,138		22,118		5,017
Sales and marketing	2,927		1,322		5,462		2,629
General and administrative	4,664		2,462		8,197		3,733
Total stock-based compensation expense	$	20,400	$	7,747	$	38,170	$	12,650



	Three Months Ended				Six Months Ended
	July 2, 2016		June 30, 2015		July 2, 2016		June 30, 2015
	(as a percentage of revenue)
Consolidated Statements of Operations Data:
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	58		53		56		52
Gross profit	42		47		44		48
Operating expenses:
Research and development	14		8		14		7
Sales and marketing	20		17		20		15
General and administrative	6		4		7		4
Change in contingent consideration	—		(2	)	—		(1	)
Total operating expenses	40		27		41		25
Operating income	2		20		3		23
Interest income (expense), net	—		—		—		—
Other income (expense), net	—		(11	)	—		(8	)
Income before income taxes	2		9		3		15
Income tax expense	1		4		1		6
Net income	1	%	5	%	2	%	9	%

Revenue



	Three Months Ended				Change				Six Months Ended				Change
(dollars in thousands)	July 2, 2016		June 30, 2015		$		%		July 2, 2016		June 30, 2015		$		%
Revenue	$	586,528	$	400,412	$	186,116	46	%	$	1,091,884	$	737,166	$	354,718	48	%

Revenue increased $186.1 million, or 46%, from $400.4 million for the three months ended June 30, 2015 to $586.5 million for the three months ended July 2, 2016 . A substantial majority of the increase was due to an increase in the number of devices sold from 4.5 million in the three months ended June 30, 2015 to 5.7 million in the three months ended July 2, 2016 , including $297.9 million in revenue from new devices introduced in the first quarter of 2016. Revenue also increased due to an increase in the average selling price of our devices by 12% from $88 per device for the three months ended June 30, 2015 to $99 per device for the three months ended July 2, 2016 , due to new products introduced in the first quarter of 2016. U.S. revenue, based on ship-to destinations, increased $132.5 million, or 42%, from $312.7 million for the three months ended June 30, 2015 to $445.2 million for three months ended July 2, 2016 . International revenue, based on ship-to destinations, increased by $53.7 million, or 61%, from $87.7 million for the three months ended June 30, 2015 to $141.4 million for the three months ended July 2, 2016 , primarily due to an increase in revenue in the EMEA region, partially offset by a decrease in revenue in the APAC region.

Revenue increased $354.7 million, or 48%, from $737.2 million for the six months ended June 30, 2015 to $1.1 billion for the six months ended July 2, 2016 . A substantial majority of the increase was due to an increase in the number of devices sold from 8.3 million in the six months ended June 30, 2015 to 10.5 million in the six months ended July 2, 2016 , including $537.3 million in revenue from new devices introduced in the first quarter of 2016. Revenue also increased due to an increase in the average selling price of our devices by 15% from $87 per device for the six months ended June 30, 2015 to $100 per device for

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the six months ended July 2, 2016 , due to new products introduced in the first quarter of 2016. U.S. revenue, based on ship-to destinations, increased $218.9 million, or 38%, from $578.0 million for the six months ended June 30, 2015 to $796.9 million for six months ended July 2, 2016 , and international revenue, based on ship-to destinations, increased by $135.9 million, or 85%, from $159.2 million for the six months ended June 30, 2015 to $295.1 million for the six months ended July 2, 2016 .

Cost of Revenue



	Three Months Ended						Change				Six Months Ended						Change
(dollars in thousands)	July 2, 2016			June 30, 2015			$		%		July 2, 2016			June 30, 2015			$		%
Cost of revenue	$	341,559		$	212,870		$	128,689	60	%	$	613,160		$	380,415		$	232,745	61	%
Gross profit	244,969			187,542			57,427		31		478,724			356,751			121,973		34
Gross margin	42		%	47		%					44		%	48		%

Cost of revenue increased $128.7 million, or 60%, from $212.9 million for the three months ended June 30, 2015 to $341.6 million for the three months ended July 2, 2016 . 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 first quarter of 2016. Cost of revenue increased $232.7 million, or 61%, from $380.4 million for the six months ended June 30, 2015 to $613.2 million for the six months ended July 2, 2016 . 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 first quarter of 2016.

Gross margin decreased to 42% for the three months ended July 2, 2016 from 47% for the three months ended June 30, 2015 and decreased to 44% for the six months ended July 2, 2016 from 48% for the six months ended June 30, 2015 . The decrease in gross margin for the three and six months ended July 2, 2016 was primarily due to an increase in estimated costs of warranty claims for legacy products.

Research and Development



	Three Months Ended				Change				Six Months Ended				Change
(dollars in thousands)	July 2, 2016		June 30, 2015		$		%		July 2, 2016		June 30, 2015		$		%
Research and development	$	79,909	$	30,492	$	49,417	162	%	$	152,157	$	52,918	$	99,239	188	%

Research and development expenses increased $49.4 million, or 162%, from $30.5 million for the three months ended June 30, 2015 to $79.9 million for the three months ended July 2, 2016 . The increase was primarily due to a $28.4 million increase in personnel-related expenses due to a 133% increase in headcount, a $11.0 million increase in allocated overhead, a $4.7 million increase in consultant and contractor expenses, a $2.7 million increase in tooling and prototype materials, a $1.1 million increase in travel expenses, and a $1.1 million increase in expenses for third-party hosting services.

Research and development expenses increased $99.2 million, or 188%, from $52.9 million for the six months ended June 30, 2015 to $152.2 million for the six months ended July 2, 2016 . The increase was primarily due to a $57.6 million increase in personnel-related expenses due to a 133% increase in headcount, a $21.0 million increase in allocated overhead, a $9.6 million increase in consultant and contractor expenses, a $6.5 million increase in tooling and prototype materials, a $2.1 million increase in travel expenses, and a $1.3 million increase in expenses for third-party hosting services.

For the full year 2016, we expect our research and development expenses to increase in absolute dollars and as a percentage of revenue as compared to the full year 2015 as we continue to make significant investments in developing new products and services and enhancing existing products and services.

Sales and Marketing



	Three Months Ended				Change				Six Months Ended				Change
(dollars in thousands)	July 2, 2016		June 30, 2015		$		%		July 2, 2016		June 30, 2015		$		%
Sales and marketing	$	118,138	$	69,690	$	48,448	70	%	$	225,189	$	113,557	$	111,632	98	%

Sales and marketing expenses increased $48.4 million, or 70%, from $69.7 million for the three months ended June 30, 2015 to $118.1 million for the three months ended July 2, 2016 . The increase was primarily due to a $32.0 million increase in expenses associated with advertising costs and other marketing programs, driven by the launch of media campaigns for the new products

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introduced during the first quarter of 2016. The increase was also due to a $12.7 million increase in consulting and contractor expenses, a $6.8 million increase in personnel-related expenses due to an 87% increase in headcount, and a $1.4 million increase in expenses for purchased software, partially offset by a $4.6 million decrease in allocated overhead.

Sales and marketing expenses increased $111.6 million, or 98%, from $113.6 million for the six months ended June 30, 2015 to $225.2 million for the six months ended July 2, 2016 . The increase was primarily due to a $78.2 million increase in expenses associated with advertising costs and other marketing programs, driven by the launch of media campaigns for the new products introduced during the first quarter of 2016. The increase was also due to a $24.7 million increase in consulting and contractor expenses, a $13.0 million increase in personnel-related expenses due to an 87% increase in headcount, and a $2.0 million increase in expenses for purchased software, partially offset by an $8.0 million decrease in allocated overhead.

For the full year 2016, we expect sales and marketing expenses to increase in absolute dollars and remain relatively consistent as a percentage of revenue as compared to the full year 2015.

General and Administrative



	Three Months Ended				Change				Six Months Ended				Change
(dollars in thousands)	July 2, 2016		June 30, 2015		$		%		July 2, 2016		June 30, 2015		$		%
General and administrative	$	37,262	$	14,648	$	22,614	154	%	$	72,964	$	27,629	$	45,335	164	%

General and administrative expenses increased $22.6 million, or 154%, from $14.6 million for the three months ended June 30, 2015 to $37.3 million for the three months ended July 2, 2016 . The increase was primarily due to a $10.8 million increase in legal fees, a $6.7 million increase in personnel-related expenses due to a 106% increase in headcount, and a $5.4 million increase in consulting and contractor expenses.

General and administrative expenses increased $45.3 million, or 164%, from $27.6 million for the six months ended June 30, 2015 to $73.0 million for the six months ended July 2, 2016 . The increase was primarily due to a $19.5 million increase in legal fees, a $15.6 million increase in personnel-related expenses due to a 106% increase in headcount, a $9.0 million increase in consulting and contractor expenses, and a $1.6 million increase in other administrative expenses.

For the full year 2016, we expect general and administrative expenses to increase in absolute dollars and remain relatively consistent as a percentage of revenue as compared to the full year 2015.

Change in Contingent Consideration



	Three Months Ended					Change		Six Months Ended					Change
(dollars in thousands)	July 2, 2016		June 30, 2015			$		July 2, 2016		June 30, 2015			$
Change in contingent consideration	$	—	$	(7,704	)	$	7,704	$	—	$	(7,704	)	$	7,704

The change in contingent consideration benefit of $7.7 million for the three and six months ended July 2, 2016 is a result of our re-measurement of the contingent consideration liability related to our acquisition of FitStar in 2015. This is a non-recurring benefit. The terms of the contingent liability expired as of December 31, 2015.

Interest and Other Income (Expense), Net



	Three Months Ended						Change				Six Months Ended					Change
(dollars in thousands)	July 2, 2016			June 30, 2015			$		%		July 2, 2016		June 30, 2015			$		%
Interest income (expense), net	$	839		$	(379	)	$	1,218	321	%	$	1,421	$	(846	)	$	2,267	268	%
Other income (expense), net	(463		)	(45,308		)	44,845		99		1,105		(58,385		)	59,490		102

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Interest income (expense), net increased $1.2 million, or 321%, from expense of $0.4 million for the three months ended June 30, 2015 to income of $0.8 million for the three months ended July 2, 2016 . Other income (expense), net, increased $44.8 million, from expense of $45.3 million for the three months ended June 30, 2015 to income of $0.5 million for the three months ended July 2, 2016 . The increase was primarily due to a decrease of $46.3 million in charges related to the revaluation of our convertible preferred stock warrant liability as the liability is no longer outstanding subsequent to our IPO.

Interest income (expense), net increased $2.3 million, or 268%, from expense of $0.8 million for the six months ended June 30, 2015 to income of $1.4 million for the six months ended July 2, 2016 . Other income (expense), net, increased $59.5 million, from expense of $58.4 million for the six months ended June 30, 2015 to income of $1.1 million for the six months ended July 2, 2016 . The increase in interest income (expense), net was primarily due to earnings on our cash, cash equivalents, and marketable securities. The increase in other income (expense), net was primarily due to a decrease of $56.7 million in charges related to the revaluation of our convertible preferred stock warrant liability as the liability is no longer outstanding subsequent to our IPO.

Income Tax Expense



	Three Months Ended				Change					Six Months Ended				Change
(dollars in thousands)	July 2, 2016		June 30, 2015		$			%		July 2, 2016		June 30, 2015		$			%
Income tax expense	$	3,695	$	17,048	$	(13,353	)	(78	)%	$	13,564	$	45,442	$	(31,878	)	(70	)%

Income tax expense decreased $13.4 million, or 78%, from an expense of $17.0 million for the three months ended June 30, 2015 to $3.7 million for the three months ended July 2, 2016 . Our effective tax rate was 36.8% and 49.1% for the three months ended July 2, 2016 and June 30, 2015 , respectively. The decrease in our effective tax rate for the three months ended July 2, 2016 was primarily due to the growth of international operations in lower tax jurisdictions and research and development tax credits.

Income tax expense decreased $31.9 million, or 70%, from an expense of $45.4 million for the six months ended June 30, 2015 to $13.6 million for the six months ended July 2, 2016 . Our effective tax rate was 43.8% and 40.9% for the six months ended July 2, 2016 and June 30, 2015 , respectively. The increase in our effective tax rate for the six months ended July 2, 2016 was primarily due to effect of an out-of-period adjustment recorded in the three months ended April 2, 2016, partially offset by the growth of international operations in lower tax jurisdictions, and research and development tax credits.

Liquidity and Capital Resources

Our operations have been financed primarily through cash flow from operating activities, the net proceeds from the sale of our equity securities, and borrowings under our credit facilities. As of July 2, 2016 , we had cash and cash equivalents of $416.1 million and marketable securities of $343.5 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 Facility

In December 2015, we entered into a second amended and restated credit agreement, or Senior Facility, that allows us to borrow up to $250.0 million, including up to $50.0 million for the issuance of letters of credit and up to $25.0 million for swing line loans. For further information regarding the Senior Facility, see Note 5 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
	July 2, 2016			June 30, 2015
Net cash provided by (used in):
Operating activities	$	108,152		$	4,151
Investing activities	(256,007		)	(22,782		)
Financing activities	28,399			284,302
Net change in cash and cash equivalents	$	(119,456	)	$	265,671

Cash Flows from Operating Activities

Net cash provided by operating activities of $108.2 million for the six months ended July 2, 2016 was primarily due to a $90.5 million increase in net change in operating assets and liabilities and net income of $17.4 million. 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.

Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended July 2, 2016 of $256.0 million was primarily due to purchases of marketable securities of $392.7 million, partially offset by sales and maturities of marketable securities of $179.1 million, purchases of property and equipment of $36.7 million, and cash paid for an acquisition of $5.6 million. Net cash used in investing activities for the six months ended June 30, 2015 of $22.8 million was due to purchases of property and equipment of $11.7 million, and the cash portion of the acquisition of FitStar of $11.0 million, net of cash acquired.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended July 2, 2016 of $28.4 million was primarily due to $14.5 million of proceeds from exercise of stock options and stock purchases made through our ESPP, and excess tax benefits of $16.3 million from stock-based compensation. Cash provided by financing activities for the six months ended June 30, 2015 of $284.3 million was primarily related to proceeds from our IPO of $420.9 million, and net repayments of borrowings of $134.5 million under our credit facilities.

Contractual Obligations and Other Commitments

Future minimum payments under our operating leases as of July 2, 2016 were $309.9 million.

The aggregate amount of purchase orders open as of July 2, 2016 was approximately $545.4 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. 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.

We have recorded a liability for uncertain tax positions of $28.5 million as of July 2, 2016 , due to the uncertainty of when the related tax settlements will become due.

Off-Balance Sheet Arrangements

As of July 2, 2016 , 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

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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 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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

Our exposure to changes in interest rates relates primarily to our investment portfolio. As of July 2, 2016 , we had cash and cash equivalents of $416.1 million and marketable securities of $343.5 million, which consisted primarily of bank deposits, money market funds, U.S. government and agency securities, commercial paper, and corporate notes and bonds. The primary objectives of our investment activities are to preserve principal and provide liquidity without significantly increasing risk. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer, or type of investment.

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 operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

To partially mitigate the impact of changes in currency exchange rates on net cash flows from our foreign currency denominated revenue and expenses, we enter into foreign currency exchange forward and option contracts. We also hedge certain monetary assets and liabilities denominated in foreign currencies, which reduces but does not eliminate our exposure to currency fluctuations between the date a transaction is recorded and the date that cash is collected or paid. In general, the market risks of these contracts are offset by corresponding gains and losses on the transactions being hedged.

We had outstanding contracts with a total notional amount of $246.9 million and $50.8 million in cash flow hedges for forecasted revenue and expense transactions, respectively, as of July 2, 2016 . We had outstanding balance sheet hedges with a total notional amount of $104.3 million as of July 2, 2016 . We assessed our exposure to movements in currency exchange rates by performing a sensitivity analysis of adverse changes in exchange rates and the corresponding impact to our results of operations. Based on transactions denominated in currencies other than U.S. dollars as of July 2, 2016, a hypothetical adverse change of 10% would have resulted in an impact on income before income taxes of approximately $19.4 million for the six months ended July 2, 2016.

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 Exchange Act) as of July 2, 2016 . Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of July 2, 2016 , 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

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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 6, “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, traditional health and fitness companies, such as adidas and Under Armour, and traditional watch companies such as Fossil and Movado. 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 introduced the Apple Watch smartwatch in 2015, with broad-based functionalities, including some health and fitness tracking capabilities, and has sold a significant volume of its smartwatches since introduction. 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 or new product designs, such as the Fitbit Charge, Fitbit Charge HR, Fitbit Surge, Fitbit Alta, and Fitbit Blaze, 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

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of consumers. It is also possible that competitors could introduce new products and services that negatively impact consumer preference for our connected health and 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, or if it is perceived that our future products and services will not satisfy consumer preferences, 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, including trackers and accessories, 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. In addition, we have recently begun to offer new accessory collections in conjunction with new product introductions. 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, including trackers and accessories, 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 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. In addition, as we continue to introduce new products, we may face challenges managing the inventory of existing products. 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;

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


•	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 a sole contract manufacturer for each of our products increases the risk that in the event of an interruption from any one of these contract manufacturers, including without limitation, due to a natural catastrophe or labor dispute, we may not be able to develop an alternate source without incurring material additional costs and substantial delays. Accordingly, an interruption from any key supplier, contract manufacturer, or logistics provider could adversely impact our revenue, gross margins, and operating results.

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, gross margins, and operating results.

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. 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

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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. In addition, some of our suppliers, contract manufacturers, and logistics providers may have more established relationships with our competitors, and as a result of such relationships, such suppliers may choose to limit or terminate their relationship with us. 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.

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 or property. 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, or an increase in defects could result in a variety of consequences including greater number of returns of products than expected from users and retailers, increases in warranty costs, 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, 2015, our reserves for warranty claims were $40.2 million, or 2% of our revenue for 2015. As of July 2, 2016, our reserves for warranty claims were $76.8 million. Moreover, we offer limited stock rotation rights and price protection to our distributors. If we experience greater returns from retailers or users, or greater warranty claims, in excess of our reserves, our business, revenue, gross margins, 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.

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;


•	price increases;


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


•	shortages of materials or components;


•	misappropriation of our intellectual property;


•	suppliers, contract manufacturers, and logistics providers may choose to limit or terminate their relationship with us;


•	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

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

If there are defects in the manufacture of our products, 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.

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, including economic conditions resulting from recent volatility in European markets, 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.

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, including trackers and accessories, 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. Furthermore, we may experience greater returns from retailers or users of existing products or retailers may be granted stock rotation rights and price protection. Moreover, consumers may decide to purchase new or enhanced products instead of existing products. We may face challenges managing the inventory of existing products, which 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 could be harmed.

We have in the past, and may in the future, be subject to claims and lawsuits alleging that our products fail to provide accurate measurements and data to our users.

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. We anticipate new features and functionality in the future, as well. From time to time, 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. For example, in the first quarter of 2016, class action lawsuits were filed against us based upon claims that the PurePulse heart rate tracking technology in the Fitbit Charge HR and Fitbit Surge do not consistently and accurately record users’ heart rates. If our products fail to provide accurate measurements and data to users, or if there are reports or claims of inaccurate measurements, claims of false advertisement, 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.

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

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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.

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 and asserted by us have grown and will likely continue to grow. For example, we are currently involved in litigation with Jawbone and its subsidiaries, which is described in Note 6, “Commitments and Contingencies” in the notes to our condensed consolidated financial statements.

We intend to vigorously defend and prosecute these litigation matters and, based on our review, we believe we have valid defenses and claims 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 can 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. 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.

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We may not be able to sustain our revenue growth 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 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 or gross margins of our products and services may decrease. If we are unable to offset any decreases in our average selling price or gross margins by increasing our sales volumes or by adjusting our product mix, our operating results and financial condition may be harmed.

While we have been profitable since 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, 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 and operating expenses.

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 operating results and financial condition may be harmed.

In addition, 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, our operating results and financial condition may be harmed.

Our business is affected by seasonality.

Our revenue and operating results are affected by general seasonal spending trends associated with holidays. For example, our fourth quarter has typically been our strongest quarter in terms of revenue and operating income, reflecting our historical strength in sales during the holiday season. We generated approximately 38%, 50%, and 40% of our full year revenue during the fourth quarters of 2015, 2014, and 2013, 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.

Any material disruption of our information technology systems, or those of third-party partners and data center providers 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, or other causes, could cause outages or delays in our services, which could harm our brand and adversely affect our operating results. In addition, such disruption 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

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reputation, and cause our revenue to decline. 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. 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. 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 any security breaches or our actual or perceived failure to comply with such legal 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 or acquire 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 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 or acquisition of 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-party service providers that host user data on our behalf experience security breaches or violate applicable laws, agreements, or our policies, such events 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 event we experience a security breach.

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” mark 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 personal injury lawsuits filed against us relating to the Fitbit Zip, Fitbit One, Fitbit Flex, Fitbit Charge, 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 for counterfeiting or imitation, with third parties attempting to sell counterfeit products that attempt to replicate our products.

In addition, 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 substandard products, including products that may have been altered, mishandled, or damaged, or used products represented as new.

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Any occurrence of counterfeiting, imitation, or confusion with our brand could adversely affect our reputation, place negative pricing pressure on our products, reduce sales of our products, 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.

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 devices, as well as 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, loss of critical data, unauthorized access to user data, and loss of consumer confidence. In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our 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 or our users’ data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. In addition, any such breaches may result in negative publicity, adversely affect our brand, decrease demand for our products and services, and adversely affect our operating results and financial condition.

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 strengthening of the U.S. dollar, 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, incur losses on our foreign currency derivative instruments, and incur increased operating expenses, thereby limiting any 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 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. In addition, our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting counterparties to major financial institutions and by spreading the risk across several major financial institutions.

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

We 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 2015 and the six months ended July 2, 2016, advertising expenses were $237.0 million and $143.3 million, respectively, representing approximately 13% of our revenue for each period. 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.

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.

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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 or overestimate demand for our products, our revenue would decrease and we could experience lower gross margins due to product returns or price protection claims. Our retailers also often offer products and services of our competitors in their stores. Furthermore, our business could be adversely affected if any of our large retailers were to experience financial difficulties or store closures, or change the focus of their businesses in a way that deemphasized the sale of our products. 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, as consumers increasingly make purchases online. 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 2015 and for the six months ended July 2, 2016, our five largest retailers and distributors accounted for approximately 55% and 53% of our revenue, respectively. Of these retailers and distributors, Wynit Distribution, Best Buy, and Amazon.com accounted for approximately 15%, 14%, and 14% of our revenue for 2015, respectively, and approximately 17%, 12%, and 13% of our revenue for the six months ended July 2, 2016, 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 and may continue to experience financial difficulties. The insolvency, credit problems, or other financial difficulties confronting our retailers and distributors could expose us to financial risk. In addition, if the credit capacity of any retailers or distributors and accounts receivable balances increase, we may be subject to additional 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.

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 469 as of December 31, 2014 to 1,101 as of December 31, 2015 to 1,473 as of July 2, 2016, 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

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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.

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.

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. Fluctuations in the price of our Class A common stock may make it more difficult or costly to use equity awards to motivate, incentivize and retain our employees. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to attract or retain highly skilled employees. Furthermore, there can be no assurances that the number of shares reserved for issuance under our equity incentive plans will be sufficient to grant equity awards adequate to recruit new employees and to compensate existing 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.

Our failure to comply with U.S. and foreign laws related to privacy, data security, and data protection, such as the E.U. General Data Protection Regulation, which covers the transfer of personal data from the European Union to the United States, could adversely affect our financial condition, operating results, and our brand.

We are or may become subject to a variety of laws and regulations in the United States and abroad regarding privacy, data protection, and data security. 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.

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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 has historically provided a method for U.S. companies operating within the European Union to transfer personal data from citizens of E.U. member countries to the United States in a way that is consistent with the E.U. Data Protection Directive. However, the Court of Justice of the European Union has declared the U.S.-E.U. Safe Harbor Framework invalid. On February 2, 2016, the United States and the European Commission agreed to a new framework for transatlantic data flows called the “EU-U.S Privacy Shield.” The text of the new framework was released on February 29, 2016, and the E.U.-U.S. Privacy Shield was formally approved by the European Commission on July 12, 2016. We will need to assess the specific requirements of the Privacy Shield to determine whether we can comply with the new framework. If we are unable to comply with the EU-U.S. Privacy Shield, or if the Privacy Shield does not become effective, we will need to implement alternative solutions, such as Model Clauses or Binding Corporate Rules, to ensure that data transfers from the E.U. to the U.S. provide adequate protections to comply with the E.U. Data Protection Directive. If we fail to implement alternative data transfer solutions, or if national data protection authorities in the European Union (DPAs) do not deem such alternative solutions to be adequate, one or more DPAs could bring enforcement actions seeking to prohibit or suspend our data transfers to the U.S. and we could also face additional legal liability, fines, negative publicity, and resulting loss of business.

Certain health-related laws and regulations such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or HITECH, may have an impact on our business. For example, in September 2015 we announced that we intend to offer HIPAA compliant capabilities to certain customers of our corporate wellness offerings who are “covered entities” under HIPAA, which may include our execution of Business Associate Agreements with such covered entities. In addition, changes in applicable laws and regulations may result in the user data we collect being deemed protected health information, or PHI, under HIPAA and HITECH. If we are unable to comply with the applicable privacy and security requirements under HIPAA and HITECH, or we fail to comply with Business Associate Agreements that we enter into with covered entities, we could be subject to claims, legal liabilities, penalties, fines, and negative publicity, which could harm our operating results.

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. Although we have made efforts to design our policies, procedures, and systems to comply with the current requirements of applicable state, federal, and foreign laws, changes to applicable laws and regulations in this area could subject us to additional regulation and oversight, any of which could significantly increase our operating costs.

Our business and products are subject to a variety of additional U.S. and foreign laws and regulations that are central to our business; our failure to comply with these laws and regulations could harm our business or our operating results.

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 consumer protection, advertising, electronic commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions.

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.

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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 geography;


•	increased competition from local providers of similar products;


•	longer sales or collection cycles in some countries;


•	compliance with foreign laws and regulations;


•	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. General 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 expanded;


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


•	tariffs and customs duties and the classification of our products by applicable governmental bodies; and


•	other costs of doing business internationally.

Our products are manufactured overseas and imported into the United States, the European Union, and other countries and may be subject to duties, tariffs and anti-dumping penalties imposed by applicable customs authorities. Those duties and tariffs are based on the classification of each of our products and is routinely subject to review by the applicable customs authorities. We are unable to predict whether those authorities will agree with our classifications and if those authorities do not agree with our classifications additional duties, tariffs or other trade restrictions may be imposed on the importation of our products. Such actions could result in increases in the cost of our products generally and might adversely affect our sales and profitability.

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.

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 the three and six months ended July 2, 2016, and June 30, 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.

We are regularly subject to general litigation, regulatory disputes, and government inquiries.

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We are regularly subject to claims, lawsuits, including class actions and individual lawsuits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, commercial disputes, and other matters. The number and significance of these disputes and inquiries have increased as our company has grown larger, our business has expanded in scope and geographic reach, and our products and services have increased in complexity.

The outcome and impact of such claims, lawsuits, government investigations, and proceedings cannot be predicted with certainty. Regardless of the outcome, such investigations and proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. Determining reserves for our pending litigation is a complex, fact-intensive process that is subject to judgment calls. It is possible that a resolution of one or more such proceedings could require us to make substantial payments to satisfy judgments, fines or penalties or to settle claims or proceedings, any of which could harm our business. These proceedings could also result in reputational harm, criminal sanctions, or orders preventing us from offering certain products, or services, or requiring a change in our business practices in costly ways, or requiring development of non-infringing or otherwise altered products or technologies. Any of these consequences could harm our business.

There have been reports that some users of the Fitbit Flex, 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, some of our users have filed personal injury lawsuits against us relating to the Fitbit Zip, Fitbit One, Fitbit Flex, Fitbit Charge, 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. There have been reports of some users of Fitbit Flex, 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, some of our users have filed personal injury lawsuits against us relating to the Fitbit Zip, Fitbit One, Fitbit Flex, Fitbit Charge, 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 proceedings 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.

We may be subject to CPSC recalls, regulatory proceedings and litigation in various jurisdictions, including multi-jurisdiction federal and state class action and personal injury claims, which may require significant management attention and disrupt our business operations, and adversely affect our financial condition, operating results, and our brand.

We face product liability, product safety and product compliance risks relating to the sale, use and performance of our products. The products we sell must be designed and manufactured to be safe for their intended purposes. Certain of our products must comply with certain federal and state laws and regulations. For example, some of our products are subject to the Consumer Product Safety Act and the Consumer Product Safety Improvement Act, which empower the Consumer Product Safety Commission, or CPSC. The CPSC is empowered to take action against hazards presented by consumer products, up to and including product recalls. We are required to report certain incidents related to the safety and compliance of our products to the CPSC, and failure to do so could result in a civil penalty.

Our products may, from time to time, be subject to recall for product safety and compliance reasons. For example, 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, the first quarter of 2014, and the fourth quarter of 2015. 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. 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.

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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 collect a significant amount of information for the CPSC, which takes significant time and internal and external resources.

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. These litigation matters have required significant attention of our management and resources and disrupted the ordinary course of our business operations. We have settled all of the class action lawsuits, and the settlement of a number of personal injury claims is almost final. In the fourth quarter of 2015, we received proceeds from the insurance policies that apply to these claims and related legal fees, and we recorded an accrual for liabilities arising under these claims that was immaterial and falls within the amount of the insurance proceeds received.

In addition, the CPSC conducted an investigation into several of our products. Although the CPSC has not found a substantial product hazard, there can be no assurances that investigations will not be conducted or that product hazards or other defects will not be found in the future with respect to our 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.

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 the U.S. 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. Our income tax obligations are based on our corporate operating structure, including the manner in which we develop, value, and use our intellectual property, scope of our international operations, and intercompany arrangements with and amongst the subsidiaries within the company group. Our direct and indirect subsidiaries are subject to complex transfer pricing tax regulations administered by taxing authorities in various jurisdictions. Changes in the tax laws applicable to our international business activities, including the laws of the U.S. and other jurisdictions, may increase our worldwide effective tax rate, and may adversely affect our financial position, and operating results.

In addition, our future 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, or by changes in the valuation of our deferred tax assets and liabilities. 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.

We are subject to review and audit by U.S. and other tax authorities. If any tax authority disagrees with any position we have taken, 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

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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 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 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.

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 by the FDA. 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

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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.

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 will be required to make a formal assessment and provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ending December 31, 2016. 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 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, as appropriate to allow timely decisions regarding required disclosure. 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.

Pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act, we will be required to evaluate and determine the effectiveness, provide a management report and be subject to attestation by our independent registered public accounting firm of our internal control over financial reporting, beginning with our annual report for the fiscal year ending December 31, 2016. 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. We are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require significant attention from our senior management and divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

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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.

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 condensed 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 estimates used in preparing our condensed consolidated financial statements include those related to revenue recognition, inventories, product warranty reserves, the Fitbit Force recall, accounting for derivative financial instruments, business combinations, accounting for income taxes, 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.

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

In December 2015, we amended and restated our existing revolving credit facility and revolving credit and guarantee agreement into one senior credit facility. Our credit agreement restricts 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 agreement also prohibits 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 agreement, could result in an event of default under the credit agreement, which would give our lenders the right to terminate their commitments to provide additional loans under the credit agreement 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, excluding our intellectual property, as collateral. Failure to comply with the covenants or other restrictions in the credit agreement could result in a default. If the debt under our credit agreement 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

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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.

We are exposed to fluctuations in the market values of our investments.

Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk, changes in interest rates, or other factors. As a result, the value and liquidity of our cash, cash equivalents, and marketable securities may fluctuate substantially. Therefore, although we have not realized any significant losses on its cash, cash equivalents, and marketable securities, future fluctuations in their value could result in a significant realized loss, which could materially adversely affect our financial condition and operating results.

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 $11.65 to $51.90 through July 31, 2016. In addition, the trading prices of the securities of technology companies in general have been highly volatile.

The market price of our Class A common stock may continue to 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;


•	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; 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. We are currently subject to securities litigation, which is described in Note 6, “Commitments and Contingencies” in the notes to our condensed consolidated financial statements.

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This or any future securities litigation 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.

As of July 2, 2016, there were 221.1 million shares of Class A and Class B common stock outstanding, and all shares of our common stock are available for sale in the public market, subject in certain cases to volume limitations under Rule 144 under the Securities Act, various vesting agreements, and our insider trading policy.

In addition, as of July 2, 2016, we had options outstanding that, if fully exercised, would result in the issuance of 1.2 million shares of Class A common stock and 37.1 million shares of Class B common stock (which shares of Class B common stock generally convert to Class A common stock upon their sale or transfer). We also had RSUs outstanding as of July 2, 2016 that may be settled for 9.5 million shares of Class A common stock and 0.3 million shares of Class B common stock. All of the shares 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 may be freely sold in the public market upon issuance subject to applicable vesting requirements.

In addition, certain holders of our capital stock have rights, subject to some conditions, to require us to file registration statements for the public resale of their 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 July 2, 2016, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held 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 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. We do not have any control over these analysts. 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.

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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 facility contains 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 at such time as the outstanding shares of our Class B common stock represent less than a majority of the combined voting power of our common stock;


•	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 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

None.

(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. On November 12, 2015, the SEC declared our registration statement on Form S-1 (File No. 333-207753) for our follow-on offering effective.

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There has been no material change in the planned use of proceeds from our initial public offering or our follow-on offering as described in our final prospectuses filed with the SEC on June 18, 2015 and November 13, 2015, respectively, 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

10.1†

Office Sublease, dated April 11, 2016, by and between the Registrant and Charles Schwab & Co., Inc.

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.


†	Confidential treatment requested with respect to portions of this exhibit.

# 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 3, 2016	/s/ WILLIAM ZERELLA
		William Zerella
		Chief Financial Officer (Principal Financial and Accounting Officer)

[***] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended

OFFICE SUBLEASE

215 FREMONT STREET

CHARLES SCHWAB & CO., INC.

a California corporation,

as Sublandlord,

and

FITBIT, INC. ,

a Delaware corporation,

as Subtenant

Dated as of

April 11, 2016

215 FREMONT STREET

Fitbit, Inc.

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		Page

Article 1	PREMISES, BUILDING, PROJECT, AND COMMON AREAS	7

1.1	Premises, Building, Project and Common Areas	7
1.2	Verification of Rentable Square Feet and Usable Square Feet of Premises, Building, and Project	8
1.3	Furniture, Fixtures and Equipment	8
1.4	Basement Access	8

Article 2	LEASE TERM; OPTION TERM	9

2.1	Lease Term	9
2.2	Delivery of each Floor	9
2.3	Option Term	9
2.4	Confirmation of Delivery	12
2.5	Early Access	12
2.6	Subtenant Improvements	12

Article 3	BASE RENT	13

Article 4	ADDITIONAL RENT; SECURITY DEPOSIT	13

4.1	General Terms	13
4.2	Definitions of Key Terms Relating to Additional Rent	13
4.3	[Intentionally Omitted]	21
4.4	Calculation and Payment of Additional Rent	21
4.5	Taxes and Other Charges for Which Subtenant Is Directly Responsible	23
4.6	Sublandlord's Books and Records	23
4.7	Security Deposit	24
4.8	Letter of Credit	25

Article 5	USE OF PREMISES	26

5.1	Permitted Use	26
5.2	Prohibited Uses	26
5.3	Subtenant's Security Responsibilities	27
5.4	Break Rooms and Private Meeting Spaces	27
5.5	Visible Premises Requirements	28

Article 6	SERVICES AND UTILITIES	29

6.1	Standard Subtenant Services	29
6.2	Overstandard Subtenant Use	30
6.3	Interruption of Use	31
6.4	Backup Utility Power	31
6.5	Energy Conservation and Governmental Policies	32



[***] Confidential Treatment Requested.	215 FREMONT STREET Fitbit, Inc.

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		Page




6.6	LEED Certification	32

Article 7	REPAIRS	33

Article 8	ADDITIONS AND ALTERATIONS	34

8.1	Sublandlord's Consent to Alterations	34
8.2	Manner of Construction	35
8.3	Payment for Improvements	35
8.4	Construction Insurance	36
8.5	Sublandlord's Property	36
8.6	Communications and Computer Lines	37
8.7	Telecommunications Equipment	37

Article 9	COVENANT AGAINST LIENS	39

Article 10	INSURANCE	39

10.1	Indemnification and Waiver	39
10.2	Subtenant's Compliance With Sublandlord's Fire and Casualty Insurance	40
10.3	Subtenant's Insurance	40
10.4	Form of Policies	41
10.5	Subrogation	41
10.6	Additional Insurance Obligations	41

Article 11	DAMAGE AND DESTRUCTION	42

11.1	Repair of Damage to Premises by Sublandlord	42
11.2	Sublandlord's Option to Repair	43
11.3	Waiver of Statutory Provisions	43

Article 12	NONWAIVER	44

Article 13	CONDEMNATION	44

Article 14	ASSIGNMENT AND SUBLETTING	45

14.1	Transfers	45
14.2	Sublandlord's Consent	45
14.3	Transfer Premium	46
14.4	Sublandlord's Option as to Subject Space	47
14.5	Effect of Transfer	47
14.6	Occurrence of Default	48
14.7	Non-Transfers	48
14.8	Sublandlord’s Right to Sublease	49



[***] Confidential Treatment Requested.	- ii -	215 FREMONT STREET Fitbit, Inc.

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(continued)



		Page



Article 15	SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES	49

15.1	Surrender of Premises	49
15.2	Removal of Subtenant Property by Subtenant	49

Article 16	HOLDING OVER	50

Article 17	ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS	50

17.1	Estoppel Certificates	50
17.2	Financial Statements	51

Article 18	SUBORDINATION	51

Article 19	DEFAULTS; REMEDIES	52

19.1	Events of Default	52
19.2	Remedies Upon Default	52
19.3	Subleases of Subtenant	53
19.4	Efforts to Relet	54
19.5	Sublandlord Default	54

Article 20	COVENANT OF QUIET ENJOYMENT	55

Article 21	[INTENTIONALLY OMITTED]	55

Article 22	SIGNS	55

22.1	Subtenant's Signage RIghts Within the Building	55
22.2	Subtenant's Right to Exterior Building Signs	55
22.3	Subtenant's Installation of Signs	56
22.4	Removal, Repair and Restoration	56
22.5	Maintenance of Subtenant’s Signs	57
22.6	Prohibited Signage and Other Items	57
22.7	Rights Personal to Original Subtenant	57
22.8	Building Directory	57
22.9	Compliance with Applicable Laws	57

Article 23	COMPLIANCE WITH LAW	57

23.1	Applicable Laws	57
23.2	Hazardous Materials	58
23.3	Notice of Release and Investigation	58
23.4	Indemnification	59
23.5	Remediation Obligations; Subtenant's Rights on Cleanup by Sublandlord	59
23.6	Definition of "Hazardous Material"	59



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Article 24	LATE CHARGES	60

Article 25	LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT	60

25.1	Sublandlord's Cure	61
25.2	Subtenant's Reimbursement	61

Article 26	ENTRY BY LANDLORD	61

Article 27	PROVISIONS REGARDING THE MASTER LEASE	62

27.1	Lease Subordinate to Master Lease	62
27.2	Incorporated Provisions	62
27.3	Excluded Provisions	62
27.4	Performance	62
27.5	Termination of Master Lease	63
27.6	Effect of Right of First Offer	63
27.7	Release	63
27.8	Sublandlord’s Rights of Consent	63
27.9	No Privity	64
27.10	Conflict	64
27.11	Sublandlord’s Representations and Warranties	64

Article 28	TENANT PARKING	64

28.1	Parking In General	64

Article 29	MISCELLANEOUS PROVISIONS	65

29.1	Terms; Captions	65
29.2	Binding Effect	65
29.3	No Air Rights	65
29.4	[Intentionally Omitted]	65
29.5	Transfer of Sublandlord's Interest	65
29.6	Memorandum of Sublease	65
29.7	Sublandlord's Title	65
29.8	Relationship of Parties	66
29.9	Application of Payments	66
29.10	Time of Essence	66
29.11	Partial Invalidity	66
29.12	No Warranty	66
29.13	Sublandlord Exculpation	66
29.14	Entire Agreement	66
29.15	Right to Lease	67
29.16	Force Majeure	67
29.17	Waiver of Redemption by Subtenant	67
29.18	Notices	67
29.19	Joint and Several	68
29.20	Authority	68
29.21	Attorneys' Fees	68



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29.22	GOVERNING LAW; WAIVER OF TRIAL BY JURY	69
29.23	Submission of Lease	69
29.24	Brokers	69
29.25	Independent Covenants	69
29.26	Project or Building Name and Signage	69
29.27	Counterparts	70
29.28	Confidentiality	70
29.29	Building Renovations	70
29.30	No Discrimination	70
29.31	OFAC Compliance	70
29.32	Definition of Sublandlord	71
29.33	Accessibility Disclosure	71
29.34	[Intentionally Omitted]	71
29.35	Business Days	71
29.36	Accessibility; Americans With Disabilities Act	71

LIST OF DEFINED TERMS



2016 Stevenson Calculation	8
Accountant	24
ADA	71
Additional Rent	13
Additional Required Work	35
Affiliate	48
Alterations	34
Anticipated Delivery Date	2
Applicable Laws	58
Available Space	11
Available Space Election Notice	11
Available Space Notice	11
Backup Utility Power	32
Backup Utility Power Fee	32
Base Building	36
Base Building Systems	36
Base Rent	13
Base Taxes	21
Base Year	14
BOMA	21
Break Room	28
Break Rooms	28
Building	7
Building Direct Expenses	14
Building Hours	29
Building Operating Expenses	14
Building Tax Expenses	14



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Building UPS Power	32
business day	71
Charles Schwab Entrance Sign	56
Common Areas	8
Comparable Buildings	8
Contemplated Effective Date	47
Contemplated Transfer Space	47
Control	49
Corporation	68
Delivery Condition	9
Delivery Date	9
Desired FF&E	8
Determination Period	10
Direct Expenses	14
Easements	33
Elected Available Space	11
Energy Use Disclosure Program	32
Environmental Laws	58
E-Power	32
Estimate	22
Estimate Statement	22
Estimated Excess	22
Event of Default	52
Excess	22
Exercise Notice Letter	10
Expense Year	14
Extension Option	9
[***]	10
Force Majeure	67
[***]	9
Hazardous Material	60
Holidays	29
HVAC	29
Initial Premises Work Letter	7
Intention to Transfer Notice	47
Land	7
Landlord NDA	52
Landlord Parties	39
Landlord Party	39
Lease	1
Lease Commencement Date	9
Lease Commencement Date through month 1	4
Lease Term	9
Lease Year	9
LEED	33
Letter of Credit	25
Letter of Credit Amount	25



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Letter of Credit Bank	25
Lines	37
List	71
LOC Adjustment Date	26
LOC Reduction Requirements	26
Mail	67
Makeup Excess Payment Percentage	22
Makeup Expense Payment	22
Management Fee Cap	17
Master Landlord	1
Master Lease	1
Master Lease Extension Update	10
Memorandum of Sublease	66
month	3
Net Worth Requirement	49
Nine Month Period	47
Notice of Intention	10
Notices	67
OFAC	71
Operating Expenses	14
Option Premises	10
Option Term	9
Original Subtenant	57
Permitted Use	5
Permitted Uses	5
Premises	1
Private Event	28
Private Meeting Space	28
Private Meeting Spaces	28
Project	7
Proposition 13	20
Reduced LOC	26
Renovations	70
Rent	13
Rent Abatement Period	4
Rent Commencement Date	2
Repair Notice	43
Reservation	28
Reservation Room	28
Reservation Rooms	28
Rules and Regulations	27
Second Notice	55
Security Deposit	24
Statement	22
Subject Space	45
Sublandlord	1, 71
Sublandlord Party	18



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Sublandlord Repair Notice	42
Sublandlord’s Broker	69
Subtenant	1
Subtenant Auditor	23
Subtenant Improvements	12
Subtenant Parties	40
Subtenant Party	40
Subtenant Work Letter	12
Subtenant’s Broker	69
Subtenant’s Entrance Placard	56
Subtenant’s First Top Sign	56
Subtenant’s Name	56
Subtenant’s Second Top Sign	56
Subtenant’s Share	21
Subtenant’s Signs	56
Subtenant’s Third Top Sign	56
Subtenant’s Transfer Costs	47
Summary	1
Tax Expenses	19
Telecommunications Equipment	37
Transfer Notice	45
Transfer Premium	46
Transfer(s)	45
Transferee	45
Utility Power	32

EXHIBITS


A-1	OUTLINE OF PREMISES


A-2	COPY OF MASTER LEASE


B	SUBTENANT’S WORK LETTER (INITIAL PREMISES)


C	PROJECT LEGAL DESCRIPTION


D	DEPICTION OF THE BASEMENT PARKING AREA


E	RULES AND REGULATIONS


F	DEPICTION OF BREAK ROOMS AND PRIVATE MEETING SPACES


G	PREMISES DELIVERY CONFIRMATION FORM


H	DESIRED FF&E


I	FORM OF SUBTENANT’S ESTOPPEL CERTIFICATE


J-1	DEPICTION OF SUBTENANT’S FIRST TOP SIGN


J-2	DEPICTION OF SUBTENANT’S SECOND TOP SIGN


J-3	DEPICTION OF SUBTENANT’S THIRD TOP SIGN

J-4 DEPICTION OF SUBTENANT’S ENTRANCE PLACARD



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215 FREMONT STREET

OFFICE SUBLEASE

This Office Sublease (the “ Lease ”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “ Summary ”), below, is made by and between Charles Schwab & Co., Inc., a California corporation (“ Sublandlord ”), and Fitbit, Inc., a Delaware corporation (“ Subtenant ”).

RECITALS

A. Sublandlord currently leases the Building and the Project (as each are hereinafter defined), of which the Premises are a part, from Resnick in San Francisco LLC, a Delaware limited liability company (“ Master Landlord ”), as successor-in-interest to First States Investors 229, LLC, a Delaware limited liability company, pursuant to that certain Lease, dated as of June 24, 2004, between Sublandlord and Master Landlord, a copy of which is attached hereto as Exhibit A-2 (the “ Master Lease ”) .

B. On the terms and conditions set forth herein, which are hereby agreed to by Sublandlord and Subtenant, and of which Master Landlord, has or will receive, notice, Subtenant desires to sublease the Premises from Sublandlord.

SUMMARY OF BASIC LEASE INFORMATION



TERMS OF LEASE		DESCRIPTION
1. Date:		April 11, 2016
2. Premises
( Article 1 ):
2.1 Building:		215 Fremont Street, San Francisco, CA 94105
2.2 Premises:		Shall mean 311,166 rentable square feet located on the second (2 ^nd ) through eighth (8 ^th ) Floors (as hereinafter defined) of the Building broken down as follows: (i) 46,714 rentable square feet of space located on the sixth (6 ^th ) Floor of the Building, commonly known as Suite 600, (ii) 46,698 rentable square feet of space located on the third (3) Floor of the Building, commonly known as Suite 300 ((i) and (ii) are collectively referred to herein as the “ Initial Premises ”), (iii) 46,692 rentable square feet of space located on the second (2 ^nd ) Floor of the Building, commonly known as Suite 200, (iv) 46,698 rentable square feet of space located on the fourth (4 ^th ) Floor of the Building, commonly known as Suite 400, (v) 46,698 rentable square feet of space located on the fifth (5 ^th ) Floor of the Building, commonly known as Suite 500, (vi) 15,384 rentable square feet of space



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		located on mezzanine Floor 7A of the Building, commonly known as Suite 7A, (vii) 46,979 rentable square feet of space located on the seventh (7 ^th ) Floor of the Building, commonly known as Suite 700 and (viii) 15,303 rentable square feet of space located on the (8 ^th ) floor of the Building, commonly known as Suite 800, each as further set forth in Exhibit A-1 to this Lease (the “ Premises ”). As used herein, the term “ Floor ” means each floor listed in clauses (i) through (viii) above, as applicable. As used in Articles 1 through 29 below, the “ Premises ” means and shall generally shall apply to those portions of the Building for which a Delivery Date has occurred in accordance with the terms hereof (unless the specific reference explicitly states it only applies to a specific portion of the Premises or to the Premises in its entirety).
3. Lease Term
( Article 2 ).
3.1 Lease Term:		Eight (8) years and two (2) months, plus the partial month, if any, between the Lease Commencement Date and the first day of the following calendar month.
3.2 Lease Commencement Date:		April 1, 2016
3.3 Rent Commencement Date		The “ Rent Commencement Date ” for each Floor of the Premises shall be the earlier of (i) the date upon which the Subtenant Improvements for such Floor are Substantially Complete (as defined in the Initial Premises Work Letter, as hereinafter defined), and (ii) ninety (90) days after the Delivery Date (as hereinafter defined), subject only to (in the case of the Initial Premises only) a Force Majeure Delay (as defined in the Initial Premises Work Letter.
3.3 Delivery Date:		The applicable Delivery Date for each Floor of the Premises shall be the date upon which Sublandlord delivers the applicable Floor to Subtenant in the Delivery Condition (as hereinafter defined). The anticipated Delivery Date for each Floor of the Premises is as follows (the “ Anticipated Delivery Date ”), and in no event shall the actual Delivery Date for each such floor be later than the Anticipated Delivery Date:



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	Floor		Delivery Date
	6 ^th		4/1/2016
	3 ^rd		4/1/2016
	7th		1/1/2017
	7A		1/1/2017
	5 ^th		11/1/2017
	4 ^th		4/1/2018
	2 ^nd		6/1/2018
	Part of 8		1/1/2019

3.4 Lease Expiration Date:		May 31, 2024, unless sooner terminated or extended pursuant to the terms hereof.
4. Base Rent for the Initial Premises
( Article 3 ):
Time Period		Annual Base Rent		Monthly Installment of Base Rent	Annual Rental Rate per Rentable Square Foot
Initial Premises Rent Commencement Date through month 12		$[***]		$[***]	$[***]
Month 13 through Month 24		$[**]		$[**] ^	$[**]
Month 25 through Month 36		$[**] ^		$[**] ^	$[**] ^
Month 37 through Month 48		$[**] ^		$[**] ^	$[**]
Month 49 through Month 60		$[**] ^		$[**] ^	$[**] ^
Month 61 through Month 72		$[**] ^		$[**] ^	$[**] ^
Month 73 through Month 84		$[**] ^		$[**] ^	$[**] ^
Month 85 through Lease Expiration Date		$[**] ^		$[**] ^	$[**] ^

* [***] annual increases; ^ = rounded to the nearest cent.

As used herein, and elsewhere in this Lease, a “ month ” means a calendar month; provided, however, if the Lease Commencement Date is other than the first day of a calendar month, the period of the “Lease Commencement Date through month 1” shall mean the period of time that includes the partial calendar month from the Lease Commencement Date through the last day of such partial calendar month plus the next succeeding one (1) full calendar month. For example, if the Lease Commencement Date is the



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15 ^th day of February, the period of the “ Lease Commencement Date through month 1 ” shall mean February 15 ^th through March 31 ^st .

If the Lease Commencement Date is other than the first day of a calendar month, the Base Rent for such partial calendar month shall be prorated pursuant to Article 3 of this Lease.

The initial annual Base Rent for all Floors other than the Floors comprising the Initial Premises shall, beginning on the Rent Commencement Date for each such Floor, be determined by multiplying the rentable square footage of such Floor by the annual rental rate per rentable square foot applicable to the Initial Premises as of such Rent Commencement Date, and Base Rent for such Floor shall be subject to the same escalations (and on the same dates) as are applicable to the Initial Premises. For example, if the Rent Commencement Date for the fifth (5 ^th ) Floor occurs during the 18 ^th month after the Initial Premises Rent Commencement Date, then on the Rent Commencement Date for the fifth (5 ^th ) Floor monthly Base Rent for the fifth (5 ^th ) Floor shall be $[***] (rounded to the nearest cent), which amount equals the rentable square footage of the fifth (5 ^th ) Floor (46,641) multiplied by the annual rental rate per rentable square foot applicable to the Initial Premises during the eighteenth (18 ^th ) month after the Initial Premises Rent Commencement Date ($[***]), the product of which is then divided by twelve (12) to determine the initial Monthly Base Rent for the fifth (5 ^th ) Floor, which Base Rent will then be subject to escalation on the [***] after the Initial Premises Rent Commencement Date (i.e. [***] after the Rent Commencement Date for the fifth (5 ^th ) Floor).

So long as no monetary or material Event of Default has occurred, Base Rent shall be abated for a particular floor during the first full [***] following the Rent Commencement Date for such Floor (the “ Rent Abatement Period ”). Such abatement does not apply to Base Rent for the partial month if the Rent Commencement Date for such Floor is other than the first day of the calendar month. In the event of a monetary or material Event of Default hereunder, abatement of Base Rent, if a Rent Abatement Period is then-occurring for any Floor, shall immediately terminate with respect to every such Floor, and there shall be no future Rent Abatement Period for any Floor for which the Rent Commencement Date has not, as of such date, occurred. Subtenant acknowledges that Subtenant’s right to receive abated Base Rent is expressly conditioned upon Subtenant not causing a monetary or material Event of Default. Notwithstanding anything to the contrary contained herein, in no event shall Additional Rent for any Floor be abated or in any way reduced during any Rent Abatement Period.



5. Base Year	The Base Year for the Initial Premises shall be calendar year 2016. The Base Year for each other Floor of the Premises, shall be the calendar year in which the Delivery Date occurs for such applicable Floor, unless (i) the Delivery Date for any such Floor occurs during November or December of any calendar year, in which case the Base Year for such Floor shall be the next succeeding calendar year, or (ii) if the Delivery Date for the fifth (5 ^th ) Floor occurs during October, November or December of such calendar year, then the Base Year for the fifth (5 ^th ) Floor shall be the next succeeding calendar year.
( Article 4 ):
6. Subtenant’s Share	Subtenant’s Share for the Initial Premises shall be 26.11%, which equals the rentable square footage of the Initial



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	Premises (93,412 RSF), divided by the rentable square footage of the Building (357,763 RSF). For each subsequent Floor of the Premises that Subtenant occupies, Subtenant’s Share for such Floor shall be computed consistent with the calculation of Subtenant’s Share for the Initial Premises (i.e. by dividing the rentable square footage of such Floor by the rentable square footage of the Building).

( Article 4 ):
7. Permitted Use	General office use consistent with a first-class office
( Article 5 ).	Building, and hardware lab for the research, testing and prototyping of Subtenant’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, in each case, to the extent permitted by Applicable Laws (collectively, the “ Permitted Uses ” and each, a “ Permitted Use ”) and no other use and any other non-retail, lawful use approved by Sublandlord, in Sublandlord’s reasonable discretion.

8. Security Deposit	[***]
( Article 4 ):
9. Parking: ( Article 27 )	None
10. Address of Subtenant
( Section 29.18 ):	Fitbit, Inc. 405 Howard Street, Suite 550 San Francisco, CA 94105 Attention: Dawn Birkett with a copy to: Fitbit, Inc. 405 Howard Street, Suite 550 San Francisco, CA 94105 Attn: General Counsel
11. Address of Sublandlord	See Section 29.18 of the Lease.
( Section 29.18 ):
12. Broker(s)	Sublandlord’s Broker:
( Section 29.24 ):	Avison Young



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	601 California Street, 5 ^th Floor San Francisco, CA 94108 Attention: Nick Slonek Subtenant’s Broker: Savills Studley 550 South Winchester Blvd., Suite 600 San Jose, CA 95128 Attention: Mr. John Brady



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ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas .

1.1.1 The Premises . Sublandlord hereby (i) leases to Subtenant and Subtenant hereby leases from Sublandlord the Initial Premises, and (ii) shall lease to Subtenant, on or before the applicable Anticipated Delivery Date, the remainder of the Premises as set forth in Section 2.2 of the Summary. The outline of each Floor is set forth on Exhibit A-1 attached hereto and made a part hereof, each Floor of the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Subtenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A-1 is to show the approximate location of the Premises in the Building (as defined below) only, and such exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas (as defined below) or the elements thereof or of the accessways to the Premises or the Project (as defined below). Except as specifically set forth in this Lease and in the Subtenant Work Letter (Initial Premises) attached hereto as Exhibit B (the “ Initial Premises Work Letter ”), Sublandlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Initial Premises or the Premises. Subtenant also acknowledges that neither Sublandlord nor any agent of Sublandlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Subtenant’s business, except as specifically set forth in this Lease and the Initial Premises Work Letter. Subject to the terms of the Initial Premises Work Letter, the taking of possession of any Floor of the Premises by Subtenant shall conclusively establish that such Floor and the Building were at such time in good and sanitary order, condition and repair, unless Subtenant objects to such condition no later than six (6) months after the applicable Delivery Date; provided, however, that notwithstanding any objection by Subtenant at any time after the Delivery Date, in no event shall the Rent Commencement Date for any such Floor be in any way amended or revised after the original Rent Commencement Date for such Floor has been established.

1.1.2 The Building and the Project . The Premises are a part of the building set forth in Section 2.1 of the Summary (the “ Building ”). The Building is part of an office project known as “215 Fremont.” The term “ Project ”, as used in this Lease, shall mean (i) the separate legal parcel of land on which the Building is located, which land is described on Exhibit C attached hereto and made a part hereof (the “ Land ”), (ii) the Building, (iii) the Common Areas, (iv) all other related improvements and facilities located on the Land and (v) all appurtenances thereto.

1.1.3 Common Areas . Subtenant shall have the non-exclusive right to use in common with other Building tenants the Common Areas, subject to the Rules and Regulations referred to in Article 5 of this Lease. Those portions of the Project which are provided, from time to time, for use in common by Sublandlord, Subtenant and any other tenants of the Project and such other portions of the Project designated by Sublandlord in its reasonable discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Sublandlord and certain tenants, are collectively referred to herein as the “ Common Areas. ”, which Common Areas shall be designated as such by



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Sublandlord. The manner in which the Common Areas are maintained and operated shall at the sole discretion of Sublandlord, provided that Sublandlord shall maintain and operate the same in a manner consistent with that of other first-class, high-rise office buildings in the San Francisco, California area, which are comparable in size (containing at least 300,000 rentable square feet), quality of construction, and services and amenities to the Building (the “ Comparable Buildings ”) and shall be consistent with the terms of the Master Lease, and the use of the Common Areas shall be subject to such rules, regulations and restrictions as Sublandlord and/or Master Landlord may make from time to time. Sublandlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Common Areas; provided, however, Sublandlord shall use commercially reasonable efforts to minimize disruption to Subtenant’s business during the construction of any alterations or additions, and provided further that any alteration, addition or change in location of the elements of the Common Areas shall not adversely and materially affect Subtenant’s rights under this Lease or Subtenant’s access to the Premises.

1.2 Verification of Rentable Square Feet and Usable Square Feet of Premises, Building, and Project . The “rentable square feet” of the Premises were calculated pursuant to BOMA (as defined below) by Stevenson System, Inc., on March 2, 2016 (the “ 2016 Stevenson Calculation ”), and such calculations have been provided to Subtenant. Sublandlord and Subtenant accept the 2016 Stevenson Calculation, as reflected in Section 2.2 of the Summary for the Premises and 357,763 rentable square feet of the Building as final .

1.3 Furniture, Fixtures and Equipment . Subtenant shall purchase the furniture, fixtures and equipment located on the third (3 ^rd ) Floor set forth on Exhibit H attached hereto and made a part hereof (the “ Desired FF&E ”) by paying to Sublandlord the sum of [***] Dollars ($[***]) therefor. Sublandlord shall remove from the third (3 ^rd ) Floor, prior to the Delivery Date therefor, all of the furniture, fixtures and equipment located on the 3 ^rd Floor that is not Desired FF&E.

1.4 Basement Access . In addition to the Premises and the Common Areas, Subtenant shall have the right to access the basement parking area located beneath the Building, which is depicted on Exhibit D attached hereto and made a part hereof (the “ Basement Parking Area ”), for the purposes of storing bikes owned or used by Subtenant’s employees and utilizing the showers and lockers located therein, all of which shall be made available to Subtenant and Subtenant’s employees on a first come, first served, nonexclusive basis together with other tenants (and employees thereof) of the Building. Sublandlord, at Sublandlord’s sole cost and expense, shall provide Subtenant (i) identification cards, which will permit Subtenant and any employee thereof to access the Basement Parking Area through a secure bicycle gate and (ii) with a secure, shared bicycle storage area located in the Basement Parking Area, which shall be made available to Subtenant on a non-exclusive basis. Except to the extent arising from [***] of Sublandlord or any Sublandlord Party (as defined in Section 4.2.7.2 below), in no event shall Sublandlord be liable to Subtenant or any other Subtenant Party for any loss of personal property or any damage thereto or to any Person or for any other losses suffered by Subtenant, any other Subtenant Party or any other Person, resulting from, or arising in connection with, Subtenant’s or any other Subtenant Party’s use of the Basement Parking Area.



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ARTICLE 2

LEASE TERM; OPTION TERM

2.1 Lease Term . The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 3.1 of the Summary and shall commence on the Lease Commencement Date, as set forth in Section 3.2 of the Summary (the “ Lease Commencement Date ”), and terminate on the date set forth in Section 3.4 of the Summary (the “ Lease Expiration Date ”), unless this Lease is sooner terminated or extended as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term, commencing on the first full calendar month of the Lease Term.

2.2 Delivery of each Floor . Each Floor shall be delivered to Subtenant, in the Delivery Condition (as hereinafter defined), on or before the Anticipated Delivery Date applicable to such Floor, as set forth in Section 3.3 of the Summary. As used herein the term “ Delivery Condition ” means that such Floor is in broom clean condition, free of all tenancies (other than Sublandlord’s interest under the Master Lease), has had all cabling removed (except the cabling located on the third (3 ^rd ) Floor), is in a water tight condition, and the exterior walls, roof, all structural and seismic components of the Building, HVAC, electrical and plumbing systems serving such Floor and the Building are operational, in good working order and condition, and, to the best of Sublandlord’s knowledge, without any duty to investigate, complies with all Applicable Laws which the Building is required to comply with based on the date the Building was constructed or portions thereof were renovated, as applicable, such that as of the Delivery Date there shall be no violations of Applicable Law, which the applicable Floor is required to comply with at the time such Floor is delivered. Sublandlord warrants the condition of the Premises in the immediately preceding sentence for a period of six (6) months from the respective Delivery Date, and Sublandlord shall perform, at Sublandlord’s sole cost and expense (not to be passed through as an Operating Expense), all repairs necessary to make same true, during such six (6) month period, upon receipt of written notice from Subtenant of evidence that the applicable portion of the Premises was not delivered in the required Delivery Condition on the Delivery Date, which notice shall be delivered to Sublandlord within such six (6) month period; provided, however, that in the event of such notice, in no event shall the Delivery Date, once established, be amended, delayed or otherwise revised as a result thereof. The date upon which each Floor is delivered to Subtenant in the Delivery Condition shall be referred to herein as the “ Delivery Date ” for such Floor. In no event shall the Delivery Date for any Floor of the Premises occur after the Anticipated Delivery Date applicable to such Floor, as set forth in Section 3.3 of the Summary.

2.3 Option Term .

2.3.1 Option Right. Sublandlord acknowledges that it has a right to extend the term of the Master Lease beyond the Lease Expiration Date, pursuant to Section 4 of the Master Lease. Sublandlord hereby grants Subtenant [***] to extend (the “ Extension Option ”) the Lease Term for [***] Lease Years, beginning on [***] and terminating on [***] (the “ Option Term ”) on the terms and conditions set forth in this Section 2.3 . If Subtenant exercises the Extension Option, during the first [***] of the Option Term, Subtenant shall lease the[***] of the Premises (collectively, the [***] ; provided, that Subtenant may [***] if Sublandlord chooses, in its sole and absolute discretion, to make [***] by Subtenant during the [***] Lease Years of the Option Term. If Subtenant exercises [***] Lease Year of the Option Term, Subtenant shall [***] and the [***] of the Premises (collectively, the [***] ; provided,



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that Subtenant may [***] Sublandlord chooses, in its sole and absolute discretion, to make [***] Lease Year of the Option Term. [***]. During the Option Term, the provisions of this Lease, as it may be amended in writing prior to the commencement date of the Option Term, shall continue in effect, except that Subtenant shall occupy the Option Premises (as hereinafter defined) during the Option Term in its then “as is” condition, there shall be no abatement of Rent, nor shall there be any credit or allowance given to Subtenant for improvements to the Option Premises. As used herein, the term [***], means, as applicable, the [***], and any [***], which [***] shall also constitute the “Premises” during the Option Term.

2.3.2 Notice of Intention; Extension Determination . Sublandlord hereby agrees, no later than [***] prior to the Lease Expiration Date, [***] as to whether or not Sublandlord is [***] Within [***] after receipt of the [***] , Subtenant shall notify Sublandlord in writing as to whether or not [***] If Subtenant notifies Sublandlord, pursuant to the immediately preceding sentence, that Subtenant [***] then no later than [***] prior to the Lease Expiration Date, Sublandlord shall provide Subtenant with [***] regarding [***] ). During the period starting on the date that is [***] and ending on the date that is [***] prior to the [***] the parties will [***] , through good faith discussions, whether (a) [***] and if so, whether [***] and (b) [***] to [***] as provided in [***] and if so, whether Subtenant will [***] . No later than [***] following the [***] (time being of the essence), Sublandlord and Subtenant will [***] whereby (i) [***] the Extension Option will be deemed to be of no further force and effect, and this Lease shall terminate on the Lease Expiration Date, unless sooner terminated, (ii) Sublandlord will [***] , Subtenant shall irrevocably [***] , Sublandlord shall [***] of Subtenant’s [***] for such [***] , and Sublandlord shall [***] no later than [***] after the mutual execution and delivery of the [***] the first [***] ) and to deliver [***] to Subtenant, or (iii) Sublandlord and Subtenant shall affirm that the this Lease shall terminate on the Lease Expiration Date, unless sooner terminated. If Sublandlord and Subtenant fail to enter into and deliver, within the [***] following the expiration of the [***] for any reason, then Subtenant’s Extension Option shall be automatically and conclusively determined to have been terminated and be of no further force and effect, and this Lease shall terminate on the Lease Expiration Date, unless sooner terminated. Notwithstanding anything herein to the contrary, Subtenant shall have no right to exercise Subtenant’s Extension Option if a material or monetary Event of Default exists and is continuing under this Lease at the time the Exercise Notice Letter is delivered.

2.3.3 Option Rent . If the Extension Option is validly exercised pursuant to a mutually executed and delivered Exercise Notice Letter, the Base Rent payable by Subtenant during the Option Term shall be equal to[***] of the [***] as such term is defined in, and as such amount is determined pursuant to the terms of, [***] of the [***] . Once [***] is determined by [***] under the terms of the [***] Sublandlord shall provide Subtenant with written notice of the same.

2.3.4 [***] . If the Extension Option is validly exercised pursuant to a mutually executed and delivered Exercise Notice Letter, then notwithstanding Subtenant’s [***] set forth [***] , during the Extension Term, (i)[***] , (ii) under [***] , Subtenant shall only have the right [***] during the Extension Term, and all other [***] of Subtenant set forth in [***] shall be [***] ; provided, however, that all obligations of Subtenant in connection with[***] as such term is defined during the original Lease Term, [***]

2.3.5 [***]



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2.3.6 Transfer Restrictions . The rights contained in this Section 2.3 shall be personal to Original Subtenant and any Affiliate or successor assignee of Subtenant in connection with a transfer pursuant to Section 14.7 of this Lease, and may only be exercised by Original Subtenant or any Affiliate or successor assignee of Subtenant in connection with a transfer pursuant to Section 14.7 of this Lease (and not any other assignee, sublessee or transferee of Subtenant’s interest in this Lease), if Original Subtenant, or such Affiliate or successor assignee of Subtenant in connection with a transfer pursuant to Section 14.7 , of this Lease occupies the entire Premises at the time of the Lease Expiration Date.

2.3.7 Confirmation of Terms . If the Extension Option is validly exercised pursuant to [***] , Sublandlord and Subtenant shall execute an amendment to this Lease reflecting such extension, [***] , promptly after same have been ascertained.

2.4 Confirmation of Delivery . Promptly after the delivery of each Floor to Subtenant in the Delivery Condition, Sublandlord and Subtenant shall execute a Premises delivery confirmation, in the form attached hereto as Exhibit G confirming in writing (i) the Delivery Date of such Floor, (ii) the estimated Rent Commencement Date and Base Rent for such Floor, (iii) the total Subtenant Improvement Allowance applicable to such Floor, calculated in accordance with Section 2.6 below, (iv) the Rent Commencement Date of each Floor previously delivered to Subtenant and the Base Rent applicable thereto, (v) Subtenant’s Share as of the date thereof (inclusive of the Floor to which such amendment applies), (vi) the Base Year for such Floor, and (vii) any other term that either party reasonably request be confirmed with respect to the Premises as of such date, along with an executed work letter agreement, in the same form as the Initial Premises Work Letter attached hereto (and with the same [***] Dollars ($[***] ) per rentable square foot Subtenant Improvement Allowance (as hereinafter defined)), governing such Floor, with only Floor-specific changes (each a “ Subtenant Work Letter ”).

2.5 Early Access . Upon the mutual execution of this Lease, Subtenant shall be permitted to tour the prospective Premises with a representative of Sublandlord for purposes of measuring all or any portion of such Premises and showing all or any portion of such Premises to Subtenant’s architects, engineers, contractors and other design and construction professionals involved, or to be involved, in the construction of the Subtenant Improvements. Sublandlord and Subtenant hereby acknowledge that Sublandlord is currently occupying such Premises. Upon Sublandlord’s vacation of each Floor of the Premises, Sublandlord shall notify Subtenant that Sublandlord has vacated such Floor, and, at such time, Subtenant shall have full access to such Floor for the purposes of installing furniture systems, fixtures, equipment, computer cabling and telecommunications systems therein.

2.6 Subtenant Improvements . Sublandlord shall provide Subtenant with a tenant improvement allowance (the “ Subtenant Improvement Allowance ”) for each Floor of the Premises equal to[***] Dollars ($[***] ) per rentable square foot of such Floor to be used for costs related to the initial design and construction of Subtenant’s improvements in the Premises, which are permanently affixed to the Premises (collectively, the “ Subtenant Improvements ”), all done in accordance with the Initial Premises Work Letter or any Subtenant Work Letter entered into after the date hereof, in accordance with the terms hereof, applicable to other Floors of the Premises. The Subtenant Improvement Allowance for the Initial Premises shall be as set forth in the Initial Premises Work Letter. Subtenant shall have the right to use the Subtenant Improvement Allowance for any Floor for the build out of any Subtenant Improvements in any portion of the Premises, not just the Floor for which the Subtenant Improvement Allowance is otherwise payable; provided, however that Subtenant shall not



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receive any Subtenant Improvement Allowance for any particular Floor unless and until the Delivery Date for such Floor has occurred.

ARTICLE 3

BASE RENT

Subtenant shall pay, for each Floor of the Premises for which the Rent Commencement Date has occurred, without prior notice or demand, to Sublandlord at the address set forth for Sublandlord in Section 29.18 below, or such other address as Sublandlord may from time to time designate in writing, by a check for currency or ACH which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever, except for the permitted Rent Abatement Period. The Base Rent for the first full calendar month of the Initial Premises (as well as any prorated Base Rent for any partial month after the Lease Commencement Date) of the Lease Term shall be paid at the time of Subtenant’s execution of this Lease, and such sum shall be applied to the Base Rent due upon the expiration of the Rent Abatement Period. If any payment of Base Rent is for a period which is shorter than one month, the Base Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Base Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a per day basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT; SECURITY DEPOSIT

4.1 General Terms . In addition to paying the Base Rent specified in Article 3 of this Lease, for each Floor for which the Rent Commencement Date has occurred, Subtenant shall pay Subtenant’s Share (as defined below) of the annual Building Direct Expenses (as defined below) which are in excess of the amount of Building Direct Expenses for the applicable Base Year (as defined below); provided, however, that in no event shall any decrease in Building Direct Expenses for any Expense Year (as defined below) below Building Direct Expenses for the applicable Base Year entitle Subtenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Subtenant, together with any and all other amounts payable by Subtenant to Sublandlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “ Additional Rent ”, and the Base Rent and the Additional Rent are herein collectively referred to as “ Rent ”. All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent . Without limitation on other obligations of Subtenant which survive the expiration or earlier termination of this Lease, the obligations of Subtenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration or earlier termination of this Lease.

4.2 Definitions of Key Terms Relating to Additional Rent . As used in this Article 4 , the following terms shall have the meanings hereinafter set forth:



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4.2.1 Base Year . “ Base Year ” shall mean, for each Floor, the period set forth in Section 5 of the Summary.

4.2.2 Building Direct Expenses . “ Building Direct Expenses ” shall mean Building Operating Expenses and Building Tax Expenses (as defined below).

4.2.3 Building Operating Expenses . “ Building Operating Expenses ” shall mean the portion of Operating Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

4.2.4 Building Tax Expenses . “ Building Tax Expenses ” shall mean that portion of Tax Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

4.2.5 Direct Expenses . “ Direct Expenses ” shall mean Operating Expenses and Tax Expenses.

4.2.6 Expense Year . “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires. Sublandlord, upon notice to Subtenant, may change the Expense Year from time to time to any other consecutive twelve (12) month period and, in the event of any such change, Subtenant’s Share of Building Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

4.2.7 Operating Expenses .

4.2.7.1. Inclusions to Operating Expenses . “ Operating Expenses ” shall mean all expenses, costs and amounts of every kind and nature which Sublandlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof, subject to the terms and provisions of Section 4.2.7 . Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following:

(i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith;

(ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program;

(iii) the cost of earthquake insurance and all other insurance carried by Sublandlord in connection with the Project as reasonably determined by Sublandlord; provided, however, that (a) earthquake insurance deductibles shall not exceed [***] Dollars ($[***] in any Expense Year, and provided further any earthquake insurance deductibles of [***] Dollars ($[***] , and Subtenant shall [***] , and (b) any other insurance deductibles shall not exceed [***] Dollars ($[***] ) in any Expense Year, and provided further any such other insurance deductibles of [***] Dollars ($[***] ; [***]



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(iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof;

(v) costs incurred, which are applied to the deducible of any insurance claim, subject to clause (iii) above;

(vi) fees and other costs, including reasonable management fees (subject to the limitation set forth in Section 4.2.7.2(xiii) below), consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project;

(vii) payments under any equipment rental agreements and the fair rental value of any management office space;

(viii) subject to Section 4.2.7.2(vi) below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project;

(ix) operation, repair and maintenance of all systems, equipment and components thereof of the Project;

(x) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs and walkways, and repair to roofs and reroofing;

(xi) amortization (including interest on the unamortized cost) over the useful life, determined in accordance with generally accepted accounting principles, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof;

(xii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect and actually result in economies in the operation or maintenance of the Project, or any portion thereof (but only to the extent of the annual cost savings reasonably anticipated by Sublandlord), (B) that are required to comply with present reasonable conservation programs, (C) which are replacements of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation enacted after the applicable Base Year; provided, however, that any capital expenditure shall be amortized (including interest on the amortized cost at the rate that Sublandlord would reasonably pay to finance such capital improvement) over its useful life reasonably determined in accordance with generally accepted accounting principles;

(xiii) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Sublandlord by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Tax Expenses (as hereinafter defined); and



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(xiv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building with other buildings near the Project.

4.2.7.2. Exclusions to Operating Expenses . Notwithstanding the provisions of Section 4.2.7.1 above, for purposes of this Lease, Operating Expenses shall not, however, include:

(i) costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas);

(ii) except as set forth in clauses 4.2.7.1 (xi) , (xii) , and (xiii) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment;

(iii) costs for which Sublandlord is reimbursed by any tenant or occupant of the Project or by insurance through (a) its carrier, (b) any tenant’s carrier or (c) through anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(iv) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(v) costs associated with the operation of the business of the partnership or entity which constitutes Sublandlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project), which entity costs shall include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Subtenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Sublandlord’s interest in the Project, and costs incurred in connection with any disputes between Sublandlord and its employees, between Sublandlord and Project management, or between Sublandlord and other tenants or occupants, and Sublandlord’s general corporate overhead and general and administrative expenses;

(vi) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated thereto; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;



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(vii) amounts paid as ground rental or Master Lease rental for the Project by Sublandlord or Master Landlord;

(viii) except for a Project management fee to the extent allowed pursuant to item (xiii), below, overhead and profit increment paid to the Sublandlord or to subsidiaries or affiliates of Sublandlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(ix) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Sublandlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(x) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(xi) all items and services for which Subtenant or any other tenant in the Project reimburses Sublandlord or which Sublandlord provides selectively to one or more tenants (other than Subtenant) without reimbursement;

(xii) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art, except to the extent necessary or reasonably desirable to maintain the first class quality of the Project;

(xiii) fees payable by Sublandlord for management of the Project in excess of [***] ([***] ) of [***] (the “ Management Fee Cap ”);

(xiv) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(xv) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(xvi) costs arising from the gross negligence or willful misconduct of Sublandlord or its agents, employees, vendors, contractors, or providers of materials or services providing such services at the direction of Sublandlord (each, a “ Sublandlord Party ”);

(xvii) costs (A) incurred to comply with laws relating to the removal of Hazardous Material (as defined below) except for immaterial amounts completed in connection with routine maintenance and repairs the cost of which do not exceed $[***] per instance; which was in existence in the Building or on the Project prior to the



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Lease Commencement Date; and (B) costs incurred to remove, remedy, contain, or treat Hazardous Material, which hazardous material is brought into the Building or onto the Project after the date hereof by Sublandlord, Master Landlord or any other tenant of the Project except for immaterial amounts completed in connection with routine maintenance and repairs the cost of which do not exceed $[***] per instance;

(xviii) costs arising from Sublandlord’s charitable or political contributions;

(xix) any gifts provided to any entity whatsoever, including, but not limited to, Subtenant, other tenants, employees, vendors, contractors, prospective tenants and agents;

(xx) the cost of any magazine, newspaper, trade or other subscriptions;

(xxi) any amount paid to Sublandlord or to subsidiaries or affiliates of Sublandlord for services in the Project to the extent the same exceeds the cost of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(xxii) costs arising from Sublandlord’s failure to comply with any applicable governmental laws or regulations (including, but not limited to the ADA (as hereinafter defined)) in existence at the time of the Lease Commencement Date;

(xxiii) any entertainment expenses and travel expenses of Sublandlord, its employees, agents, partners and affiliates;

(xxiv) co-insurance amounts or any deductibles in excess of amounts set forth in clause (iii) of Section 4.2.7.1 above;

(xxv) any amounts solely attributable to Sublandlord, including any penalty, fee or interest charged to Sublandlord due to the failure of Sublandlord to pay rent under the Master Lease or any default by Sublandlord under the Master Lease;

(xxvi) reserves of any kind;

(xxvii) Tax Expenses;

(xxviii) costs to the extent attributable to the garage in the Building and/or the Project or any other concession or club operated by Master Landlord or Sublandlord for which a separate charge or fee is required for the use thereof by Subtenant 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); provided, that such costs shall be excluded only to the extent of the separate fees or charges collected by Master Landlord or Sublandlord; and



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(xxix) any expense or cost of a type that is not customarily incurred by landlords of Comparable Buildings.

If Sublandlord is not furnishing any particular work or service (the cost of which, if performed by Sublandlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Sublandlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Sublandlord if it had at its own expense furnished such work or service to such tenant. If the Building is not at least ninety-five percent (95%) occupied during all or a portion of the applicable Base Year or any Expense Year, Sublandlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Building been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year.

If, in any year following the applicable Base Year, Sublandlord incurs any category of Operating Expense, other than a capital expenditure, that was not incurred and included in Operating Expenses for any portion of the applicable Base Year, Operating Expenses for the applicable Base Year shall be deemed increased by the amount that would have been included in Operating Expenses for the applicable Base Year with respect to such category of Operating Expense if Sublandlord had incurred such category of Operating Expense and included the same in Operating Expenses during the entire applicable Base Year. Conversely, if, in any year following an applicable Base Year, Sublandlord does not incur a category of Operating Expense, other than a capital expenditure, that was included in Operating Expenses during the applicable Base Year, Operating Expenses for the applicable Base Year shall be deemed reduced by the amount Sublandlord incurred during the applicable Base Year with respect to such category of Operating Expense. Notwithstanding anything to the contrary contained herein, capital expenditures incurred during the Lease Term shall be included as Operating Expenses to the extent permitted under Section 4.2.7.1 , and in no event shall this paragraph apply to any capital expenditures that may be incurred during the Lease Term.

4.2.8 Taxes .

4.2.8.1. Tax Expenses . “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Subtenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof. Tax Expenses shall include, without limitation:

(i) any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion;



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(ii) any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Subtenant and Sublandlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies;

(iii) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such Rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Subtenant of the Premises, or any portion thereof;

(iv) any assessment, tax, fee, levy or charge, upon this transaction or any document to which Subtenant is a party, creating or transferring an interest or an estate in the Premises; and

(v) all of the real estate taxes and assessments imposed upon or with respect to the Building and Project; provided, however, Subtenant shall have the benefit of [***] accordingly upon receipt of the actual tax adjustment based upon such reassessment.

4.2.8.2. Other Costs . Any costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred. Tax refunds shall be credited against Tax Expenses and refunded to Subtenant regardless of when received, based on the Expense Year to which the refund is applicable; provided, however, in no event shall the amount to be refunded Subtenant for any such Expense Year exceed the total amount paid by Subtenant as Additional Rent under this Article 4 for such Expense Year. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Subtenant shall pay Sublandlord upon demand Subtenant’s Share of any such increased Tax Expenses included by Sublandlord as Building Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1 , above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Sublandlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, (iii) any items paid by Subtenant under Section 4.5 of this Lease, (iv) reserves for future Tax Expenses and (v) any increases in Tax



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Expenses caused by a change in ownership for which Sublandlord receives tax increase protection pursuant to Section 7(a) of the Master Lease.

4.2.8.3. Base Taxes . The amount of Tax Expenses for the applicable Base Year attributable to the valuation of the Project, inclusive of tenant improvements, shall be known as the “ Base Taxes .” If in any comparison year subsequent to the applicable Base Year the amount of Tax Expenses decreases below the amount of Base Taxes for the Premises, then for purposes of all subsequent comparison years, including the comparison year in which such decrease in Tax Expenses occurred, the Base Taxes and therefore the applicable Base Year shall be decreased by an amount equal to the decrease in Tax Expenses; provided, however, if the amount of Tax Expenses for the Premises subsequently increases in any comparison year from that decreased amount, the Base Taxes for the Premises shall be increased by an amount equal to the increase in the Tax Expenses for the Premises but not in excess of the Base Taxes for the applicable Base Year.

4.2.9 Subtenant’s Share . “ Subtenant ’ s Share ” shall mean the percentages set forth in Section 6 of the Summary. Subtenant’s Share is calculated by multiplying the number of rentable square feet of the applicable Floor of the Premises as set forth in Section 2 of the Summary by 100, and dividing the applicable product by the rentable square feet in the Building. The rentable square feet of the Premises and Building is measured by using the Building Owners and Managers Association Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1 - 2010 (“ BOMA ”), provided that the rentable square footage of the Building shall include all of, and the rentable square footage of the Premises therefore shall include a portion of, the square footage of the Common Areas located within the Building and the Common Area and occupied space of the portion of the Building or Project, dedicated to the service of the Building. In the event the rentable square footage of the Building is remeasured and Subtenant and Sublandlord enter into an amendment to this Lease, after the date of such remeasurement expanding the portion of the Building leased by Subtenant, such that Subtenant is leasing additional space within the Building in addition to leasing the Premises (as defined herein), then, in such case, the rentable square footage of such expansion space shall be based on the rentable square footage amounts set forth in such remeasurement, and Subtenant’s Share, for such expansion space, shall be based on the remeasured rentable square footage of the Building.

4.3 [Intentionally Omitted] .

4.4 Calculation and Payment of Additional Rent . If for any Expense Year ending or commencing within the Lease Term, the applicable Subtenant’s Share of Building Direct Expenses for such Expense Year exceeds the applicable Subtenant’s Share of Building Direct Expenses applicable to the applicable Base Year for any Floor of the Premises, then Subtenant shall pay to Sublandlord, in the manner set forth in Section 4.4.1 , below, and as Additional Rent, an amount equal to such excess (the “ Excess ”).

4.4.1 Statement of Actual Building Direct Expenses and Payment by Subtenant . On or before May 1 ^st of each calendar year, Sublandlord shall give to Subtenant following the end of each Expense Year, a statement (the “ Statement ”) which shall state the Building Direct Expenses incurred or accrued for such preceding Expense Year and which shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Subtenant shall pay, with its next installment of Base Rent due, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess (as defined below), and if Subtenant paid more as Estimated Excess than the actual Excess, Subtenant shall receive a credit in the amount of Subtenant’s overpayment against Rent next due



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under this Lease. The failure of Sublandlord to timely furnish the Statement for any Expense Year shall not prejudice Sublandlord or Subtenant from enforcing its rights under this Article 4 . Notwithstanding the foregoing, if Sublandlord fails to furnish a Statement on or before May 30 ^th in the calendar year following an Expense Year for which the Statement applies, then Subtenant shall not be required to pay Sublandlord any increase in Additional Rent above the prior Expense Year until the Statement is delivered. Even though the Lease Term has expired and Subtenant has vacated the Premises, when the final determination is made of Subtenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Subtenant shall immediately pay to Sublandlord such amount, and if Subtenant paid more as Estimated Excess than the actual Excess, Sublandlord shall, within thirty (30) days, deliver a check payable to Subtenant in the amount of the overpayment. For any Statement issued by Sublandlord to Subtenant within the time period listed in this Section 4.4.1 , Sublandlord may correct such Statement within twelve (12) months after it is initially issued, but may not further correct it thereafter, and Subtenant shall not be required to pay any additional Excess for such preceding Expense Year after the expiration of such twelve (12) month period. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of this Lease.

4.4.2 Statement of Estimated Building Direct Expenses . On or before May 1, Sublandlord shall give Subtenant a yearly expense estimate statement (the “ Estimate Statement ”) which shall set forth Sublandlord’s reasonable estimate (the “ Estimate ”) of what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated excess (the “ Estimated Excess ”) as calculated by comparing the Estimate for such Expense Year to the amount of Building Direct Expenses for the applicable Base Year for each Floor of the Premises. The failure of Sublandlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Sublandlord from enforcing its rights to collect any Estimated Excess under this Article 4 , nor shall Sublandlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Immediately after Subtenant’s receipt of the Estimate Statement, Subtenant shall pay, with its next succeeding installment of Base Rent due, a percentage of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2 ) (such payment, the “ Makeup Expense Payment ”), which percentage represents the percentage of Estimated Excess that was not billed to Subtenant, as of such date, for such Expense Year (such percentage, the “ Makeup Excess Payment Percentage ”). The Makeup Excess Payment Percentage shall be determined by a fraction, the numerator of which shall be the number of months which have elapsed in such current Expense Year, including the month of such payment, and the denominator of which shall be twelve (12). After Subtenant has paid to Sublandlord the Makeup Expense Payment in accordance with the immediately preceding sentence, and until a new Estimate Statement is furnished (which Sublandlord shall have the right to deliver to Subtenant at any time), Subtenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Sublandlord to Subtenant.

4.5 Taxes and Other Charges for Which Subtenant Is Directly Responsible .

4.5.1 Personal Property Taxes . Subtenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Subtenant’s equipment, furniture, fixtures and any other personal property located in the Premises. If any such taxes on Subtenant’s equipment, furniture, fixtures and any other personal property are levied against Sublandlord or Sublandlord’s property or if the assessed value of Sublandlord’s property is increased by the inclusion therein of a value placed upon such Subtenant’s equipment, furniture, fixtures or any other personal property of Subtenant and if Sublandlord pays the taxes based upon such increased assessment, which Sublandlord shall have the right to do



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regardless of the validity thereof, Subtenant shall upon demand repay to Sublandlord the taxes so levied against Sublandlord or the proportion of such taxes resulting from such increase in the assessed value of Sublandlord’s property, as the case may be.

4.5.2 Taxes on Improvements in Premises . If the tenant improvements in the Premises installed after a respective Delivery Date by Subtenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Sublandlord’s and Master Landlord’s “building standard” in other space in the Building are assessed, then the Tax Expenses levied against Sublandlord or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Subtenant and shall be governed by the provisions of Section 4.5.1 , above; provided, that Sublandlord uniformly applies such excess assessed valuation for the same period uniformly to all tenants in the Building.

4.5.3 Other Taxes . Notwithstanding any contrary provision herein, Subtenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Subtenant of the Premises or any portion of the Project, or (iii) taxes assessed upon this transaction or any document to which Subtenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Sublandlord ’ s Books and Records . Within twelve (12) months after receipt of a Statement by Subtenant, if Subtenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant is a member of a nationally recognized accounting firm, has previous experience in reviewing financial operating records of landlords of office buildings, and is retained by Subtenant on a non contingency fee basis) (the “ Subtenant Auditor ”), designated and paid for by Subtenant, may, after reasonable notice to Sublandlord and at reasonable times, inspect Sublandlord’s records with respect to the Statement at Sublandlord’s offices; provided that, at such time, no monetary or material Event of Default is occurring and Subtenant has paid all Rent, including amounts required to be paid under the applicable Estimated Statement, as the case may be. In connection with such inspection, Subtenant and Subtenant’s agents must agree in advance to follow Sublandlord’s reasonable rules and procedures regarding inspections of Sublandlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Subtenant’s failure to dispute the amount of Additional Rent set forth in any Statement within six (6) months following Subtenant’s receipt of such Statement shall be deemed to be Subtenant’s approval of such Statement and Subtenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, Subtenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Subtenant’s expense, by an independent certified public accountant (the “ Accountant ”) selected by Sublandlord and subject to Subtenant’s reasonable approval; provided that if such certification by the Accountant proves that Direct Expenses were overstated by more than [***] ([***] ), then the cost of the Accountant, and the cost of such determination certification, shall be paid by Sublandlord; provided, that in no event shall the costs thereof to be paid by Sublandlord exceed [***] Dollars[***] ($[***] ). Any reimbursement amounts determined to be owing by Sublandlord to Subtenant or by Subtenant to Sublandlord shall be (i) in the case of amounts owing from Subtenant to Sublandlord, paid within thirty (30) days following such determination, and (ii) in the case of amounts owing from Sublandlord to Subtenant, credited against the next payment of Rent due Sublandlord under the terms of this Lease, or if the Lease Term has expired, paid to Subtenant within thirty (30) days



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following such determination. In no event shall this Section 4.6 be deemed to allow any review of any of Sublandlord’s records by any subtenant of Subtenant. Subtenant agrees that this Section 4.6 shall be the sole method to be used by Subtenant to dispute the amount of any Direct Expenses payable or not payable by Subtenant pursuant to the terms of this Lease, and Subtenant hereby waives any other rights at law or in equity relating thereto.

4.7 Security Deposit .

4.7.1 Security Deposit . Subject to Section 4.8 , upon execution of this Lease, Subtenant shall deposit or cause to be deposited with Sublandlord a cash sum in the amount of [***] Dollars ($[***] ) (the “ Security Deposit ”). Sublandlord shall hold the Security Deposit as security for the performance of Subtenant’s obligations under this Lease. If Subtenant defaults (after the expiration of applicable notice and cure periods) on any provision of this Lease, Sublandlord may, after such notice as may be required under this Lease and without prejudice to any other remedy it has, apply all or a part of the Security Deposit to:

4.7.1.1. any Rent or other sum not paid in accordance herewith; or

4.7.1.2. any expense, loss, or damage that Sublandlord may suffer because of an Event of Default including, without limitation, Rent that would accrue after such Event of Default.

4.7.1.3. to remedy any failure by Subtenant to repair or maintain the Premises or to perform any other obligations hereunder.

Subtenant hereby waives any and all rights under and benefits of Section 1950.7 of the Civil Code of California and any similar law, statute or ordinance now or hereafter in effect.

4.7.2 Sublandlord ’ s Transfer of Security Deposit on Transfer of Real Property . If Sublandlord disposes of its interests in all or any portion of the Premises, Sublandlord may deliver or credit the Security Deposit (or the applicable portion thereof) to Sublandlord’s successor-in-interest in the Premises (or portion thereof) and upon such delivery or credit, shall be relieved of further responsibility with respect to the Security Deposit (or the applicable portion thereof so credited).

4.7.3 Restoration of Security Deposit . If Sublandlord applies any portion of the Security Deposit pursuant to Section 4.7.1 above, Subtenant shall, within thirty (30) days after written demand by Sublandlord, deposit with Sublandlord an amount sufficient to restore the Security Deposit to the amount required to be maintained by Subtenant as a Security Deposit in accordance with the terms hereof.

4.7.4 Interest on Security Deposit . Subtenant is not entitled to any interest on the Security Deposit.

4.7.5 Return of Security Deposit . If Subtenant performs every provision of this Lease to be performed by Subtenant, the unused portion of the Security Deposit shall be returned to Subtenant or the last assignee of Subtenant’s interest under this Lease within thirty (30) days following the expiration or termination of the Lease Term.



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4.8 Letter of Credit .

4.8.1 Delivery of Letter of Credit . In lieu of depositing cash in the amount of the Security Deposit with Sublandlord, Subtenant may, on execution of this Lease, deliver to Sublandlord and cause to be in effect during the Lease Term an unconditional, irrevocable, site draft letter of credit (the “ Letter of Credit ”) in the amount specified in Section 8 of the Summary (which amount is the amount of the Security Deposit) (the “ Letter of Credit Amount ”). The Letter of Credit shall be in form and content acceptable to Sublandlord, in its sole discretion, and shall be issued by a financial institution selected by Subtenant and reasonably acceptable to Sublandlord (the “ Letter of Credit Bank ”). Sublandlord hereby approves Silicon Valley Bank as the issuing bank for the Letter of Credit. The Letter of Credit Bank must be a financial institution that accepts deposits, maintains accounts, has a local San Francisco County, California office that will negotiate a letter of credit, and the deposits of which are insured by the Federal Deposit Insurance Corporation. Subtenant shall pay all expenses, points, or fees necessary to obtain and maintain the Letter of Credit. Subtenant shall deliver to Sublandlord, at least thirty (30) days prior to the Letter of Credit expiration date, a renewal of the Letter of Credit or replacement Letter of Credit which satisfies the conditions of Section 4.8.2 , and reflects the amount required to be maintained by Subtenant as a Security Deposit in accordance with the terms of Section 4.7 above.

4.8.2 Replacement of Letter of Credit . Subtenant may, from time to time, replace any existing Letter of Credit with a new Letter of Credit; provided, the new Letter of Credit satisfies the following conditions:

(a) it becomes effective at least thirty (30) days before expiration of the Letter of Credit that it replaces;

(b) it is in the required Letter of Credit Amount;

(d) it otherwise complies with the requirements of this Section 4.8 .

Notwithstanding anything set forth in this Lease to the contrary, provided that during the Lease Term (a) no material or monetary Event of Default has occurred and (b) Subtenant maintains rolling [***] Dollars ($[***] ) and[***] Dollars ($[***] ), respectively, and [***] Dollars ($[***] ) ((a) and (b), collectively, the “ LOC Reduction Requirements ”), Sublandlord shall allow Subtenant to replace the Letter of Credit on the [***] day of [***] Lease Year (the “ LOC Adjustment Date ”) with a new Letter of Credit in the amount of [***] Dollars ($[***] ) (the “ Reduced LOC ”)). If at any time during the Lease Term, after the LOC Adjustment Date, Subtenant does not meet the LOC Reduction Requirements, then Subtenant shall be required to immediately replace the Reduced LOC with a new Letter of Credit in the amount of [***] Dollars ($[***] ), which new Letter of Credit shall remain in place for the remainder of the Lease Term.

4.8.3 Sublandlord Right to Draw on Letter of Credit . Sublandlord shall hold the Letter of Credit as security for the performance of Subtenant’s obligations under this Lease. Upon the occurrence of an Event of Default, Sublandlord may, after notice of such Event of Default, but only to the extent such notice is required under this Lease and without prejudice to any other remedy it has, draw on the Letter of Credit to cover or pay for any and all items set forth in Section 4.7.1 above. If Subtenant fails to renew or replace the Letter of Credit at least thirty (30) days before its expiration, Sublandlord



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may, without prejudice to any other remedy it has, draw on all of the Letter of Credit without notice to Subtenant.

4.8.4 Letter of Credit Security Deposit . Any amount of the Letter of Credit that is drawn on by Sublandlord but not applied by Sublandlord shall be held by Sublandlord and shall be treated as the Security Deposit which may be applied by Sublandlord for the purposes described in Section 4.7 .

4.8.5 Restoration of Letter of Credit . If Sublandlord draws on any portion of the Letter of Credit pursuant to Section 4.8.3 above, Subtenant shall, within thirty (30) days after written demand by Sublandlord, cause the Letter of Credit Amount to be restored to the amount necessary to be maintained by Subtenant as a Security Deposit in accordance with the terms hereof.

4.8.6 Sublandlord’s Transfer of Letter of Credit on Transfer of Premises . If Sublandlord disposes of its interest in the Premises, Sublandlord shall transfer or assign the Letter of Credit to the Sublandlord’s successor-in-interest in the Premises and thereupon be relieved of further responsibility with respect to the Letter of Credit. Sublandlord shall pay for any costs associated with transferring the Letter of Credit.

ARTICLE 5

USE OF PREMISES

5.1 Permitted Use . Subtenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Subtenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Sublandlord, which may be withheld in Sublandlord’s reasonable discretion.

5.2 Prohibited Uses . Subtenant further covenants and agrees that Subtenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations delivered to Subtenant by Sublandlord from time to time (the “ Rules and Regulations ”), which current Rules and Regulations are set forth on Exhibit E attached hereto and made a part hereof, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project including, without limitation, any such laws, ordinances, regulations or requirements relating to Hazardous Material. Subtenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or unreasonably interfere with the rights of other tenants or occupants of the Building or Project, or injure them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Subtenant cause, maintain or permit any nuisance in, on or about the Premises. Subtenant shall comply with, and Subtenant’s rights and obligations under this Lease and Subtenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions and restrictions now or hereafter affecting the Project which are provided to Subtenant in writing; provided, however, Sublandlord warrants that such recorded easements, covenants, conditions and restrictions do not materially interfere with Subtenant’s use or occupancy of the Premises or Common Areas. Sublandlord shall have the right, from time to time, to amend and modify the Rules and Regulations; provided such amendments or modifications do not adversely and materially affect Subtenant’s rights



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under this Lease. Sublandlord shall have no liability to Subtenant for its failure to enforce the Rules and Regulations against any other tenant in the Project; provided, however Sublandlord shall, when required in its business judgment, use commercially reasonable efforts to enforce the Rules and Regulations with respect to other tenants of Sublandlord.

5.3 Subtenant ’ s Security Responsibilities . Subtenant shall (1) lock the doors to the Premises and take other reasonable steps to secure the Premises and the personal property of (a) Subtenant, (b) Subtenant’s employees and invitees, and (c) any of Subtenant’s transferees, contractors or licensees whose personal property is located or at any time left within the Common Areas, from unlawful intrusion, theft, fire and other hazards; (2) keep and maintain in good working order all security and safety devices installed in the Premises by or for the benefit of Subtenant (such as locks, smoke detectors and burglar alarms); and (3) cooperate with Sublandlord and other tenants in the Building on Building safety matters. Subtenant acknowledges that Sublandlord is not obligated to provide security personnel or measures for the protection of Subtenant, its employees, invitees or personal property. Subtenant further acknowledges that any security or safety measures employed by Sublandlord are for the protection of Sublandlord’s own interests; that Sublandlord is not a guarantor of the security or safety of Subtenant, its employees, invitees and agents or their property; and that such security and safety matters are the responsibility of Subtenant and the local law enforcement authorities. Subtenant shall have the right to install its own security system in the Premises and/or provide Subtenant’s own security service; provided, that all employees and contractors operating any security system for Subtenant shall coordinate with, and be subject to any directives given by, Master Landlord, Sublandlord and any employees and contractors thereof operating any Building security system to ensure that (i) Subtenant’s security system does not interfere with, or unduly burden, the operation of any Building security system, and (ii) Sublandlord (or Sublandlord’s property manager) has reasonable access to Subtenant’s electronic security system, if any, to ensure such portion of Subtenant’s security system does not unduly burden or interfere with any other tenant’s use or occupancy of the Building; provided, however, that in no event shall Sublandlord have any liability to Subtenant or any agent, employee, invitee, licensee or contractor thereof as a result of such access except to the extent of Sublandlord’s willful misconduct.

5.4 Break Rooms and Private Meeting Spaces In addition to all other services provided by Sublandlord hereunder, Subtenant shall have the right to use the common lunch rooms, break rooms and exterior decks, located on the first (1 ^st ) and eighth (8 ^th ) floors of the Building, the locations of which are depicted on Exhibit F attached hereto and made a part hereof (collectively, the “ Break Rooms ” and each, a “ Break Room ”), free-of-charge; provided, such Break Room is available at the time Subtenant wishes to use it, and Subtenant does not wish to use any such Break Room for a private event, which would require the exclusion of other tenants in the Building (or the guests, invitees, employees, licenses or agents thereof). If Subtenant desires to use either (i) any Break Room for a private event that would require the exclusion of other tenants in the Building from such Break Room (a “ Private Event ”) or (ii) any of the common meeting or conference rooms depicted on Exhibit F (the “ Private Meeting Spaces ”, and each, a “ Private Meeting Space ”, and, together with the Break Rooms, collectively, the “ Reservation Rooms ” and each, a “ Reservation Room ”), then; provided, such Private Event to which Subtenant intends to use the Reservation Room is consistent with the Permitted Use; Subtenant shall have the ability to log into (from a computer located within the Premises) the online reservation system maintained by, or for, Sublandlord, which reservation system shall reflect the availability of the Reservation Rooms, and permit Subtenant, to the extent available, to reserve such Reservation Room for such Private Event (each a “ Reservation ”). If Subtenant makes a Reservation for any Reservation Room, (i) Subtenant shall pay the prevailing market rate for use of such Reservation Room, which rate shall be determined by Sublandlord in its sole discretion from time to time, and shall be made available to Subtenant either through the reservation system or upon written request made to Sublandlord, and (ii)



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Subtenant shall be required to remove, at Subtenant’s sole cost and expense, all debris, rubbish and any other evidence of Subtenant’s use of such Reservation Room, so that such Reservation Room is returned, after Subtenant’s use thereof, to substantially the same condition as existed prior to the date of Subtenant’s use. In the event Subtenant’s use of any Reservation Room results in spills, stains or other damage that cannot be removed or cleaned without the aid of janitorial or other cleaning services, then Subtenant shall be solely responsible for all costs and fees to be paid in connection with such services resulting from Subtenant’s use of such Reservation Room. Notwithstanding anything to the contrary contained herein, in no event shall Sublandlord be responsible for any costs or expenses required to be paid to return any Reservation Room to the same condition that existed prior to the date of Subtenant’s use, and if Sublandlord is required to pay any such costs or expenses, then Subtenant shall pay to Sublandlord, as Additional Rent, the total amount of such costs or expenses paid by Sublandlord upon written demand therefor, including evidence of payment and a description of the services.

5.5 Visible Premises Requirements . If all or any part of the interior of the Premises is visible from the exterior of the Premises, then Sublandlord shall have the right, in Sublandlord’s reasonable discretion, to require Subtenant to immediately remove or alter any item of Subtenant’s or any other Subtenant Party’s (as hereinafter defined) personal property within the Premises, including pamphlets, signs, advertisements, notices, handbills, decor or any other item of any Subtenant Party within the Premises that is or may be visible from the exterior of the Premises and which Sublandlord deems, in its reasonable discretion to be improper, unlawful, objectionable or unsightly (each such item, an “ Objectionable Item ”). Notwithstanding the foregoing, in no event shall Subtenant’s improvements, furniture and equipment be deemed an Objectionable Item. Subtenant shall promptly remove or alter such Objectionable Item, such that the Objectionable Item is either no longer visible from the exterior of the Premises or such Objectionable Item has been sufficiently altered so that the Objectionable Item is no longer deemed by Sublandlord to be improper, unlawful, objectionable or unsightly. If Subtenant fails to remove or alter any Objectionable Item as required by this Section 5.4 , then Sublandlord shall have the right, but shall be under no obligation, to enter the Premises and immediately remove such Objectionable Item from the Premises or do any other act that Sublandlord may elect in its reasonable discretion to ensure that the Objectionable Item is no longer visible from the exterior of the Premises, and Subtenant shall immediately pay to Sublandlord all costs incurred by Sublandlord in connection therewith, and Sublandlord shall not, in any event, be liable to Subtenant or any other Subtenant Party for any losses suffered thereby as a result of such entry by Sublandlord. As used herein, “ Subtenant Party ” means each of Subtenant, any person claiming by, through or under Subtenant, or any of the contractors, agents, servants, employees, invitees, guests or licensees of Subtenant.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Subtenant Services . Sublandlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1 Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Sublandlord shall provide heating, ventilation and air conditioning (“ HVAC ”) when necessary for normal comfort for normal office use in the Premises from 7:00 A.M. to



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6:00 P.M. Monday through Friday, and on Saturdays from 9:00 A.M. to 1:00 P.M. (collectively, the “ Building Hours ”), except for the date of observation of New Year’s Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Sublandlord’s discretion, other State or nationally recognized holidays (collectively, the “ Holidays ”).

6.1.2 Sublandlord shall provide adequate electrical wiring and facilities for connection to Subtenant’s lighting fixtures and incidental use equipment, provided that (i) the connected electrical load of the incidental use equipment does not exceed an average of four and one half (4.5) watts per rentable square foot of the Premises, and the electricity so furnished for incidental use equipment will be at a nominal one hundred twenty (120) volts and no electrical circuit for the supply of such incidental use equipment will require a current capacity exceeding twenty (20) amperes, and (ii) the connected electrical load of Subtenant’s lighting fixtures does not exceed an average of two (2) watts per usable square foot of the Premises, and the electricity so furnished for Subtenant’s lighting will be at a nominal two hundred seventy-seven (277) volts, which electrical usage shall be subject to all Applicable Laws (as hereinafter defined), and, provided, however, that one or more of the forgoing numbers may be increased if required by Applicable Law in connection with any Subtenant Improvements, and changes to the Building or the Premises necessary to permit such increased electrical capacity, shall be done at Subtenant’s sole cost and expense. Subtenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

6.1.3 Sublandlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Common Areas.

6.1.4 Sublandlord shall provide customary and routine cleaning and janitorial service for the Premises; provided, the Premises are used in accordance with the Permitted Uses, which services shall be consistent with janitorial services provided at comparable buildings in San Francisco, California.

6.1.5 Sublandlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours and shall have one elevator available at all other times, including on the Holidays.

6.1.6 Sublandlord shall provide nonexclusive freight elevator service subject to scheduling by Sublandlord. Subtenant and any other Subtenant Party shall use the freight elevator to transport any and all bicycles to and from the Premises, and in no event shall Subtenant, or any other Subtenant Party, use the passenger elevators for the transportation of bicycles within the Building.

6.1.7 Sublandlord shall provide security to the Building and Common Areas (but not to the Premises), consistent with security services provided to other Class “A” office buildings in the so-called “South of Market” area of San Francisco. In connection therewith, Sublandlord shall provide Subtenant with one or more identification cards, which identification cards shall provide Subtenant and any employees thereof with access to the Building, elevators and stairs by utilizing the Building’s electronic access control devices. Subtenant shall pay to Sublandlord the actual cost of each such identification card issued to Subtenant as a deposit against the return of such identification card to Sublandlord at the expiration of the Lease Term. To the extent Delivery Dates have occurred for any contiguous Floors, Sublandlord shall permit Subtenant to use any interior stairs connecting such Floors for “floor to floor” access thereto.



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Subtenant shall cooperate with Sublandlord at all times and abide by all regulations and requirements that Sublandlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Overstandard Subtenant Use .

6.2.1 Non-Electrical Usage . Subtenant shall not, without Sublandlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Sublandlord pursuant to the terms of Section 6.1 of this Lease. If Subtenant uses water, heat or air conditioning in excess of that supplied by Sublandlord pursuant to Section 6.1 of this Lease, Subtenant shall pay to Sublandlord, upon billing, the actual cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Sublandlord may install devices to separately meter any increased use and in such event Subtenant shall pay the cost of such increased use directly to Sublandlord, on written demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. If Subtenant desires to use HVAC during non-Building Hours, Subtenant shall give Sublandlord such prior notice as Sublandlord shall from time to time establish as appropriate, but in no event less than one (1) business day’s prior notice, of Subtenant’s desired after-hours use, and, provided Subtenant has complied with the notice requirement set forth herein, Sublandlord shall supply such after-hours HVAC to the Premises. The cost of after-hours HVAC for the Premises is currently (a) [***] Dollars ($[***] ) per hour, plus a [***] Dollars ($[***] ) setup fee, for fan service only, (b) [***] Dollars ($[***] ) per hour, plus labor costs, for full after-hours HVAC service on weeknights and (c) [***] and [***] Dollars ($[***] ) per hour, plus labor costs, for full after-hours HVAC services on weekends and Holidays. Such cost shall increase hereafter to the extent of an increase occurring after the date of this Lease in the direct and indirect cost to Sublandlord of providing such HVAC services. The cost of HVAC supplied by Sublandlord during non-Building Hours shall be paid by Subtenant as Additional Rent, and the cost thereof charged to Subtenant in accordance with the terms hereof may be increased by Sublandlord in its sole discretion from time to time.

6.2.2 Electrical Usage . In connection with Subtenant’s lease of the Premises, Subtenant shall be required, at Sublandlord’s sole cost and expense, to install, operate and maintain a submetering device for each Floor of the Premises (each a “ Submeter ”). Subtenant shall pay to Sublandlord, upon billing, Subtenant’s actual cost of electricity consumption as evidenced by each Submeter, without any markup or other administrative charge to be paid solely to Sublandlord. Subtenant’s use of electricity shall not exceed the capacity of the feeders to the Project or the risers or wiring installation (which capacity is four and one half (4.5) watts per rentable square foot), and Subtenant shall promptly discontinue any such excess use promptly following receipt of notice of the same from Sublandlord.

6.3 Interruption of Use . Except to the extent arising from the [***] of Sublandlord or any Sublandlord Party, Subtenant agrees that Sublandlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water,



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or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or an Event of Default of Subtenant or any act or default by any parties, or by any other cause beyond Sublandlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Subtenant’s use and possession of the Premises or relieve Subtenant from paying Rent or performing any of its obligations under this Lease . Furthermore, Sublandlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Subtenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 .

Notwithstanding the foregoing, if all or any portion of the Premises is made untenantable or inaccessible for more than four (4) consecutive business days after notice from Subtenant to Sublandlord as a result of a service interruption that does not result from a casualty or condemnation event, and Subtenant does not inhabit all or any such portion of the Premises as a result thereof, then monthly Rent shall abate for the period beginning on the day immediately following such 5-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 the direct result of an act or omission of Sublandlord that is not otherwise permitted under the terms of this Lease, and Subtenant promptly notifies Sublandlord of such service interruption, and such service interruption continues for one hundred twenty (120) consecutive days after written notice from Subtenant, then Subtenant 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 twenty (120) day period.

6.4 Backup Utility Power . All electrical power provided to the Premises by Pacific Gas and Electric Company (or similar utility) shall be referred to herein as “ Utility Power ”. Subtenant has the right to connect to and utilize the Building's Uninterrupted Power System (“ Building UPS Power ”) and the Building's diesel generator bank (“ E-Power ” and, together with the Building UPS Power, collectively, the “ Backup Utility Power ”). Subtenant’s right commences on the Commencement Date and continues for the duration of the Lease Term. The Building UPS Power is intended to ensure, but not guarantee, Subtenant's operations are not interrupted in the event of an unscheduled loss of Utility Power, and the E-Power is intended to ensure, but not guarantee, Subtenant's operations are not interrupted in the event of an unscheduled loss of Utility Power and which E-Power shall replace Building UPS Power as soon as possible. Subtenant’s right to connect to the Backup Utility Power shall be subject to Subtenant’s payment to Sublandlord, on an annual basis, of a fee (the “ Backup Utility Power Fee ”) not to exceed, during the 2016 calendar year, the amount of [***] Dollar ($[***] ) per rentable square feet of the Premises for which a Rent Commencement Date has occurred as of such calendar year, due initially on the Commencement Date and thereafter each January 1 ^st for the remainder of the Lease Term, to be paid as Additional Rent. The calculation for the rentable square feet of the Premises for which a Rent Commencement Date has occurred shall be based on a 365 day year and shall be prorated accordingly based on when, during such calendar year, any Rent Commencement Date occurred. Sublandlord shall provide, by no later than December 15 ^th of each year, or fifteen (15) days prior to the Expiration Date, whichever is earlier, an invoice for the Backup Utility Power Fee for the following year as well as a calculation of the rentable square feet used in such calculation and shall review the prior year’s statement, which shall be trued up to reflect any differences in the amount of rentable square feet for which a Rent Commencement Date occurred during the prior calendar year. If a credit is due to Subtenant, such credit shall be paid to Subtenant thirty (30) days after receipt of such invoice reflecting such credit. If an additional amount is due from Subtenant, then Subtenant shall deliver such additional amount to Sublandlord no later than fifteen (15) days after receipt of such invoice. Beginning with the first full



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calendar year, January 1 ^st , 2017, the Backup Utility Power Fee shall increase by [***] and shall continue to increase by [***] each full or partial calendar year thereafter during the Lease Term. All Sublandlord’s costs to operate, maintain, test and repair Building UPS Power and the E-Power at the Building shall be included as part of Operating Expenses, which Operating Expenses shall not be offset by the Backup Utility Power Fee. Sublandlord shall not charge Subtenant a separate fee for Building UPS Power or E-Power electricity actually delivered to Subtenant.

6.5 Energy Conservation and Governmental Policies . Sublandlord will be deemed to have observed and performed the terms and conditions to be performed by Sublandlord under this Lease, including those relating to the provisions of utilities and services, if in so doing it acts according to an Applicable Law, directive, policy, or request of a governmental authority in respect of energy conservation or security. In order to assist Sublandlord 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, Subtenant shall, within thirty (30) days after written request by Sublandlord, provide to Sublandlord all energy use data for the Premises within Subtenant’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 Sublandlord in its reasonable judgment with respect to Sublandlord’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 Subtenant 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. Subtenant hereby consents to Sublandlord obtaining the information and data set forth above from the applicable utility or energy provider, and Subtenant expressly authorizes any such energy or utility provider to provide such information and data to Sublandlord and waives any right to confidentiality with respect thereto.

6.6 LEED Certification . Subtenant acknowledges and agrees that (i) Sublandlord or Master Landlord may, at such party’s option, seek certification or other recognition of the Building’s and/or Property’s energy efficiency, environmental sustainability, environmental quality, or other similar characteristics through programs such as (by way of example and not limitation) the U.S. Green Building Council’s Leadership in Energy & Environmental Design (or “ LEED ”) program, (ii) certain provisions of the Rules and Regulations may now or hereafter be instituted to help ensure such credentials are received and/or maintained, and (iii) any costs expended by Sublandlord to obtain or maintain such certification shall be considered Operating Expenses for purposes hereof.

ARTICLE 7

REPAIRS

Subtenant shall, at Subtenant’s own expense, keep and maintain the Premises, including all improvements, fixtures and furnishings therein, and, to the extent Subtenant occupies an entire floor (or floors) of the Building, the floor or floors of the Building on which the Premises are located, including, but not limited to, any altered, rebuilt, additional or substituted improvements thereto or thereon, in first class and safe condition, repair and appearance at all times during the Lease Term, and shall make all repairs and



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replacements necessary therefor. Notwithstanding the foregoing, at Subtenant’s request, Sublandlord shall make such minor repairs and replacements, including, but not limited to, painting, replacing light bulbs, ballasts and making other non-extensive repairs and replacements, and Subtenant shall pay Sublandlord the cost thereof promptly upon receipt of an invoice therefor. Subtenant shall, at Subtenant’s own expense, but under the supervision and subject to the prior approval of Sublandlord, and within any reasonable period of time specified by Sublandlord, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Subtenant; provided however, that, at Sublandlord’s option, or if Subtenant fails to make such repairs, Sublandlord may, but need not, make such repairs and replacements, and Subtenant shall pay Sublandlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project, as determined by Sublandlord in its reasonable discretion, but not to exceed [***] ([***] )), sufficient to reimburse Sublandlord for all overhead, general conditions, fees and other costs or expenses arising from Sublandlord’s involvement with such repairs and replacements forthwith upon being billed for same. Subtenant covenants to perform or observe all terms, covenants and conditions of any easement, restriction, covenant or declaration or maintenance agreement (collectively, the “ Easements ”) to which the Premises are currently subject or become subject; provided, Subtenant has written notice of such Easement. Subtenant shall deliver to Sublandlord and Master Landlord no later than ten (10) business days after receipt, copies of all written notices received from any party thereto regarding the non-compliance of the Premises or Master Landlord’s, Sublandlord’s or Subtenant’s performance of obligations under any Easement. Notwithstanding the foregoing, Sublandlord shall be responsible for, at Sublandlord’s sole cost and expense (not passed through as an Operating Expense if such repairs constitute capital expenditures expressly excluded from Operating Expenses), repairs to the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building and Base Building Systems (as hereinafter defined), except to the extent that such repairs are required due to the negligence or willful misconduct of Subtenant; provided, however, that if such repairs are due to the negligence or willful misconduct of Subtenant, Sublandlord shall make such repairs at Subtenant’s expense, and, if covered by Sublandlord’s insurance, Subtenant shall only be obligated to pay any deductible in connection therewith. Sublandlord shall maintain and repair the Common Areas of the Project and the Building, the cost of which shall be an Operating Expense. Sublandlord’s maintenance, repair and replacement activities shall be at the level of landlords of Comparable Buildings. Sublandlord may, but shall not be required to, enter the Premises at all reasonable times upon reasonable advance notice to Subtenant to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Sublandlord shall desire or deem necessary or as Sublandlord may be required to do by governmental or quasi-governmental authority or court order or decree. If Sublandlord 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 Subtenant’s operations or access to the Premises, the following requirements shall apply, except in case of an emergency or other shutdown mandated by any applicable governmental authority, including, but not limited to, any power disruption resulting from a government mandated inspection, test or other periodic review of all or any portion of the Project: (1) no such work may occur during the months of November, December and January, (2) Sublandlord shall give Tenant not less than ten (10) days advance written notice of such planned work, (3) such work may only occur during times reasonably approved by Subtenant (and the parties agree it shall be reasonable for Subtenant to require that such work occur outside of normal business hours) and (4) any such interruption may not be more than four (4) hours in length. Subtenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.



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ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Sublandlord ’ s Consent to Alterations . Subtenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Sublandlord to such Alterations, and, if required under the Master Lease, Master Landlord’s consent to such Alterations, which consent shall be requested by Subtenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld, subject to the conditions in the Master Lease; provided, it shall be deemed reasonable for Sublandlord and/or Master Landlord to withhold such party’s consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. Notwithstanding the foregoing, consistent with the terms of the Master Lease, and in all events subject thereto, Subtenant shall be permitted to redecorate the interior of the Premises (such as altering painting, wallpapering and floor coverings) and perform other non-structural alterations, costing less than [***] Dollars ($[***] ) per alteration, and such redecoration and non-structural alterations shall not constitute Alterations for purposes of this Lease; provided, (i) Subtenant shall not disturb or alter any Base Building Systems, (ii) all such alterations shall be done in compliance with Applicable Laws, (iii) Subtenant shall provide Landlord with prior written notice of any and all such alterations, (iv) such alterations shall not disturb or in any way affect other tenants in the Building or such tenant’s spaces therein, and (iv) in no event shall Subtenant be permitted to paint any concrete walls within the Premises or to in any way alter the exterior of the Premises. Subtenant shall also be required to comply with the notice requirements set forth in Paragraph 11 of the Master Lease, even if Master Landlord’s consent to such Alterations is not required. The construction of the Initial Premises Subtenant Improvements (as defined in the Initial Premises Work Letter) and all other Subtenant Improvements shall be governed by the terms of the Initial Premises Work Letter or the Subtenant Work Letter entered into after the date hereof applicable to such Floor, respectively, and not the terms of this Article 8 .

8.2 Manner of Construction .

8.2.1 Conditions to Alterations . Sublandlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Sublandlord in its reasonable discretion may deem desirable, including, but not limited to the requirement that Subtenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Subtenant from a list provided and approved by Sublandlord. Subtenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all Applicable Laws and pursuant to a valid building permit, issued by the City of San Francisco, if required, and in conformance with the terms of the Master Lease; provided, however, that prior to commencing to construct any Alteration, Subtenant shall meet with Sublandlord, and, if required under the terms of the Master Lease, Master Landlord, to discuss Sublandlord’s design parameters and code compliance issues. In performing the work of any such Alterations, Subtenant shall have the work performed in such manner as not to violate the terms of the Master Lease, not to obstruct access to the Project or any portion thereof, and so as not to unreasonably obstruct the business of Sublandlord or other tenants in the Project. Subtenant shall not use (and upon notice from Sublandlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Sublandlord’s reasonable judgment,



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would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Subtenant’s obligations under Article 9 of this Lease and under Paragraph 11 of the Master Lease, upon completion of any Alterations, Subtenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Francisco in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and Subtenant shall deliver to the Project construction manager a reproducible copy of the “as built” drawings of the Alterations, as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.2.2 Base Building Changes . In the event any Alterations which Subtenant proposes to make to the Premises require or give rise to governmentally-required changes (“ Additional Required Work ”) to the Base Building (as hereinafter defined), Sublandlord, Master Landlord and Subtenant shall work together to eliminate, if possible, or otherwise minimize the Additional Required Work. Absent elimination of such Additional Required Work or a mutually acceptable allocation of such changes as between Sublandlord and Subtenant, the cost of such changes shall be borne by Subtenant.

As used herein, (i) “ Base Building ” means the structural portions of the Building, the Base Building Systems, the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building, and (ii) “ Base Building Systems ” means all systems and equipment (including plumbing, HVAC, electrical fire/life/safety elevator and security systems) that serve all or part of the Building.

8.3 Payment for Improvements . If payment is made directly to contractors, Subtenant shall (i) comply with Sublandlord’s requirements for final lien releases and waivers in connection with Subtenant’s payment for work to contractors, and (ii) cause its contractors to sign Sublandlord’s standard contractor’s rules and regulations. If Subtenant orders any work directly from Sublandlord, Subtenant shall pay to Sublandlord an amount equal to three percent (3%) of the cost of such work to compensate Sublandlord for all overhead, general conditions, fees and other costs and expenses arising from Sublandlord’s involvement with such work. If Subtenant does not order any work directly from Sublandlord, Subtenant shall reimburse Sublandlord for Sublandlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Sublandlord’s review of such work.

8.4 Construction Insurance . In addition to the requirements of Article 10 of this Lease, in the event that Subtenant makes any Alterations, prior to the commencement of such Alterations, Subtenant shall provide Sublandlord with evidence that Subtenant carries “Builder’s All Risk” insurance in an amount approved by Sublandlord covering the construction of such Alterations, and such other insurance as Sublandlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Subtenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, in connection with any Alteration that exceeds $[***] in cost , Sublandlord may, in its discretion, require Subtenant to obtain a lien and completion bond or some alternate form of security satisfactory to Sublandlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Sublandlord as a co-obligee.

8.5 Sublandlord ’ s Property . All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Subtenant and shall be and become the property of Sublandlord, except that Subtenant may remove any Severable Alterations (as hereinafter defined); provided, Subtenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a



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broom clean, tenant improved condition as reasonably determined by Sublandlord. If Subtenant fails to complete such removal and/or to repair any damage caused by the removal of any Severable Alterations and return the affected portion of the Premises to a broom clean, tenant improved condition, as reasonably determined by Sublandlord, Sublandlord may do so and may charge the cost thereof to Subtenant. Except to the extent arising from Sublandlord’s [***] Subtenant hereby protects, defends, indemnifies and holds Sublandlord and Master Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, Severable Alterations or other improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Subtenant shall survive the expiration or earlier termination of this Lease. Notwithstanding anything to the contrary contained herein, Subtenant shall not be required to remove the initial improvements to the Premises constructed pursuant to the terms of the Initial Premises Work Letter (or any other Subtenant Work Letter governing other portions of the Premises entered into pursuit to the terms of this Lease), except for (i) any such initial improvements that are not customarily constructed in a Class “A” office building, which may include, but not be limited to, removal of all improvements constructed in connection with the commercial cafeteria and/or removal the all-hands meeting space to be located within the Premises, but only to the extent Sublandlord notifies Subtenant in writing at the time Sublandlord reviews and approves the construction drawings for the initial improvements that such initial improvements or portions thereof will have to be removed by Subtenant at the expiration or earlier termination of this Lease, and (ii) any, subject to the terms of Section 8.6 below, Lines (as hereinafter defined), and, consistent with the terms of the Master Lease, Subtenant shall not be required to remove any permitted Alterations or any improvements or alterations that were previously constructed in the Premises by or at the direction of Sublandlord or any tenants of Sublandlord at the end of the Lease Term. As used herein, the term “ Severable Additions ” means all Additions to the Premises during the Lease Term which (a) are readily removable without causing more than de minimis damage to the Premises, (b) will not materially reduce the value, useful life or utility of the Premises if removed, (c) are not required for lawful use of the Premises and (d) have been paid for by Subtenant during the term of this Lease.

8.6 Communications and Computer Lines . Subtenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “ Lines ”) in or serving the Premises; provided, that (i) Subtenant shall obtain Sublandlord’s prior written consent, which shall not be unreasonably withheld, use an experienced and qualified contractor approved in writing by Sublandlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, which number shall be determined by Sublandlord in its reasonable discretion, (iii) the Lines (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Sublandlord, (iv) any new Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines within the third (3 ^rd ) Floor, Sublandlord may require that Subtenant remove existing Lines located in or serving the third (3 ^rd ) Floor and repair any damage in connection with such removal, and (vi) Subtenant shall pay all costs in connection therewith. Sublandlord reserves the right to require that Subtenant remove any Lines located in or serving the Premises (a) upon expiration of the Lease Term or any earlier termination of this Lease, or (b) which are installed in violation of these provisions, or (c) which are at any time in violation of any laws or represent a dangerous or potentially dangerous condition.



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8.7 Telecommunications Equipment .

8.7.1 Telecommunications Equipment Installation . During the Lease Term and subject to the terms of this Lease, Subtenant shall have the right to install, use, maintain, repair and replace on the roof of the Building a maximum of one (1) telecommunications antennae across the roof and through the vertical shafts and horizontal raceways of the Building, and such electrical wires and cable as are reasonably necessary to connect such antennae to the Premises (collectively, “ Telecommunications Equipment ”). The Telecommunications Equipment shall be of a size and type reasonably acceptable to Sublandlord and shall not be visible from ground level. The provisions of this Lease shall apply to Subtenant’s installation, use, maintenance, repair and replacement of the Telecommunications Equipment.

8.7.2 Location . The Telecommunications Equipment shall be installed by Subtenant at a location on the roof of the Building selected by Subtenant, subject to Sublandlord’s approval. Sublandlord may withhold such approval so long as Sublandlord designates an alternative location on the roof of the Building, reasonably acceptable to Subtenant. Sublandlord shall also have the right, from time to time during the Lease Term, to require Subtenant to relocate the Telecommunications Equipment to a different location on the roof of the Building. In any such event, the cost of relocation shall be the responsibility of Subtenant.

8.7.3 Utilities . Sublandlord shall not be obligated to provide water, gas or other utilities to any of the Telecommunications Equipment, except that Sublandlord shall allow Subtenant to connect to Sublandlord’s existing electrical panels servicing the roof of the Building and to draw therefrom, at Subtenant’s expense, electrical power for ordinary use of the Telecommunications Equipment. At Sublandlord’s request, Subtenant shall install a separate meter to measure the amount of electricity used by Subtenant for the operation of the Telecommunications Equipment. Subtenant shall pay Sublandlord, as Additional Rent, the cost of such electricity used.

8.7.4 Attachment . The Telecommunications Equipment shall be attached in a manner acceptable to Sublandlord. In no event shall Subtenant be permitted to penetrate into the surface of the roof to attach the Telecommunications Equipment without first obtaining Sublandlord’s prior written consent, which shall not be unreasonably withheld. If Sublandlord consents to Subtenant penetrating into the roof’s surface to attach the Telecommunications Equipment, then Subtenant shall be required to use a roofing contractor chose by Sublandlord, in its sole and absolute discretion, to complete such penetrations, and, except to the extent arising from the [***] of Sublandlord or any Sublandlord Party, Subtenant shall protect, indemnify, defend and hold Sublandlord and Master Landlord harmless from any liability, cost, obligation, expense or claim in any manner relating to the installation, placement or removal of such Telecommunications Equipment, which obligations shall survive the expiration or earlier termination of this Lease.

8.7.5 Use . The Telecommunications Equipment may only be used by Subtenant in its ordinary course of business. Subtenant shall not sell or lease the Telecommunications Equipment to any other party or permit the use of the Telecommunications Equipment by any other party. Subtenant, at its sole expense, shall comply with all Applicable Laws and secure all permits regarding installation, construction, operation and maintenance of the Telecommunications Equipment.

8.7.6 Interference . In no event may the Telecommunications Equipment interfere with the reception of or signal from any other antenna or satellite dish presently erected or which may in



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the future be erected on or about the Building. If the operation of the Telecommunications Equipment interferes with any such other antenna or satellite dish then, immediately following written notice from Sublandlord to Subtenant of such interference, Subtenant shall eliminate such interference. If Subtenant is unable to eliminate promptly such interference, then Sublandlord may, upon further written notice to Subtenant, require Subtenant to shut down such Telecommunications Equipment and Subtenant shall immediately do so.

8.7.7 Removal . Upon the expiration of the Lease Term or any sooner termination of the Lease, Subtenant shall remove all of the Telecommunications Equipment from the roof and other areas of the Building and restore such areas to their condition prior to such installation.

8.7.8 Roof Access . Subtenant may have access to the roof and other areas of the Building for the purposes permitted by this Section 8.7 during Building Hours upon not less than twenty-four (24) hours prior written notice to Sublandlord given during normal business hours. As part of such notice, Subtenant shall designate to Sublandlord the work to be performed, the estimated length of time to perform the work and the authorized person or persons who will perform the work. Upon receipt of such notice, Sublandlord shall advise Subtenant of the time(s) during which such work may be performed.

8.7.9 Maintenance . Sublandlord shall have no obligation to design, install, construct, use, operate, maintain, repair, replace or remove the Telecommunications Equipment or have any other responsibility or liability in connection therewith or the operations thereof.

ARTICLE 9

COVENANT AGAINST LIENS

Subtenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Subtenant, and, except to the extent caused by the [***] of Sublandlord or any Sublandlord Party, shall protect, defend, indemnify and hold Sublandlord and Master Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith. Subtenant shall give Sublandlord notice at least twenty (20) days prior to the commencement of any Alterations (or such additional time as may be necessary under Applicable Laws) to afford Sublandlord the opportunity of posting and recording appropriate notices of non-responsibility. Subtenant shall remove any such lien or encumbrance by bond or otherwise within ten (10) days after notice by Sublandlord, and if Subtenant shall fail to do so, Sublandlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Sublandlord under this Lease. Nothing contained in this Lease shall authorize Subtenant to do any act which shall subject Sublandlord’s interest in, or Master Landlord’s title to, the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Sublandlord shall be null and void, or at Sublandlord’s option shall attach only against Subtenant’s interest in the Premises and shall in all respects be subordinate to Sublandlord’s interest in, and Master Landlord’s title to, the Project, Building and Premises.



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ARTICLE 10

INSURANCE

10.1 Indemnification and Waiver .

10.1.1 Tenant’s Indemnification and Waiver . Except to the extent arising from the [***] of any Landlord Party, Subtenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that neither Sublandlord, Master Landlord nor either’s partners, subpartners or their respective officers, agents, servants, employees, or independent contractors (collectively, “ Landlord Parties ”, and each, a “ Landlord Party ”) shall be liable for, and are hereby released from responsibility for, damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Subtenant or by other persons claiming through Subtenant. Subtenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred in connection with or arising from any cause in, on or about the Premises (including, but not limited to, a slip and fall) acts, omissions or negligence of Subtenant or of any person claiming by, through or under Subtenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Subtenant or any such person (collectively, the “ Subtenant Parties ”, and each, a “ Subtenant Party ”), in, on or about the Project or any breach of the terms of this Lease or the Master Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the [***] of a Landlord Party. Should Sublandlord and/or Master Landlord be named as a defendant in any suit brought against Subtenant in connection with or arising out of Subtenant’s occupancy of the Premises, Subtenant shall pay to Sublandlord’s and Master Landlord’s costs and expenses incurred in such suit, including without limitation, such party’s actual professional fees such as reasonable appraisers’, accountants’ and attorneys’ fees.

10.1.2 Sublandlord’s Indemnification . Sublandlord shall indemnify, defend, protect and hold harmless Subtenant from [***]. Notwithstanding anything to the contrary set forth in this Lease, either party’s agreement to indemnify the other party as set forth in this Section 10.1 shall be ineffective to the extent the matters for which such party agreed to indemnify the other party are covered by insurance required to be carried by the non-indemnifying party pursuant to this Lease. Further, Subtenant’s agreement to indemnify Sublandlord and Sublandlord’s agreement to indemnify Subtenant pursuant to this Section 10.1 are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried pursuant to the provisions of this Lease, to the extent such policies cover, or if carried, would have covered the matters, subject to the parties’ respective indemnification obligations; nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease.

10.1.3 General Indemnification Provisions . The provisions of this Section 10.1 shall survive the expiration or earlier termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Subtenant or Sublandlord to be responsible or liable for, and each hereby releases the other from liability for, consequential damages, other than those consequential damages incurred by Sublandlord or Master Landlord in connection with a holdover of the Premises by Subtenant after the expiration or earlier



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termination of this Lease, or incurred by Sublandlord in connection with any repair, physical construction or improvement work performed by or on behalf of Subtenant in the Project.

10.2 Subtenant ’ s Compliance With Sublandlord ’ s Fire and Casualty Insurance . Subtenant shall, at Subtenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Subtenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Subtenant shall reimburse Sublandlord for any such increase. Subtenant, at Subtenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.3 Subtenant ’ s Insurance Throughout the Lease Term, Subtenant shall procure and maintain, at its own cost and expense, property insurance (but only with respect to Subtenant’s personal property and the Subtenant Improvements), commercial general liability insurance (which shall include coverage for Tenant’s roof rights set forth in Section 8.7 above), workers’ compensation insurance, builder’s risk insurance (when applicable), and any other coverages as are required to be carried by Sublandlord under the Master Lease; provided, however, that (i) Subtenant shall not be permitted to self-insure, notwithstanding that Sublandlord is permitted to self-insure under the terms of the Master Lease, and (ii) Subtenant shall not be required to carry property insurance (including earthquake and flood) with respect to the Project and/or the Building, as required pursuant to Section 12(a)(i),(v) and (vi) of the Master Lease.

10.4 Form of Policies . The minimum limits of policies of insurance required of Subtenant under this Lease shall in no event limit the liability of Subtenant under this Lease. Such insurance shall (i) name Sublandlord, Master Landlord, and any other party Sublandlord or Master Landlord so specifies, as an additional insured, including Sublandlord’s managing agent, if any; (ii) specifically cover the liability assumed by Subtenant under this Lease, including, but not limited to, Subtenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company meeting the requirements set forth in Paragraph 12 of the Master Lease; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Sublandlord or Master Landlord is excess and is non-contributing with any insurance requirement of Subtenant; (v) be in form and content reasonably acceptable to Sublandlord and Master Landlord; and (vi) provide that said insurance shall not be canceled unless prior written notice shall have been given to Sublandlord, Master Landlord and any mortgagee thereof. Subtenant shall deliver certificates thereof to Sublandlord and Master Landlord on or before the Lease Commencement Date and at least ten (10) days before the expiration dates thereof. In the event Subtenant shall fail to procure such insurance, or to deliver such policies or certificate, Sublandlord may, at its option, procure such policies for the account of Subtenant, and the cost thereof shall be paid to Sublandlord within five (5) days after delivery to Subtenant of bills therefor.

10.5 Subrogation . Subject to Section 10.1.3 above, Sublandlord and Subtenant intend that their respective property loss risks shall be borne by insurance carriers to the extent above provided, and Sublandlord and Subtenant hereby agree to look to, and seek recovery from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder.



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10.6 Additional Insurance Obligations . Subtenant shall carry and maintain during the entire Lease Term, at Subtenant’s sole cost and expense, increased amounts of the insurance required to be carried by Subtenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Subtenant’s operations therein, as may be reasonably requested by Sublandlord and Master Landlord if (a) at any time during the Lease Term, Subtenant alters the business that it is conducting within the Premises, and, as a result of such alteration, Sublandlord reasonably determines that Subtenant needs to increase the amount of coverage or the type of coverage then being carried by Subtenant, or (b) for any other reason, Master Landlord reasonably determines that Subtenant needs to increase the type or amount of insurance coverage then-carried by Subtenant, but (i) in the case of clause (b) in no event shall Sublandlord be permitted to require such changes more than two (2) times during the Lease Term, and (ii) in either case, in no event shall Sublandlord require Subtenant to carry types or amounts of insurance excess of the amounts and types of insurance then being required of tenants in Comparable Buildings occupying comparable space and engaged in a similar use as Subtenant.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Sublandlord .

11.1.1 Damage to Building . Subtenant shall promptly notify Sublandlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Sublandlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Sublandlord’s reasonable control, and subject to all other terms of this Article 11 , restore the Base Building and such Common Areas. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building, the Project, or the Master Lease, or any other modifications to the Common Areas deemed desirable by Sublandlord or Master Landlord, which are consistent with the character of the Project; provided, that access to the Premises and any restrooms serving the Premises shall not be materially impaired.

11.1.2 Damage to Premises . Upon the occurrence of any damage to the Premises, upon notice (the “ Sublandlord Repair Notice ”) to Subtenant from Sublandlord, Subtenant shall assign to Sublandlord (or to any party designated by Sublandlord) all property insurance proceeds payable to Subtenant for the Subtenant Improvements under Subtenant’s insurance required under Section 10.3 of this Lease, and Sublandlord shall repair any injury or damage to the Subtenant Improvements and the Original Improvements installed in the Premises and shall return such Subtenant Improvements and Original Improvements to their original condition; provided, that if the cost of such repair by Sublandlord exceeds the amount of insurance proceeds received by Sublandlord from Subtenant’s insurance carrier, as assigned by Subtenant, the cost of such repairs shall be paid by Subtenant to Sublandlord prior to Sublandlord’s commencement of repair of the damage. Whether or not Sublandlord delivers a Sublandlord Repair Notice, prior to the commencement of construction, Subtenant shall submit to Sublandlord, for Sublandlord’s review and approval, all plans, specifications and working drawings relating thereto, and Sublandlord shall select the contractors to perform such improvement work. Sublandlord shall not be liable for any inconvenience or annoyance to Subtenant or its visitors, or injury to Subtenant’s business resulting in any way from such damage or the repair thereof; provided however,



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that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Subtenant’s occupancy, and the Premises are not occupied by Subtenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises. In the event that Sublandlord shall not deliver the Sublandlord Repair Notice, Subtenant’s right to Rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Sublandlord to be the date Subtenant should have completed repairs to the Premises assuming Subtenant used reasonable due diligence in connection therewith. Notwithstanding anything to the contrary contained herein, Subtenant shall not be entitled to any abatement of Rent if (i) any damage to the Premises resulted from a default or the negligence or willful misconduct of Subtenant under the terms of this Lease and (ii) Sublandlord does not receive any insurance proceeds as a result of such damage. Notwithstanding anything to the contrary contained herein, in no event shall any abatement of Rent provided to Subtenant under this Section 11.1 exceed any insurance proceeds received by Sublandlord as a result of any such damage.

11.2 Sublandlord ’ s Option to Repair . Notwithstanding the terms of Section 11.1 of this Lease, Sublandlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Subtenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Subtenant sixty (60) days to vacate the Premises, but Sublandlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Sublandlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building, the Project, or the Master Lease shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the Master Lease, as the case may be; (iii) the damage is not fully covered by Sublandlord’s insurance policies; (iv) intentionally deleted; or (v) the damage occurs during the last [***] of the Lease Term. In the event Sublandlord does not terminate this Lease as set forth above, and in Sublandlord’s reasonable judgment, the repairs cannot be completed within such one hundred eighty (180) days, as set forth in (i) above, Sublandlord shall provide Subtenant with written notice (“ Repair Notice ”) of the time within which such repairs may be completed, in Sublandlord’s reasonable judgment. Notwithstanding the foregoing, Subtenant may terminate this Lease by written notice to Sublandlord (a) if all or a material portion of the Premises is damaged during the last[***] of the Lease Term, such that Subtenant’s access to the Premises is materially limited or impaired or Subtenant is prevented from using the Premises (or more than [***] ([***] ) of the rentable square footage thereof) for the Permitted Use, and Sublandlord reasonably estimates that it will take more than [***] to repair such damage or (b) if (y) if Subtenant is not, at the time of such casualty, leasing the entirety of the Premises, and all of the Premises then being occupied by Subtenant is damaged, and it is estimated to take more than [***] days from the date of the casualty to repair such damage, or (z) if Subtenant is, at the time of such casualty, leasing the entirety of the Premises, and it is estimated that it will take more than [***] [***] to repair more than [***] ([***] ) of the Premises. Subtenant shall not be required to pay any portion of the deductible under Sublandlord’s insurance policies if Master Landlord, Sublandlord or Subtenant elects to terminate the Master Lease or this Lease, as applicable, in the event of a casualty, unless such event is the result of Subtenant’s [***].



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11.3 Waiver of Statutory Provisions . The provisions of this Lease, including this Article 11 , constitute an express agreement between Sublandlord and Subtenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

ARTICLE 12

NONWAIVER

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Sublandlord shall not be deemed to be a waiver of any preceding breach by Subtenant of any term, covenant or condition of this Lease, other than the failure of Subtenant to pay the particular Rent so accepted, regardless of Sublandlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Sublandlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Sublandlord may accept such check or payment without prejudice to Sublandlord’s right to recover the full amount due. No receipt of monies by Sublandlord from Subtenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Subtenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Subtenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Sublandlord may receive and collect any Rent due, and the payment of Rent shall not waive or affect said notice, suit or judgment.

ARTICLE 13

CONDEMNATION

If the whole or any material part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any material part of the Premises, Building or Project, or if Sublandlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Sublandlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than [***] ([***] ) of the rentable square feet of the Premises is taken and such condemnation shall, in Subtenant’s good faith judgment, render the Premises unsuitable for restoration for continued use and occupancy of Subtenant’s business, or if access to the Premises is substantially impaired, in each case for a period in excess of [***] ([***] ) days, Subtenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Subtenant shall not because of such taking assert any claim against Sublandlord or the authority for any compensation because of such taking and



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Sublandlord shall be entitled to the entire award or payment in connection therewith, except that Subtenant shall have the right to file any separate claim available to Subtenant for any taking of Subtenant’s personal property and fixtures belonging to Subtenant and removable by Subtenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Sublandlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Subtenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Subtenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13 , in the event of a temporary taking of all or any portion of the Premises for a period of [***] ([***] ) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Sublandlord shall be entitled to receive the entire award made in connection with any such temporary taking. If only a portion of the Premises is subject to a taking, and this Lease is not terminated, Sublandlord, with reasonable diligence, will restore the remaining portion of the Premises as nearly as practicable to the condition immediately prior to such taking. Subtenant agrees that the provisions of this Lease shall govern any taking and shall accordingly supersede any contrary statute or rule of law.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers . Subject further to all of the rights of Master Landlord under the Master Lease, and the restrictions contained in the Master Lease, Subtenant shall not, without the prior written consent of Sublandlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Subtenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “ Transfer ( s )” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “ Transferee ”). If Subtenant desires Sublandlord’s consent to any Transfer, Subtenant shall notify Sublandlord in writing, which notice (the “ Transfer Notice ”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “ Subject Space ”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the Transfer Premium (as defined below) in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Sublandlord which



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will enable Sublandlord to determine the financial responsibility, character and reputation of the proposed Transferee, and the nature of such Transferee’s business and proposed use of the Subject Space, and (v) an executed estoppel certificate from Subtenant in the form attached hereto as Exhibit I . Any Transfer made without Sublandlord’s prior written consent shall, at Sublandlord’s option, be null, void and of no effect, and shall, at Sublandlord’s option, constitute an immediate Event of Default. Whether or not Sublandlord consents to any proposed Transfer, Subtenant shall pay Sublandlord’s reasonable outside counsel fees incurred in connection with the review of such Transfer documents, in each case, within [***] ([***] ) [***] after written request by Sublandlord and in an amount not to exceed [***] Dollars ($[***] ) in the aggregate.

14.2 Sublandlord ’ s Consent . Sublandlord shall not unreasonably withhold or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Within twelve (12) days after receipt of the Transfer Notice, Sublandlord shall consent or not consent to the same by written notice to Subtenant. If Sublandlord does not consent to the Transfer, Sublandlord shall provide reasons why Sublandlord is withholding its consent. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Sublandlord to withhold consent to any proposed Transfer where one or more of the following apply:

14.2.1 The Transferee is of a character or reputation or engaged in a business that would not typically be included in a Comparable Building owned by an institutional owner or investor;

14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease or for use as (i) a restaurant, café or other business engaged in providing food services to the general public or to other tenants of the Building, (ii) a yoga studio, Pilates studio, barre studio or other health club or similar type health or wellness services center open to the public or to other tenants of the Building, or (iii) as a hair salon or barber shop;

14.2.3 The Transferee is either a governmental agency or instrumentality thereof; or

14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested.

If Sublandlord consents to any Transfer pursuant to the terms of this Section 14.2 , Subtenant may within six (6) months after Sublandlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon the same terms and conditions as are set forth in the Transfer Notice furnished by Subtenant to Sublandlord pursuant to Section 14.1 of this Lease; provided, that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Sublandlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , or (ii) which would cause the proposed Transfer to be materially more favorable to the Transferee than the terms set forth in Subtenant’s original Transfer Notice, Subtenant shall again submit the Transfer to Sublandlord for its approval and other action under this Article 14 . Notwithstanding anything to the contrary in this Lease, if Subtenant claims that Sublandlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14 , its sole remedy shall be a suit for declaratory judgment and an injunction for the relief sought, and Subtenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease.



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14.3 Transfer Premium . If Sublandlord consents to a Transfer as a condition thereto which the parties hereby agree is reasonable, Subtenant shall pay to Sublandlord [***] ([***]) of any Transfer Premium received by Subtenant from such Transferee. “ Transfer Premium ” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Base Rent and Additional Rent payable by Subtenant under this Lease during the term of the Transfer (on a per rentable square foot basis if less than all of the Premises is transferred), after deducting the reasonable, out-of-pocket expenses incurred by Subtenant for ( i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee in connection with the Transfer and (iii) any brokerage commissions and legal fees incurred in connection with the Transfer (collectively, “ Subtenant ’ s Transfer Costs ”). “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Subtenant in connection with such Transfer. The determination of the amount of Sublandlord’s applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Subtenant under the Transfer. For purposes of calculating the Transfer Premium on a monthly basis,(i) Subtenant’s Transfer Costs shall be deemed to be expended by Subtenant in equal monthly amounts over the entire term of the Transfer.

14.4 Sublandlord ’ s Option as to Subject Space . Notwithstanding anything to the contrary contained in this Article 14 , in the event Subtenant contemplates a Transfer of all or a portion of the Premises (or in the event of any other Transfer or Transfers entered into by Subtenant as a subterfuge in order to avoid the terms of this Section 14.4 ), Subtenant shall give Sublandlord notice (the “ Intention to Transfer Notice ”) of such contemplated transfer (whether or not such contemplated transfer or any of the terms of such contemplated transfer have been determined). The Intention to Transfer Notice shall specify the portion of the rentable amount of square feet of the Premises which Subtenant intends to transfer (the “ Contemplated Transfer Space ”), the contemplated date of commencement of the contemplated transfer (the “ Contemplated Effective Date ”) and the contemplated length of the term of such contemplated transfer, and shall specify that such Intention to Transfer Notice is delivered to Sublandlord pursuant to this Section 14.4 in order to allow Sublandlord to elect to recapture the Contemplated Transfer Space for the term set forth in the Intention to Transfer Notice. Thereafter, Sublandlord shall have the option, by giving written notice to Subtenant within ten (10) business days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space (i) for Sublandlord’s use or, (ii) if the specified portion of the Premises intended to be transferred is equal to or in excess of 100,000 rentable square feet , for any reason, in Sublandlord’s sole and absolute discretion. Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date until the last day of the term of the contemplated transfer is set forth in the Intention to Transfer Notice. In the event of a recapture by Sublandlord, this Lease shall be cancelled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Subtenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Sublandlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4 , then, subject to the other terms of this Article 14 , for a period of nine (9) months (the “ Nine Month Period ”) commencing on the last day of such thirty (30) day period, Sublandlord shall not have any right to recapture the Contemplated Transfer Space with respect to any transfer made during the Nine Month Period, provided that any such transfer is substantially on the terms set forth in the Intention to Transfer Notice and, provided further, that any such transfer shall be subject to the remaining terms of this Article 14 . If such a transfer is not so consummated within the Nine Month Period (or if the transfer is so consummated, then upon the expiration of the term of any transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Subtenant shall again be required to



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submit a new Intention to Transfer Notice to Sublandlord with respect to any contemplated transfer, as provided above in this Section 14.4 . If Sublandlord elects to recapture the Contemplated Transfer Space as set forth in this Section 14.4, Subtenant shall have the right to revoke the Intention to Transfer Notice within ten (10) days after receipt of notice from Sublandlord that it intends to recapture the Contemplated Transfer Space, and, upon receipt of such notice of revocation, Sublandlord and Subtenant shall proceed under the terms of this Lease, as if such Intention to Transfer Notice had never been delivered to Sublandlord.

14.5 Effect of Transfer . If Sublandlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) the Transfer shall expressly be made, as evidenced by the Transfer documentation, subject and subordinate to the provisions of this Lease and the Master lease, (iii) in no event shall the term of such Transfer extend beyond the Lease Expiration Date, (iv) such consent shall not be deemed consent to any further Transfer by either Subtenant or a Transferee, (v) Subtenant shall deliver to Sublandlord and Master Landlord, no later than ten (10) days after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Sublandlord and Master Landlord, (vi) Subtenant shall furnish upon Sublandlord’s request a complete statement setting forth in detail the computation of any Transfer Premium Subtenant has derived and shall derive from such Transfer, and (vii) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Sublandlord’s consent, shall relieve Subtenant or any guarantor of this Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space.

14.6 Occurrence of Default . Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease and the provisions of the Master Lease, and if this Lease or the Master Lease shall be terminated during the term of any Transfer, (A) Sublandlord shall, in the case of a termination of this Lease, have the right to: (i) treat such Transfer as canceled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Sublandlord as its landlord under any such Transfer or (B) in the event of a termination of the Master Lease, Master Landlord shall have the right to treat such this Lease and such Transfer as canceled and repossess the Subject Space by any lawful means, or (ii) require that Subtenant and/or Transferee attorn to and recognize Master Landlord as such party’s landlord under this Lease or such Transfer, as applicable. Upon the occurrence of an Event of Default, Sublandlord is hereby irrevocably authorized, to direct any Transferee to make all payments under or in connection with the Transfer directly to Sublandlord (which Sublandlord shall apply towards Subtenant’s obligations under this Lease) until such Event of Default is cured. Such Transferee shall rely on any representation by Sublandlord that an Event of Default has occurred, without any need for confirmation thereof by Subtenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Subtenant thereafter to be performed or observed under this Lease, and acknowledge and agree that the Transfer and all terms thereof are subject and subordinate to the terms of this Lease (if this Lease has not been terminated) and the Master Lease. No collection or acceptance of rent by Sublandlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Subtenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Sublandlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Sublandlord’s right to enforce any term of this Lease against Subtenant or any other person.



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14.7 Non-Transfers . Notwithstanding anything to the contrary contained in this Article 14 , an assignment or subletting of all or a portion of the Premises to (i) an entity which is controlled by, controls, or is under common control with, Subtenant (an “ Affiliate ”), (ii) any entity that results from the transfer of all or substantially all of Subtenant’s assets or stock, or (iii) an entity that results from the merger or consolidation of Subtenant with another entity, shall not be deemed a Transfer under this Article 14 , provided that (a) with respect to a purchase, merger, consolidation, reorganization or acquisition, or any other transfer pursuant to this Section 14.7, which results in Subtenant ceasing to exist as a separate legal entity, the surviving entity or transferee has a net worth (as determined using generally accepted accounting principles) equal to or greater than that of Subtenant as of the Commencement Date (the “ Net Worth Requirement ”) and (b)Subtenant notifies Sublandlord of any such assignment or sublease within five (5) business days thereof and promptly supplies Sublandlord with any documents or information requested by Sublandlord regarding such assignment or sublease or such Affiliate, along with evidence reasonably satisfactory to Sublandlord that such transferee satisfies the Net Worth Requirement, and further provided that such assignment or sublease is not a subterfuge by Subtenant to avoid its obligations under this Lease. “ Control ”, as used in this Section 14.7 , shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether by the ownership of voting securities, by contract or otherwise. If Subtenant is a corporation whose shares are listed on a recognized security exchange, the transfer, repurchase, issuance or redemption of any such shares shall not be deemed a Transfer. In addition, neither Sublandlord’s nor Master Landlord’s consent shall be required for subleases or sublicenses by Subtenant to entities with whom Subtenant is doing business or who are part of a joint venture with Subtenant where such subleases or licenses in the aggregate constitute less than five percent (5%) of the Premises.

14.8 Sublandlord’s Right to Sublease . Sublandlord hereby covenants and agrees not to sublease any space within the Building that is vacated and available for lease or sublease during this Lease Term (as may be extended) to any Sublease Competitor (as hereinafter defined) for so long as (i) Original Subtenant the tenant under this Lease and is occupying, at such time, the entire Premises, and (ii) there is no material change to the ownership structure of such Sublease Competitor from and after the date hereof. “ Sublease Competitor ” means either (a) Garmin USA, Inc. or (b) Jawbone, Inc, or any Affiliate thereof.

ARTICLE 15

SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises . No act or thing done by Sublandlord or any agent or employee of Sublandlord during the Lease Term shall be deemed to constitute an acceptance by Sublandlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Sublandlord. The delivery of keys to the Premises to Sublandlord or any agent or employee of Sublandlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Sublandlord, and notwithstanding such delivery Subtenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Subtenant, whether accepted by Sublandlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Sublandlord shall operate as an assignment to Sublandlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.



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15.2 Removal of Subtenant Property by Subtenant . Upon the expiration of the Lease Term, or upon any earlier termination of this Lease or the Master Lease (and provided Master Landlord does not elect to require Subtenant to attorn thereto), Subtenant shall, subject to the provisions of this Article 15 , quit and surrender possession of the Premises in as good order and condition as when Subtenant took possession and as thereafter improved by Sublandlord and/or Subtenant, reasonable wear and tear, casualty and condemnation, and repairs, which are specifically made the responsibility of Sublandlord hereunder, excepted. Upon such expiration or termination, Subtenant shall, without expense to Sublandlord or Master Landlord, remove or cause to be removed from the Premises, Building and Project all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Subtenant or Severable Additions installed or placed by Subtenant in the Premises, and such similar articles of any other persons claiming under Subtenant, as Sublandlord or Master Landlord may, in such party’s reasonable discretion, require to be removed, and Subtenant shall repair at its own expense all damage to the Premises, Building and Project resulting therefrom; provided, however, that consistent with the terms of the Master Lease, Subtenant shall not be required to remove any Alterations made to the Premises or otherwise to restore the same and all such property shall become the property of Master Landlord.

ARTICLE 16

HOLDING OVER

If Subtenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Sublandlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable at a monthly rate equal to (i) for the first [***] of the holdover period, [***] percent ([***] %) of the monthly [***] in effect as of the expiration or termination of this Lease, and (ii) for the period commencing on the first day of the [***] of the holdover period and continuing until Subtenant vacates the Premises, [***] percent ([***] %) of the monthly [***] in effect as of the expiration or termination of the Lease. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this Article 16 shall be construed as consent by Sublandlord to any holding over by Subtenant, and Sublandlord expressly reserves the right to require Subtenant to surrender possession of the Premises to Sublandlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Sublandlord provided herein or at law. If Subtenant fails to surrender the Premises upon the expiration or earlier termination of this Lease, in addition to any other liabilities to Sublandlord accruing therefrom, Subtenant shall protect, defend, indemnify and hold Sublandlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender (provided Sublandlord has provided Subtenant with written notice that Sublandlord has entered into a lease with a tenant and provides the commencement date of such sublease), any claims made by Master Landlord as a result of Subtenant’s failure to surrender the Premises and any lost profits to Sublandlord and/or Master Landlord resulting therefrom.



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ARTICLE 17

ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS

17.1 Estoppel Certificates . Within ten (10) days following a request in writing by Sublandlord, Master Landlord or any mortgagee thereof, Subtenant shall execute, acknowledge and deliver to thereto an estoppel certificate, which shall be substantially in the form of Exhibit I , attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or Sublandlord’s interest in the Master Lease, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Sublandlord or Master Landlord or any mortgagee or prospective mortgagee thereof. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project or Sublandlord’s interest in the Master Lease. Subtenant shall execute and deliver whatever other instruments may be reasonably required for such purposes. Failure of Subtenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Subtenant that statements included in the estoppel certificate are true and correct, without exception. Sublandlord hereby agrees to provide to Subtenant an estoppel certificate signed by Sublandlord, containing the same type of information, and within the same period of time, as set forth above, with such changes as are reasonably necessary to reflect that the estoppel certificate is being granted and signed by Sublandlord to Subtenant, rather than by Subtenant to Sublandlord or a lender.

17.2 Financial Statements . At any time during the Lease Term, if Subtenant is no longer a public company with public reporting obligations, Sublandlord may require Subtenant to provide Sublandlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Subtenant, shall be audited by an independent certified public accountant.

ARTICLE 18

SUBORDINATION

This Lease shall be subject and subordinate to all terms and provisions of the Master Lease and all other present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building, the Project , the Master Lease or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Subtenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Subtenant’s occupancy, so long as no Event of Default occurs. Sublandlord’s interest



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herein may be assigned as security at any time to any lienholder. Subtenant shall, within fifteen (15) days of request by Sublandlord, execute such further instruments or assurances as Sublandlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Subtenant waives the provisions of any current or future statute, rule or law which may give or purport to give Subtenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Subtenant hereunder in the event of any foreclosure proceeding or sale. Notwithstanding anything in this Lease to the contrary, Sublandlord shall deliver to Subtenant, no later than thirty (30) days after the Lease Commencement Date, from Master Landlord, for the benefit of Subtenant, a non-disturbance and attornment agreement substantially in the form attached as Exhibit 16 to the Master Lease, as modified to incorporate the provisions benefiting Master Landlord that are included in Master Landlord’s (or its affiliates’) standard sublease forms; however, such form shall be in recordable form (the “ Landlord NDA ”) and the Landlord NDA shall be recorded, at Subtenant’s sole cost expense, after the execution thereof.

ARTICLE 19

DEFAULTS; REMEDIES

19.1 Events of Default . The occurrence of any of the following shall constitute an “ Event of Default ” hereunder (the occurrence of any of the following prior to any applicable notice or cure period shall be referred to herein simply as a “default”):

19.1.1 Any failure by Subtenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within [***] ([***] ) days after notice; or

19.1.2 Except where a specific time period is otherwise set forth for Subtenant’s performance in this Lease, in which event the failure to perform by Subtenant within such time period shall be an Event of Default by Subtenant under this Section 19.1.2 , any failure by Subtenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Subtenant where such failure continues for thirty (30) days after written notice thereof from Sublandlord to Subtenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, an Event of Default shall not be deemed to have occurred if Subtenant diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

19.1.3 Abandonment or vacation of all or a substantial portion of the Premises by Subtenant when Subtenant is otherwise in default (beyond applicable notice and cure periods) under this Lease; or

19.1.4 The failure by Subtenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than five (5) days after notice from Sublandlord, provided however, such notice shall be in addition to, and not in lieu of, the periods, if any, for performance set forth in such Articles of this Lease; or

19.1.5 [Intentionally Omitted]; or

19.1.6 Any other act or omission explicitly deemed to be an Event of Default pursuant to any other provision hereof or pursuant to the terms of the Master Lease.



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The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

19.2 Remedies Upon Default . Upon the occurrence of any Event of Default, Sublandlord shall have, in addition to any other remedies available to Sublandlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, along with any other remedy provided to Master Landlord under the Master Lease, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever:

19.2.1 Terminate this Lease, in which event Subtenant shall immediately surrender the Premises to Sublandlord, and if Subtenant fails to do so, Sublandlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Subtenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Sublandlord may recover from Subtenant the following:

(a) The worth at the time of award of the amount of any unpaid rent which has been earned at the time of such termination; plus

(b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Subtenant proves could have been reasonably avoided; plus

(c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Subtenant proves could have been reasonably avoided; plus

(d) Any other amount necessary to compensate Sublandlord for all the detriment proximately caused by Subtenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, and any special concessions made to obtain a new tenant; and

(e) At Sublandlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Subtenant pursuant to the terms of this Lease, whether to Sublandlord or to others. As used in Paragraphs 19.2.1(i) and (ii) , above, the “worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 24 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Paragraph 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Sublandlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).



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Accordingly, if Sublandlord does not elect to terminate this Lease on account of any Event of Default by Subtenant, Sublandlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Sublandlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1 and 19.2.2 , above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

19.3 Subleases of Subtenant . Whether or not Sublandlord elects to terminate this Lease on account of any Event of Default by Subtenant, as set forth in this Article 19 , Sublandlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Subtenant and affecting the Premises or may, in Sublandlord’s sole discretion, succeed to Subtenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Sublandlord’s election to succeed to Subtenant’s interest in any such subleases, licenses, concessions or arrangements, Subtenant shall, as of the date of notice by Sublandlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.4 Efforts to Relet . No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Sublandlord’s interests hereunder, or any other action or omission by Sublandlord shall be construed as an election by Sublandlord to terminate this Lease or Subtenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Subtenant in whole or in part from any of Subtenant’s obligations hereunder, unless express written notice of such intention is sent by Sublandlord to Subtenant. Subtenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

19.5 Sublandlord Default .

19.5.1 General . Notwithstanding anything to the contrary set forth in this Lease, Sublandlord shall not be in default in the performance of any obligation required to be performed by Sublandlord pursuant to this Lease unless (i) in the event such default is with respect to the payment of money, Sublandlord fails to pay such unpaid amounts within five (5) business days of written notice from Subtenant that the same was not paid when due, or (ii) in the event such default is other than the obligation to pay money, Sublandlord fails to perform such obligation within thirty (30) days after the receipt of notice from Subtenant specifying in detail Sublandlord’s failure to perform; provided, however, if the nature of Sublandlord’s obligation is such that more than thirty (30) days are required for its performance, then Sublandlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion. In no event shall Subtenant have the right to terminate or rescind this Lease as a result of Sublandlord’s default (after passage of applicable notice, grace or cure periods) as to any covenant or agreement contained in this Lease or as a result of the breach of any promise or inducement hereof, whether in this Lease or elsewhere. Subtenant hereby waives such remedies of termination and rescission and hereby agrees that Subtenant’s remedies for Sublandlord’s default hereunder and for breach of any promise or inducement shall include and be limited to, breach of contract, direct damages, a suit for specific performance, declaratory judgment, and/or injunctive relief. Nothing in this Section 19.5.1 , however, shall limit Subtenant’s other rights and remedies expressly set out under this Lease, including, without limitation, those rights and remedies described in Sections 4.4.1, 4.6 , and 6.3 .



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If Sublandlord is in default under the Lease as hereinabove described beyond the applicable notice and cure period, Subtenant shall deliver a second (2 ^nd ) default notice to Sublandlord (in addition to the notice required by Section 19.5.1 above) in an envelope marked “PRIORITY” containing a bold-faced, conspicuous (i.e. in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating “ SECOND AND FINAL NOTICE : THIS IS A DEFAULT NOTICE UNDER THE OFFICE SUBLEASE BETWEEN CHARLES SCHWAB & CO, INC. AND FITBIT, INC. FOR THE BUILDING LOCATED AT 215 FREMONT STREET, SAN FRANCISCO, CALIFORNIA. IF YOU FAIL TO CURE THE DEFAULT IDENTIFIED HEREIN WITHIN FIVE (5) BUSINESS DAYS, AFTER THE RECEIPT OF THIS NOTICE, THEN WE MAY BEGIN EXERCISING OUR SELF-HELP RIGHTS, PURSUANT TO THE TERMS OF THE OFFICE SUBLEASE ”, and specifying, in the body of such notice the specific default that Sublandlord has committed (the “ Second Notice ”). [***]

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

Sublandlord covenants that Subtenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Subtenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof, and subject to the provisions of the Master Lease, without interference by any persons lawfully claiming by or through Sublandlord.

ARTICLE 21

[INTENTIONALLY OMITTED]

ARTICLE 22

SIGNS

22.1 Subtenant ’ s Signage Rights Within the Building . For that portion of the eighth (8 ^th ) Floor of the Premises, Sublandlord shall provide, at Sublandlord’s sole cost and expense, and install an identification sign on the entrance door to the eighth (8 ^th ) Floor portion of the Premises, the design and exact placement of which shall be subject to Sublandlord’s reasonable consent.

22.2 Subtenant ’ s Right to Exterior Building Signs . At such time, and for so long as, Subtenant occupies (without any sublease or assignment) (i) at least two (2) full floors of the Building during the Lease Term, Subtenant shall have the exclusive right to display its name (“Fitbit”), including its logo, (collectively, “ Subtenant’s Name ”) on one (1) sign affixed to the top of the exterior of the Building at the location depicted on Exhibit J-1 attached hereto and made a part hereof (“ Subtenant’s



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First Top Sign ”) and on one (1) placard located at the entrance to the Building, which placard shall be located directly beneath the “Charles Schwab” signage located at the entrance to the Building (the “ Charles Schwab Entrance Sign ”), which location is depicted on Exhibit J-4 , attached hereto and made a part hereof (“ Subtenant’s Entrance Placard ”), the design of which shall be in the same general form as the Charles Schwab Entrance Sign and subject to Sublandlord’s reasonable consent, (ii) at least four (4) full floors of the Building during the Lease Term, Subtenant shall have the exclusive right to display Subtenant’s Name on two (2) signs affixed to the top of the exterior of the Building at the locations depicted on Exhibits J-1 and J-2 attached hereto and made a part hereof (the top sign reflected on Exhibit J-2 , “ Subtenant’s Second Top Sign ”) and on Subtenant’s Entrance Placard, and (iii) at least six (6) full floors of the Building during the Lease Term, Subtenant shall have the exclusive right to display Subtenant’s Name one three (3) signs affixed to the top of the exterior of the Building at the locations depicted on Exhibits J-1, J-2 and J-3 (the top sign reflected on Exhibit J-3 , “ Subtenant’s Third Top Sign ” and, together with Subtenant’s First Top Sign, Subtenant’s Entry Placard and Subtenant’s Second Top Sign, collectively, “ Subtenant’s Signs ”) and on Subtenant’s Entrance Placard; provided each of Subtenant’s Signs is allowed by the City of San Francisco and reasonably approved by Sublandlord and Master Landlord. Each of Subtenant’s Signs must:

22.2.1 Comply with all applicable governmental laws, statutes, regulations, rules, codes and ordinances;

22.2.2 Comply with the provisions of this Lease;

22.2.3 Have been approved in advance by all appropriate governmental agencies;

22.2.4 Have been approved in advance by Sublandlord (which approval shall not be unreasonably withheld, conditioned or delayed).

22.2.5 Comply with all instruments recorded or unrecorded against the Project .

22.2.6 Subtenant shall not have any right to maintain an eyebrow sign on any other part of the Building other than as reflected on Exhibit J-2 .

22.3 Subtenant ’ s Installation of Signs . Installation of Subtenant’s Signs shall be in accordance with the procedures and requirements of Article 8 above, except to the extent in conflict with Article 23 . Subtenant shall, at its sole cost and expense, install Subtenant’s Signs. Such costs and expenses include, but are not limited, to the follows:

22.3.1 Costs of Subtenant’s Signs;

22.3.2 Costs of obtaining permits and approvals;

22.3.3 Costs of installing, maintaining, repairing and replacing Subtenant’s Signs;

22.3.4 The cost of any electrical consumption illuminating Subtenant’s Signs which is in excess of Subtenant’s standard usage allotment; and

22.3.5 Costs associated with the removal of Subtenant’s Signs, repair of any damage caused by such removal, and restoration of the sites of Subtenant’s Signs on the Building to the condition in which those portions of the Building existed before the installation of Subtenant’s Signs excluding ordinary wear and tear and damage due to casualty .



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22.4 Removal, Repair and Restoration . On termination or expiration of the Lease Term, on termination of Subtenant’s Sign rights under this Article 22 , including, but not limited to, if Subtenant at any time during the Lease Term fails to meet one or more of the floor thresholds required for maintenance of one or more of Subtenant’s Signs, pursuant to Section 22.2 above, or at any earlier time at Subtenant’s election, Subtenant shall remove, at its sole cost and expense, Subtenant’s Signs, repair any damage caused by such removal and restore those parts of the Building on which Subtenant’s Signs were located to the condition that existed before the installation of Subtenant’s Signs, ordinary wear and tear and damage due to casualty excepted. Such removal, repair and restoration shall be in accordance with the procedures and requirements of Article 8 above, except to the extent in conflict with this Article 22 . The provisions of this Section 22.4 shall survive the expiration or earlier termination of this Lease.

22.5 Maintenance of Subtenant’s Signs . Subtenant, at its sole cost and expense, shall at all time during the Lease Term maintain Subtenant’s Signs in working order and first class condition.

22.6 Prohibited Signage and Other Items . Any signs, notices, logos, pictures, names or advertisements which are installed or placed by Subtenant outside of the Premises that have not been separately approved by Sublandlord may be removed with ten (10) days prior written notice by Sublandlord at the sole expense of Subtenant. Except as otherwise set forth herein, Subtenant may not install any signs on the exterior or roof of the Project or the Common Areas. Any signs, window coverings, or blinds (even if the same are located behind the Sublandlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Sublandlord, in its reasonable discretion.

22.7 Rights Personal to Original Subtenant . The rights contained in this Article 22 are personal to Fitbit, Inc. as the “ Original Subtenant ” under this Lease, or any Affiliate or successor assignee or subtenant of Subtenant in connection with a transfer pursuant to Section 14.7 above, and such rights may only be exercised by the Original Subtenant or any Affiliate or successor assignee or subtenant of Subtenant in connection with a transfer pursuant to Section 14.7 above (and not any other assignee, sublessee or transferee of the Original Subtenant’s interest in this Lease). Notwithstanding the foregoing, any change to the physical signage, including, but not limited, the name depicted thereon, the style and coloring thereof, and size and shape thereof, at any time during the term of this Lease, including, but not limited to, resulting from a transfer pursuant to Section 14.7 , shall be subject to Sublandlord’s consent, which Sublandlord shall not unreasonably withhold, condition or delay.

22.8 Building Directory . A digital building directly shall be maintained by Sublandlord in the lobby of the Building. Subtenant shall have the right to have its name included in such digital directory. Sublandlord shall be permitted to include in Operating Expenses any costs incurred in maintaining such directory, to the extent consistent with Section 4.2.7 above.

22.9 Compliance with Applicable Laws . Notwithstanding anything to the contrary contained in this Article 22 , at all times all of Subtenant’s Signs shall comply with all Applicable Laws, in accordance with Article 23 below .



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ARTICLE 23

COMPLIANCE WITH LAW

23.1 Applicable Laws . Subtenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (“ Applicable Laws ”). At its sole cost and expense, Subtenant shall promptly comply with all such Applicable Laws which are triggered by (i) Subtenant’s use of the Premises (including, but not limited to, Subtenant’s Signs), (ii) the Alterations or Subtenant Improvements in the Premises, or (iii) the Base Building, but as to the Base Building, only to the extent such obligations are triggered by Subtenant’s Alterations, the Subtenant Improvements, or Subtenant’s use of the Premises for non-general office use. Should any standard or regulation now or hereafter be imposed on Sublandlord or Subtenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then Subtenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Provided, Sublandlord has delivered the Premises (or applicable portion thereof) to Subtenant in the Delivery Condition, including in compliance with all Applicable Laws in accordance with, and to the extent required under, Section 2.2 above, Subtenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply with the governmental rules, regulations, requirements or standards described in this Article 23 . The judgment of any court of competent jurisdiction or the admission of Subtenant in any judicial action, regardless of whether Sublandlord is a party thereto, that Subtenant has violated any Applicable Laws, shall be conclusive of that fact as between Sublandlord and Subtenant. Notwithstanding the foregoing, prior to each respective Delivery Date, Sublandlord shall be responsible for correcting any violations of Title III of the ADA with respect to the Premises and the Common Areas, to which the Premises and/or the Common Areas, as applicable, must adhere as of such date, at Sublandlord’s sole cost and expense (not to be passed through as an Operating Expense).

23.2 Hazardous Materials . Subtenant shall not cause or permit any Hazardous Material to be generated, brought into, used, stored, or disposed of in or about the Premises, Building or Project by Subtenant or its agents, employees, contractors, subtenants, or invitees, except for such substances that are required in the ordinary course of Subtenant’s business conducted on the Premises or are otherwise approved by Sublandlord and Master Landlord. Subtenant shall:

23.2.1 Use, store, and dispose of all such Hazardous Material in strict compliance with all (“ Environmental Laws ”), as such term is defined in Paragraph 7 of the Master Lease; and

23.2.2 Comply at all times during the Lease Term with all Environmental Laws.

Subtenant shall have no liability or responsibility for any remediation costs and/or fees arising from the use, storage, generation or disposal of Hazardous Material in, on or about the Premises, the Building or the Project caused by persons other than Subtenant or the Subtenant Parties. Sublandlord and Subtenant hereby acknowledge and agree that Sublandlord provided Subtenant with a copy of the Phase I Report (as hereafter defined) for the Project, and Sublandlord represents and warrants that to Sublandlord's actual knowledge (1) there are no environmental conditions at the Premises or the Building in violation of Environmental Laws, except as may be reflected in the Phase 1 and (2) Sublandlord has received no written notice of any uncured violation of Environmental Laws with respect to the Premises or the



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Building. As used herein, the term “ Phase I Report ” means that certain Phase I Envrionmenal Site Assessment for 215 Fremont Street, San Francisco, California 94105, identified as KTR Project No. 04-1-1-050A, prepared by KTR Newmark Consultants LLC for Charles Schwab & Co., Inc., dated April 13, 2004.

23.3 Notice of Release and Investigation . If, during the Lease Term (including any extensions), Subtenant becomes aware of (i) any actual or threatened release of any Hazardous Material on, under, or about the Premises, Building or Project, or (ii) any inquiry, investigation, proceeding, or claim by any government agency or other person regarding the presence of Hazardous Material on, under, or about the Premises, Building or Project, or if Subtenant shall give Sublandlord written notice of the release or investigation within five (5) days after learning of it and shall simultaneously furnish to Sublandlord copies of any claims, notices of violation, reports, or other writings received by Subtenant providing notice that concern the release or investigation.

23.4 Indemnification . Subtenant shall, at Subtenant’s sole expense and with counsel reasonably acceptable to Sublandlord, indemnify, defend, and hold harmless Sublandlord and all other Landlord Parties with respect to all losses arising out of or resulting from the release of any Hazardous Material in or about the Premises, Building or Project, or the violation of any Environmental Law, by Subtenant or any other Subtenant Party. This indemnification includes all losses, liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders, or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. Sublandlord shall, at Sublandlord’s sole expense and with counsel reasonably acceptable to Subtenant, indemnify, defend, and hold harmless Subtenant and all other Subtenant Parties with respect to all losses arising out of or resulting from the violation of any Environmental Law caused by Sublandlord either before or during the Lease Term. This indemnification includes all losses, liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders, or judgments), damages, and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation. The foregoing indemnifications shall survive the expiration or earlier termination of this Lease and the Master Lease.

23.5 Remediation Obligations; Subtenant ’ s Rights on Cleanup by Sublandlord . If the presence of any Hazardous Material brought onto the Premises, Building or Project by either Sublandlord or Subtenant or by any other Landlord Party or Subtenant Party results in contamination of the Premises, Building or Project, that party shall promptly take all necessary actions, at the party’s sole expense, to return the Premises, Building or Project to the condition that existed before the introduction of such Hazardous Material. Subtenant shall first obtain Sublandlord’s and, if required under the Master Lease, Master Landlord’s, approval of the proposed remedial action, which shall not be unreasonably withheld or delayed. This provision does not limit the indemnification obligations set forth in Section 23.4 above.

If Sublandlord undertakes any cleanup, detoxification, or similar action, whether or not required by any government or quasi-government agency, as a result of the presence, release, or disposal in or about the Building or Project of any Hazardous Material, and that action requires that Subtenant be denied access to the Premises or Subtenant is otherwise unable to conduct its business on the Premises for a period of greater than forty eight (48) hours, Base Rent shall be abated for the period that Subtenant is unable to conduct its business at the Premises. Subject to Section 23.4 , the costs of any Hazardous Material testing, cleanup or remediation undertaken by Sublandlord during the Lease Term shall be borne by Sublandlord, shall not be included in Operating Expenses and shall not be the obligation of Subtenant.



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23.6 Definition of “ Hazardous Material ” . As used herein, the term “ Hazardous Material ” shall mean any hazardous or toxic substance, material, or waste that is or becomes regulated by the United States, the State of California, or any local government authority having jurisdiction over the Building or Project. Hazardous Material includes:

23.6.1 Any “hazardous substance,” as that term is defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections 9601-9675);

23.6.2 “Hazardous waste,” as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections 6901-6992k);

23.6.3 Any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect);

23.6.4 Petroleum products;

23.6.5 Radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code Sections 2011-2297g-4;

23.6.6 Asbestos in any form or condition; and

23.6.7 Polychlorinated biphenyls (PCBS) and substances or compounds containing PCBS.

ARTICLE 24

LATE CHARGES

If any installment of Rent or any other sum due from Subtenant shall not be received by Sublandlord or Sublandlord’s designee within five (5) days after Subtenant’s receipt of written notice from Sublandlord that said amount is past due, then Subtenant shall pay to Sublandlord a late charge equal to five percent (5%) of the overdue amount. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Sublandlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Sublandlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within five (5) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to three percent (3%) plus the “prime rate” as reported by the Wall Street Journal; provided, that such rate shall not exceed the maximum rate permitted by Applicable Law. If the Wall Street Journal is no longer published or the Wall Street Journal discontinues the publication of the “prime rate”, then Sublandlord shall substitute a comparable prime rate.



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ARTICLE 25

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

25.1 Sublandlord ’ s Cure . All covenants and agreements to be kept or performed by Subtenant under this Lease shall be performed by Subtenant at Subtenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Subtenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.2 , above, unless a specific time period is otherwise stated in this Lease, Sublandlord may, but shall not be obligated to, make any such payment or perform any such act on Subtenant’s part without waiving its rights based upon any Event of Default of Subtenant and without releasing Subtenant from any obligations hereunder.

25.2 Subtenant ’ s Reimbursement . Except as may be specifically provided to the contrary in this Lease, Subtenant shall pay to Sublandlord, upon delivery by Sublandlord to Subtenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Sublandlord in connection with the remedying by Sublandlord of any Event of Default pursuant to the provisions of Section 25.1 and (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease. Subtenant’s obligations under this Section 25.2 shall survive the expiration or earlier termination of this Lease.

ARTICLE 26

ENTRY BY LANDLORD

Sublandlord reserves the right at all reasonable times and upon reasonable notice to Subtenant (except in the case of an emergency) and subject to Subtenant’s reasonable security requirements and procedures, to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers, or prospective tenants (but only during the last fifteen (15) months of the Lease Term); (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment. Notwithstanding anything to the contrary contained in this Article 26 , Sublandlord may enter the Premises at any time to (A) perform services required of Sublandlord, including janitorial service; (B) take possession due to any Event of Default under this Lease in the manner provided herein; and (C) perform any covenants of Subtenant which Subtenant fails to perform. Sublandlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes. Subtenant hereby waives any claims for damages (other than personal injury and property damage to the extent caused by Sublandlord’s negligence or willful misconduct in connection with an entry by Sublandlord into the Premises) or for any injuries or inconvenience to or interference with Subtenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Sublandlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Subtenant’s vaults, safes and special security areas designated in advance by Subtenant. In an emergency, Sublandlord shall have the right to use any means that Sublandlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Sublandlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Subtenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Sublandlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be



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performed by Sublandlord herein. Subtenant shall have the right to have a representative present during any entry onto the Premises, except in the case of an emergency or during the continuance of an Event of Default; provided, however that, (i) if, after Sublandlord has (in the case of a non-emergency and when no Event of Default is occurring) delivered notice and provided Subtenant with a reasonable opportunity to be present during any such entry, Subtenant (or a representative thereof) is not present during such entry or is not available during such entry, then Sublandlord shall be permitted to enter the Premises in accordance with the terms hereof; and (ii) notwithstanding the existence of an emergency, Sublandlord shall make good faith efforts to notify Subtenant in advance of such entry.

ARTICLE 27

PROVISIONS REGARDING THE MASTER LEASE

27.1 Lease Subordinate to Master Lease . This Lease and all rights of the parties hereunder are subject and subordinate to the Master Lease. The parties hereby acknowledge, each to the other, that it is not practical in this Lease to enumerate all of the rights and obligations of the various parties under the Master Lease and to specifically allocate those rights and obligations in this Lease. Accordingly, in order to afford to Subtenant the benefits of this Lease and of those provisions of the Master Lease, which, by their nature are intended to benefit the party in possession of the Premises, and in order to protect Sublandlord against a default by Subtenant, which might cause a default by Sublandlord under the Master Lease, Sublandlord and Subtenant covenant and agree as set forth in this Article 27 . As between the parties to this Lease only, in the event of conflict between the terms of the Master Lease and the terms of this Lease, the terms of this Lease shall control.

27.2 Incorporated Provisions . Except as expressly modified herein or otherwise excluded herein, and for purposes of incorporation thereof into this Lease, the following provisions of the Master Lease are hereby expressly incorporated into this Lease with the term “Sublandlord” substituted for Landlord, the term “Subtenant” substituted for Subtenant, and the term Premises, as used in the Master Lease, shall be deemed to refer to the Premises, as defined herein: 10(d) (re Master Landlord’s right of entry), 12 (“Insurance”, except Section 12(a)(i), (v) and (vi)), 17 (“Financial Statements”), 20 (“Additional Rights of Landlord”), 23 (“Mortgaging by Landlord”), 27 (“Public Announcements”), 29 (Savings Clause). Notwithstanding anything to the contrary contained herein, Subtenant acknowledges and agrees that it shall not have any expansion or similar rights under the Master Lease, or any rights to cancel, terminate, extend or renew the term of the Master Lease.

27.3 Excluded Provisions . The following provisions of the Master Lease are hereby expressly excluded from this Lease and not incorporated herein, except as expressly set forth or referenced elsewhere in this Lease, and then only to the extent to set forth or referenced: Section 2 (Title and Condition); Section 4 (Term); Section 5 (Rent); Section 6 (Net Lease; Non-terminability); Section 7; Section 8 (Indemnification); Section 9 (Liens); Section 10 (Maintenance and Repair; Easements); Section 11 (Alterations); Section 12(a)(i), (v) and (vi), 12(c), 12(d); Section 13 (Casualty); Section 14 (Condemnation); Section 15 (Termination of Lease Following Major Casualty, Major Condemnation or Material Temporary Taking); Section 19 (Default); Section 21 (Notices); Section 24 (Estoppel Certificates); Section 36 (Tenant’s Representations and Warranties); and any redacted provisions of the copy of the Master Lease provided to Subtenant by Sublandlord.



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27.4 Performance . Sublandlord shall have the right to enter the Premises to cure any default by Subtenant under this Lease, which is also, or would be, with the passage of time or the giving of notice, an Event of Default under the Master Lease. Any sums paid and all reasonable costs and expenses of performing any such cure shall be deemed Rent payable by Subtenant to Sublandlord upon demand, together with interest thereon at the rate of [***] ([***]) per annum, from the date of expenditure until paid.

27.5 Termination of Master Lease . It is expressly agreed that (a) if the Master Lease should terminate prior to the Lease Expiration Date, Sublandlord shall have no liability to Subtenant, except to the extent such termination arises from a default by Sublandlord, as tenant under the Master Lease and not by an underlying default of Subtenant under this Lease, and (b) to the extent the Master Lease grants Sublandlord any discretionary right to terminate the Master Lease due to casualty or condemnation, Sublandlord shall be entitled to exercise or not exercise such right in its reasonable discretion and without liability to Subtenant. Notwithstanding the foregoing, Sublandlord shall not (i) amend or otherwise enter into any agreement modifying, or otherwise affecting the Master Lease, if any such modification would result in a change to the term of the Master Lease or would otherwise materially increase Subtenant’s obligations hereunder or materially interfere with Subtenant’s rights hereunder, or (ii) rescind or terminate the Master Lease, without, in each case, the prior consent of Subtenant. Sublandlord shall perform and observe all of the terms, covenants, conditions and obligations of the Master Lease so as not to be in default thereunder, and otherwise preserve the sublease estate of Subtenant under this Lease; provided, however, that such obligation is contingent upon Subtenant not being in default of this Lease, beyond applicable notice and cure periods. In the event of termination of the Master Lease, or in the event of any reentry or repossession of the Premises by Master Landlord, or an involuntary surrender of the Master Lease by operation of law prior to the expiration date thereof, Master Landlord may, at its option, either (i) terminate this Lease or (ii) take over all of the right, title and interests of Sublandlord under this Lease, in which case Subtenant agrees to attorn to Master Landlord, but Master Landlord will not (x) be liable for any pervious act or omission of Sublandlord under this Lease or (y) be bound by any previous modification of this Lease made without Master Landlord’s consent or by any previous prepayment by Subtenant of more than one (1) month’s rent. Any such attornment shall, upon Master Landlord’s written request, be evidenced by an agreement in form and substance reasonably satisfactory to Master Landlord. Subtenant waives the provisions of any law now or hereafter existing, which may give Subtenant any right of election to terminate this Lease or to surrender possession of the Premises in the event any proceeding is brought by Master Landlord under the Master Lease to terminate the Master Lease.

27.6 Effect of Right of First Offer . Subtenant acknowledges that Sublandlord has a right of first offer and other options to purchase the Project under the Master Lease. Should Sublandlord exercise any such rights, which results in Sublandlord becoming the fee owner of the Project, which then results in the termination of the Master Lease, this Lease shall become a direct lease (rather than a sublease) between Sublandlord, as the fee owner of the Project, Subtenant, as the tenant of the Premises, and the parties hereto shall execute an amendment to this Lease, reflecting the termination of the Master Lease and reaffirming Subtenant’s obligations hereunder.

27.7 Release . To the extent such provisions are not expressly excluded from this Lease, as set forth in Section 27.3 above, any non-liability, release, indemnity or hold harmless provision in the Master Lease for the benefit of Master Landlord shall be deemed to apply under this Lease and inure to the benefit of both Sublandlord and Master Landlord.



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27.8 Sublandlord’s Rights of Consent . If Subtenant desires to take any action, which requires the consent of Master Landlord under the terms of the Master Lease, then, notwithstanding anything to the contrary herein (a) Sublandlord, independently, shall have the same rights of approval or disapproval as Master Landlord has under the Master Lease, (b) Subtenant shall not take any such action until it obtains the consent of both Master Landlord and Sublandlord, and (c) Subtenant shall require that Sublandlord obtain Master Landlord’s consent on Subtenant’s behalf and Sublandlord shall use commercially reasonable efforts to obtain such consent. Subtenant shall pay all costs reasonably incurred by Sublandlord in seeking or procuring Master Landlord’s consent; provided, reasonably satisfactory evidence of such costs is delivered to Subtenant. Any approval or consent required of Sublandlord conclusively shall be deemed reasonably withheld if approval or consent also is required of Master Landlord, and Master Landlord fails to give Master Landlord’s approval or consent. Notwithstanding the foregoing, Sublandlord shall be responsible for all costs payable to Master Landlord and/or any lender of the Project in connection with this Lease, which costs shall not be passed through to Subtenant as an Operating Expense, except to the extent such costs arise in connection with Subtenant’s default under this Lease.

27.9 No Privity . Sublandlord and Subtenant hereby agree, for the benefit of Master Landlord, that this Lease and Master Landlord’s consent hereto shall not (a) create privity of contract between Master Landlord and Subtenant, (b) as between Master Landlord and Sublandlord, be deemed to have amended the Master Lease in any regard, or (c) be construed as a waiver of Master Landlord’s right to consent to any assignment of the Master Lease by Sublandlord or any further subletting of the Premises, or as a waiver of Master Landlord’s right (to the extent the Master Lease provides such rights to Master Landlord) to consent to any assignment by Subtenant of this Lease or any subletting of the Premises or any part thereof.

27.10 Conflict . As between Sublandlord and Subtenant, in the event of a conflict between the provisions of the Master Lease and the provisions of this Lease, the provisions of this Lease shall control.

27.11 Sublandlord’s Representations and Warranties . Sublandlord represents and warrants to Subtenant that, (a) the Master Lease is in full force and effect, (b) all obligations of Sublandlord and, to Sublandlord’s actual knowledge, all obligations of Master Landlord under the Master Lease, have been satisfied, (c) Sublandlord has neither given nor received a notice of default pursuant to the Master Lease, and (d) the copy of the Master Lease attached hereto is a true, correct and complete copy thereof.

ARTICLE 28

TENANT PARKING

28.1 Parking In General . Currently there is no parking available to lease to any occupant of the Building, including, but not limited to Subtenant, due to a parking agreement with a building located adjacent to the Building, pursuant to which such adjacent building has the right to use all of the parking spaces located in the Basement Parking Area. Notwithstanding the foregoing, Sublandlord hereby agrees to cooperate with Subtenant in an attempt to obtain one (1) to two (2) month-to-month parking spaces in the Basement Parking Area should one (1) or more parking spaces become available for rent therein. Should Sublandlord procure any parking spaces in the Basement Parking Area for Subtenant, pursuant to the terms hereof, Subtenant shall be required to pay the prevailing monthly rate established by



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Sublandlord, in its sole discretion, for any such parking spaces, and Sublandlord and Subtenant shall promptly enter into an amendment to this Lease confirming the number of parking spaces being offered to Subtenant for rent and the terms (including, but not limited to, the current market rate) therefor.

ARTICLE 29
MISCELLANEOUS PROVISIONS

29.1 Terms; Captions . The words “Sublandlord” and “Subtenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

29.2 Binding Effect . Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Sublandlord and of Subtenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Subtenant contrary to the provisions of Article 14 of this Lease.

29.3 No Air Rights . No rights to any view or to light or air over any property, whether belonging to Sublandlord or any other person, are granted to Subtenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Sublandlord and without any reduction or diminution of Subtenant’s obligations under this Lease.

29.4 [Intentionally Omitted] .

29.5 Transfer of Sublandlord ’ s Interest . Subtenant acknowledges that Sublandlord has the right to transfer all or any portion of its interest in the Master Lease and in this Lease, and Subtenant agrees that in the event of any such transfer, Sublandlord shall automatically be released from all liability under this Lease and Subtenant agrees to look solely to such transferee for the performance of Sublandlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Sublandlord, including the return of any Security Deposit, and Subtenant shall attorn to such transferee. In the event of any transfer by Sublandlord, Sublandlord shall provide Subtenant with written notice of the same and a copy of the assignment and assumption of lease agreement.

29.6 Memorandum of Sublease . At Subtenant’s request, Sublandlord shall execute a memorandum with respect to this Lease, reasonably acceptable to Sublandlord, evidencing this Lease, and the same shall be recorded by Subtenant in the County Recorder’s Office of San Francisco County (the “ Memorandum of Sublease ”), and shall use commercially reasonable efforts to obtain Master Landlord’s consent and acknowledgement to such Memorandum of Sublease; provided, however, in no event shall Sublandlord’s failure to obtain Master Landlord’s consent and acknowledgement thereto be deemed to be a default under the terms of this Lease.



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29.7 Sublandlord ’ s Title . Sublandlord’s title is and always shall be paramount to the title of Subtenant. Nothing herein contained shall empower Subtenant to do any act which can, shall or may encumber the title of Sublandlord or of Master Landlord in the Building or the Project.

29.8 Relationship of Parties . Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Sublandlord and Subtenant.

29.9 Application of Payments . Sublandlord shall have the right to apply payments received from Subtenant pursuant to this Lease, regardless of Subtenant’s designation of such payments, to satisfy any obligations of Subtenant hereunder, in such order and amounts as Sublandlord, in its sole discretion, may elect.

29.10 Time of Essence . Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

29.11 Partial Invalidity . If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

29.12 No Warranty . In executing and delivering this Lease, Subtenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Sublandlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Sublandlord which is not set forth herein or in one or more of the exhibits attached hereto.

29.13 Sublandlord Exculpation . The liability of Sublandlord or the Sublandlord Parties to Subtenant for any default by Sublandlord under this Lease or arising in connection herewith or with Sublandlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Sublandlord in the Project (including rents and insurance proceeds). Neither Sublandlord nor any of the Landlord Parties shall have any personal liability therefor, and Subtenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Subtenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Sublandlord’s and the other Sublandlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Sublandlord (if Sublandlord is a partnership) or trustee or beneficiary (if Sublandlord or any partner of Sublandlord is a trust) have any liability for the performance of Sublandlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Sublandlord nor any of the other Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Subtenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring, and in no event shall Sublandlord or any of the other Landlord Parties be responsible for consequential, special or punitive damages in connection with this Lease.



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29.14 Entire Agreement . It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Sublandlord to Subtenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

29.15 Right to Lease . Subject to the terms of Section 14.8 , Sublandlord reserves the absolute right to effect such other tenancies in the Project as Sublandlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Subtenant does not rely on the fact, nor does Sublandlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

29.16 Force Majeure . An actual delay or stoppage resulting from fire, earthquake, explosion, flood, hurricane, the elements, acts of God or the public enemy, war, invasion, insurrection, rebellion, riots, industry-wide labor strikes or lock-outs (which objectively preclude Sublandlord or Subtenant from obtaining from any reasonable source, labor or substitute materials at a reasonable cost necessary for performing its respective obligations hereunder), or governmental acts, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Subtenant pursuant to this Lease (collectively, a “ Force Majeure ”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

29.17 Waiver of Redemption by Subtenant . Subtenant hereby waives, for Subtenant and for all those claiming under Subtenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Subtenant’s right of occupancy of the Premises after any termination of this Lease. Subtenant also expressly waives any and all rights of redemption granted by or under California Code of Civil Procedure Sections 1174(c) and 1179.

29.18 Notices . All notices, demands, statements, designations, approvals or other communications (collectively, “ Notices ”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“ Mail ”), (B) transmitted by facsimile, if such facsimile is promptly followed by a Notice sent by Mail, (C) delivered by a nationally recognized overnight courier with verification of delivery requested, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Subtenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Subtenant may from time to time designate in a Notice to Sublandlord, or to Sublandlord at the addresses set forth below, or to such other places as Sublandlord may from time to time designate in a Notice to Subtenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the facsimile is transmitted if transmitted before 5:00 p.m. Pacific Time on a business day, otherwise on the next business day, (iii) the date the overnight courier delivery is made, or (iv) the date personal delivery is made (if made on a business day,



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otherwise on the next business day). As of the date of this Lease, any Notices to Sublandlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

Charles Schwab & Co., Inc.
Attn: Senior Vice President
Corporate Real Estate
211 Main Street
San Francisco, CA 91405

With a copy to

Charles Schwab & Co., Inc.
P.O. Box 881566
San Francisco, CA 9488-1566
Attn: Corporate Real Estate Lease Administration

29.19 Joint and Several . If there is more than one Subtenant, the obligations imposed upon Subtenant under this Lease shall be joint and several. Sublandlord acknowledges that Subtenant is a corporation (“ Corporation ”) and agrees that Sublandlord shall look exclusively to the assets of such Corporation and the Security Deposit for performance of Subtenant’s obligations under this Lease, including, without limitation, the payment of all monthly Base Rent, Additional Rent or any other sums due Sublandlord by Subtenant hereunder, or on account of the breach of this Lease by Subtenant, and hereby releases each individual shareholder of Subtenant from any personal liability to Sublandlord for any such obligations of Subtenant. Sublandlord and Subtenant intend and agree that Sublandlord’s recourse for the enforcement of this Lease shall be limited exclusively to the assets of Subtenant and the Security Deposit and shall not extend to the separate assets of the individual shareholders of Subtenant, either directly or indirectly by calls for capital contribution or otherwise.

29.20 Authority . If Subtenant is a corporation, trust, limited liability company or partnership, each individual executing this Lease on behalf of Subtenant hereby represents and warrants that (a) Subtenant is a duly formed and existing entity qualified to do business in California, (b) Subtenant has full right and authority to execute and deliver this Lease and (c) each person signing on behalf of Subtenant is authorized to do so. Subtenant represents and warrants to Sublandlord that (i) this Lease, once executed, will constitute the valid and binding obligation of Subtenant, enforceable against Subtenant in accordance with its terms, subject to creditors’ rights laws, and (ii) there are no proceedings pending or, to the knowledge of Subtenant, threatened against, or affecting, Subtenant in any court or before any governmental authority or arbitration board or tribunal, which, if adversely determined, could reasonably be expected to materially and adversely affect the ability of Subtenant to perform its obligations under this Lease. Subtenant shall protect, defend, indemnify and hold Sublandlord harmless against any third party claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Subtenant’s breach of this representation and warranty.

29.21 Attorneys’ Fees . In the event that either Sublandlord or Subtenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the



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commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

29.22 GOVERNING LAW; WAIVER OF TRIAL BY JURY . This Lease shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREUNDER, SUBLANDLORD AND SUBTENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF SUBLANDLORD AND SUBTENANT, SUBTENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT SUBLANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, SUBTENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

29.23 Submission of Lease . Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Sublandlord and Subtenant.

29.24 Brokers . Sublandlord has entered into an agreement with the real estate broker specified as Sublandlord’s broker in the Summary (“ Sublandlord’s Broker ”) pursuant to which Sublandlord has granted to Sublandlord’s Broker the exclusive right to sublease the Premises. Sublandlord shall pay any commissions or fees that are payable to Sublandlord’s Broker with respect to this Lease in accordance with the provisions of a separate commission contract. Sublandlord shall have no further or separate obligation for payment of commissions or fees to any other real estate broker, finder or intermediary. Subtenant represents that it has not had any dealings with any real estate broker, finder or intermediary with respect to this Lease, other than Sublandlord’s Broker and Subtenant’s broker, if any, specified in the Summary (“ Subtenant’s Broker ”). Any commissions or fees payable to Subtenant’s Broker with respect to this Lease shall be paid exclusively by Sublandlord’s Broker and/or Sublandlord in accordance with the provisions of a separate commission contract. Subject to the foregoing, each party hereto shall indemnify and hold harmless the other party hereto from and against any and all damages, liabilities, losses, costs and expenses (including, but not limited to, reasonable attorneys’ fees and related costs) resulting from any claims that may be asserted against such other party by any real estate broker, finder or intermediary arising from any act of the indemnifying party in connection with this Lease.

29.25 Independent Covenants . This Lease shall be construed as though the covenants herein between Sublandlord and Subtenant are independent and not dependent and Subtenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Sublandlord fails to perform its obligations set forth herein, except as otherwise expressly stated in this Lease, Subtenant shall not be entitled to make any repairs or perform any acts hereunder at Sublandlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Sublandlord.



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29.26 Project or Building Name and Signage . Sublandlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Sublandlord may, in Sublandlord’s sole discretion, desire. Subtenant shall not use the words “Charles Schwab” or any variation of Sublandlord’s name, the name of the Project or Building the or use pictures or illustrations of Sublandlord, the Project or the Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Subtenant in the Premises, without the prior written consent of Sublandlord.

29.27 Counterparts . This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

29.28 Confidentiality . Subtenant acknowledges that the terms of this Lease and any related documents are confidential and constitute proprietary information of Sublandlord. Disclosure of the terms could adversely affect the ability of Sublandlord to negotiate other leases and impair Sublandlord’s relationship with other tenants. Subtenant shall keep such confidential information strictly confidential and shall not disclose such confidential information, either directly or indirectly, to any person or entity other than Subtenant’s financial, legal, and space planning consultants or as required by Applicable Laws.

29.29 Building Renovations . It is specifically understood and agreed that except as otherwise expressly set forth in this Lease, Sublandlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Sublandlord to Subtenant except as specifically set forth herein or in the Initial Premises Work Letter. However, Subtenant hereby acknowledges that Sublandlord or Master Landlord may during the Lease Term renovate, improve, alter, or modify (collectively, the “ Renovations ”) the Project, the Building and/or the Premises, except such Renovations shall not materially and adversely affect Subtenant’s tenancy hereunder or Subtenant’s access to the Premises. Except for (i) emergencies, or (ii) repairs, alterations, improvements or additions required by governmental or quasi governmental authorities or court order or decree, such Renovations shall be performed in a manner so as not to materially interfere with Subtenant’s access to the Premises. Subject to the forgoing, Subtenant hereby agrees that such Renovations shall in no way constitute a constructive eviction of Subtenant nor entitle Subtenant to any abatement of Rent. Neither Sublandlord nor Master Landlord shall have any responsibility and neither shall be liable to Subtenant for any injury to or interference with Subtenant’s business arising from the Renovations, nor shall Subtenant be entitled to any compensation or damages from Sublandlord or Master Landlord for loss of the use of the whole or any part of the Premises or of Subtenant’s personal property or improvements resulting from the Renovations, or for any inconvenience or annoyance occasioned by such Renovations.

29.30 No Discrimination . Each of Subtenant and Sublandlord covenants by and for itself, its successors and assigns, and all persons claiming under or through them, and this Lease is made and accepted upon and subject to the following conditions: That there shall be no discrimination against or segregation of any person or group of persons, on account of sex, marital status, age, race, color, religion, creed, national origin or ancestry, in the leasing, subleasing, renting, transferring, use, occupancy, tenure or enjoyment of the Premises herein leased, nor shall Subtenant nor Sublandlord or any person claiming under or through it, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenant’s lessees, sublessees, subtenants or vendees in the Premises.



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29.31 OFAC Compliance . Subtenant and Sublandlord represent and warrant to one another that (a) Subtenant and Sublandlord are (i) not currently identified on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“ OFAC ”) and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation (collectively, the “ List ”), and (ii) not a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States.

Subtenant and Sublandlord covenant and agree (a) to comply with all requirements of law relating to money laundering, anti-terrorism, trade embargos economic sanctions, now or hereafter in effect, and (b) to immediately notify the other party in writing if any of the representations, warranties or covenants set forth in this Section 29.32 are no longer true or have been breached or if Subtenant or Sublandlord has a reasonable basis to believe that they may no longer be true or have been breached.

29.32 Definition of Sublandlord . The term “ Sublandlord ,” as used in this Lease, so far as covenants or obligations on the part of Sublandlord are concerned, shall be limited to mean and include only the owner or owners, at the time such covenant or obligation is to be performed, of the “Tenant” interest in the Master Lease.

29.33 Accessibility Disclosure . Pursuant to Section 1938 of the California Civil Code, Sublandlord hereby advises Subtenant that the Premises have not undergone inspection by a Certified Access Specialist (as defined in Section 55.52 of the California Civil Code).

29.34 [ Intentionally Omitted ]

29.35 Business Days . As used in this Lease, “business day” means any day excluding (a) Saturday, (b) Sunday, (c) any day which is a legal holiday under the laws of the State of California, and (d) any day on which banking institutions located in such state are generally not open for the conduct of regular business. As used in this Lease, “day” means any calendar day, including any day set forth in clauses (a) through (d) of this Section 29.35 .

29.36 Accessibility; Americans With Disabilities Act . Compliance with the Americans with Disabilities Act (“ ADA ”) is dependent upon Subtenant’s specific use of the Premises; therefore, except as otherwise expressly set forth in this Lease, Sublandlord makes no warranty or representation as to whether or not the Premises complies with the ADA or any similar legislation. Provided that Sublandlord delivers the Premises (or portion thereof at issue) on each applicable Delivery Date in the Delivery Condition and in compliance with all Applicable Laws, as, and to the extent required, under Section 2.2 above, and in accordance with Section 23.1 , then in the event that Subtenant’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Subtenant agrees to make any such necessary modifications and/or additions at Subtenant’s sole cost and expense.

[Remainder of Page Left Intentionally Blank]



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IN WITNESS WHEREOF, Sublandlord and Subtenant have caused this Lease to be executed the day and date first above written.

“ Sublandlord ” :

CHARLES SCHWAB & CO., INC.,
a California corporation

By:         /s/ Glenn Cooper
    Name: Glenn Cooper
    Title:     SVP Corp Real Estate

[Signatures Continue on Next Page]



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“ Subtenant ” :

FITBIT, INC.,
a Delaware corporation

By:         /s/ James Park
Name:     James Park
Title:     CEO, President

By:         /s/ WR Zerella
Name:     WR Zerella
Title:     CFO



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EXHIBIT A-1

215 FREMONT STREET

OUTLINE OF PREMISES

ATTACHED



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EXHIBIT A-2

215 FREMONT STREET

MASTER LEASE

Sublandlord represents that it has separately delivered to Subtenant a true and correct partially redacted copy of the Master Lease.



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EXHIBIT B

215 FREMONT STREET

SUBTENANT WORK LETTER (INITIAL PREMISES)

( Subtenant Build )

This Subtenant Work Letter (Initial Premises) shall set forth the terms and conditions relating to the construction of the tenant improvements in the Initial Premises. This Subtenant Work Letter (Initial Premises) is essentially organized chronologically and addresses the issues of the construction of the Initial Premises, in sequence, as such issues will arise during the actual construction of the Initial Premises. All references in this Subtenant Work Letter (Initial Premises) to Articles or Sections of “the Lease” or “this Lease” shall mean the relevant portion of Articles 1 through 29 of the Office Sublease to which this Subtenant Work Letter (Initial Premises) is attached as Exhibit B and of which this Subtenant Work Letter (Initial Premises) forms a part, and all references in this Subtenant Work Letter to Sections of “this Subtenant Work Letter” shall mean the relevant portion of Sections 1 through 6 of this Subtenant Work Letter. All references in this Subtenant Work Letter (Initial Premises) to (i) the “Initial Premises” shall be deemed to refer to the Initial Premises, as such term is defined in the Lease and (ii) the “Premises” shall be deemed to refer to the Premises, as such term is defined in the Lease.

SECTION 1

DELIVERY OF THE PREMISES

Subtenant acknowledges that Subtenant has thoroughly examined the Initial Premises. Except as otherwise set forth in this Subtenant Work Letter (Initial Premises) or the Lease, Subtenant shall accept the Initial Premises from Sublandlord in its presently existing, “as-is” condition as of the date of this Lease. The Base Building (as defined in this Lease) shall as of the date of delivery, be in good condition and working order, and, to the extent necessary to allow Subtenant to legally occupy the Premises for the Permitted Uses, shall comply with applicable building codes and other governmental laws, ordinances and regulations which were enacted prior to the date of delivery of the Initial Premises to Subtenant.

SECTION 2

TENANT IMPROVEMENTS

2.1 Subtenant Initial Premises Improvement Allowance . Subtenant shall be entitled to a one-time subtenant improvement allowance (the “ Subtenant Initial Premises Improvement Allowance ”) in the amount of [***] Dollars ($[***] ) (which is [***] Dollars ($[***] ) multiplied by 93,298 which amount equals the rentable square feet of the Initial Premises) for the costs relating to the initial design and construction of Subtenant’s improvements (the “ Initial Premises Subtenant Improvements ”). In no event shall Sublandlord be obligated to make disbursements (or incur costs to complete the Initial Premises Subtenant Improvements) pursuant to this Subtenant Work Letter (Initial Premises) in a total amount which exceeds the Subtenant Initial Premises Improvement Allowance.

2.2 Disbursement of the Subtenant Initial Premises Improvement Allowance .

2.2.1 Subtenant Initial Premises Improvement Allowance Items . Except as otherwise set forth in this Subtenant Work Letter (Initial Premises), the Subtenant Initial Premises Improvement Allowance shall be (i) disbursed by Sublandlord (each of which disbursements shall be made pursuant to Sublandlord’s disbursement process set forth in Section 2.2.2 below) only for the following items and costs (collectively, the “ Subtenant Improvement Allowance Items ”), and no



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portion of the Subtenant Initial Premises Improvement Allowance, if any, remaining after the completion of the Initial Premises Subtenant Improvements shall be available for use by Subtenant:

(i) Payment of plan check, permit and license fees related to construction of the Initial Premises Subtenant Improvements;

(ii) payment of the fees of the Architect/Space Planner and the Engineers (as defined below) which payment shall not exceed an aggregate amount equal to [***] Dollars ($[***] ) per rentable square foot of the Initial Premises, and payment of the fees incurred by, and the cost of documents and materials supplied by, Sublandlord and Sublandlord’s consultants in connection with the preparation and review of the Construction Documents (as defined below);

(iii) the cost of any changes in the Base Building when such changes are required by the Construction Documents;

(iv) the cost of any changes to the Construction Documents or the Initial Premises Subtenant Improvements required by Code;

(v) the cost of construction of the Initial Premises Subtenant Improvements, including, without limitation, testing and inspection costs, trash removal costs, after-hours utilities usage, cabling and contractors’ fees and general conditions; and

(vi) an amount equal to one and [***] ([***] ) of the total Initial Premises Subtenant Improvements cost to be paid to Sublandlord in consideration of its supervision of the construction of the Initial Premises Subtenant Improvements.

Notwithstanding anything to the contrary contained herein, any portion of the Subtenant Initial Premises Improvement Allowance remaining after [***] shall be forfeited by Subtenant and, consistent therewith, shall not be available for use by Subtenant for any purpose.

2.2.2 Disbursement of Subtenant Initial Premises Improvement Allowance . During the construction of the Initial Premises Subtenant Improvements, Sublandlord shall make monthly disbursements of the Subtenant Initial Premises Improvement Allowance for Subtenant Initial Premises Improvement Allowance Items for the benefit of Subtenant and shall authorize the release of monies for the benefit of Subtenant as follows.

2.2.2.1 Monthly Disbursements . On or before the occurrence of a uniform date designated by Sublandlord (the “ Submittal Date ”) for each calendar month during the construction of the Initial Premises Subtenant Improvements (or such other date as Sublandlord may designate), Subtenant shall deliver to Sublandlord:

(i) a request for payment of the Contractor (as defined below) approved by Subtenant, in a form to be provided by Sublandlord, showing the schedule, by trade, of percentage of completion of the Initial Premises Subtenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed, and demonstrating that the relationship between the cost of the work completed and the cost of the work to be completed complies with the terms of the Final Costs (as defined below);

(ii) invoices from all of Subtenant’s Agents (as defined below) for labor rendered and materials delivered to the Initial Premises;

(iii) executed mechanic’s lien releases, which lien releases shall be conditional with respect to the then-requested payment amounts and unconditional with respect to payment amounts previously disbursed by Sublandlord, from all of Subtenant’s Agents which shall



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comply with the appropriate provisions, as reasonably determined by Sublandlord, of California Civil Code Section 3262(d); and

(iv) all other information reasonably requested by Sublandlord. Subtenant’s request for payment shall be deemed Subtenant’s acceptance and approval of the work furnished and/or the materials supplied as set forth in Subtenant’s payment request. On or before the date occurring thirty (30) days after the Submittal Date, and assuming Sublandlord receives all of the information described in items (i) through (iv), above, Sublandlord shall deliver a check to Subtenant made jointly payable to Contractor and Subtenant in payment of the lesser of: (A) the amounts so requested by Subtenant, as set forth in this Section 2.2.2.1, above, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the “ Final Retention ”), and (B) the balance of any remaining available portion of the Subtenant Initial Premises Improvement Allowance (not including the Final Retention), provided that Sublandlord does not dispute any request for payment based on non-compliance of any work with the Approved Construction Documents (as defined below) or due to any substandard work, or for any other reason. Sublandlord’s payment of such amounts shall not be deemed Sublandlord’s approval or acceptance of the work furnished or materials supplied as set forth in Subtenant’s payment request.

2.2.2.2 Final Retention . Subject to the provisions of this Subtenant Work Letter (Initial Premises), a check for the Final Retention payable jointly to Subtenant and Contractor shall be delivered by Sublandlord to Subtenant following the completion of construction of the Initial Premises, provided that (i) Subtenant delivers to Sublandlord (a) properly executed mechanics lien releases from all of Subtenant’s Agents in compliance with both California Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), which lien releases shall be conditional with respect to the then-requested payment amounts and unconditional with respect to payment amounts previously disbursed by Sublandlord, (b) an application and certificate for payment (AIA form G702-1992 or equivalent) signed by the Architect/Space Planner, (c) a breakdown sheet (AIA form G703-1992 or equivalent), (d) original stamped building permit plans, (e) copy of the building permit, (f) original stamped building permit inspection card with all final sign-offs, (g) a reproducible copy (in a form as approved by Sublandlord) of the “as built” drawings of the Initial Premises Subtenant Improvements, (h) intentionally deleted, (i) intentionally deleted, (j) one year warranty letters from Subtenant’s Agents, (h) manufacturer’s warranties and operating instructions, (l) final punch list completed and signed off by Subtenant and the Architect/Space Planner, and (m) an acceptance of the Initial Premises signed by Subtenant (collectively, the “ Final Closing Package ”), and (ii) Sublandlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building.

2.2.2.3 Other Terms . Sublandlord shall only be obligated to make disbursements from the Subtenant Initial Premises Improvement Allowance to the extent costs are incurred by Subtenant for Subtenant Improvement Allowance Items. All Subtenant Improvement Allowance Items for which the Subtenant Initial Premises Improvement Allowance has been made available shall be deemed Sublandlord’s property under the terms of Section 8.5 of this Lease.

2.2.2.4 Building Standards . Sublandlord and Master Landlord have established specifications for the Building standard components to be used in the construction of the Initial Premises Subtenant Improvements in the Initial Premises (the “ Building Standards ”). The quality of Initial Premises Subtenant Improvements shall be equal to or of greater quality than the quality of the Building Standards; provided, that Sublandlord may, at Sublandlord’s option, require the Initial Premises Subtenant Improvements to comply with certain Building Standards. Sublandlord and/or Master Landlord may make changes to the Building Standards from time to time.



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SECTION 3

CONSTRUCTION DOCUMENTS

3.1 Selection of Architect/Space Planner/Construction Documents . Subtenant shall retain an architect reasonably approved in advance by Sublandlord (the “ Architect/Space Planner ”) to prepare the Construction Documents. Sublandlord hereby approves the Architect/Space Planners listed on the list of preferred vendors submitted to Sublandlord, which is attached hereto as Schedule 3 (the “ Approved Vendors List ”). Subtenant shall retain the engineering consultants selected from Sublandlord’s approved list of such consultants (the “ Engineers ”) to prepare all engineering working drawings and specifications relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work of the Initial Premises Subtenant Improvements. The working drawings, specification and contract documents to be prepared by the Architect/Space Planner and the Engineers hereunder shall be known collectively as the “ Construction Documents .” All Construction Documents shall comply with the drawing format and specifications as determined by Sublandlord, and shall be subject to Sublandlord’s and, if required by the terms of the Master Lease, Master Landlord’s approval. Subtenant and the Architect/Space Planner shall be solely responsible to verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Subtenant and Architect/Space Planner shall be solely responsible for same, and neither Sublandlord nor Master Landlord shall have any responsibility in connection therewith. Sublandlord’s and Master Landlord’s review of the Construction Documents as set forth in this Section 3 , shall be for such party’s sole purpose and shall not imply Sublandlord’s or Master Landlord’s review of the same, or obligate Sublandlord or Master Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Documents are reviewed by Sublandlord or Master Landlord or Sublandlord’s space planner, Architect/Space Planner, Engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Subtenant by Sublandlord, Master Landlord or Sublandlord’s space planner, Architect/Space Planner, Engineers, and consultants, Sublandlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Documents, and Subtenant’s waiver and indemnity set forth in Section 10.1 of this Lease shall specifically apply to the Construction Documents. Prior to the preparation of the Final Space Plan (as defined below), Subtenant and the Architect/Space Planner shall meet with Sublandlord and Master Landlord, if required under the terms of the Master Lease, to discuss Sublandlord’s design parameters and code compliance.

3.2 Final Space Plan . Subtenant and the Architect/Space Planner shall prepare the final space plan for the Initial Premises Subtenant Improvements in the Initial Premises (collectively, the “ Final Space Plan ”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Sublandlord, and, if required under the terms of the Master Lease, Master Landlord for Sublandlord’s and, if required, Master Landlord’s approval. Sublandlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Sublandlord shall advise Subtenant within three (3) business days after Sublandlord’s receipt of the Final Space Plan for the Initial Premises if the same is unsatisfactory or incomplete in any respect. If Subtenant is so advised, Subtenant shall promptly cause the Final Space Plan to be revised to correct any deficiencies or other matters Sublandlord may reasonably require.

3.3 Final Construction Documents . The Architect/Space Planner and the Engineers shall complete the architectural and engineering drawings and specifications for the Premises, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “ Final Construction Documents ”) and shall submit the same to Sublandlord and, if required under the terms of the Master Lease, Master Landlord for Sublandlord’s and, if required, Master Landlord’s approval. Subtenant shall supply Sublandlord with four (4) copies signed by Subtenant of such Final Construction Documents. Sublandlord shall advise



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Subtenant within ten (10) days after Sublandlord’s receipt of the Final Construction Documents for the Initial Premises if the same is unsatisfactory or incomplete in any respect. If Subtenant is so advised, Subtenant shall immediately revise the Final Construction Documents in accordance with such review and any disapproval of Sublandlord in connection therewith.

3.4 Permits . Subtenant shall immediately (i) deliver the Final Construction Documents to Sublandlord and (ii) submit the Final Construction Documents to the appropriate municipal authorities for all applicable building permits necessary to allow Contractor (as defined below) to commence and fully complete the construction of the Initial Premises Subtenant Improvements (the “ Permits ”). Subtenant hereby agrees that neither Sublandlord nor Sublandlord’s consultants shall be responsible for obtaining any certificate of occupancy for the Initial Premises and that the obtaining of the same shall be Subtenant’s responsibility. No changes, modifications or alterations in the Final Construction Documents may be made without the prior written consent of Sublandlord, and, if required by the terms of the Master Lease, Master Landlord. Notwithstanding the foregoing, Subtenant may make de minimis changes to the Final Construction Documents without obtaining Sublandlord's or Master Landlord’s consent (but upon notice to Sublandlord); provided, such de minimis changes (a) are cosmetic in nature, such that they do not affect the structure of the Building or any Base Building Systems, and (b) cost less than [***] Dollars ($[***] ).

SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Subtenant’s Selection of the Contractor .

4.1.1 Contractor . Subtenant shall retain a contractor from the Approved Vendor’s List.

4.1.2 Subtenant’s Agents . All subcontractors, laborers, materialmen, and suppliers used by Subtenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as “ Subtenant’s Agents ”) must be selected by Subtenant from a list of approved Subtenant’s Agents supplied by Sublandlord, provided that Subtenant must use the life safety, mechanical and electrical contractors designated by Sublandlord. Subtenant’s Agents shall all be union labor in compliance with the master labor agreements existing between trade unions and the San Francisco Bay Area Chapter of the Associated General Contractors of America.

4.2 Construction of Initial Premises Subtenant Improvements by Subtenant’s Agents

4.2.1 Construction Contract; Cost Budget . Promptly after Subtenant’s execution of the construction contract and general conditions with Contractor (the “ Contract ”), Subtenant shall provide a copy of the Contract to Sublandlord. Prior to the commencement of the construction of the Initial Premises Subtenant Improvements, and after Subtenant has accepted all bids for the Initial Premises Subtenant Improvements, Subtenant shall provide Sublandlord with a detailed breakdown, by trade, of the final costs to be incurred in connection with the design and construction of the Initial Premises Subtenant Improvements (the “ Final Costs ”) and within five (5) business days of receipt, Sublandlord shall either approve the Final Costs or make reasonable modifications to the calculation of such Final Costs. Prior to the commencement of construction of the Initial Premises Subtenant Improvements, Subtenant shall deliver to Sublandlord cash in an amount (the “ Over-Allowance Amount ”) equal to the amount of the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Subtenant Initial Premises Improvement Allowance. The Over-Allowance Amount and Subtenant Initial Premises Improvement Allowance shall be disbursed by Sublandlord in amounts equal to the percentage that each represents in relation to the Final Costs. By way of example and not exclusion, if the Over Allowance Amount represents twenty-five percent (25%) of the Final Costs and the Initial Premises Improvement Allowance represents seventy five percent (75%) of the Final Costs,



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then each disbursement shall consistent of twenty five percent (25%) of Over-Allowance Amount funds and seventy five percent (75%) of Initial Premises Improvement Allowance funds. Any overpayment of the Over-Allowance Amount by Subtenant shall be returned to Subtenant within thirty (30) days after substantial completion of the Initial Premises Subtenant Improvements by Subtenant. In the event that, after the Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be made to the Construction Documents or the Initial Premises Subtenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions or any other additional costs shall be paid by Subtenant to Sublandlord immediately upon Sublandlord’s request, as an addition to the Over-Allowance Amount.

4.2.2 Subtenant’s Agents .

4.2.2.1 Sublandlord’s General Conditions for Subtenant’s Agents and Initial Premises Subtenant Improvement Work . Subtenant’s and Subtenant’s Agents construction of the Initial Premises Subtenant Improvements shall comply with the following: (i) the Initial Premises Subtenant Improvements shall be constructed in strict accordance with the Final Construction Documents; and (ii) Subtenant shall abide by all rules made by Sublandlord’s Building contractor or Sublandlord’s Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Subtenant Work Letter (Initial Premises), including, without limitation, the construction of the Initial Premises Subtenant Improvements [and Subtenant shall promptly execute all documents including, but not limited to, Sublandlord’s standard contractor’s rules and regulations, as Sublandlord may deem reasonably necessary to evidence or confirm Subtenant’s agreement to so abide.

4.2.2.2 Indemnity . Subtenant’s indemnity of Sublandlord as set forth in Section 10.1 of this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Subtenant or Subtenant’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Subtenant’s non-payment of any amount arising out of the Initial Premises Subtenant Improvements and/or Subtenant’s disapproval of all or any portion of any request for payment.

4.2.2.3 Requirements of Subtenant’s Agents . Each of Subtenant’s Agents shall guarantee to Subtenant and for the benefit of Sublandlord that the portion of the Initial Premises Subtenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Subtenant’s Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Initial Premises Rent Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Initial Premises Subtenant Improvements, and/or the Building and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Initial Premises Subtenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Sublandlord and Subtenant, as their respective interests may appear, and can be directly enforced by either. Subtenant covenants to give to Sublandlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.

4.2.3 Insurance Requirements .

4.2.3.1 General Coverages . All of Subtenant’s Agents shall carry worker’s compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be



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carried by Subtenant as set forth in Article 10 of this Lease, and the policies therefor shall insure Sublandlord and Subtenant, as their interests may appear, as well as the Contractor and subcontractors.

4.2.3.2 Special Coverages . Subtenant or Contractor shall carry “Builder’s All Risk” insurance in an amount approved by Sublandlord covering the construction of the Initial Premises Subtenant Improvements, and such other insurance as Sublandlord may require, it being understood and agreed that the Initial Premises Subtenant Improvements shall be insured by Subtenant pursuant to Article 10 of this Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Sublandlord.

4.2.3.3 General Terms . Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Sublandlord before the commencement of construction of the Initial Premises Subtenant Improvements and before the Contractor’s equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Sublandlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Initial Premises Subtenant Improvements are damaged by any cause during the course of the construction thereof, Subtenant shall immediately repair the same at Subtenant’s sole cost and expense. Subtenant’s Agents shall maintain all of the foregoing insurance coverage in force until the Initial Premises Subtenant Improvements are fully completed and accepted by Sublandlord, except for any Products and Completed Operation Coverage insurance required by Sublandlord (which may be carried by Contractor), which is to be maintained for ten (10) years following completion of the work and acceptance by Sublandlord and Subtenant. All insurance, except Workers’ Compensation, maintained by Subtenant’s Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Sublandlord by Subtenant under Section 4.2.2.2 of this Subtenant Work Letter (Initial Premises).

4.2.4 Governmental Compliance . The Initial Premises Subtenant Improvements shall comply in all respects with the following: (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer’s specifications.

4.2.5 Inspection by Sublandlord . Sublandlord shall have the right to inspect the Initial Premises Subtenant Improvements at all times, provided however, that Sublandlord’s failure to inspect the Initial Premises Subtenant Improvements shall in no event constitute a waiver of any of Sublandlord’s rights hereunder nor shall Sublandlord’s inspection of the Initial Premises Subtenant Improvements constitute Sublandlord’s approval of the same. Should Sublandlord disapprove of any Initial Premises Subtenant Improvements due to any defects in workmanship or deviations from the Final Construction Documents, Sublandlord shall notify Subtenant in writing of such disapproval and shall specify the items disapproved and the reason(s) for such disapproval. Any defects or deviations in the Initial Premises Subtenant Improvements shall be rectified by Subtenant at no expense to Sublandlord, provided however, that in the event Sublandlord determines that a defect or deviation exists, Sublandlord may take such action as Sublandlord deems necessary, at Subtenant’s expense and without incurring any liability on Sublandlord’s part, to correct any such defect or deviation including, without limitation, causing the cessation of performance of the construction of the Initial Premises Subtenant Improvements until such time as the defect or deviation is corrected to Sublandlord’s satisfaction.



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4.2.6 Meetings . Commencing upon the execution of this Lease, Subtenant shall hold regular meetings at a reasonable time, with the Architect/Space Planner and the Contractor regarding the progress of the preparation of Construction Documents and the construction of the Initial Premises Subtenant Improvements, which meetings shall be held at the office of the Project, and Sublandlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Sublandlord’s request, certain of Subtenant’s Agents shall attend such meetings. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Sublandlord.

4.3 Notice of Completion; Copy of Updated Approved Construction Documents . Within five (5) days after completion of construction of the Initial Premises Subtenant Improvements, Subtenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Francisco in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Sublandlord upon such recordation. If Subtenant fails to do so, Sublandlord may execute and file the same on behalf of Subtenant as Subtenant’s agent for such purpose, at Subtenant’s sole cost and expense.

SECTION 5

DELAY OF INITIAL PREMISES RENT COMMENCEMENT DATE

5.1 Initial Premises Rent Commencement Date Delays . The Initial Premises Rent Commencement Date shall occur as provided in Article 2 of this Lease, provided that the Initial Premises Rent Commencement Date shall be delayed by the number of days of delay of the substantial completion of the Initial Premises Subtenant Improvements (as defined below) in the Initial Premises which is caused solely by an Initial Premises Rent Commencement Date Delay. As used herein, the term “ Initial Premises Rent Commencement Date Delay ” shall mean only a Force Majeure Delay or a Sublandlord Caused Delay. As used herein, (i) the term “ Force Majeure Delay ” shall mean only an actual delay resulting from fire, earthquake, explosion, flood, hurricane, the elements, acts of God or the public enemy, war, invasion, insurrection, rebellion, riots, industry-wide labor strikes or lockouts (which objectively preclude Subtenant from obtaining from any reasonable source of union labor or substitute materials at a reasonable cost necessary for completing the Initial Premises Subtenant Improvements), or governmental acts (which do not specifically relate to the construction of the Initial Premises Subtenant Improvements and which objectively preclude construction of tenant improvements in the Building by any person). For the purposes hereof, the term “ Sublandlord Caused Delay ” shall mean only an actual delay resulting from (a) the failure of Sublandlord to timely approve or disapprove the Final Space Plans, the Final Construction Documents or the Final Costs within the applicable time period required under this Subtenant Work Letter (Initial Premises); or (b) Sublandlord’s failure to disburse the Initial Premises Improvement Allowance in accordance with Section 2.2 above.

5.2 Determination of Initial Premises Rent Commencement Date Delay . If Subtenant contends that an Initial Premises Rent Commencement Date Delay has occurred, Subtenant shall notify Sublandlord in writing within two (2) business days of each of (i) the date upon which such Initial Premises Rent Commencement Date Delay becomes known to Subtenant, Architect, or Contractor and (ii) the date upon which such Initial Premises Rent Commencement Date Delay ends (the “ Termination Date ”). Subtenant’s failure to deliver either or both of such notices to Sublandlord within the required time period shall be deemed to be a waiver by Subtenant of the contended Initial Premises Rent Commencement Date Delay to which such notices would have related. If such actions, inaction or circumstances described in the notice set forth in clause (i), above (the “ Delay Notice ”) are not cured by Sublandlord within two (2) business day of receipt of the Delay Notice and if such actions, inaction or circumstances otherwise qualify as an Initial Premises Rent Commencement Date Delay, then an Initial Premises Rent Commencement Date Delay shall be deemed to have occurred commencing as of the date of Sublandlord’s receipt of the Delay Notice and ending as of the Termination Date.



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5.3 Definition of Substantial Completion of the Initial Premises Subtenant Improvements . For purposes of this Section 5, “ substantial completion of the Initial Premises Subtenant Improvements ”, “ Substantial Completion ” or the Initial Premises being “ Substantially Complete ” shall mean completion of construction of the Initial Premises Subtenant Improvements in the Initial Premises pursuant to the Final Construction Documents and issuance of a certificate of occupancy or equivalent thereof, with the exception of any punch list items, any furniture, fixtures, work-stations, built-in furniture or equipment, and any tenant improvement finish items and materials which are selected by Subtenant but which are not available within a reasonable time (given the date of the Initial Premises Rent Commencement Date).

SECTION 6

MISCELLANEOUS

6.1 [Intentionally Omitted] .

6.2 Subtenant ’ s Representative . Subtenant has designated Ada Wong as its sole representative with respect to the matters set forth in this Subtenant Work Letter (Initial Premises), who, until further notice to Sublandlord, shall have full authority and responsibility to act on behalf of the Subtenant as required in this Subtenant Work Letter (Initial Premises).

6.3 Sublandlord ’ s Representative . Sublandlord has designated Joshua Roddy as its sole representative with respect to the matters set forth in this Subtenant Work Letter (Initial Premises), who, until further notice to Subtenant, shall have full authority and responsibility to act on behalf of the Sublandlord as required in this Subtenant Work Letter (Initial Premises).

6.4 Subtenant ’ s Agents . All subcontractors, laborers, materialmen, and suppliers for Initial Premises Subtenant Improvements consisting of electrical, mechanical (HVAC) and/or carpentry (including acoustical ceilings, drywall, millwork and doors) shall all be union labor in compliance with the master labor agreements existing between trade unions and the San Francisco Bay Area Chapter of the Associated General Contractors of America.

6.5 Time of the Essence in This Subtenant Work Letter (Initial Premises) . Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Subtenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Sublandlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Subtenant and the next succeeding time period shall commence.

6.6 Subtenant ’ s Lease Default . Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in Section 19.1 of this Lease, or a default by Subtenant under this Subtenant Work Letter (Initial Premises), has occurred at any time on or before the Substantial Completion of the Initial Premises, then (i) in addition to all other rights and remedies granted to Sublandlord pursuant to the Lease, Sublandlord shall have the right to withhold payment of all or any portion of the Subtenant Initial Premises Improvement Allowance and/or Sublandlord may cause Contractor to cease the construction of the Initial Premises (in which case, Subtenant shall be responsible for any delay in the Substantial Completion of the Initial Premises caused by such work stoppage as set forth in Section 5 of this Subtenant Work Letter (Initial Premises), and (ii) all other obligations of Sublandlord under the terms of this Subtenant Work Letter (Initial Premises) shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.



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SCHEDULE 3 TO EXHIBIT B

APPROVED VENDORS LIST

[See Attached]



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EXHIBIT C

215 FREMONT STREET

PROJECT LEGAL DESCRIPTION

Common Address:

215 Fremont Street

San Francisco, CA 94105

Legal Description:

The real property located in the City of San Francisco, California and more particularly described as follows:

PARCEL 1:

LOT 12, AS SHOWN AND DELINEATED ON THAT CERTAIN PARCEL MAP BEING A RESUBDIVISION OF ASSESSOR'S LOTS I, 2 AND 9, BLOCK 3738, ALSO BEING A PORTION OF 100 VARA BLOCK NO. 336, RECORDED DECEMBER4, 1981, SERIES NO. D-155242, IN BOOK 22 OF PARCEL MAPS, AT PAGE 44, IN THE OFFICE OF THE RECORDER OF SAID COUNTY.

RESERVING FROM SAID PARCEL I, EASEMENTS FOR OPEN SPACE PURPOSES OVER THOSE PORTIONS OF ABOVE MENTIONED LOT 12 DESCRIBED AS PARCELS "H" AND "I" IN OPEN SPACE EASEMENT AGREEMENT DATED 6-3-85 AND RECORDED 8-6-85, REEL D893, IMAGE 1318, AS AN APPURTENANCE TO LOT 12 SHOWN ON THE ABOVE REFERENCED PARCEL MAP.

PARCEL2:

TOGETHER WITH A RIGHT OF WAY FOR PASSAGE OF PERSONS AND VEHICLES TO AND FROM THE PROPERTY HEREINBEFORE DESCRIBED, AND FOR NO OTHER PURPOSES, OVER, UPON AND ACROSS THAT CERTAIN REAL PROPERTY IN THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF BEALE STREET, DISTANT THEREON 308.375 FEET NORTHWESTERLY FROM THE NORTHWESTERLY LINE OF FOLSOM STREET; THENCE FROM SAID POINT OF BEGINNING RUNNING NORTHWESTERLY ALONG THE SOUTHWESTERLY LINE OF BEALE STREET 12.70 FEET; THENCE AT A RIGHT ANGLE SOUTHWESTERLY 9.37 FEET TO THE NORTHEASTERLY CORNER OF SAID PARCEL OF REAL PROPERTY HEREINABOVE FIRST DESCRIBED; THENCE AT A RIGHT ANGLE SOUTHEASTERLY ALONG THE NORTHEASTERLY LINE OF SAID PARCEL, 12.70 FEET TO THE SOUTHEASTERLY CORNER OF SAID PARCEL;

THENCE AT A RIGHT ANGLE NORTHEASTERLY 9.37 FEET TO THE POINT OF BEGINNING.

BEING A PORTION OF 100 VARA BLOCK NO. 336.



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AS CREATED AND GRANTED IN THE DEED FROM THE STATE OF CALIFORNIA TO

THOMAS A. SHORT AND GERALDINE S. SHORT, HIS WIFE, DATED MARCH 27, 1945, AND RECORDED APRIL 4, 1945, IN BOOK 4225, PAGE 63, OFFICIAL RECORDS IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA.

PARCEL3:

EASEMENTS DESIGNATED AS PARCELS "A", "B", "C", "D", "E" AND "G" AND AS CREATED BY DECLARATION OF EASEMENTS BY PALADIN N.Y., A NETHERLANDS ANTILLES CORPORATION, DATED JUNE 29, 1984, IN BOOK D-700, PAGE 336, SERIES NO. D-517864, OFFICIAL RECORDS, AND AS RESERVED IN DEED DATED SEPTEMBER

12, 1984, IN BOOK D-726, PAGE 1207, SERIES NO. D-546552, OFFICIAL RECORDS, AND IN DEED DATED JUNE 3, 1985, RECORDED NOVEMBER 26, 1985, IN BOOK D-970, PAGE

581, SERIES NO. D-721928, OFFICIAL RECORDS. LOT 012, BLOCK 3738



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EXHIBIT D

215 FREMONT

DEPICTION OF THE BASEMENT PARKING AREA



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EXHIBIT E

215 FREMONT STREET

RULES AND REGULATIONS

The following Rules and Regulations are those in effect as of the date of this Lease to which this Exhibit E is attached and are subject to change pursuant to Article 5 of this Lease.

1. Subtenant shall faithfully observe and comply with the following Rules and Regulations. Sublandlord shall not be responsible to Subtenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

2. Subtenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Sublandlord’s prior written consent. Subtenant shall bear the cost of any lock changes or repairs required by Subtenant. A reasonable number of keys will be furnished by Sublandlord for the Premises, and any additional keys required by Subtenant must be obtained from Sublandlord at a reasonable cost to be established by Sublandlord. Upon the termination of this Lease, Subtenant shall restore to Sublandlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Subtenant and in the event of the loss of keys so furnished, Subtenant shall pay to Sublandlord the cost of replacing same or of changing the lock or locks opened by such lost key if Sublandlord shall deem it necessary to make such changes.

3. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

4. Sublandlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the San Francisco, California area. Subtenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Sublandlord will furnish passes to persons for whom Subtenant requests same in writing. Subtenant shall be responsible for all persons for whom Subtenant requests passes and shall be liable to Sublandlord for all acts of such persons. Sublandlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Sublandlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

5. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Sublandlord. All moving activity into or out of the Building shall be scheduled with Sublandlord and done only at such time and in such manner as Sublandlord designates. Sublandlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Sublandlord, stand on supports of such thickness



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as is necessary to properly distribute the weight. Sublandlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Subtenant.

6. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Sublandlord.

7. The requirements of Subtenant will be attended to only upon application at the management office for the Project or at such office location designated by Sublandlord. Employees of Sublandlord shall not perform any work or do anything outside their regular duties unless under special instructions from Sublandlord.

8. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Subtenant on any part of the Premises or the Building without the prior written consent of the Sublandlord. Subtenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Sublandlord and its agents of Sublandlord to prevent same.

9. The toilet rooms, 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 shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

10. Subtenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Sublandlord’s prior written consent; provided, however, Sublandlord’s prior consent shall not be required with respect to Subtenant’s placement of pictures and other normal office wall hangings on the interior walls of the Premises.

11. Except for vending machines intended for the sole use of Subtenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Sublandlord.

12. Except as permitted pursuant to the Lease, Subtenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid, chemical, substance or material.

13. Subtenant shall not without the prior written consent of Sublandlord use any method of heating or air conditioning other than that supplied by Sublandlord.

14. Subtenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Sublandlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Subtenant shall not throw anything out of doors, windows or skylights or down passageways.



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15. Subtenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Sublandlord.

16. The Premises shall not be used for lodging or for any improper, objectionable or immoral purpose. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

17. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in the Summary. Subtenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Sublandlord. Subtenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

18. Sublandlord reserves the right to exclude or expel from the Project any person who, in the judgment of Sublandlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

19. Subtenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

20. Subtenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Sublandlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls.

21. Subtenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Irvine, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Sublandlord shall designate.

22. Subtenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Sublandlord or any governmental agency.

23. Any persons employed by Subtenant to do janitorial work shall be subject to the prior written approval of Sublandlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Sublandlord), and Subtenant shall be responsible for all acts of such persons.

24. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Sublandlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Sublandlord standard drapes. All electrical ceiling fixtures hung in the Premises or spaces along the



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perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Sublandlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Sublandlord. Subtenant shall abide by Sublandlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Common Area.

25. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Subtenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

26. Subtenant must comply with requests by the Sublandlord concerning the informing of their employees of items of importance to the Sublandlord.

27. Subtenant must comply with the State of California “No Smoking” law set forth in California Labor Code Section 6404.5, and any local “No Smoking” or “No Vaping” ordinance which may be in effect from time to time and which is not superseded by such State law(s).

28. Subtenant hereby acknowledges that Sublandlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project. Subtenant hereby assumes all responsibility for the protection of Subtenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Sublandlord, at its option, elects to provide security protection for the Project or any portion thereof. Subtenant further assumes the risk that any safety and security devices, services and programs which Sublandlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Subtenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Subtenant desires protection against losses related to such occurrences. Subtenant shall cooperate in any reasonable safety or security program developed by Sublandlord or required by law.

29. All office equipment of any electrical or mechanical nature shall be placed by Subtenant in the Premises in settings approved by Sublandlord, to absorb or prevent any vibration, noise and annoyance.

30. Subtenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

31. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Sublandlord.

32. No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

Sublandlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Sublandlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Area and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Sublandlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by



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Sublandlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Sublandlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Subtenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.



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EXHIBIT F

215 FREMONT STREET

DEPICTION OF BREAK ROOMS AND PRIVATE MEETING SPACES

ATTACHED



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EXHIBIT G

215 FREMONT STREET

PREMISES DELIVERY CONFIRMATION FORM


To:	Charles Schwab & Co., Inc. Attn: Senior Vice President Corporate Real Estate 211 Main Street San Francisco, CA 91405 Charles Schwab & Co., Inc. P.O. Box 881566 San Francisco, CA 9488-1566 Attn: Corporate Real Estate Lease Administration


Re:	Office Sublease dated ____________, _____ between Charles Schwab & Co., Inc., a California corporation(“ Sublandlord ”), and Fitbit Inc., a Delaware corporation (“ Tenant ”), concerning Floors 3, 4, 5, 6, 7, 7A and a portion of Floor 8 of the office building located at 215 Fremont Street, San Francisco, California.

Gentlemen:

In accordance with the Office Sublease (the “ Lease ”), we wish to confirm as follows:


1.	The Delivery Date for Floor _______ was _________ __, 20__ (the “ ____ Floor Delivery Date ”).


2.	As a result of the _______ Floor Delivery Date, the estimated Rent Commencement Date for Floor _________ is _______ __, 20__, and the initial Base Rent for such floor shall be $______________ per month, until __________ __, 20__, at which time the Base Rent for such Floor will increase to $____________.


3.	The Subtenant Improvement Allowance for Floor ________ shall be $______________.


4.	The Rent Commencement Date for each previously delivered Floor and the current Base Rent for each such Floor is as follows:



Floor	Rent Commencement Date	Current Base Rent



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5.	The Base Year for Floor _____ is _______, and Subtenant’s Share for such Floor is ____%.


6.	Attached hereto, as Exhibit A is a Subtenant Work Letter applicable to Floor ________, which shall govern construction of the Subtenant Improvements in such Floor.

Agreed to and accepted as
of _________________, 20__.

“ Sublandlord ” :

CHARLES SCHWAB & CO., INC.,
a California corporation

By:
Name:
Title:

“ Subtenant ” :

FITBIT, INC.,
a Delaware corporation

By:
Name:
Title:

By:
Name:
Title:



	EXHIBIT G - Page 2	215 FREMONT STREET [_____________]

EXHIBIT B TO EXHIBIT G

Subtenant Work Letter (Floor _________)

[See Attached]



	EXHIBIT G - Page 3	215 FREMONT STREET [_____________]

EXHIBIT H

DESIRED FF&E

[See Attached]



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EXHIBIT I

215 FREMONT STREET

FORM OF SUBTENANT’S ESTOPPEL CERTIFICATE

The undersigned as Subtenant under that certain Office Sublease (the “ Lease ”) made and entered into as of ___________, ______ by and between _______________ as Sublandlord, and the undersigned as Subtenant, for Premises on the ______________ floor(s) of the office building located at 215 Fremont Street, San Francisco, California, certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises. The Lease is in full force and effect and has not been modified, supplemented, canceled or amended in any respect, except as stated above. Subtenant shall not modify the documents contained in Exhibit A without the prior written consent of Sublandlord’s mortgagee.

2. Subtenant currently occupies the Premises described in the Lease, and Subtenant is the owner and holder of all rights, title and interest in the subleasehold estate created by the Lease and has no actual present knowledge of any prior assignment of the Sublandlord’s interest in the Lease, except ________________.

3. There is no ongoing construction of Subtenant Improvements at the Premises except: _________________. To the knowledge of Subtenant, (i) the Subtenant Improvements comply with the terms of the Lease and all Applicable Laws and have been accepted by Subtenant, and (ii) all reimbursements and allowances due to Subtenant under the Lease in connection with the Subtenant Improvements have been paid in full.

4. All permits and certificates of occupancy, if any, required for the operation of the Premises by Subtenant have been obtained. To the knowledge of Subtenant, the Premises may be used for the purposes contemplated by Subtenant in accordance with Applicable Laws.

5. The Lease Term commenced on _______________, ____________, and expires on _________________________________, and the undersigned has no option to extend, terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

6. Subtenant commenced paying Rent on ______________________. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through ___________. The current monthly installment of Base Rent is $_____________________. No installment of Rent has been or will be prepaid more than thirty (30) days before it comes due, and no security has been deposited with Sublandlord except as provided in the Lease.

7. Subtenant 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:_______________

8. To Subtenant’s knowledge, all conditions of the Lease to be performed by Sublandlord necessary to the enforceability of the Lease have been satisfied and Sublandlord is not in default



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thereunder. In addition, the undersigned has not delivered any notice to Sublandlord regarding a default by Sublandlord thereunder.

9. No event has occurred or is continuing which would constitute a default by either Subtenant or, to Subtenant’s knowledge, Sublandlord under the Lease or which would constitute such a default but for the requirement that notice be given or that a period of time elapse or both. As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Sublandlord.

11. If Subtenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Subtenant hereby represents and warrants that Subtenant is a duly formed and existing entity qualified to do business in California and that Subtenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Subtenant is authorized to do so.

12. There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13. Other than in compliance with all Applicable Laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises.

Each capitalized term used herein and not defined herein shall have the meaning set forth for such term in the Lease.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Sublandlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

This Certificate may not be modified orally or in any manner other than by an agreement, in writing, signed by the undersigned and its successors in interest.

This Certificate has been duly authorized, executed and delivered by Subtenant.

Executed at ______________ on the ____ day of ___________, ______.



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“ Subtenant ” :

             ,
a

By:
Name:
Title:

By:
Name:
Title:



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EXHIBIT J-1

215 FREMONT STREET

DEPICTION OF SUBTENANT’S FIRST TOP SIGN

ATTACHED



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EXHIBIT J-2

215 FREMONT STREET

DEPICTION OF SUBTENANT’S SECOND TOP SIGN

ATTACHED



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EXHIBIT J-3

215 FREMONT STREET

DEPICTION OF SUBTENANT’S THIRD TOP SIGN

ATTACHED



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EXHIBIT J-4

215 FREMONT STREET

DEPICTION OF SUBTENANT’S ENTRANCE PLACARD

ATTACHED

Exhibit J-4 At Exterior Entry to Lobby



[***] Confidential Treatment Requested.	EXHIBIT J-4	215 FREMONT STREET Fitbit, Inc.

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 3, 2016	/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 3, 2016	/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 July 2, 2016 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 3, 2016	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 July 2, 2016 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 3, 2016	By:	/s/ William Zerella
		William Zerella
		Chief Financial Officer (Principal Financial and Accounting Officer)