UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2018

OR

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: 001-37725

 

ViewRay, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

42-1777485

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2 Thermo Fisher Way

Oakwood Village, OH

 

44146

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (440) 703-3210

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

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

As of July 27, 2018, the registrant had 75,206,716 shares of common stock, $0.01 par value per share, outstanding.

 

 


VIEWRAY, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

3

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

21

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

Item 4.

Controls and Procedures

 

32

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

 

 

 

Item 1A.

Risk Factors

 

34

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

37

 

 

 

 

Item 4.

Mine Safety Disclosures

 

37

 

 

 

 

Item 5.

Other Information

 

37

 

 

 

 

Item 6.

Exhibits

 

38

 

 

 

 

 

Signatures

 

39

 


2


CAUTIONARY NOTE REGARDING F ORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Report, contains forward-looking statements, including, without limitation, in the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of products, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation:

 

market acceptance of magnetic resonance imaging (“MRI”) guided radiation therapy;

 

the benefits of MR Image-Guided radiation therapy;

 

our ability to successfully sell and market MRIdian in our existing and expanded geographies;

 

the performance of MRIdian in clinical settings;

 

competition from existing technologies or products or new technologies and products that may emerge;

 

the pricing and reimbursement of MR Image-Guided radiation therapy;

 

the implementation of our business model and strategic plans for our business and MRIdian;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering MRIdian;

 

our ability to obtain regulatory approval in targeted markets for MRIdian;

 

estimates of our future revenue, expenses, capital requirements and our need for additional financing;

 

our financial performance;

 

our expectations related to the MRIdian linear accelerator technology, or MRIdian Linac;

 

developments relating to our competitors and the healthcare industry; and

 

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A, titled “Risk Factors” discussed elsewhere in this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise, except as required by law.

This Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain devices, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

3


PART I—FINANCI AL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

VIEWRAY, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,143

 

 

$

57,389

 

Accounts receivable

 

 

13,563

 

 

 

20,326

 

Inventory

 

 

28,570

 

 

 

19,375

 

Deposits on purchased inventory

 

 

7,542

 

 

 

7,043

 

Deferred cost of revenue

 

 

15,683

 

 

 

13,696

 

Prepaid expenses and other current assets

 

 

5,259

 

 

 

4,862

 

Total current assets

 

 

136,760

 

 

 

122,691

 

Property and equipment, net

 

 

13,587

 

 

 

11,564

 

Restricted cash

 

 

1,181

 

 

 

1,143

 

Intangible assets, net

 

 

68

 

 

 

78

 

Other assets

 

 

917

 

 

 

235

 

TOTAL ASSETS

 

$

152,513

 

 

$

135,711

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,574

 

 

$

11,014

 

Accrued liabilities

 

 

7,650

 

 

 

7,207

 

Customer deposits

 

 

10,280

 

 

 

17,820

 

Deferred revenue, current portion

 

 

15,540

 

 

 

20,151

 

Total current liabilities

 

 

41,044

 

 

 

56,192

 

Deferred revenue, net of current portion

 

 

4,393

 

 

 

3,238

 

Long-term debt

 

 

44,599

 

 

 

44,504

 

Warrant liabilities

 

 

15,411

 

 

 

22,420

 

Other long-term liabilities

 

 

9,100

 

 

 

7,370

 

TOTAL LIABILITIES

 

 

114,547

 

 

 

133,724

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, par value of $0.01 per share; 10,000,000 shares authorized

   at June 30, 2018 and December 31, 2017; no shares issued and outstanding

   at June 30, 2018 and December 31, 2017

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 300,000,000 shares authorized at

   June 30, 2018 and December 31, 2017; 75,188,832 and 67,653,974 shares

   issued and outstanding at June 30, 2018 and December 31, 2017

 

 

741

 

 

 

666

 

Additional paid-in capital

 

 

386,610

 

 

 

321,174

 

Accumulated deficit

 

 

(349,385

)

 

 

(319,853

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

37,966

 

 

 

1,987

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

152,513

 

 

$

135,711

 

 

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

4


VIEWRAY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

15,366

 

 

$

 

 

$

40,745

 

 

$

 

Service

 

 

958

 

 

 

579

 

 

 

1,650

 

 

 

1,687

 

Distribution rights

 

 

119

 

 

 

119

 

 

 

238

 

 

 

238

 

Total revenue

 

 

16,443

 

 

 

698

 

 

 

42,633

 

 

 

1,925

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

14,654

 

 

 

328

 

 

 

34,365

 

 

 

594

 

Service

 

 

1,720

 

 

 

498

 

 

 

2,629

 

 

 

1,274

 

Total cost of revenue

 

 

16,374

 

 

 

826

 

 

 

36,994

 

 

 

1,868

 

Gross margin

 

 

69

 

 

 

(128

)

 

 

5,639

 

 

 

57

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,389

 

 

 

3,251

 

 

 

8,159

 

 

 

6,165

 

Selling and marketing

 

 

3,394

 

 

 

1,871

 

 

 

6,640

 

 

 

2,943

 

General and administrative

 

 

10,503

 

 

 

7,463

 

 

 

20,349

 

 

 

14,614

 

Total operating expenses

 

 

18,286

 

 

 

12,585

 

 

 

35,148

 

 

 

23,722

 

Loss from operations

 

 

(18,217

)

 

 

(12,713

)

 

 

(29,509

)

 

 

(23,665

)

Interest income

 

 

2

 

 

 

1

 

 

 

4

 

 

 

2

 

Interest expense

 

 

(1,918

)

 

 

(1,792

)

 

 

(3,784

)

 

 

(3,529

)

Other (expense) income, net

 

 

(1,857

)

 

 

6,151

 

 

 

6,485

 

 

 

(9,122

)

Loss before provision for income taxes

 

$

(21,990

)

 

$

(8,353

)

 

$

(26,804

)

 

$

(36,314

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(21,990

)

 

$

(8,353

)

 

$

(26,804

)

 

$

(36,314

)

Amortization of beneficial conversion feature related to Series A convertible preferred stock

 

$

 

 

$

 

 

$

(2,728

)

 

$

 

Net loss attributable to common stockholders, basic and diluted

 

$

(21,990

)

 

$

(8,353

)

 

$

(29,532

)

 

$

(36,314

)

Net loss per share, basic and diluted

 

$

(0.30

)

 

$

(0.15

)

 

$

(0.41

)

 

$

(0.67

)

Weighted-average common shares used to compute net loss per

   share attributable to common stockholders, basic and diluted

 

 

74,531,274

 

 

 

57,230,403

 

 

 

71,776,802

 

 

 

54,540,854

 

 

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

5


VIEWRAY, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,804

)

 

$

(36,314

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,586

 

 

 

1,004

 

Stock-based compensation

 

 

2,873

 

 

 

1,782

 

Accretion on asset retirement obligation

 

 

20

 

 

 

19

 

Change in fair value of warrant liabilities

 

 

(7,009

)

 

 

9,032

 

Loss on disposal of property and equipment

 

 

 

 

 

9

 

Amortization of debt discount and interest accrual

 

 

1,770

 

 

 

1,605

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

6,763

 

 

 

2,380

 

Inventory

 

 

(10,312

)

 

 

(7,276

)

Deposits on purchased inventory

 

 

(499

)

 

 

(2,994

)

Deferred cost of revenue

 

 

(2,447

)

 

 

(7,254

)

Prepaid expenses and other assets

 

 

(1,079

)

 

 

(2,096

)

Accounts payable

 

 

(3,383

)

 

 

1,808

 

Accrued expenses and other long-term liabilities

 

 

679

 

 

 

976

 

Customer deposits and deferred revenue

 

 

(10,996

)

 

 

13,436

 

Net cash used in operating activities

 

 

(48,838

)

 

 

(23,883

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,280

)

 

 

(776

)

Net cash used in investing activities

 

 

(2,280

)

 

 

(776

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from common stock private placement, gross

 

 

 

 

 

26,100

 

Payment of offering costs related to common stock private placement

 

 

 

 

 

(300

)

Proceeds from at-the-market offering of common stock, gross

 

 

278

 

 

 

39,524

 

Payment of offering costs related to at-the-market offering of common stock

 

 

(6

)

 

 

(1,129

)

Proceeds from direct registered offering, gross

 

 

59,100

 

 

 

 

Payment of offering costs related to direct registered offering

 

 

(177

)

 

 

 

Proceeds from the exercise of stock options

 

 

715

 

 

 

193

 

Net cash provided by financing activities

 

 

59,910

 

 

 

64,388

 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

8,792

 

 

 

39,729

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF PERIOD

 

 

58,532

 

 

 

15,341

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD

 

$

67,324

 

 

$

55,070

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,014

 

 

$

1,924

 

Cash paid for taxes

 

 

 

 

$

1

 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Transfer of property and equipment from inventory and deferred cost of revenue

 

$

1,577

 

 

$

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

13

 

 

$

248

 

Offering cost in accounts payable and accrued expenses

 

$

 

 

$

6

 

 

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


6


VIEWRAY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1. Background and Organization

ViewRay, Inc., or ViewRay or the Company, and its wholly owned subsidiary ViewRay Technologies, Inc., designs, manufactures and markets MRIdian, an MR Image-Guided radiation therapy system to simultaneously image and treat cancer patients.

Since inception, ViewRay Technologies, Inc. has devoted substantially all of its efforts towards research and development, initial selling and marketing activities, raising capital and the manufacturing and shipment of MRIdian systems. In May 2012, ViewRay Technologies, Inc. was granted clearance from the U.S. Food and Drug Administration, or FDA, to sell MRIdian with Cobalt-60. In November 2013, ViewRay Technologies, Inc. received its first clinical acceptance of a MRIdian with Cobalt-60 at a customer site, and the first patient was treated with that system in January 2014. ViewRay Technologies, Inc. has had the right to affix the CE mark to MRIdian with Cobalt-60 in the European Economic Area since November 2014. In September 2016, the Company received the rights to affix the CE mark to MRIdian Linac, and in February 2017, the Company received 510(k) clearance from the FDA to market MRIdian Linac.

 

The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for a reasonable period of time. The Company’s principal sources of liquidity are cash flows from public and private offerings of capital stock and available borrowings under its term loan agreement, as well as cash from the sale of its systems and services. These have historically been sufficient to meet working capital needs, capital expenditures, and debt service obligations. During the six months ended June 30, 2018, the Company incurred a net loss of $26.8 million and used cash in operations of $48.8 million. The Company believes that its existing cash balance of $66.1 million as of June 30, 2018, together with anticipated cash receipts from equity financing and sales of MRIdian systems will be sufficient to fund its operations for at least the next 12 months.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. The condensed consolidated financial statements include the accounts of ViewRay, Inc. and its wholly owned subsidiary, ViewRay Technologies, Inc. All inter-company accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements, have been included. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any future period. These unaudited condensed consolidated financial statements and their notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017.

Effective January 1, 2018, the Company adopted Accounting Standard Codification Topic 606, or ASC 606, Revenues from Contracts with Customers, by using the full retrospective method. The adoption of ASC 606 has no impact on the Company’s prior period financial statements.  Please see the Company’s “Revenue Recognition” policy in the “Significant Accounting Policies” section below for further information and related disclosures.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on March 12, 2018, and have not changed significantly since that filing, except for the impact of the adoption of the new accounting guidance related to revenue recognition.  

Revenue Recognition

The Company derives revenues primarily from the sale of MRIdian systems and related services as well as support and maintenance services on sold systems. The Company accounts for revenue contracts with customers by applying the requirements of ASC 606, which includes the following steps:

7


 

Identification of the contract, or contracts, with a customer;

 

Identification of the performance obligations in the contract;

 

Determination of the transaction price;

 

Allocation of the transaction price to the performance obligations in the contract; and

 

Recognition of revenue when, or as, the Company satisfies a performance obligation.

 

In all sales arrangements, revenues are recognized when control of the promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For sales of MRIdian systems that the Company is required to install at the customer site, product revenue is recognized upon receipt of customer acceptance. For sales of MRIdian systems for which the Company is not responsible for installing, product revenue is recognized when the entire system is delivered and control of the system is transferred to the customer. For sales of the related support and maintenance services, a time-elapsed method is used to measure progress toward complete satisfaction of performance obligations and service revenue is recognized ratably over the service contract term, which is typically 12 months.

 

Arrangements with Multiple Performance Obligation

The Company frequently enters into sales arrangements that include multiple performance obligations, which mainly consist of (i) sale of MRIdian systems, which generally includes installation and embedded software, and (ii) product support, which includes extended service and maintenance. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The standalone selling price, or SSP, is determined based on observable prices at which the Company separately sells the products and services. If an SSP is not directly observable, the Company will estimate the SSP considering market conditions or internally approved pricing guidelines related to the performance obligations.

Product Revenue

Product revenue is derived primarily from the sales of MRIdian system. The system contains both software and non-software components that together deliver essential functionality.

The Company’s customer contracts generally call for on-site assembly of the system components and system integration. Once the system installation is completed, the Company performs a detailed demonstration with the customer showing that the MRIdian system meets the standard product specifications. After successful demonstration, the customer signs a document indicating customer’s acceptance. For sales of MRIdian systems that the Company is required to install at the customer site, revenue recognition occurs when the customer acknowledges that the system operates in accordance with standard product specifications, the customer accepts the installed unit by signing the acceptance document and the control of the system is transferred to the customer.

Certain customer contracts with distributors do not require ViewRay installation at the customer site, and the distributors typically have their own or engage a qualifying third-party certified technician to perform the installation. For sales of MRIdian systems for which the Company is not responsible for installation, revenue recognition occurs when the entire system is delivered, and the control of the system is transferred to the customer.

Service Revenue

Service revenue is derived primarily from maintenance services. The maintenance and support service is a stand-ready obligation which is performed over the term of the arrangement and, as a result, service revenue is recognized ratably over the service period as the customers benefit from the service throughout the service period.

Distribution Rights Revenue

In December 2014, the Company entered into a distribution agreement with Itochu Corporation pursuant to which it appointed Itochu as its exclusive distributor for the promotion, sale and delivery of MRIdian products within Japan.  In consideration of the exclusive distribution rights granted, the Company received $4.0 million, which was recorded as deferred revenue. Starting in August 2016, distribution rights revenue is recognized ratably over the remaining term of the distribution agreement of approximately 8.5 years A time-elapsed method is used to measure progress because the control is transferred evenly over the remaining contractual period.  

The following table presents revenue disaggregated by types and geography (in thousands):

 

 

8


 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

U.S.

2018

 

 

2017

 

 

2018

 

 

2017

 

Product

$

6,053

 

 

$

 

 

$

19,588

 

 

$

 

Service

 

502

 

 

 

312

 

 

 

898

 

 

 

1,191

 

Total U.S. revenue

$

6,555

 

 

$

312

 

 

$

20,486

 

 

$

1,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside of U.S. ("OUS")

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

$

9,313

 

 

$

 

 

$

21,157

 

 

$

 

Service

 

456

 

 

 

267

 

 

 

752

 

 

 

496

 

Distribution rights

 

119

 

 

 

119

 

 

 

238

 

 

 

238

 

Total OUS revenue

$

9,888

 

 

$

386

 

 

$

22,147

 

 

$

734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

$

15,366

 

 

$

 

 

$

40,745

 

 

$

 

Service

 

958

 

 

 

579

 

 

 

1,650

 

 

 

1,687

 

Distribution rights

 

119

 

 

 

119

 

 

 

238

 

 

 

238

 

Total revenue

$

16,443

 

 

$

698

 

 

$

42,633

 

 

$

1,925

 

 

Contract Balances

The timing of revenue recognition, billings and cash collections results in short-term and long-term trade receivables, customer deposit, deferred revenues and deferred cost of revenue on the condensed consolidated balance sheets.

Trade receivables are recorded at the original invoiced amount, net of an estimated allowance for doubtful accounts. Trade credit is generally extended on a short-term basis. The Company occasionally provides for long-term trade credit for its maintenance services so that the period between when the services are rendered to its customers and when the customers pay for that service is within one year. Thus, the Company’s trade receivables do not bear interest or contain significant financing component. Long-term trade receivables of $400 thousand are reported within other assets in the condensed consolidated balance sheets at June 30, 2018. These amounts are billed in accordance with the terms of the customer contracts to which they relate and are expected to be collected three to four years from the date of invoice as the underlying maintenance services are rendered. The Company had no long-term trade receivables at December 31, 2017.

Trade receivables are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Changes in the estimated collectability of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for doubtful accounts. The Company generally does not require collateral for trade receivables. Based on the specific customers and the current economic conditions, there was no allowance for doubtful accounts recorded at June 30, 2018 or December 31, 2017.

Customer deposits represent payments received in advance of system installation. For domestic and international sales, advance payments received prior to inventory shipments and customer acceptance are recorded as customer deposits. Advance payments are subsequently reclassified to deferred revenue upon inventory shipment when the title and risk of loss of inventory items transfer to customers. All customer deposits, including those that are expected to be a deposit for more than one year, are classified as current liabilities based on consideration of the Company’s normal operating cycle (the time between acquisition of the inventory components and the final cash collection from customers on these inventory components) which is in excess of one year.

Deferred revenue consists of deferred product revenue and deferred service revenue. Deferred product revenue arises from timing differences between the fulfillment of contract obligations and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred service revenue results from the advance billing for services to be delivered over a period of time. Deferred revenues expected to be realized within one year or normal operating cycle are classified as current liabilities.

Deferred cost of revenue consists of cost for inventory items that have been shipped with title and risk of loss transferred to the customer, but the customer acceptance has not been received. Deferred cost of revenue is included as part of current assets as the corresponding deferred product revenue is expected to be realized within one year or normal operating cycle.

During the three and six months ended June 30, 2018, the Company recognized $6.8 million and $17.9 million revenue that was included in the deferred revenue balance at the beginning of each reporting period. During the three and six months ended June 30, 2017, the Company recognized $673.7 thousand and $735.5 thousand revenue that was included in the deferred revenue balance at the beginning of each reporting period.

 

9


Practical Expedients Election

As part of the Company's adoption of ASC 606, the Company elected to use the practical expedient to expense costs to obtain a contract as incurred when the amortization period would have been one year or less, which mainly includes the Company's internal sales force compensation program.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, FASB, issued ASU No. 2016-02,  Leases (Topic 842) and issued subsequent amendments to the initial guidance in September 2017 within ASU 2017-13, in January 2018 within ASU 2018-01 and in July 2018 within ASU 2018-11 (collectively, Topic 842). Topic 842 supersedes the Accounting Standards Codification 840, Leases, and requires lessees to recognize all leases, with exception of short-term leases, as a lease liability on the balance sheet. Under this ASU, a lease is defined as a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset which is an asset that represents the lessee’s right to use, or control the use of, a specified asset during the lease term. The ASU also requires additional disclosure about the amount, timing and uncertainty of cash flow from leases. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. As disclosed in Note 6, future minimum payments under noncancelable operating leases are approximately $16.7 million. This new standard will require the present value of these leases to be recorded in the condensed consolidated balance sheets as a right of use asset and lease liability. The Company is continuing to evaluate the impact of this guidance on its condensed consolidated financial statements and related disclosures.  

In June 2018, the FASB issued ASU No. 2018-07 Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is evaluating the impact of this update on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASC 606. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Effective January 1, 2018, the Company adopted the requirements of ASC 606 using the full retrospective method. The adoption has no impact on the prior period financial statements, and the related disclosures required by the new standard have been updated in the “Significant Accounting Policies” section above.

On January 1, 2018, the Company adopted ASU No.2016-15 , Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on a retrospective basis. The adoption of ASU No. 2016-15 did not have a material impact on the Company’s condensed consolidated statement of cash flows and related disclosures. Under ASU 2016-18, restricted cash and restricted cash equivalent amounts are presented along with cash and cash equivalents when reconciling the total beginning and ending amounts shown on the statement of cash flows. The Company reflected the impact of ASU No. 2016-18 to the comparative prior period which resulted in an increase in the beginning and ending cash, cash equivalents and restricted cash of $ 1.1 million.

In May 2017, the FASB issued ASU No. 2017-09 , Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting , which provides clarified guidance on applying modification accounting to changes in the terms or conditions of a share-based payment award. The Company adopted ASU No. 2017-09 as required on January 1, 2018, and there was no material impact on its condensed consolidated financial statements and related disclosures.

In the first quarter of 2018, the Company adopted ASU No. 2018-05,  Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which included amendments to expand income tax accounting and disclosure guidance pursuant to SEC Staff Accounting Bulletin No. 118, or SAB 118, issued by the SEC in December 2017. SAB 118 provides guidance on accounting for the income tax effects of the Tax Reform Act. Refer to Note 12, Income Taxes for more information and disclosures related to this amended guidance.

 

10


3.

Balance Sheet Components

Property and Equipment

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

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Prototype

 

$

12,622

 

 

$

11,929

 

Machinery and equipment

 

 

10,732

 

 

 

7,831

 

Leasehold improvements

 

 

4,327

 

 

 

4,438

 

Software

 

 

1,228

 

 

 

1,142

 

Furniture and fixtures

 

 

588

 

 

 

558

 

Property and equipment, gross

 

 

29,497

 

 

 

25,898

 

Less: accumulated depreciation and amortization

 

 

(15,910

)

 

 

(14,334

)

Property and equipment, net

 

$

13,587

 

 

$

11,564

 

 

Depreciation and amortization expense related to property and equipment were $923 thousand and $532 thousand during the three months ended June 30, 2018 and 2017, respectively; and $1.6 million and $994 thousand during the six months ended June 30, 2018 and 2017, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Accrued payroll and related benefits

 

$

4,049

 

 

$

3,944

 

Accrued accounts payable

 

 

1,625

 

 

 

2,671

 

Sales and other tax payable

 

 

1,607

 

 

 

149

 

Accrued legal, accounting and professional fees

 

 

313

 

 

 

322

 

Other

 

 

56

 

 

 

121

 

Total accrued liabilities

 

$

7,650

 

 

$

7,207

 

Deferred Revenue

Deferred revenue consisted of the following (in thousands):

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Deferred revenue:

 

 

 

 

 

 

 

 

Product

 

$

11,917

 

 

$

18,861

 

Services

 

 

4,908

 

 

 

1,182

 

Distribution rights

 

 

3,108

 

 

 

3,346

 

Total deferred revenue

 

 

19,933

 

 

 

23,389

 

Less: current portion of deferred revenue

 

 

(15,540

)

 

 

(20,151

)

Noncurrent portion of deferred revenue

 

$

4,393

 

 

$

3,238

 

 

 

Other Long-Term Liabilities

 

 

June 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

 

Accrued interest, noncurrent portion

 

$

7,894

 

 

$

6,218

 

Deferred rent, noncurrent portion

 

 

378

 

 

 

167

 

Other

 

 

828

 

 

 

985

 

Total other-long term liabilities

 

$

9,100

 

 

$

7,370

 

 

 

11


4.

Fair Value of Financial Instruments

The Company’s financial instruments that are carried at fair value mainly consist of Level 1 assets and Level 3 liabilities. Level 1 assets include highly liquid bank deposits and money market funds, which were not material at June 30, 2018 and December 31, 2017. Level 3 liabilities that are measured on a recurring basis consist of the 2017 and 2016 Placement Warrants, as described in Note 8. Placement warrant liabilities are valued using the Black-Scholes option-pricing model. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value of the warrants (see Note 10).

The gains and losses from re-measurement of Level 3 financial liabilities are recorded as part of other income (expense), net in the condensed consolidated statements of operations. During the three and six months ended June 30, 2018, the Company recorded a loss of $1.2 million and a gain of $7.0 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. During the three and six months ended June 30, 2017, the Company recorded a gain of $6.2 million and a loss of $9.0 million in other income (expense) within the statement of operations, respectively, related to the change in fair value of the 2017 and 2016 Placements Warrants. There have been no transfers between Level 1, Level 2 and Level 3 in any periods presented.

The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands):

 

 

 

At June 30, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

2017 Placement Warrants Liability

 

$

 

 

$

 

 

$

8,582

 

 

$

8,582

 

2016 Placement Warrants Liability

 

 

 

 

 

 

 

 

6,829

 

 

 

6,829

 

    Total

 

$

 

 

$

 

 

$

15,411

 

 

$

15,411

 

 

 

 

At December 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

2017 Placement Warrants Liability

 

$

 

 

$

 

 

$

12,487

 

 

$

12,487

 

2016 Placement Warrants Liability

 

 

 

 

 

 

 

 

9,933

 

 

 

9,933

 

    Total

 

$

 

 

$

 

 

$

22,420

 

 

$

22,420

 

 

The following table sets forth a summary of the changes in fair value of the Company’s Level 3 financial liabilities (in thousands):

 

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

Fair value, beginning of period

 

$

22,420

 

 

$

2,723

 

Issuance of 2017 Placement Warrants

 

 

 

 

 

3,373

 

Change in fair value of Level 3 financial liabilities

 

 

(7,009

)

 

 

9,032

 

Fair value, end of period

 

$

15,411

 

 

$

15,128

 

 

5.

Debt

CRG Term Loan

In June 2015, ViewRay Technologies, Inc. entered into a Term Loan Agreement, or the CRG Term Loan, with Capital Royalty Partners II L.P., Capital Royalty Partners II – Parallel Fund “A” L.P., Capital Royalty Partners II (Cayman) L.P. and Parallel Investment Opportunities Partners II L.P. or together with their successors by assignment, CRG, for up to $50.0 million of which $30.0 million was made available to the Company upon closing with the remaining $20.0 million available on or before June 26, 2016 at its option upon the occurrence of either: (i) an initial public offering of its common stock on a nationally recognized securities exchange that raises a minimum of $40.0 million in net cash proceeds with a minimum of $120.0 million post-money valuation, or Qualifying IPO, or (ii) achievement of a minimum of $25.0 million gross revenue from the sales of the MRIdian system during any consecutive 12 months before March 31, 2016. The Company drew down the first $30.0 million on the closing date. The CRG Term Loan has a maturity date of June 26, 2020 and bears cash interest at a rate of 12.5% per annum to be paid quarterly during the interest-payment-only period of 3 years. In April 2017, the CRG Term Loan was amended to allow for interest-payment-only until March 31, 2020. During the interest-payment-only period, the Company has the option to elect to pay only 8% of the 12.5% per annum interest in cash, and the remaining 4.5% of the 12.5% per annum interest as compounded interest, or deferred payment in-kind interest, added to the aggregate principal amount of the CRG Term Loan. Principal payment and any deferred payment in-kind interest will be paid quarterly in equal installments following the end of the interest-payment-only period through maturity date.

12


The CRG Term Loan is subject to a prepayment penalty of: 3% on the outstanding balance during the first 12 months following the funding of the Term Loan; 2% on the outstanding balance after year 1 but on or before y ear 2; 1% on the outstanding balance after year 2 but on or before year 3; and 0% on the outstanding loan if prepaid after year 3 thereafter until maturity. The Term Loan is also subject to a facility fee of 7% based on the sum of the amount drawn and any outstanding payment in-kind interest payable on the maturity date or the date the Term Loan becomes due. All direct financing costs were accounted for as a discount on the CRG Term Loan and will be amortized to interest expense during the life of the loan using the effective interest method. The CRG Term Loan is subject to financial covenants and is collateralized by essentially all assets of the Company and limits its ability with respect to additional indebtedness, investments or dividends, among other th ings, subject to customary exceptions.

In March 2016, the Company and CRG executed an amendment to the original terms of the CRG Term Loan such that, with regard to the conditions for borrowing the remaining $20.0 million available under the CRG Term Loan, the Company may, at its election, draw down: (i) an amount of either $10.0 million or $15.0 million in up to two advances upon achievement of a minimum of $15.0 million of aggregate product and service revenue during any consecutive 12 month period ending on or before March 31, 2016; and (ii) an additional $5.0 million (or $10.0 million, if the previous draw made was only in an amount of $10.0 million) upon achievement of a minimum of $25.0 million of aggregate product and service revenue during any consecutive 12 month period ending on or before December 31, 2016 and upon execution of the first sales contract of the Company’s second generation product.  The Company achieved the minimum of $15.0 million gross revenue requirement in March 2016, which made the first $15.0 million of the remaining $20.0 million credit facility immediately available for draw down.  In May 2016, the Company drew down the additional $15.0 million available amount.

In April 2017, the Company and CRG executed an amendment to the terms of its CRG Term Loan. Amendments to the CRG Term Loan include availability of the existing $5.0 million tranche at ViewRay’s option through June 30, 2017, the addition of a $15.0 million tranche of borrowing capacity available at ViewRay’s option through September 30, 2017, extension of the interest-only and payment in-kind period, a decrease to the combined 2016 and 2017 revenue covenant and a 1.75% increase to the facility fee. In October 2017, the Company and CRG executed another amendment to the terms of its CRG Term Loan, as amended in March 2016 and April 2017. This amendment extended the availability of the existing $15.0 million borrowing capacity through December 31, 2017. The Company did not draw down any amounts under the $5.0 million or the $15.0 million tranches and they have since expired.

In February 2018, the Company and CRG executed an amendment to the terms of its CRG Term Loan to decrease the amount of the minimum combined 2016 and 2017 revenue covenant.

At June 30, 2018, the Company had $45.0 million in outstanding debt and $5.9 million in deferred payment in-kind interest to CRG and was in compliance with all financial covenants under the CRG Term Loan.      

6.

Commitments and Contingencies

Operating Leases

The Company leases office space in Oakwood Village, Ohio and Mountain View, California under noncancelable operating leases. In April 2018, the Company entered into a lease agreement to lease additional office space located in Mountain View, California. The lease expires on the seventh anniversary of the commencement date, and the Company has the option to extend the term of the lease for a period of up to five years. In June 2018, the Company entered into an amendment to the existing Mountain View lease, extending the term of the original lease for a period of 68 months, and the extended lease expires on July 31, 2025.

At June 30, 2018, the future minimum payments for the operating leases are as follows (in thousands):

 

Year Ending December 31,

 

Future   Minimum

Payments

 

The remainder of 2018

 

$

746

 

2019

 

 

2,039

 

2020

 

 

2,321

 

2021

 

 

2,391

 

2022

 

 

2,463

 

Thereafter

 

 

6,709

 

Total future minimum payments

 

$

16,669

 

13


 

Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount.

In the normal course of business, the Company may become involved in legal proceedings. The Company will accrue a liability for legal proceedings when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred. At June 30, 2018 and December 31, 2017, the Company was not involved in any material legal proceedings.

Purchase Commitments

At June 30, 2018 and December 31, 2017, the Company had no outstanding firm purchase commitments.

7.

Distribution Agreement

In December 2014, the Company entered into a distribution agreement with Itochu Corporation, or Itochu, a Japanese entity, pursuant to which the Company appointed Itochu as its exclusive distributor for the sale and delivery of the Company’s MRIdian products within Japan. The exclusive distribution agreement has an initial term of 10 years from December 2014 and contains features customary in these types of distribution agreements. Under this distribution agreement, the Company will supply its products and services to Itochu based upon the Company’s then-current pricing.  In consideration of the exclusive distribution rights granted, Itochu agreed to pay a distribution fee of $4.0 million in three installments: (i) the first installment of $1.0 million was due upon execution of the distribution agreement; (ii) the second installment of $1.0 million was due within 10 business days following submission of the application for regulatory approval of the Company’s product to the Japan regulatory authority; and (iii) the final installment of $2.0 million was due within 10 business days following receipt of approval for the Company’s product from the Japanese Ministry of Health, Labor and Welfare. The distribution fee paid by Itochu was refundable if the Company failed to obtain the approval from the Japan regulatory authority before December 31, 2017. The first and second installments of $2.0 million in aggregate were received in December 2014 and December 2015, respectively. In August 2016, the Company received the third and final $2.0 million installment upon the receipt of regulatory approval to market MRIdian in Japan . The entire $4.0 million distribution fee received was reclassified to deferred revenue as it was no longer refundable. In August 2016, the Company started recognizing distribution rights revenue ratably over the remaining term of the exclusive distribution agreement of approximately 8.5 years. A time-elapsed method is used to measure progress because the control is transferred evenly over the remaining contractual period. The distribution rights revenue was $119 thousand for each of the three months ended June 30, 2018 and 2017, and $238 thousand for each of the six months ended June 30, 2018, and 2017.  

8.

Equity Financing

Private Placements

In September 2016, the Company completed the final closing of a private placement offering, or the 2016 Private Placement, through which it sold (i) 4,602,506 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,380,745 shares of common stock, or the 2016 Placement Warrants, and raised total gross proceeds of $13.8 million. The 2016 Placement Warrants have an exercise price of $2.95 per share, are exercisable at any time at the option of the holder and expire seven years from the date of issuance.

In January 2017, the Company completed the final closing of a private placement offering, or the 2017 Private Placement, through which it sold (i) 8,602,589 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,720,512 shares of common stock, or the 2017 Placement Warrants, and raised total gross proceeds of $26.1 million. The 2017 Placement Warrants have an exercise price of $3.17 per share, became exercisable in July 2017 and expire in January 2024.

Direct Registered Offerings

In October 2017, the Company entered into Securities Purchase Agreements pursuant to which it sold an aggregate of 8,382,643 shares of common stock for total gross proceeds of $49.9 million, or the October 2017 Direct Registered Offering. The October 2017 Direct Registered Offering was closed on October 25, 2017. 

14


In Februar y 2018, the Company entered into a Securities Purchase Agreement pursuant to which it sold (i) 4,090,000 shares of common stock; (ii) 3,000,581 shares of Series A convertible preferred stock and (iii) warrants to purchase 1,418,116 shares of common stock, or the 2018 Offering Warrants for total gross proceeds of $59.1 million, or the March 2018 Direct Registered Offering. The March 2018 Direct Registered Offering was closed on March 5, 2018. The 2018 Offering Warrants have an exercise price of $8.31 per sha re, became exercisable upon issuance and expire in March 2025.

At-The-Market Offering of Common Stock

In January 2017, the Company filed a shelf registration statement on Form S-3 with the SEC, which included a base prospectus covering the offering, issuance and sale of up to a maximum aggregate offering of $75.0 million of the Company’s common stock, preferred stock, debt securities, warrants, purchase contracts and/or units and entered into a sales agreement with FBR Capital Markets & Co., or FBR, under which it may sell up to $25.0 million of its common shares pursuant to an at-the-market offering program in accordance with Rule 415(a)(4) under the Securities Act . FBR acted as sales agent on a best efforts basis and used commercially reasonable efforts to sell on behalf of the Company all of the shares of common stock requested to be sold by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between FBR and the Company. There is no arrangement for funds to be rec eived in any escrow, trust or similar arrangement. In April 2017, the Company agreed to sell up to an additional $25.0 million of the Company’s common stock in accordance with the terms of a sales agreement with FBR and pursuant to an at-the-market offering program in accordance with Rule 415(a)(4) under the Securities Act.

FBR is entitled to compensation of up to 3.0% of the gross sales price per share sold. In connection with the sale of the Company’s common stock on the Company’s behalf, FBR is deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of FBR is deemed to be underwriting commissions or discounts. The Company has also agreed to provide indemnification and contribution to FBR with respect to certain liabilities, including liabilities under the Securities Act.

In fiscal year 2017, the Company sold an aggregate of 6,575,062 shares of its common stock at an average market price of $6.10 per share, resulting in aggregate gross proceeds of approximately $40.1 million. During the six months ended June 30, 2018, the Company sold an aggregate of 33,097 shares of its common stock at an average market price of $8.41 per share, resulting in aggregate gross proceeds of approximately $0.3 million.

9. Convertible Preferred Stock

In March 2018, the Company issued 3,000,581 shares of Series A convertible preferred stock to an existing investor through the 2018 Direct Registered Offering at a price of $8.31per share (see Note 8). At the date of the financing, because the effective conversion rate of the preferred stock was less than the market value of the Company’s common stock, a beneficial conversion feature of $2.7 million has been recorded as a discount to the convertible preferred stock and an increase to additional paid in capital. Because the preferred stock was perpetual and convertible at the option of the holder at any time, the Company fully amortized the discount related to the beneficial conversion feature as a deemed dividend which was recognized as an increase to accumulated deficit and net loss attributable to common stockholders. Effective on April 19, 2018, all outstanding shares of Series A convertible preferred stock were converted into shares of common stock at a conversion ratio of 1:1. Further, in May 2018, the Company filed a Certificate of Elimination of the Series A Convertible Preferred Stock de-authorizing the 3,000,581 shares of Series A convertible preferred stock. The Company had no outstanding preferred stock as of June 30, 2018.

 

10. Warrants

Equity Classified Common Stock Warrants

In connection with a debt financing in December 2013, the Company issued warrants to purchase 128,231 shares of its common stock with an exercise price of $5.84 per share. These warrants are exercisable any time at the option of the holder until December 16, 2023. None of these warrants had been exercised and they all remained outstanding at June 30, 2018.

In connection with the merger of the Company and ViewRay Technologies, Inc. in July 2015, or the Merger, in July and August 2015, the Company conducted a private placement offering during which the Company issued warrants, or 2015 Placement Warrants, that provide the warrant holder the right to purchase 198,760 shares of common stock at an exercise price of $5.00 per share. These 2015 Placement Warrants are exercisable at any time at the option of the holder until   the five-year anniversary of its date of issuance . In June 2018, the Company issued 1,773 shares of its common stock upon the net exercise of 5,498 shares of 2015 Placements Warrants. The remaining 193,262 shares of 2015 Placement Warrants were outstanding at June 30, 2018.

In connection with the March 2018 Direct Registered Offering, the Company issued warrants to purchase 1,418,116 shares of common stock at an exercise price of $8.31 per share, or the 2018 Offering Warrants. These 2018 Offering Warrants became

15


exercisable upon issuance and expire in March 2025. None of the 2018 Offering Warrants had been exercised and they all remained outstanding at June 30, 2 018.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the March 2018 Direct Registered Offering of $59.1 million was allocated to common stock, Series A convertible preferred stock and the 2018 Offering Warrants based on their respective relative fair value upon issuance. The aggregate fair value of the 2018 Offering Warrants of $7.4 million was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 62.5%, risk-free interest rate of 2.8% and expected dividend yield of 0%. The allocated proceeds from the 2018 Offering Warrants of $6.6 million was recorded in additional paid-in-capital.

Liability Classified Common Stock Warrants

In connection with the 2016 Private Placement, in August and September 2016, the Company issued warrants, or the 2016 Placement Warrants, that provide the warrant holder the right to purchase 1,380,745 shares of common stock at an exercise price of $2.95 per share.  These 2016 Placement Warrants are exercisable at any time at the option of the holder until the seventh anniversary of their date of issuance. The 2016 Placement Warrants also contain protection whereby warrants will expire immediately prior to the consummation of a Change of Control and holders have the right to receive cash in the amount equal to the Black-Scholes value of warrants. A Change of Control is defined as: (i) a merger or consolidation of the Company with another corporation; (ii) the sale, transfer or other disposal of substantially all of the assets or a majority of the Company’s outstanding shares of capital stock; (iii) a purchase or exchange offer accepted by the holders of a majority of the outstanding voting shares of the Company’s capital stock; or (iv) a “person” or “group,” as defined by Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, is or will become the beneficial owner, directly or indirectly, of at least a majority of the voting power of the Company’s capital stock. The 2016 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations.  

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the 2016 Private Placement of $13.8 million was allocated first to the 2016 Placement Warrants based on its fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $2.7 million for the 2016 Placement Warrants was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 61.6%, risk-free interest rate of 1.4% and expected dividend yield of 0%.

During the three and six months ended June 30, 2018, the Company recorded a loss of $0.5 million and a gain of $3.1 million, respectively, related to the change in fair value of the 2016 Placement Warrants. During the three and six months ended June 30, 2017, the Company recorded a gain of $2.8 million and a loss of $4.0 million, respectively, related to the change in fair value of the 2016 Placement Warrants. The fair value of the 2016 Placement Warrants of $6.8 million and $9.9 million at June 30, 2018 and December 31, 2017, respectively, was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

2016 Placement Warrant:

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

5.2

 

 

 

5.7

 

Expected volatility

 

59.8%

 

 

62.1%

 

Risk-free interest rate

 

2.7%

 

 

2.2%

 

Expected dividend yield

 

0%

 

 

0%

 

 

At June 30, 2018, 1,355,641 shares of the 2016 Placement Warrants had not been exercised and were still outstanding.  

In connection with the 2017 Private Placement, in January 2017, the Company issued warrants, the 2017 Placement Warrants, that provide the warrant holder the right to purchase 1,720,512 shares of common stock at an exercise price of $3.17 per share. These 2017 Placement Warrants became exercisable in July 2017 and expire in January 2024. The 2017 Placement Warrants also contain protection whereby warrants will expire immediately prior to the consummation of a Change of Control and holders have the right to receive cash in an amount equal to the Black-Scholes value of the warrants. A Change of Control in the 2017 Placement Warrants is defined the same way as for the 2016 Placement Warrants described above. The 2017 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations.

As separate classes of securities were issued in a bundled transaction, the gross proceeds from the 2017 Private Placement of $26.1 million was allocated first to the 2017 Placement Warrants based on its fair value upon issuance, and the residual was allocated to the common stock. The fair value upon issuance of $3.4 million for the 2017 Placement Warrants was estimated using the Black-Scholes

16


option-pricing model with the following weighted-average assumptions: expected term of seven years, expected volatility of 62.9%, risk-fre e interest rate of 2.2% and expected dividend yield of 0%.

During the three and six months ended June 30, 2018, the Company recorded a loss of $0.7 million and a gain of $3.9 million, respectively, related to the change in fair value of the 2017 Placement Warrants. During the three and six months ended June 30, 2017, the Company recorded a gain of $3.4 million and a loss of $5.0 million, respectively, related to the change in fair value of the 2017 Placement Warrants. The fair value of the 2017 Placement Warrants of $8.6 million and $12.5 million at June 30, 2018 and December 31, 2017, respectively, was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

2017 Placement Warrant:

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

5.6

 

 

 

6.1

 

Expected volatility

 

60.0%

 

 

62.3%

 

Risk-free interest rate

 

2.8%

 

 

2.3%

 

Expected dividend yield

 

0%

 

 

0%

 

 

At June 30, 2018, 1,711,123 shares of the 2017 Placement Warrants had not been exercised and were still outstanding.  

11.

Stock-Based Compensation

A summary of the Company’s stock option activity and related information is as follows:

 

 

 

 

 

 

 

Options Outstanding

 

 

 

Shares

Available

for Grant

 

 

Number

of Stock

Options

Outstanding

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual   Life

(Years)

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Balance at December 31, 2017

 

 

969,783

 

 

 

8,592,747

 

 

$

3.69

 

 

 

7.4

 

 

$

47,864

 

Additional options authorized

 

 

2,706,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

(2,003,229

)

 

 

2,003,229

 

 

 

7.15

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

(396,939

)

 

 

1.80

 

 

 

 

 

 

 

 

 

Options canceled

 

 

155,459

 

 

 

(155,459

)

 

 

5.41

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

 

1,828,171

 

 

 

10,043,578

 

 

$

4.43

 

 

 

7.6

 

 

$

25,933

 

Vested and exercisable at June 30, 2018

 

 

 

 

 

 

5,411,367

 

 

$

3.08

 

 

 

6.4

 

 

$

21,106

 

Vested and expected to vest at June 30, 2018

 

 

 

 

 

 

9,701,142

 

 

$

4.38

 

 

 

7.6

 

 

$

25,536

 

 

The weighted-average grant date fair value of options granted to employees was $4.18 and $3.13 per share during the six months ended June 30, 2018 and 2017, respectively. The grant date fair value of options vested was $2.5 million and $1.9 million during the six months ended June 30, 2018 and 2017, respectively.

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The aggregate intrinsic value of options exercised was $2.2 million and $1.5 million during the six months ended June 30, 2018 and 2017, respectively.

At June 30, 2018, total unrecognized compensation cost related to stock-based awards granted to employees, net of estimated forfeitures, was $14.8 million which is expected to be recognized over a weighted-average period of 3.0 years.

17


Determination of Fair Value

The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the estimated fair value of the Company’s common stock, as well as assumptions regarding a number of complex and subjective variables. The variables used to calculate the fair value of stock options using the Black-Scholes option-pricing model include actual and projected employee stock option exercise behaviors, expected price volatility of the Company’s common stock, the risk-free interest rate and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.

Fair Value of Common Stock

Beginning March 31, 2016, the Company’s common stock shares were listed on The NASDAQ Global Market, or NASDAQ.  Fair value of the common stock is the adjusted closing price of the Company’s common stock on the trading date on these stock exchanges.

Expected Term

The expected term represents the period that the Company’s option awards are expected to be outstanding. The Company considers several factors in estimating the expected term of options granted, including the expected lives used by a peer group of companies within the Company’s industry that the Company considers to be comparable to its business and the historical option exercise behavior of its employees, which the Company believes is representative of future behavior.

Expected Volatility

As the Company has a limited trading history for its common stock, the expected stock price volatility for the Company’s common stock was estimated by taking a combination of the average historic price volatility of the Company’s common stock and industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the Company’s industry which were the same as the comparable companies used in the common stock valuation analysis. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of its own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.

Risk-Free Interest Rate

The risk-free interest rate is based on the zero-coupon U.S. Treasury notes, with maturities similar to the expected term of the options.

Expected Dividend Yield

The Company does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero in the Black-Scholes option-valuation model.

In addition to the Black-Scholes assumptions discussed immediately above, the estimated forfeiture rate also has a significant impact on the related stock-based compensation. The forfeiture rate of stock options is estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.

The fair value of employee stock option was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:  

 

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

Expected term (in years)

 

 

6.0

 

 

 

6.0

 

Expected volatility%

 

61.2%

 

 

67.1%

 

Risk-free interest rate%

 

2.8%

 

 

2.1%

 

Expected dividend yield%

 

 

0.0%

 

 

 

0.0%

 

Restricted Stock Units

From time to time, the Company grants Restricted Stock Units, or RSUs, to its board of directors for their services. These RSUs were fully vested upon issuance and will be released and settled upon termination of the board services or the occurrence of a change in control event. The fair value of RSUs is based on the closing market price of the Company’s common stock on the grant date.

18


In September 2016 and November 2017, the Company granted 112,578 shares and 43,554 shares of RSUs, to its board members and these RSUs had a grant-date fair value of $3.58 and $8.02 per share, respectively. 18,964 shares of these RSUs with a grant-date fair value of $3.58 per share were released in December 2017 in connection with the resignation of one board member. In connec tion with the departure of two board members in June 2018, 34,502 shares of RSUs with a grant date fair value of $3.58 per share and 12,467 shares of RSUs with a grant date fair value of $8.02 per share are expected to be released in the third quarter of f iscal 2018.

In November 2017, the Company granted 12,468 shares of RSUs with a grant-date fair value of $8.02 per share to one executive officer upon his termination. These RSUs were fully vested upon issuance and were released in the first quarter of fiscal 2018.

For the six months ended June 30, 2018 and 2017, no RSUs were issued and no stock-based compensation expense related to RSUs was recorded in the accompanying condensed consolidated statements of operations.

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations is classified as follows (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

347

 

 

$

216

 

 

$

550

 

 

$

381

 

Selling and marketing

 

 

194

 

 

 

72

 

 

 

321

 

 

 

123

 

General and administrative

 

 

1,142

 

 

 

725

 

 

 

2,002

 

 

 

1,278

 

Total stock-based compensation expense

 

$

1,683

 

 

$

1,013

 

 

$

2,873

 

 

$

1,782

 

 

During the three and six months ended June 30, 2018 and 2017, there were no stock-based compensation expenses capitalized as a component of inventory or recognized in cost of revenue. Stock-based compensation relating to stock-based awards granted to consultants were insignificant during the three and six months ended June 30, 2018 and 2017.

12.

Income Tax

 

The Tax Cuts and Jobs Act, or the 2017 Tax Act, was enacted on December 22, 2017. Among various provisions, the 2017 Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s 2017 financial results reflected the income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 was complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 was incomplete, but a reasonable estimate could be determined. Upon completion of our 2017 U.S. income tax return in the current year, we may identify additional remeasurement adjustments to our recorded deferred tax assets. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118. For the quarter ended June 30, 2018, we have not made any adjustments to the provisional amounts recorded at December 31, 2017.

Due to the current operating losses, the Company recorded zero income tax expense during the six months ended June 30, 2018 and 2017, respectively. During these periods, the Company’s activities were limited to U.S. federal and state tax jurisdictions, as it does not have any foreign operations. The federal and state effective tax rate is approximately 22%.  

Due to the Company’s history of cumulative losses, management concluded that, after considering all the available objective evidence, it is not more likely than not that all of the Company’s net deferred tax assets will be realized. Accordingly, the Company’s deferred tax assets, which includes net operating loss, or NOL, carryforwards and tax credits related primarily to research and development continue to be subject to a valuation allowance as of June 30, 2018. The Company expects to continue to maintain a full valuation allowance until there is sufficient evidence to support recoverability of its deferred tax assets.      

The Company had unrecognized tax benefits of $1.3 million and $1.1 million at June 30, 2018 and December 31, 2017, respectively. The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets. Unrecognized tax benefits may change during the next 12 months for items that arise in the ordinary course of business.  

Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. At June 30, 2018, and December 31, 2017, there were no accrued interest and penalties related to uncertain tax positions.  

19


13.

Net Loss per Share

Since the Company was in a loss position for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented, because the inclusion of all potential common shares outstanding would have an anti-dilutive effect. The following weighted-average common stock equivalents were excluded from the calculation of diluted net loss per share for the periods presented, because including them would have an anti-dilutive effect:

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

2018

 

 

2017

 

Series A convertible preferred stock (if converted)

 

 

593,522

 

 

 

 

 

746,001

 

 

 

 

Options to purchase common stock

 

 

9,714,129

 

 

 

8,006,323

 

 

9,157,418

 

 

 

7,561,888

 

Common stock warrants

 

 

4,811,629

 

 

 

3,428,248

 

 

4,315,410

 

 

 

3,266,653

 

Restricted stock units

 

 

134,587

 

 

 

110,494

 

 

135,878

 

 

 

111,530

 

Total

 

 

15,253,867

 

 

 

11,545,065

 

 

14,354,707

 

 

 

10,940,071

 

 

14.

Related Party Transactions

In December 2004, the Company entered into a licensing agreement with the University of Florida Research Foundation, or UFRF, whereby UFRF granted the Company a worldwide exclusive license to certain of UFRF’s patents in exchange for 33,652 shares of common stock and a 1% royalty, with a minimum $50,000 royalty payment per quarter, from sales of products developed and sold by the Company utilizing the licensed patents.  

In January 2017, the Company entered into a sales consulting agreement with Puissance Capital Management, or PCM, to assist with business development activities in a key market in Asia. PCM is the investment manager of Puissance Cross Board Opportunities LLP, a stockholder in the Company. Theodore T. Wang, Ph.D., a member of the Company’s board of directors, is the managing member of the general partners of PCM. The sales consulting agreement has a term of one year with a total consideration of $1.3 million. This amount has been fully expensed in the first quarter of 2018.

 

 

20


Item 2. Manageme nt’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The interim financial statements included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2017, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report filed with the SEC on March 12, 2018. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in this Quarterly Report that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements.

Unless otherwise indicated, references in this section to “ViewRay,” “we,” “us,” “our” and “the Company” refer to ViewRay, Inc. and its consolidated subsidiary, ViewRay Technologies, Inc.

As a result of the merger of the Company and ViewRay Technologies, Inc. in July 2015, or the Merger, and the change in business and operations of the Company, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financial results of ViewRay Technologies, Inc., the accounting acquirer, prior to the Merger are considered the historical financial results of the Company.

The following discussion highlights ViewRay’s results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on ViewRay’s unaudited condensed consolidated financial statements contained in this Quarterly Report, which we have prepared in accordance with U.S. GAAP. You should read the discussion and analysis together with such condensed consolidated financial statements and the related notes thereto.

Company Overview

We design, manufacture and market the ViewRay MRIdian®. The MRIdian combines MRI and external-beam radiation therapy to simultaneously image and treat cancer patients. MRI is a broadly used imaging tool that has the ability to clearly differentiate between types of soft tissue. In contrast, X-ray or computed tomography (CT), the most commonly used imaging technologies in radiation therapy today, are often unable to distinguish soft tissues such as the tumor and critical organs. MRIdian integrates MRI technology, radiation delivery and our proprietary software to locate, target and track soft-tissue tumors, while radiation is delivered. These capabilities allow MRIdian to deliver radiation to the tumor more accurately, while reducing the radiation amount delivered to nearby healthy tissue, as compared to other radiation therapy treatments currently available. We believe this will lead to improved patient outcomes and reduced treatment-related side effects.

There are two generations of the MRIdian: the first generation MRIdian with Cobalt-60 based radiation beams and the second generation MRIdian Linac, with more advanced linear accelerator or ‘linac’ based radiation beams. ViewRay’s MRIdian is a breakthrough that integrates high quality radiation therapy with simultaneous magnetic resonance imaging (MRI).  

Both generations of the MRIdian have received 510(k) marketing clearance from the U.S. Food and Drug Administration, or FDA, and permission to affix the Conformité Européene, or CE mark.  

 

We received initial 510(k) marketing clearance from the FDA, for our treatment planning and delivery software in January 2011.

 

We received 510(k) marketing clearance for MRIdian, with Cobalt-60 as the radiation source, in May 2012. We received permission to affix the CE mark to MRIdian with Cobalt-60 in November 2014, allowing MRIdian with Cobalt-60 to be sold within the European Economic Area, or EEA.   In August 2016, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfare to market MRIdian with Cobalt-60 in Japan. In August 2016, we also received approval from the China Food and Drug Administration to market MRIdian with Cobalt-60 in China.  

21


 

In September 2016, we received the CE mark for the MRIdian Linac (with a linear acce lerator as the radiation source) in the EEA. In February 2017, we received 510(k) clearance from the FDA to market MRIdian Linac. In June 2017, we received 510(k) clearance to market RayZR™, our high-resolution beam-shaping multi-leaf collimator, or MLC. W e also received MRIdian Linac regulatory approval in Taiwan and Canada in August 2017, and in Israel in November 2017. In March 2018, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfare to market MRIdian Linac in Japan. We are also seeking required MRIdian Linac approvals in other countries such as China.

 

MRIdian is the first radiation therapy solution that enables simultaneous radiation treatment delivery and real-time MRI imaging of a patient’s internal anatomy.  It generates high-quality images that differentiate between the targeted tumor, surrounding soft tissue and nearby critical organs. MRIdian also records the level of radiation dose that the treatment area has received, enabling physicians to adapt the prescription between treatments, as needed. We believe this improved visualization and accurate dose delivery will enable better treatment, improve patient outcomes and reduce side effects.  Key benefits to users and patients include: improved imaging and patient alignment; the ability to adapt the patient’s radiation treatments to changes while the patient is still on the treatment table, or “on-table adaptive treatment planning”; MRI-based motion management; and an accurate recording of the delivered radiation dose.  Physicians have already used MRIdian to treat a broad spectrum of radiation therapy patients with more than 45 different types of cancer, as well as patients for whom radiation therapy was previously not an option.

At June 30, 2018, we had seven MRIdian with Cobalt-60 systems and ten MRIdian Linac systems at fifteen cancer centers worldwide (eight in the United States and seven outside the United States). One MRIdian with Cobalt-60 system has been delivered and is being installed in 2018 in Japan. Four MRIdian Linacs have been delivered and are expected to be installed in 2018 and 2019.

We currently market MRIdian through a direct sales force in North America and are developing a sales force to assist distributors in the rest of the world. We market MRIdian to a broad range of worldwide customers, including university research and teaching hospitals, community hospitals, private practices, government institutions and freestanding cancer centers. As with the traditional linac market, our sales and revenue cycle vary based on the particular customer and can be lengthy, sometimes lasting up to 18 to 24 months (or more) from initial customer contact to order contract execution. Following execution of a sales contract, it generally takes nine to 12 months for a customer to customize an existing facility or construct a new vault. Upon the commencement of installation at a customer’s facility, it typically takes approximately 90 days for us to install MRIdian and perform on-site testing of the system, including the completion of acceptance test procedures .

We generated total revenue of $16.4 million and $0.7 million, and had net losses of $22.0 million and $8.4 million, during the three months ended June 30, 2018 and 2017, respectively. We generated total revenue of $42.6 million and $1.9 million, and net losses of $26.8 million and $36.3 million, during the six months ended June 30, 2018 and 2017, respectively. Of the total product revenue, $9.3 million and $21.2 million were generated outside the United States for the three and six months ended June 30, 2018. No product revenue was generated during the three and six months ended June 30, 2017.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

 

add personnel to support our product development and commercialization efforts;

 

continue our research and development efforts;

 

seek regulatory approval for MRIdian in certain foreign countries; and

 

operate as a public company.

Accordingly, we may seek to fund our operations through public or private equity, debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate new technologies into MR Image-Guided radiation therapy systems .

New Orders and Backlog

New orders are defined as the sum of gross product orders, representing MRIdian contract price, recorded during the period. Backlog is the accumulation of all orders for which revenue has not been recognized and which we consider valid. Backlog includes customer deposits or letters of credit, except when the sale is to a customer where a deposit is not deemed necessary or customary. Deposits received are recorded as customer deposit, which is a liability on the balance sheet. Orders may be revised or cancelled according to their terms or upon mutual agreement between the parties. Therefore, it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue. The determination of backlog includes objective and subjective judgment about the likelihood of an order contract becoming revenue. We perform a quarterly review of backlog to verify that outstanding orders in backlog remain valid,

22


and b ased upon this review, orders that are no longer expected to result in revenue are removed from backlog. Among other criteria we use to determine whether a transaction to be in backlog , we must possess both an outstanding and effective written agreement fo r the delivery of a MRIdian signed by a customer with a minimum customer deposit or a letter of credit requirement, except when the sale is to a customer where a deposit is not deemed necessary or customary (i.e. sale to a government entity , a large hospit al, group of hospitals or cancer care group that has sufficient credit , sales via tender awards, or indirect channel sales that have signed contracts with end-customers). We decide whether to remove or add back an order from or to our backlog by evaluating the following criteria: changes in customer or distributor plans or financial conditions; the customer’s or distributor’s continued intent and ability to fulfill the order contract; changes to regulatory requirements; the status of regulatory approval req uired in the customer’s jurisdiction, if any; and other reasons for potential cancellation of order contracts.

During the six months ended June 30, 2018, we received new orders for MRIdian systems totaling $55.8 million. At June 30, 2018, we had total backlog of $199.7 million.

Components of Statements of Operations

Revenue

Product Revenue. Product revenue consists of revenue recognized from sales of MRIdian systems, as well as optional components, such as additional planning workstations and body coils .

Following execution of a sales contract, it generally takes nine to 12 months for a customer to customize an existing facility or construct a new vault for the purchased system. Upon the commencement of installation at a customer’s facility, it typically takes approximately 90 days to complete the installation and on-site testing of the system, including the completion of acceptance test procedures. On-site training takes approximately one week and can be conducted concurrently with installation and acceptance testing. Sales contracts generally include customer deposits upon execution of the agreement, and in certain cases, additional amounts due at shipment or commencement of installation, and final payment due generally upon customer acceptance.

Revenue recognition for MRIdian systems that we install generally occurs when the customer acknowledges that the system operates in accordance with standard product specifications, the customer accepts the installed unit and the control of the system is transferred to the customer. For sales of MRIdian systems for which we are not responsible for installation, revenue is recognized when the entire system is delivered and the control of the system is transferred to the customer.

Service Revenue. Our contract typically includes service warranty at no additional costs for one to two years. In addition, we offer multi-year, post-installation maintenance and support contracts that provide various levels of service support, which enables our customers to select the level of on-going support services, including parts and labor, which they require. These post-installation contracts are for a period of one to five years and provide services ranging from on-site parts and labor, and preventative maintenance to labor only with a longer response time. We also offer technology upgrades to our MRIdian systems, when and if available, for an additional fee. Service revenue is recognized ratably over the term during which the contracted services are provided .

Distribution Rights Revenue.   In December 2014, we entered into a distribution agreement with Itochu Corporation pursuant to which we appointed Itochu as our exclusive distributor for the promotion, sale and delivery of MRIdian products within Japan. In consideration of the exclusive distribution rights granted, we received $4.0 million, which was recorded as deferred revenue and since August 2016, distribution rights revenue has been recognized ratably over the remaining term of the distribution agreement, which expires in December 2024. A time-elapsed method is used to measure progress because the control is transferred evenly over the remaining contractual period.

Cost of Revenue

Product Cost of Revenue. Product cost of revenue primarily consists of the cost of materials, installation and services associated with the manufacturing and installation of MRIdian systems, as well as medical device excise tax and royalty payments to the University of Florida Research Foundation. Product cost of revenue also includes lower of cost or market inventory, or LCM, adjustments if the carrying value of the inventory is greater than its net realizable value. There was no LCM charge for the six months ended June 30, 2018 and 2017.

We expect our materials, installation and service costs to decrease as we continue to scale our operations, improve product designs and work with our third-party suppliers to lower costs. We expect to continue to lower costs and increase sales prices as we transition to MRIdian Linac .  

Service Cost of Revenue. Service cost of revenue is comprised primarily of personnel costs, training and travel expenses to service and perform maintenance on installed MRIdian systems. Service cost of revenue also includes the costs of replacement parts under maintenance and support contracts .

23


Operating Expenses

Research and Development. Research and development expenses consist primarily of compensation and related costs for personnel, including stock-based compensation, employee benefits and travel. Other significant research and development costs arise from third-party consulting services, laboratory supplies, research materials, medical equipment, computer equipment and licensed technology, and related depreciation and amortization. We expense research and development expenses as incurred. As we continue to invest in improving MRIdian and developing new technologies, we expect our research and development expenses to increase .

Selling and Marketing. Selling and marketing expenses consist primarily of compensation and related costs for our direct sales force, sales management, and marketing and customer support personnel, and include stock-based compensation, employee benefits and travel expenses. Selling and marketing expenses also include costs related to trade shows and marketing programs. We expense selling and marketing costs as incurred. We expect selling and marketing expenses to increase in future periods as we expand our sales force and our marketing and customer support organizations and increase our participation in trade shows and marketing programs .

General and Administrative. Our general and administrative expenses consist primarily of compensation and related costs for our operations, finance, human resources, regulatory, and other administrative personnel, and include stock-based compensation, employee benefits and travel expenses. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, quality and regulatory functions and facilities costs, and gain or loss on the disposal of property and equipment. We expect our general and administrative expenses to increase as our business grows and as we invest in the development of MRIdian Linac .

Interest Income

Interest income consists primarily of interest income received on our cash and cash equivalents.

Interest Expense

Interest expense consists primarily of interest and amortization related to our long-term debt facility entered in 2015 from Capital Royalty II L.P., Capital Royalty Partners II—Parallel Fund “A” L.P., Capital Royalty Partners II (Cayman) L.P. and Parallel Investment Opportunities Partners II L.P., or together with their successors by assignment, CRG, and such loan, the CRG Term Loan .

Other Income (Expense), Net

Other income (expense), net consists primarily of changes in the fair value of the 2017 and 2016 Placement Warrants and foreign currency exchange gains and losses.

The outstanding 2017 and 2016 Placement Warrants are re-measured to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded as a component of other income (expense), net.  

24


Results of Operations

The following tables set forth our results of operations for the periods presented:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

15,366

 

 

$

 

 

$

40,745

 

 

$

 

Service

 

 

958

 

 

 

579

 

 

 

1,650

 

 

 

1,687

 

Distribution rights

 

 

119

 

 

 

119

 

 

 

238

 

 

 

238

 

Total revenue

 

 

16,443

 

 

 

698

 

 

 

42,633

 

 

 

1,925

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

14,654

 

 

 

328

 

 

 

34,365

 

 

 

594

 

Service

 

 

1,720

 

 

 

498

 

 

 

2,629

 

 

 

1,274

 

Total cost of revenue

 

 

16,374

 

 

 

826

 

 

 

36,994

 

 

 

1,868

 

Gross margin

 

 

69

 

 

 

(128

)

 

 

5,639

 

 

 

57

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,389

 

 

 

3,251

 

 

 

8,159

 

 

 

6,165

 

Selling and marketing

 

 

3,394

 

 

 

1,871

 

 

 

6,640

 

 

 

2,943

 

General and administrative

 

 

10,503

 

 

 

7,463

 

 

 

20,349

 

 

 

14,614

 

Total operating expenses:

 

 

18,286

 

 

 

12,585

 

 

 

35,148

 

 

 

23,722

 

Loss from operations

 

 

(18,217

)

 

 

(12,713

)

 

 

(29,509

)

 

 

(23,665

)

Interest income

 

 

2

 

 

 

1

 

 

 

4

 

 

 

2

 

Interest expense

 

 

(1,918

)

 

 

(1,792

)

 

 

(3,784

)

 

 

(3,529

)

Other (expense) income, net

 

 

(1,857

)

 

 

6,151

 

 

 

6,485

 

 

 

(9,122

)

Loss before provision for income taxes

 

 

(21,990

)

 

 

(8,353

)

 

 

(26,804

)

 

 

(36,314

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(21,990

)

 

$

(8,353

)

 

$

(26,804

)

 

$

(36,314

)

 

Comparison of the Three Months Ended June 30, 2018 and 2017

Revenue

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Product

 

$

15,366

 

 

$

 

 

$

15,366

 

Service

 

 

958

 

 

 

579

 

 

 

379

 

Distribution rights

 

 

119

 

 

 

119

 

 

 

-

 

Total revenue

 

$

16,443

 

 

$

698

 

 

$

15,745

 

 

Total revenue during the three months ended June 30, 2018 increased $15.7 million compared to the three months ended June 30, 2017. The increase was primarily due to a $15.3 million increase in product revenue and a $0.4 million increase in service revenue during the three months ended June 30, 2018 compared to the three months ended June 30, 2017.

 

Product Revenue. Product revenue increased $15.3 million during the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The increase is due to the revenue recognized during the three months ended June 30, 2018 related to the installation and delivery of three MRIdian Linac systems.

Service Revenue. Service revenue increased $0.4 million during the three months ended June 30, 2018 compared to the three months ended June 30, 2017 due to more installed units to service since June 30, 2017.

25


Distribution Rights Revenue. Distribution rights revenue remained flat during the three months ended June 30, 2018 compa red to the three months ended June 30, 2017. Since our receipt of Japanese regulatory approval in August 2016, the distribution rights revenue from our exclusive distribution agreement with Itochu has been recognized ratably over its remaining term. Theref ore, distribution rights revenue is expected to remain consistent on a quarterly basis.

Cost of Revenue

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Product

 

$

14,654

 

 

$

328

 

 

$

14,326

 

Service

 

 

1,720

 

 

 

498

 

 

 

1,222

 

Total cost of revenue

 

$

16,374

 

 

$

826

 

 

$

15,548

 

 

Product Cost of Revenue. Product cost of revenue increased $14.3 million during the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The increase was primarily due to the delivery and installation of three MRIdian Linac systems and write down of $2.7 million MRIdian Cobalt related inventory and deposits on purchased inventory during the three months ended June 30, 2018.

Service Cost of Revenue. Service cost of revenue increased by $1.2 million during the three months ended June 30, 2018 compared to the three months ended June 30, 2017 primarily due to more installed units to service for the three months ended June 30, 2018.

Operating Expenses

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

 

2,017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Research and development

 

$

4,389

 

 

$

3,251

 

 

$

1,138

 

Selling and marketing

 

 

3,394

 

 

 

1,871

 

 

 

1,523

 

General and administrative

 

 

10,503

 

 

 

7,463

 

 

 

3,040

 

Total operating expenses

 

$

18,286

 

 

$

12,585

 

 

$

5,701

 

 

Research and Development. Research and development expenses during the three months ended June 30, 2018 increased by $1.1 million, compared to the three months ended June 30, 2017. The increase was primarily attributable to a $0.6 million increase in personnel expense related to an increase in headcount, a $0.3 million increase in product development cost and a $0.2 million increase in facilities costs.

Selling and Marketing. Selling and marketing expenses during the three months ended June 30, 2018 increased $1.5 million, compared to the three months ended June 30, 2017. This increase was primarily attributable to a $1.1 million increase in personnel expense related to an increase in headcount and a $0.2 million increase in consulting fees to support our growing sales organization.    

General and Administrative. General and administrative expenses during the three months ended June 30, 2018 increased $3.0 million, compared to the three months ended June 30, 2017. This increase was primarily attributable to a $2.1 million increase in personnel expense related to an increase in headcount, a $0.4 million increase in legal expenses, and a $0.4 million increase in depreciation expenses due to increases in capital expenditures as a result of business expansion.

Interest Expense

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Interest expense

 

$

(1,918

)

 

$

(1,792

)

 

$

(126

)

26


Interest expense increased slightly during the three months ended June 30, 2018 compared to the three months ended June 30, 2017, mainly due to the increase in loan balance under the effective interest rate method, including deferred payment in-kind intere st to CRG, although the nominal loan balance remained the same during both periods.  

Other (Expense)Income, Net

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Other (expense) income, net

 

$

(1,857

)

 

$

6,151

 

 

$

(8,008

)

 

Other (expense) income, net during the three months ended June 30, 2018 consisted primarily of a $1.2 million change in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants, and $0.4 million foreign exchange losses. Other income (expense), net during the three months ended June 30, 2017 consisted primarily of a $6.2 million change in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants.

Comparison of the Six Months Ended June 30, 2018 and 2017

Revenue

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Product

 

$

40,745

 

 

$

-

 

 

$

40,745

 

Service

 

 

1,650

 

 

 

1,687

 

 

 

(37

)

Distribution rights

 

 

238

 

 

 

238

 

 

 

-

 

Total revenue

 

$

42,633

 

 

$

1,925

 

 

$

40,708

 

 

Total revenue during the six months ended June 30, 2018 increased $40.7 million compared to the six months ended June 30, 2017. The increase was primarily due to a $40.7 million increase in product revenue during the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

 

Product Revenue. Product revenue during the six months ended June 30, 2018 increased $40.7 million compared to the six months ended June 30, 2017. The increase is due to the revenue recognized related to the delivery and installation of seven MRIdian Linac systems and one system upgrade during the six months ended June 30, 2018 as compared to no deliveries, installations or system upgrades during the six months ended June 30, 2017.

Service Revenue. Service revenue slightly decreased during the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Service revenue is recognized ratably over the service term. The higher revenue for the six months ended June 30, 2017 was mainly attributable to additional billings for service provided in a prior period that were recognized in the first quarter of 2017.

Distribution Rights Revenue. Distribution rights revenue remained flat during the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Since our receipt of Japanese regulatory approval in August 2016, the distribution rights revenue from our exclusive distribution agreement with Itochu has been recognized ratably over its remaining term. Therefore, distribution rights revenue is expected to remain consistent on a quarterly basis.

Cost of Revenue

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Product

 

$

34,365

 

 

$

594

 

 

$

33,771

 

Service

 

 

2,629

 

 

 

1,274

 

 

 

1,355

 

Total cost of revenue

 

$

36,994

 

 

$

1,868

 

 

$

35,126

 

 

Product Cost of Revenue. Product cost of revenue increased $33.8 million during the six months ended June 30, 2018 compared to the six months ended June 30, 2017. The increase was primarily due to the delivery and installation of seven MRIdian Linac systems and

27


one system upgrade and write down of $2.9 million MRIdian Cobalt related inventory and deposits on purchased inventory during the six months ended June 30, 2018, as compared to no deliveries, installations or system upgra des during the six months ended June 30, 2017 .

 

Service Cost of Revenue. Service cost of revenue increased by $1.4 million during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to timing of services and more units installed during the six months ended June 30, 2018.

 

Operating Expenses

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Research and development

 

$

8,159

 

 

$

6,165

 

 

$

1,994

 

Selling and marketing

 

 

6,640

 

 

 

2,943

 

 

 

3,697

 

General and administrative

 

 

20,349

 

 

 

14,614

 

 

 

5,735

 

Total operating expenses

 

$

35,148

 

 

$

23,722

 

 

$

11,426

 

 

Research and Development. Research and development expenses during the six months ended June 30, 2018 increased by $2.0 million, compared to the six months ended June 30, 2017. The increase was primarily attributable to a $1.1 million increase in personnel expense related to an increase in headcount, a $0.4 million increase in facilities costs and a $0.2 million increase in travel expense.

 

Selling and Marketing. Selling and marketing expenses during the six months ended June 30, 2018 increased by $3.7 million compared to the six months ended June 30, 2017. This increase was primarily attributable to a $2.9 million increase in personnel expense related to an increase in headcount, a $0.3 million increase in travel expenses and a $0.2 million increase in consulting fees to support our growing sales organization.

General and Administrative. General and administrative expenses during the six months ended June 30, 2018 increased $5.7 million compared to the six months ended June 30, 2017. This increase was primarily attributable to a $4.0 million increase in personnel expense related to an increase in headcount, a $1.1 million increase in legal expense, and a $0.5 million increase in depreciation expenses due to increases in capital expenditures as result of business expansion.

Interest Expense

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Interest expense

 

$

(3,784

)

 

$

(3,529

)

 

$

(255

)

Interest expense increased slightly during the six months ended June 30, 2018 compared to the six months ended June 30, 2017, mainly due to the increase in effective interest rate as a result of the amendment to the terms of the CRG Term Loan in April 2017, increase in loan balance under the effective interest rate method, including deferred payment in-kind interest to CRG, although the nominal loan balance remained the same during both periods.   

Other Income (Expense), Net

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Other income (expense), net

 

$

6,485

 

 

$

(9,122

)

 

$

15,607

 

28


Other income (expense), net during the six months ended June 30, 2018 consisted primarily of a $7.0 million change in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants, partially offset by $0.4 million in foreign exchange losses. Other income (expense), net during the six months ended June 30, 2017 consisted primarily of a $9.0 million c hange in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants.

Liquidity and Capital Resources

Since our inception in 2004, we have incurred significant net losses and negative cash flows from operations. During the six months ended June 30, 2018 and 2017, we had net losses of $26.8 million and $36.3 million, respectively. At June 30, 2018 and December 31, 2017, we had an accumulated deficit of $349.4 million and $319.9 million, respectively.

At June 30, 2018 and December 31, 2017, we had cash and cash equivalents of $66.1 million and $57.4 million, respectively. To date, we have financed our operations principally through offerings of our capital stock, issuances of warrants, issuances of convertible promissory notes, use of term loans and receipts of customer deposits for new orders and payments from customers for systems installed and delivered. We may, from time to time, seek to raise capital through a variety of sources, including the public equity market, private equity financing, and/or public or private debt. In January 2017, we issued common stock and warrants to purchase common stock via the 2017 Private Placement for gross proceeds of $26.1 million. In 2017, we also raised aggregate gross proceeds of $40.1 million through our at-the-market offering program in which we sold 6.6 million shares of our common stock at an average sale price of $6.10 per share. In October 2017, we issued common stock in the October 2017 Direct Registered Offering for gross proceeds of $49.9 million. In March 2018, we issued common stock, Series A convertible preferred stock and warrants to purchase common stock in the March 2018 Direct Registered Offering for gross proceeds of $59.1 million. In May 2018, we also raised aggregate gross proceeds of $0.3 million through our at-the-market offering program under which we sold 33,097 shares of our common stock at an average sale price of $8.41 per share. We expect that our existing cash and cash equivalents, together with anticipated cash receipts from equity financings and sales of MRIdian systems will enable us to conduct our planned operations for at least the next 12 months.  

We could potentially use our available financial resources sooner than we currently expect, and we may incur additional indebtedness to meet future operating needs. Adequate additional funding may not be available to us on acceptable terms or at all. In addition, although we anticipate being able to obtain additional financing, we may be unable to do so. Our failure to raise capital as and when needed could have significant negative consequences for our business, financial condition and results of operations. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in the section titled “Risk Factors.”

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

 

 

 

Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

Cash used in operating activities

 

$

(48,838

)

 

$

(23,883

)

Cash used in investing activities

 

$

(2,280

)

 

$

(776

)

Cash provided by financing activities

 

$

59,910

 

 

$

64,388

 

 

Operating Activities

We have historically experienced negative cash outflows as we developed MRIdian with Cobalt-60 systems, MRIdian Linac and expanded our business.  Our primary source of cash flow from operating activities is cash receipts from customers including sales of MRIdian systems and, to a lesser extent, up-front payments from customers. Our primary uses of cash from operating activities are amounts due to vendors for purchased components and employee-related expenditures.

During the six months ended June 30, 2018, cash used in operating activities was $48.8 million, as a result of our net loss of $26.8 million, a $21.3 million net change in our operating assets and liabilities, and the aggregate non-cash charges of $0.7 million. The net change in our operating assets and liabilities was primarily a result of a change in inventory and deposits on purchased inventory, deferred cost of revenue, customer deposits and deferred revenue , and accounts payable, which was partially offset by a change in accounts receivable. Inventory and deposits on purchased inventory increased $10.3 million and $0.5 million, in anticipation of upcoming shipments and installations of MRIdian systems. Deferred cost of revenue increased $2.4 million primarily due to the shipment of additional components from MRIdian systems currently being installed. Customer deposits and deferred revenue decreased $11.0 million as a result of revenue recognized for the seven units of MRIdian system sales and one unit of system upgrade partially offset by additional accrual for the units currently being installed in the first six months of 2018. Accounts payable decreased $3.4 million resulting from the timing of payment. The net change in our operating assets and liabilities were partially offset by a $6.8 million decrease in accounts receivable resulting from the timing of collection. Non-cash charges included a $7.0 million gain related to the change in fair value of the 2017 and 2016 Placement Warrants, offset by $2.9 million stock-based compensation expense, $1.8

29


million amortization of debt discount and interest accrual related to the CRG Term Loan, and $1.6 million depreciation and amortization expense.

During the six months ended June 30, 2017, cash used in operating activities was $23.9 million as a result of our net loss of $36.3 million and a $1.0 million net change in our operating assets and liabilities, partially offset by aggregate non-cash charges of $13.5 million. The net change in our operating assets and liabilities was primarily a result of an increase in deferred cost of revenue, an increase in inventory, an increase in deposits on purchased inventory, and an increase in prepaid expenses and other assets, partially offset by an increase in customer deposits and deferred revenue, an increase in accounts payable, and a decrease in accounts receivable. Deferred cost of revenue increased $7.3 million due to the shipment of additional components for MRIdian systems currently being installed. Inventory and deposits on purchased inventory increased $7.3 million and $3.0 million, respectively, in anticipation of upcoming shipments and installations of MRIdian systems. Prepaid expenses and other assets increased $2.1 million, primarily attributable to deferred sales commission on new sales contracts. The net change in our operating assets and liabilities were partially offset by a $13.4 million increase in customer deposits and deferred revenue due to deposits received from new sales contracts and the commencement of installation for two customers in the first six months of 2017. The $1.8 million increase in accounts payable and the $2.4 million decrease in accounts receivable resulted from the timing of payment and collection. Non-cash charges included a $9.0 million change in the fair value of warrant liability related to the 2017 and 2016 Placement Warrants, $1.6 million of amortization of debt discount and interest accrual related to the CRG Term Loan, $1.8 million of stock-based compensation and $1.0 million of depreciation and amortization expense.

Investing Activities

Cash used in investing activities during the six months ended June 30, 2018 and June 30, 2017 of $2.3 and $0.8 million, respectively, resulted from capital expenditures to purchase property and equipment.  

Financing Activities

During the six months ended June 30, 2018, financing activities provided $59.9 million in cash, consisting of $59.1 million gross proceeds from the March 2018 Direct Registered Offering, $0.3 million gross proceeds from our at-the-market offering program and $0.7 million in proceeds from the exercise of stock options, partially offset by offering costs of $0.2 million from the March 2018 Direct Registered Offering.

During the six months ended June 30, 2017, financing activities provided $64.4 million in cash from $26.1 million gross proceeds from the 2017 Private Placement, $39.5 million gross proceeds from our at-the-market offering program and $0.2 million from the exercise of stock options, partially offset by offering costs of $1.1 million for our at-the-market offering program and offering costs of $0.3 million for our 2017 and 2016 Private Placements.

CRG Term Loan

In June 2015, we entered into the CRG Term Loan for up to $50.0 million, of which $30.0 million was made available to us upon closing with the remaining $20.0 million to be available on or before June 26, 2016 upon meeting certain milestones. We drew down the first $30.0 million on the closing date in June 2015.  In March 2016, the CRG Term Loan was amended with regard to the conditions for borrowing the remaining $20.0 million available under the CRG Term Loan. We achieved one milestone at March 31, 2016 and borrowed an additional $15.0 million in May 2016. In April 2017, we executed an amendment to the CRG Term Loan, which included an extension to the availability of the existing $5.0 million tranche at our option through June 30, 2017, added a $15.0 million tranche of borrowing capacity available at our option through September 30, 2017, extended the interest-only and payment in-kind period, decreased the combined 2016 and 2017 revenue covenant and included a 1.75% increase to the facility fee. In October 2017, we executed another amendment to the CRG Term Loan, extending the availability of the existing $15.0 million borrowing capacity through December 31, 2017. We did not draw down any amount under the $5.0 million or the $15.0 million tranches and they have since expired. In February 2018, the CRG Term Loan was amended to decrease the amount of the minimum combined 2016 and 2017 revenue covenant effective December 31, 2017. The CRG Term Loan is subject to financial covenants and is collateralized by essentially all our assets and limits our ability with respect to additional indebtedness, investments or dividends, among other things, subject to customary exceptions.

30


At June 30, 2018, we had $45.0 million in outstanding debt to CRG, which is repayable through June 26, 2020. The CRG Term Loan bears cash interest at a rate of 12.5% per annum and has an interest-payment-only period through March 31, 2020. We were in complia nce with all financial covenants under the CRG Term Loan at June 30, 2018. Additional details regarding the CRG Term Loan are included in the section entitled “Notes to Condensed Consolidated Financial Statements – Note 5 – Debt” in the condensed consolida ted financial statements.

2017 Private Placement

In January 2017, we entered into a Securities Purchase Agreement pursuant to which we sold an aggregate of 10,323,101 shares of common stock which consists of 8,602,589 shares of common stock and warrants to purchase 1,720,512 shares of common stock, or the 2017 Placement Warrants, for total gross proceeds of $26.1 million, or the 2017 Private Placement. We completed the closing of the 2017 Private Placement on January 18, 2017.  The 2017 Placement Warrants have a per share exercise price of $3.17 per share, are exercisable after six months and expire seven years from the date of issuance.

At-The-Market Offering of Common Stock

In January 2017, we filed a registration statement with the SEC which covers the offering, issuance and sale by the registrant of up to a maximum aggregate offering price of $75.0 million of our common stock, preferred stock, debt securities, warrants, purchase contracts and/or units; and we entered into a sales agreement with FBR Capital Markets & Co., or FBR, under which we may sell up to $25.0 million of our common shares pursuant to an at-the-market offering program in accordance with Rule 415(a)(4) under the Securities Act . FBR acted as sales agent on a best efforts basis and used commercially reasonable efforts to sell on our behalf all of the shares of common stock requested to be sold by us, consistent with its normal trading and sales practices, on mutually agreed terms between FBR and us. There is no arrangement for funds to be received in any escrow, trust or similar arrangement. In April 2017, we agreed to sell up to an additional $25.0 million of our common stock in accordance with the terms of a sales agreement with FBR and pursuant to an at- the-market offering program in accordance with Rule 415(a)(4) under the Securities Act .

FBR is entitled to compensation of up to 3.0% of the gross sales price per share sold. In connection with the sale of our common stock on our behalf, FBR is deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of FBR is deemed to be underwriting commissions or discounts. We have also agreed to provide indemnification and contribution to FBR with respect to certain liabilities, including liabilities under the Securities Act.

 

During fiscal year 2017, we sold an aggregate of approximately 6.6 million shares of our common stock at an average market price of $6.10 per share under the at-the-market offering program, resulting in aggregate gross proceeds of approximately $40.1 million. During the six months ended June 30, 2018, we sold 33,097 shares of our common stock at an average market price of $8.41 under the at-the-market offering program, resulting in aggregate gross proceeds of approximately $0.3 million.

October 2017 Direct Registered Offering

In October 2017, we entered into Securities Purchase Agreements pursuant to which we sold an aggregate of 8,382,643 shares of common stock for total gross proceeds of $49.9 million, or the October 2017 Direct Registered Offering. We completed the closing of the October 2017 Direct Registered Offering on October 25, 2017. 

March 2018 Direct Registered Offering

In February 2018, we entered into a Securities Purchase Agreement pursuant to which we sold: (i) 4,090,000 shares of our common stock; (ii) 3,000,581 shares of our Series A convertible preferred stock; and (iii) warrants to purchase 1,418,116 shares of common stock, or the 2018 Offering Warrants for total gross proceeds of $59.1 million, or the March 2018 Direct Registered Offering. We completed the closing of the March 2018 Direct Registered Offering on March 5, 2018. The 2018 Offering Warrants have an exercise price of $8.31 per share, became exercisable upon issuance and expire in March 2025.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2018 or December 31, 2017. Additionally, there were no material changes to our contractual obligations described in our Annual Report on Form 10-K filed with the SEC on March 12, 2018, except for the change to operating lease obligation due to new and amended operating leases. See the section entitled “Notes to Condensed Consolidated Financial Statements – Note 6 – Commitments and Contingencies” in the condensed consolidated financial statements.

31


Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are 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, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

With the exception of the change in revenue recognition policy as a result of the adoption of ASC 606 (see the section entitled Notes to Condensed Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies” in the condensed consolidated financial statements), there have been no significant changes to our accounting policies during the six months ended June 30, 2018, as compared to the critical accounting policies described in our Annual Report on Form 10-K filed with the SEC on March 12, 2018. We believe that the accounting policies discussed in that Annual Report are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

JOBS Act Accounting Election

We are an “emerging growth company” within the meaning of the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.

Recently Issued and Adopted Accounting Pronouncements

We review new accounting standards to determine the expected financial impact, if any, that the adoption of each new standard will have. For the recently issued and adopted accounting standards that we believe may have an impact on our condensed consolidated financial statements, see the section entitled “Notes to Condensed Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies” in the condensed consolidated financial statements.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes.

Interest Rate Risk

Borrowings under our long-term debt agreements have fixed interest rates which are collateralized by substantially all of our assets. Because of the fixed interest rate, a hypothetical 100 basis points change in interest rates would have no impact on our borrowing or results of operations.

Foreign Currency Risk

The majority of our international sales contracts are denominated in U.S. dollars. However, we pay certain of our suppliers in a foreign currency under the terms of their supply agreements, and we may pay other suppliers in foreign currency in the future. We do not currently engage in any hedging transactions. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer, or CEO, and chief financial officer, or CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that as of June 30, 2018, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such required information is accumulated and

32


communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the second quarter of 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

33


PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved and, on our business generally.  In addition, regardless of their merits or their ultimate outcomes, lawsuits and legal proceedings are costly, divert management attention and may materially adversely affect our reputation, even if resolved in our favor.  

The information under the caption “Commitments and Contingencies” in Note 6 of the unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q is incorporated herein by reference.

 

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discuss in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2017. If any of the risks discussed in our Annual Report on Form 10-K or any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described in our Annual Report on Form 10-K and the risks described below are not the only risks facing the Company.

Risks Related to Administrative, Organizational and Commercial Operations and Growth

The loss of or our inability to attract and retain key personnel, including highly skilled executives, scientists and salespeople, could negatively impact our business.

The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiring qualified successors. Our executive officers have employment agreements; however, the existence of an employment agreement does not guarantee the retention of the executive officer for any period of time .

Our commercial, manufacturing and research and development programs and operations depend on our ability to attract and retain highly skilled engineers, scientists and salespeople. We may not be able to attract or retain qualified personnel in the future due to the competition for qualified personnel among medical device businesses, particularly in California and Ohio. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. Recruiting and retention difficulties can limit our ability to support our commercial, manufacturing and research and development programs. All of our employees are at-will, which means that either we or the employee may terminate his or her employment at any time .

We face risks associated with our international business.

In addition to our marketing and sales of MRIdian in the United States, we also market MRIdian in other regions, with contracts signed with customers and distributors in those regions. Our international business operations are subject to a variety of risks, including :

 

difficulties in staffing and managing foreign and geographically dispersed operations ;

 

effective compliance with various U.S. and international laws, including export control laws and the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, and anti-money laundering laws ;

 

differing regulatory requirements for obtaining clearances or approvals to market MRIdian and future product enhancements for MRIdian including but not limited to, MRIdian Linac ;

 

changes in uncertainties relating to foreign rules and regulations that may impact our ability to sell MRIdian, perform services or repatriate profits to the United States ;

 

tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to move MRIdian out of these countries or interfere with the import of essential materials into these countries ;

 

limitations on our ability to enter into cost-effective arrangements with distributors of MRIdian, or at all ;

 

fluctuations in foreign currency exchange rates ;

 

imposition of limitations on production, sale or export of MRI-guided radiation therapy systems in foreign countries ;

34


 

imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures ;

 

differing multiple payor reimbursement regimes, government payors or patient self-pay systems ;

 

imposition of differing labor laws and standards ;

 

economic, political or social instability in foreign countries and regions ;

 

an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action; and

 

availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us .

We expect that we will begin expanding into more target markets; however, we cannot assure you that our expansion plans will be realized, or if realized, be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed . In addition, the Trump administration has recently imposed tariffs on certain U.S. imports, and the European Union and other countries have responded with retaliatory tariffs on certain U.S. exports. We cannot predict what effects these and potential additional tariffs will have on our business, including in the context of escalating trade tensions. However, such tariffs and other trade restrictions could increase our cost of doing business, reduce our gross margins or otherwise harm our business, financial condition or results of operations.

International tariffs, including potential tariffs applied to our MRIdian systems sold into China, could materially and adversely affect our business operations and financial condition.

Our global business could be negatively affected by trade barriers and other governmental protectionist measures, any of which can be imposed suddenly and unpredictably.  For example, in March 2018, representatives of the Trump administration announced that the U.S. government would take certain actions based on findings of an investigation into Chinese trade practices under Section 301 of the Trade Act of 1974. In retaliation, the Chinese government issued a list of additional U.S. origin goods that could be subject to an increased tariff when imported for sale into China, including medical or surgical x-ray equipment, which would include MRIdian systems. The outcome of final actions under Section 301 and related developments is uncertain. The imposition of tariffs on MRIdian systems imported into China or elsewhere could require us to raise prices, which may negatively impact the demand for our products in the affected market and/or reduce our gross margins. In addition, any of our competitors that are based outside the United States or that are otherwise not subject to tariffs that affect us might gain a competitive advantage as a result. Given the uncertainty regarding the scope and duration of trade actions by China, the U.S. and other countries, the impact of these trade actions or any other trade barriers, tariffs or similar measures on our business operations or financial condition remains uncertain.

Risks Related to Regulatory Matters

Modifications to MRIdian and our future products may require new 510(k) clearances or PMA approvals, or may require us to cease marketing or recall the modified products until clearances are obtained.

In the United States, we have obtained 510(k) premarket clearance from the FDA to market MRIdian for the provision of stereotactic radiosurgery and precision radiotherapy for lesions, tumors and conditions anywhere in the body where radiation treatment is indicated. Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA.

In February 2017, we received a 510(k) premarket clearance from the FDA to market the MRIdian system that contains MRIdian Linac. As we make other changes or enhancements to our MRIdian system, we will need to determine whether additional FDA clearance is required or not. However, the FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We have made modifications to MRIdian in the past and have determined based on our review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or PMA approvals were not required. We may make similar modifications or add additional features in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

35


Furthermore, the FDA’s ongoing review of the 510(k) clearance process may make it more difficult for u s to make modifications to our previously cleared products, either by imposing more strict requirements on when a new 510(k) notification for a modification to a previously cleared product must be submitted, or applying more onerous review criteria to such submissions. More recently, the FDA

issued guidance (“Deciding When to Submit a 510(k) for a Change to an Existing Device” and “Deciding When to Submit a 510(k) for a Software Change to an Existing Device”) on October 25, 2017 to assist industry in determining when a change to a previously 510(k)-cleared product requires a new premarket notification to be submitted to the FDA. These guidance documents replaced the 1997 guidance on the same topic.  These new guidance documents could impose additional regulatory requirements upon us that could: increase the costs of compliance; restrict our ability to maintain our current clearances; and delay our ability to obtain 510(k) clearances . We cannot guarantee whether the FDA’s approach in future guidance will result in substantive changes to existing policy and practice regarding the assessment of whether a new 510(k) is required for changes or modifications to existing devices. The FDA continues to review its 510(k) clearance process, which could result in additional changes to regulatory requirements or guidance documents, which could increase the costs of compliance or restrict our ability to maintain current clearances .

Our MRIdian systems may cause or contribute to adverse medical events that we are required to report to regulatory bodies outside of the U.S. and to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of serious safety issues with our MRIdian systems, or a recall of our MRIdian systems either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.

We are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA when we receive or become aware of information that reasonably suggests that MRIdian may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of MRIdian. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of MRIdian or delay in clearance of future products .

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects, repeated misuse or other deficiencies or failures to comply with applicable regulations. We cannot assure you that similar or more significant product defects or other errors will not occur in the future. Recalls involving MRIdian could be particularly harmful to our business, financial condition and results of operations because it is currently our only product .

Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA or other regulatory bodies. We may initiate voluntary withdrawals or corrections for MRIdian in the future that we determine do not require notification of the FDA or other regulators in the US and around the world. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales .

Legislative or regulatory reforms in the United States or the EU may make it more difficult and more costly for us to obtain regulatory clearances or approvals for MRIdian or to produce, market or distribute MRIdian after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices or the reimbursement thereof. In addition, the FDA or Nuclear Regulatory Commission, or NRC, regulations and guidance are often revised or reinterpreted by the FDA or NRC in ways that may significantly affect our business and our MRIdian systems. For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) clearance process, the FDA initiated an evaluation, and in January 2011, announced several proposed actions intended to reform the clearance process. In addition, as part of FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance or approval. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute MRIdian or future products. More recently, the FDA issued guidance (“Deciding When to Submit a 510(k) for a Change to an Existing Device” and

36


“Deciding When to Submit a 510(k) for a Software Change to an Existing Device”) on October 25, 2 017 to assist industry in determining when a change to a previously 510(k)-cleared product requires a new premarket notification to be submitted to the FDA. These guidance documents replaced the 1997 guidance on the same topic.  These new guidance document s could impose additional regulatory requirements upon us that could: increase the costs of compliance; restrict our ability to maintain our current clearances; and delay our ability to obtain 510(k) clearances. We cannot determine what effect changes in r egulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require :

 

additional testing prior to obtaining clearance or approval;

 

changes to manufacturing methods;

 

recall, replacement or discontinuance of MRIdian or future products; or

 

additional record keeping.

Any of these changes could require substantial time and cost and could harm our business and our financial results.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repealed and replaced the Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable, i.e., without the need for adoption of EEA member State laws implementing them, in all EEA member States and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The Medical Devices Regulation will, however, only become applicable three years after publication. Once applicable, the new regulations will among other things:

 

strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

 

establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

 

improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

 

set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

 

strengthened rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.

These modifications may have an impact on the way we conduct our business in the EEA.

*    *    *

The risks above do not necessarily comprise all of those associated with an investment in the Company. This Quarterly Report contains forward-looking statements that involve unknown risks, uncertainties and other factors that may cause the actual results, financial condition, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Factors that might cause such a difference include, but are not limited to, those set out above.

 

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

 

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

37


Item 6. E xhibits.

 

 

Exhibit

 

 

 

Incorporated by Reference

 

Filed

Number

 

Description

 

Form

 

Exhibit

 

Date Filed

 

Herewith

 

 

 

 

 

 

 

 

 

 

 

2.1

 

Agreement and Plan of Merger and Reorganization, dated as of July 23, 2015, by and among ViewRay Inc., Acquisition Sub and ViewRay Technologies, Inc.

 

S-1/A

 

2.1

 

12/16/15

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation.

 

S-1/A

 

3.1

 

12/16/15

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated Bylaws of ViewRay, Inc.

 

8-K

 

3.2

 

5/10/18

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Certificate of Elimination of the Series A Convertible Preferred Stock of ViewRay, Inc .

 

8-K

 

3.1

 

5/10/18

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Vanni Business Park Industrial Lease by and between Vanni Business Park, LLC and ViewRay, Inc. dated April 11, 2018.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

10.2

 

Second Amendment to Office Lease by and between BXP Research Park LP and ViewRay, Inc. dated June 1, 2018.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

10.3

 

Separation Agreement, dated July 22, 2018, by and between ViewRay Inc. and Chris A. Raanes

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

10.4

 

Separation Agreement, dated July 22, 2018, by and between ViewRay Inc. and Doug Keare

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

10.5

 

Employment Agreement, dated July 22, 2018, by and between ViewRay Inc. and Scott Drake

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

10.6

 

Employment Agreement, dated July 22, 2018, by and between ViewRay Inc. and Shahriar Matin

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer Required under Securities Exchange Act Rule 13a-14(a) and 15d-14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a) and 15d-14(a).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 and Securities Exchange Act Rule 13a-14(b).

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

Interactive Data Files of Financial Statements and Notes.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

Instant Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Schema Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Definition Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Label Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase Document

 

 

 

 

 

 

 

X

 

 

38


SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

VIEWRAY, INC.

 

 

 

 

Dated: August 7, 2018

By:

  

/s/ Scott Drake

 

Name:

 

Scott Drake

 

Title:

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

Dated: August 7, 2018

By:

  

/s/ Ajay Bansal

 

Name:

 

Ajay Bansal

 

Title:

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

39

 

Exhibit 10.1

VANNI BUSINESS PARK INDUSTRIAL LEASE

(ViewRay -- 339 N. Bernardo)

ARTICLE I

PARTIES

This Lease (the or this “Lease” ), dated, for reference purposes only, April 11, 2018, is made by and between the Vanni Business Park, LLC, a Delaware limited liability company ( “Lessor” ), and ViewRay, Inc., a Delaware corporation ( “Lessee” ). This Lease shall be effective as of the date (the “Effective Date” ) set forth immediately above the signature block at the end of the Lease, which date is intended to be the first date on which both Lessor and Lessee have signed this Lease.

ARTICLE II

PREMISES

Section 2.01 . Premises .  Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the terms and conditions set forth herein, premises comprised of a portion of Building A (the “Building” ) of the Vanni Business Park (the “Business Park” ) commonly known as 339 North Bernardo Avenue, Mountain View, California 94043, and more particularly described on the site plan attached hereto as Exhibit A and incorporated herein by this reference. The premises (the “Premises” ) consist of approximately 24,630 rentable square feet of floor space on the ground floor of the Building shown as the cross-hatched area on Exhibit B attached hereto and incorporated herein by this reference. The square footage of the Premises includes 100% of the space with respect to which Lessee has exclusive use rights, and 50% of the space with respect to which Lessee has limited non-exclusive use rights, as such areas are designated on Exhibit B and further identified in Section 2.02 below. In the absence of a condemnation of a portion of the Premises that reduces the size of the Premises, or Lessee’s leasing of additional space within the Building which increases the size of the Premises, no remeasurement of the square footage of the Premises by either party will result in any increase or decrease in rent or any other number in this Lease which is a function of the square footage of the Premises.

Section 2.02 . Business Park and Exterior Common Areas .  The Building comprises one of the six buildings situated in the Business Park as of the date of this Lease. The Business Park is shown on the site plan attached hereto as Exhibit A . All areas outside the buildings within the Business Park are herein called the “Common Areas.” Lessee shall be entitled to park in its prorata share of parking spaces within the parking areas provided from time to time in the Common Areas; provided that, in all events Lessee shall be entitled to park in no less than 3.7 parking spaces per 1,000 rentable square feet of floor space within the Premises (based on 24,630 rentable square feet of Premises). Lessee shall also be entitled to use such exercise facilities as may exist thereon from time to time, on a nonexclusive basis with other tenants of the Business Park and their respective employees and invitees. Lessee acknowledges that there are no parking spaces specifically assigned or designated for the exclusive use of Lessee. Lessor reserves the right to designate for each tenant of the Business Park a pro rata share of parking within the Business Park, in which event Lessee shall thereafter cause its employees, agents, contractors, and other invitees to park only in the spaces so designated for Lessee’s parking and shall not cause or permit such entities to park in other areas of the Business Park. In the event Lessor designates specific parking areas for each tenant of the Business Park, the location and size of the parking area designated for Lessee shall be subject to Lessee’s approval, which approval shall not unreasonably be withheld or delayed. Lessee shall not be required to pay any parking charge for such parking spaces, Lessee shall have 100% exclusive use of all areas specified on Exhibit B both as being within the Premises and available for 1 00% exclusive use by Lessee. Lessee shall have 50% non-exclusive use of the areas on the ground floor labeled on Exhibit B as the “Common Lobby,” “Telco Room” and “Common Electrical Room,” and the areas on the 2 n d floor labeled on Exhibit B as the “Front Conference Room,” “Telco Room,” and “Roof Hatch Room,” subject to the following. Subject to the limitations on Lessee’s use thereof set forth in this paragraph, usage of the non-exclusive use areas identified above shall be shared with other tenants from time to time leasing space in the Building. Except in the case of emergency where no prior notice shall be

 

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required, upon 24 hours advance written or oral notice delivered by Lessee to the tenant(s) on the 2 n d floor of the Building in whose premises the same are located, Lessee shall have reasonable access to (i) the Roof H atch Room leading to the roof of the Building designated on Exhibit B solely for purposes of accessing the roof of the Building in order to conduct activities required to be performed by Lessee under this Lease, such as repair, maintenance and/or replacement of the HVAC system serving the ground floor of the Building in the event Lessor elects pursuant to Section 8.0 1 (a) below to have Lessee perform H VAC maintenance and repairs for any or all HVAC systems serving exclusively only a portion of the Premises, and (ii) the ground floor Common Electrical Room and Telco Room and the 2 nd floor Telco Room solely for purposes of installation, maintenance, repair and replacement of Lessee s telecommunications and other communication and electrical systems serving the Premises. Lessee and its employees, agents, contractors, and other invitees shall be entitled to use the Common Lobby solely for passageway to and from any one or more of the front door of the Building to the Premises, the front stairwell, and the elevator, and as a place where Lessee s invitees may wait for admittance to the Premises. Lessee shall be entitled to use the front stairwell from the Common Lobby to the 2 n d floor, the elevator, and the front hallway on the 2 n d floor of the Building solely to the extent necessary to access the 2 n d floor Front Conference Room, Telco Room and Roof Hatch Room. Lessee shall be entitled to use the Front Conference Room to conduct its business meetings, provided that Lessee shall not be entitled to use the same more than 50% of the time on a shared basis with other tenants in the Building. Lessee shall coordinate all reservations by tenant(s) leasing space in the Building for such shared use of the Front Conference Room. Lessor shall not grant any other tenant(s) within the Building rights to use the Front Conference Room in excess of an aggregate of 50% of the time on a shared basis. The Common Lobby is not part of the Premises, and during the entire term of the Lease, Lessee shall have only shared use of the Common Lobby and shall not in any way hinder access by other tenants in the Building (and their employees, contractors, customers and other invitees) through the Common Lobby. In the event of an emergency, Lessee shall without notice permit other tenants of the Building and their respective employees, contractors, customers and other invitees) reasonable access to and passageway through ground floor emergency hallways, stairwell landings, and Building exits. The Common Electrical Room and Telco Room on the first floor of the Building are located within the Premises. Lessee shall permit access to the Common Electrical Room and such Telco Room during the term of this Lease by Lessor, any and all other tenants of the Building, and their respective agents, employees, and contractors, upon reasonable notice to Lessee and subject to Lessee s reasonable security requirements, including, if Lessee makes such a representative available, being escorted by a representative of Lessee; provided that, in the event of an emergency (e.g. interruption of electrical service or telephone service to other premises in the Building the connections for which service are situated in either or both such rooms), then Lessee shall permit immediate access to such room(s) without prior notice.

ARTICLE III

TERM

Section 3.01 . Term Commencement Date .  The term of this Lease shall commence on the date that is the later of (i) the date that Substantial Completion of Lessor’s Work has occurred as specified in Section 3.03 and (ii) twenty one (21) days after Lessor delivers notice to Lessee allowing Lessee to enter onto the Premises pursuant to the early entry provisions of Section 3.04 (the “Commencement Date”). The term shall expire on the date (the “Expiration Date”) that is the day before the seventh annual anniversary of the Commencement Date, subject to earlier termination due to the default of Lessee hereunder or as otherwise provided under this Lease, and further subject to extension pursuant to Section 3.02 below. Within thirty (30) days following the Commencement Date, Lessor shall deliver to Lessee a letter specifying the Commencement Date and the Expiration Date in the form attached hereto as Exhibit C , and Lessee shall acknowledge such dates by signing a copy of such letter and returning the same to Lessor within twenty (20) days after receipt thereof from Lessor.

Section 3.02 . Option to Extend .

(a) Subject to the remaining provisions of this Section 3.02, Lessee shall have one option (the “Option” ) to extend the term of this Lease for a period of five (5) years (i.e., to the date that is one day before the fifth annual anniversary of the date the Expiration Date would have occurred had the Option not been exercised) (such extension period herein called the “Extended Term”). Such Option shall be exercised, if at all, only by written notice delivered by Lessee to Lessor at least one hundred eighty (180) days but no more than three hundred sixty (360) calendar days prior to the then-scheduled expiration of the term of this Lease (the “Option Exercise

 

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Notice ). Time is of the essence with respect to the time of Lessee s exercise of the Option. Notwithstanding the foregoing, Lessee shall not have the right to exercise the Option if (a) at the time of the purported Option exercise, Lessee is in default with respect to payment of any monetary amount payable under the Lease, or is in default with respect to any other material obligation of Lessee under the Lease (in each case beyond applicable notice and cure periods for a default, as specified in the Lease), or (b) two or more events have occurred during the three (3) year period of time immediately preceding the date of such purported exercise which constitute events of default by Lessee with respect to payment of any monetary amount payable under the Lease, or with respect to any other material obligation of Lessee under the Lease (in each case beyond applicable notice and cure periods for a default, as specified in the Lease). The parties expressly agree that Lessor shall not be obligated to pay any broker commission in connection with Lessee s extension of the term of the Lease pursuant to any such exercise of the Option, and neither Lessee nor Lessor shall take any action that gives rise to the obligation on the part of Lessor to pay any such commission. In no event shall Lessee be entitled to a tenant improvement allowance nor shall Lessor have any obligation to make or pay for any tenant improvements in conjunction with either the Option or the Extended Term. The Extended Term shall be upon all of the terms and conditions hereof, except that the monthly rent for the Extended Term shall be determined in accordance with Section 3.02(b). Upon commencement of the Extended Term, all references herein to the term of this Lease shall be deemed to include the Extended Te rm . The option rights of Lessee under this Section 3.02 are granted for Lessee s personal benefit and may not be assigned or transferred by Lessee, except pursuant to a Permitted Transfer as defined in Section 13.02 below.

(b) Extended Term Rent .  Within thirty (30) days after Lessor’s receipt of Lessee’s Option Exercise Notice, Lessor shall deliver to Lessee a written proposal setting forth the monthly base rent for the upcoming Extended Term. If Lessee within fifteen (15) business days after receipt of such proposal agrees to such proposal, the amount of monthly base rent set forth in such proposal shall be binding on Lessor and Lessee. Should Lessee object in writing to Lessor’s proposal within fifteen (15) business days after receipt thereof, or fail to object in writing to such proposal within said fifteen (15) business days, then during the thirty (30) day period following Lessee’s objection to Lessor’s proposal, or in the case of Lessee’s failure to object then during the thirty (30) day period following expiration of such initial fifteen (15) business day period, Lessor and Lessee shall negotiate in good faith for the purpose of reaching an agreement regarding the amount of the monthly base rent during the Extended Term. In the event the parties fail to agree in a written instrument signed by both parties upon the amount of the monthly base rent for the Extended Term within such thirty (30) day period, the monthly base rent for the Extended Term shall be determined in the manner hereafter set forth.

If the parties have not reached agreement on the amount of monthly rent for the Extended Term by the end of the thirty (30) day period of good faith negotiation referred to in the immediately preceding paragraph, then the fair market monthly rent for the Premises shall be determined as follows. Within five (5) days after such thirty (30) day period, Lessor and Lessee each shall appoint a broker who has not worked for such party within the five (5) previous years. Each broker appointed under this Section 3.02(b) shall be a California licensed real estate broker having at least 5 years experience representing both landlords and tenants in leasing commercial properties within a ten (10) mile radius of the Premises. Such brokers so appointed shall each determine the fair market monthly base rent for the Premises during the entire Extended Term (which may entail an initial monthly base rent amount that is increased annually during the Extended Term), taking into account the value of the Premises including the value of any improvements installed at the Premises that Lessor has a right to keep at the end of the Lease (assuming that, as to any improvements that Lessor has a right to elect to keep but has not yet exercised such right, Lessor will elect to keep the same), and prevailing comparable rentals within a two (2) mile radius of the Premises considering all relevant factors including without limitation size of the premises, lease term, financial strength of the tenant, tenant inducements, tenant improvement allowances, free rent, escalation of rent during the term, operating costs, brokerage commissions and other landlord concessions for renewal of leases. Such brokers shall, within twenty (20) business days after their appointment, complete their determinations and submit their written reports thereof to Lessor and Lessee. Said brokers, within ten (10) days after submission of the last report, shall appoint a third broker meeting the broker qualifications set forth above and who is not currently representing either Lessor or Lessee. Such third broker, within twenty (20) business days after his appointment, shall choose one or the other of the first two determinations as the applicable fair market monthly base rent during the Extended Term. If either Lessor or Lessee fails to appoint a broker, or if a broker appointed by either of them fails, after his appointment, to submit a report of his determination within the required period in accordance with the foregoing, the determination in the report submitted by the broker properly appointed and timely submitting his report shall be controlling. If the two brokers appointed by Lessor and Lessee are unable to agree upon a third broker within the required period in accordance

 

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with the foregoing, application shall be made within twenty (20) days thereafter by either Lessor or Lessee to a co ur t of law situated in Santa Clara County, California having jurisdiction which shall appoint a broker having the qualifications specified above; provided that, if neither party applies to such a court or if no court to which either par ty so applies is willing to appoint such a broker within sixty (60) days after the first two brokers have issued their repor ts, then the third broker shall be specified by Lessor (provided that the third broker meets the qualifications set forth above for the third broker, and provided further that such third broker has never worked for either Lessor or Lessee). Subject to the provisions below, the cost of the initial broker appointed by Lessor or Lessee shall be borne by the party so appointing such broker, and the cost of any third broker shall be borne equally by Lessor and Lessee. Notwithstanding anything to the contrary contained in this Section 3.02, in no event shall the monthly base rent for the first year of the Extended Term be less than the amount of monthly base rent applicable in the last month of the initial seven (7) year term of the Lease (without taking into account any rental abatement that may be applicable due to damage or destruction of the Premises or otherwise) multiplied by 95%; and furthermore, on each annual anniversary of the commencement of the Extended Term, the monthly base rent shall be increased to an amount which is no less than 1.03 times the amount of monthly rent payable during the month preceding such increase (without taking into account any rental abatement that may be applicable due to damage or destruction of the Premises or otherwise). The intent of the parties is to ensure that, regardless what the fair market monthly base rent is determined to be pursuant to the foregoing provisions, the monthly base rent at the start of the Extended Term is no less than 95% of the amount thereof at the end of the initial term, and to ensure that annual increases thereafter are not less than 3% of the monthly base rent amount applicable during the immediately pr eceding year of the Extended Term . Notwithstanding anything to the contrary in the preceding two sentences, in the event Lessee requests or demands that Lessor pay a broker s commission in connection with Lessee s extension of the Lease term pursuant to Section 3.02, and Lessor agrees to do so, or in the event for any reason Lessor is obligated to pay a broker commission or the costs of any improvements, alterations or additions to the Premises in connection with Lessee s extension of the Lease term pursuant to Section 3.02, then both references in said two sentences to 95% shall be changed to 100%.

For purposes of Section 3.02, “business days” shall mean all calendar days other than Saturdays, Sundays, and legal holidays recognized by the Federal government, the California state government, or California banks. All other references to periods of time expressed in a number of days shall mean that number of calendar days. Time is of the essence with respect to all periods of time referenced in Section 3.02.

Section 3.03 . Lessor’s Work Prior to Delivery of Possession .  Lessor shall deliver possession of the Premises to Lessee with all alterations and improvements to the Premises described on the working plans and specifications attached hereto as Exhibit D and incorporated herein by this reference performed as set forth in this Section 3.03. “Lessor’s Work” shall mean all the work required to be performed in order to make the alterations and improvements described on Exhibit D attached hereto, including any work required by the Americans With Disabilities Act (“ADA”) and other accessibility laws which may be triggered by Lessor’s Work. “Lessor’s Work Plans” shall mean such working plans and specifications so prepared by Lessor, subject to modification and supplementation of the same to reflect plan check comments from the City of Mountain View and other requirements of lawful governmental authority, and to reflect such other modifications as Lessor shall from time to time determine are appropriate on site in the course of performing Lessor’s Work provided such modifications are reasonably consistent with the work described in Exhibit D . Commencing promptly after execution of the Lease Lessor shall submit the working plans and specifications attached as Exhibit D to the City of Mountain View to obtain such permits and approvals from the City of Mountain View as are required to perform the Lessor’s Work, and promptly after obtaining such permits and approvals Lessor shall cause California licensed contractors to begin construction of Lessor’s Work and thereafter diligently continue construction of Lessor’s Work until Substantial Completion of Lessor’s Work. Construction of Lessor’s Work shall be performed substantially in accordance with the Lessor’s Work Plans in a good and workmanlike manner, with materials that conform to said plans and that are new and otherwise of good quality. Lessor’s Work shall be constructed in accordance with applicable law including, without limitation, the ADA. Within ten (10) days after Lessor notifies Lessee that Lessor’s Work is substantially completed, Lessor and Lessee shall together walk through and inspect Lessor’s Work using their best efforts to discover all incomplete or defective construction (“punchlist items”). After such inspection has been completed, a list of punchlist items shall be prepared by Lessor and Lessee. Lessor shall use its best efforts to cause California licensed contractors hired by Lessor to diligently complete and/or repair such punchlist items. On the date that Substantial Completion of Lessor’s Work (as defined below) occurs, Lessee shall accept possession of the Premises and shall thereupon be deemed to have accepted Lessor’s Work as complete subject only to Lessor’s completion

 

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and/or correction of punchlist items. Substantial Completion of Lessor s Work shall mean the date on which all of the following have occurred: (i) Lessor certifies that all Lessor s Work has been completed in accordance with the Lessor s Work Plans, subject only to normal and customary punchlist items relating to minor defective or incomplete construction which will not materially interfere with Lessee s use of the Premises, and (ii) Lessor has tendered possession of the Premises to Lessee. All Lessor s Work shall be performed and paid for by Lessor.

Section 3.04 . Early Access .  Lessor shall deliver notice to Lessee at least twenty one (21) days prior to Substantial Completion of Lessor’s Work that Lessee may enter onto the Premises to install workstations, fixtures, furniture, and communication lines provided that Lessee coordinates such work with Lessor so as to avoid interference with Lessor’s Work remaining to be performed. In conjunction with any such early entry onto the Premises by Lessee, Lessee shall not permit its contractors or subcontractors to cause any labor difficulties with contractors and subcontractors performing Lessor’s Work (including use of union labor if Lessor’s workers are non-union, and vice versa, to the extent that results in strikes, work stoppages, or other labor difficulties with Lessor’s contractors or subcontractors). In no event shall Lessee occupy the Premises for purposes of conducting its regular business thereon until Substantial Completion of Lessor’s Work has been achieved.

Section 3.05 . Delay in Delivery of Possession .  Notwithstanding anything to the contrary contained in this Lease, in the event the Commencement Date has not occurred by the date that is ninety (90) days after the Effective Date due to any cause beyond the reasonable control of Lessor, then Lessor shall be entitled to terminate this Lease by delivery of notice thereof to Lessee within five (5) days after such date, with such termination to be effective immediately upon delivery of such notice. Further notwithstanding anything to the contrary contained in this Lease, in the event the Commencement Date for any reason has not occurred by the date that is one hundred twenty (120) days after the Effective Date (“Lessee’s Outside Commencement Date”), then Lessee shall be entitled to terminate this Lease by delivery of notice thereof to Lessor within seven (7) days after such date, provided that Lessee’s Outside Commencement Date specified above in this sentence shall be extended one day for each day, if any, that Lessor is delayed in delivering possession of the Premises to Lessee due to any delay caused by Lessee or Lessee’s agents, contractors, or employees, and further notwithstanding any provisions of this Lease to the contrary, the date on which rent would otherwise be payable under this Lease pursuant to all other provisions of this Lease shall be moved up one day sooner for every such day of delay. Time is of the essence with respect to the time of exercise of any right of termination of this Lease set forth above in this paragraph.

ARTICLE IV

RENT: SPECIAL NET LEASE

Section 4.01 . Rent .  Lessee shall pay to Lessor as rent for the Premises the following amounts for the following periods of time:

(i)  $36,727.50 from the Commencement Date through December 31, 2018;

(ii)  $72,658.50 from January l, 2019 through the day before the first annual anniversary of the Commencement Date;

(iii)  $74,838.26 from the first annual anniversary of the Commencement Date through the day before the second annual anniversary of the Commencement Date;

(iv)  $77,083.40 from the second annual anniversary of the Commencement Date through the day before the third annual anniversary of the Commencement Date;

(v)  $79,395.90 from the third annual anniversary of the Commencement Date through the day before the fourth annual anniversary of the Commencement Date;

(vi)  $81,777.78 from the fourth annual anniversary of the Commencement Date through the day before the fifth annual anniversary of the Commencement Date;

 

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(vii)    $84,231.11 from the fifth annual anniversary of the Commencement Date through the day before the sixth annual anniversary of the Commencement Date;

(viii)  $86,758.05 from the sixth annual anniversary of the Commencement Date through the Expiration Date.

Lessee shall pay such rent to Lessor in advance on the first day of each month starting on the Commencement Date, provided that Lessee shall pay to Lessor the rent for the first month after the Commencement Date and the security deposit on the date this Lease is first executed by both Lessee and Lessor. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States, without prior notice or demand, to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. If the term of the Lease is scheduled to expire on any date other than the last day of a calendar month, then Lessee shall pay to Lessor for the last full month of the term of the Lease an amount of rent equal to the rent for such full calendar month together with the prorated amount of rent payable for the last partial calendar month of the term.

Section 4.02 . Special Net Lease .  This Lease is what is commonly called a “Net, Net, Net Lease”, it is being understood that the Lessor shall receive the rent set forth in Section 4.01 free and clear of any and all impositions, taxes, liens, charges or expenses of any nature relating to the Premises except as otherwise provided in this Lease. In addition to the rent reserved by Section 4.01, and except as otherwise expressly provided in this Lease, Lessee shall pay to the parties respectively entitled thereto all insurance premiums (and deductibles), taxes, assessments, operating charges, management fees, maintenance charges, and any other charges, costs and expenses which Lessee is obligated to pay under any provisions of this Lease for the entire Premises during the term hereof. All of such charges, costs and expenses shall constitute additional rent, and upon the failure of Lessee to pay any of such costs, charges or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay rent. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee, and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease, except as herein expressly provided. Any present or future law to the contrary shall not alter this agreement of the parties.

ARTICLE V

SECURITY DEPOSIT

Section 5.01 . Security Deposit .  Lessee shall deposit with Lessor upon execution of this Lease as a security deposit for Lessee’s faithful performance of Lessee’s obligations hereunder cash in the amount of Eighty Six Thousand Seven Hundred Fifty Eight Dollars and Five Cents ($86,758.05). If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may, without waiving or releasing Lessee from any obligation under this Lease, and without waiving Lessor’s right to treat such failure as a default hereof, use, apply, or retain all or any portion of said cash deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee’s default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said cash deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee’s failure to do so shall be a material breach of this Lease. No trust relationship is created herein between Lessor and Lessee with respect to said security deposit, and Lessor may commingle it, use it in ordinary business, transfer or assign it, or use it in any combination of those ways. In the event Lessor transfers its interest in this Lease, Lessor shall transfer said deposit to Lessor’s successor in interest, whereupon Lessor shall no longer have any liability for the return of such deposit or the accounting therefor.

Section 5.02 . Waiver of Limits on Retention Security Deposit .  Any cash security deposit held by Lessor at the expiration or sooner termination of the term of this Lease, less sums which Lessor is entitled to deduct therefrom pursuant to Article V, shall be returned to Lessee (or, at Lessor’s option, to the last assignee, if any, of Lessee’s interest hereunder), without interest within 75 days after the expiration or termination of this Lease, except that Lessor has the right to retain all or any portion of a cash security deposit then held by Lessor to cover rents which will be due in the future or damages for unpaid future rents (collectively, “Future Rent Damages” ) until, at

 

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Lessor s sole and absolute election, (i) the precise amount of such Future Rent Damages are determined by a final judgment in a cou rt of law at which time Lessor may apply such cash toward payment of such sum; or (ii) Lessor, in its sole and absolute judgment, has reasonably estimated the amount of such Future Rent Damages at which time it may apply such cash toward payment of such estimated Future Rent Damages. Lessee expressly waives any requirement in California Civil Code section 1950.7 or successor or similar statute for the accounting of or return to Lessee of the securit y deposit within any period shorter than specified by this Lease and further expressly waives any and all other portions of California Civil Code section 1950.7 or successor or similar statute that is inconsistent with the provisions of this Lease.

ARTICLE VI

USE

Section 6.01 . Use .  The Premises shall be used and occupied for general offices, research and development, and any other incidental related legal use which is otherwise in compliance with the rules and regulations that may reasonably be imposed by Lessor from time to time on the Business Park. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or tend to unreasonably disturb any other tenants. This Lease does not grant to Lessee any exclusive use rights that would prevent other tenants or lessees from conducting businesses or operations within the Business Park similar to the business or operations of Lessee. Lessee shall be responsible for obtaining any required business license, use permit, and/or occupancy permit required for Lessee to use the Premises.

Section 6.02 . Compliance with Law .

(a) Lessor warrants to Lessee that (i) the Premises, in its state existing on the Commencement Date, but without regard to the use for which Lessee will use the Premises, does not violate any applicable covenants and restrictions of record, or any applicable law, permit, building code, building regulation or building ordinance in effect as of the initial completion of construction thereof, and (ii) to the actual knowledge of Chris Vanni as manager of Lessor, Lessor has not received written notice from any governmental authority with jurisdiction over the Premises that the Premises are in violation of any law, permit, building code, building regulation or building ordinance in effect as of the date this Lease is executed which violation remains uncured.

(b) Except as provided in Section 6.02(a), Lessee shall, at Lessee’s expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants, and restrictions of record in effect during the term or any part of the term hereof, regulating the use, condition, or occupancy of the Premises. Without limiting the generality of the foregoing, Lessee shall be obligated at its sole expense to make all alterations or improvements to the Premises which may be required by lawful governmental authority due to new laws, codes, ordinances or other promulgations of lawful governmental authority which come into effect during the term of this Lease. Notwithstanding the preceding two sentences, if any structural alterations to the Premises are required as a result of a change in laws, codes, ordinances, rules, or regulations (collectively, “Laws” ) existing on the Effective Date or as a result of additional Laws enacted after the Effective Date which changed or additional Laws are applicable to buildings generally (including the Premises) and are not applicable to the Premises because of Lessee’s particular use of the Premises or any improvements, additions or alterations (collectively, “Alterations” ) thereto by Lessee, then Lessor at its sole cost shall cause such alterations to be made, and the Amortized Portion (as defined below) of such cost shall be paid by Lessee to Lessor as additional rent each month together with and in the same manner as payments of rent under Section 4.01 above. The “Amortized Portion” of costs of items, as reasonably determined by Lessor, shall mean an amount equal to a fraction of the cost of such item the numerator of which is the lesser of(i) the number of years remaining in the term, and (ii) the number of years of the estimated useful life of such item as reasonably determined by Lessor, and the denominator of which is the number of years of the estimated useful life of such item as reasonably determined by Lessor, with such amount amortized monthly over the remainder of the term as of the date such cost is incurred assuming an interest rate (the “Assumed Interest Rate” ) equal to the rate of interest on any loan obtained by Lessor to pay for such item, or if Lessor does not obtain a loan to pay for such item, then assuming an interest rate equal to the rate of interest Lessor would have to pay if Lessor were to borrow such funds, as reasonably determined by Lessor; provided that, in no event shall the Assumed Interest Rate exceed ten percent (10%) per annum. If Lessee later exercises its option to extend the term for five (5) years, then upon commencement of the Extended Term, if such item was not previously fully amortized pursuant to the preceding

 

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sentence, then Lessee shall pay as additional rent each month together with and in the same manner as payments of rent under Section 4.01 an additional Amortized Portion of the cost of such item equal to a fraction the numerator of which is the lesser of(i) five, or (ii) the same number of years of the estimated useful life of such item as originally determined by Lessor as reduced by the number of years represented in the numerator determined pursuant to the preceding sentence, and the denominator of which is the same number of years of the estimated useful life of such item as originally determined by Lessor (with no reduction in such number reflecting any time which has passed since the item was made), with such portion amo rt ized monthly over the five year Extended Term assuming interest thereon over such period at the Assumed Interest Rate.

(c) By executing this Lease, Lessee acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance, with the applicable zoning and permit laws, hazardous waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 6.01 above.

Section 6.03 . Condition of Premises .

(a) On the Commencement Date, Lessor shall deliver the Premises to Lessee with the roof, and all life and safety, electrical, plumbing, gas, HVAC, and other mechanical and building systems serving the Premises in good operating condition. ln the event Lessee discovers that any of such items are not in good operating condition, then provided that Lessee delivers to Lessor notice thereof on or before one hundred eighty (180) days after the Commencement Date, Lessor shall cause such item(s) to be repaired at Lessor’s sole expense so as to bring the same into good operating condition; provided that, Lessor shall have no obligation to repair any such items that have been modified in any way and to any extent by any improvements, alterations or additions made by Lessee.

(b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Commencement Date, subject to all zoning, municipal, county, state, and other applicable laws governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto. Lessee acknowledges that neither Lessor nor Lessor’s agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee’s business. Except as specified in Section 3.03 and Section 6.03(a) above, Lessee acknowledges that Lessor has no obligation to make any improvements or repairs to the Premises at the outset of the Lease, and except as provided in Section 6.02(a) above is not warranting that as of the Commencement Date the interior or exterior of the Premises is in compliance with all ordinances, rules, codes and regulations of applicable governmental authority, as Lessee, subject to 6.02(a) and 6.03(a) and Lessor’s other requirements under this Lease, is taking possession of the Premises in their “as-is” physical condition and will be solely responsible for making any and all repairs and improvements to the Premises as may be necessary to operate the Premises for the use specified herein and to bring the Premises into compliance with all such ordinances, rules, codes and regulations, all of which repairs and/or improvements shall be made in strict accordance with the provisions of this Lease and at the sole cost and expense of Lessee. Lessor advises Lessee, and Lessee acknowledges, that the Premises have not been inspected by a Certified Access Specialist to determine whether it meets all applicable construction-related accessibility standards pursuant to California Civil Code Section 55.53.

Section 6.04 . Prohibited Uses .  Notwithstanding anything to the contrary contained in Section 6.01 above, in no event shall the Premises be used for any retail use, or for any of the other following uses: (i) health club, spa or gymnasium, (ii) night club or discotheque, (iii) mobile home park, trailer court, labor camp, junkyard, or stockyard (except that this provision shall not prohibit the temporary use of construction trailers during periods of construction provided Lessee has obtained Lessor’s prior written consent thereto), (iv) any dumping, disposing, incineration, or reduction of garbage (except for normal disposal of garbage in dumpsters located adjacent to the rear of and outside the Premises), (v) any close-out, odd lot, fire sale, bankruptcy sale or auction house operation, (vi) automobile, truck, trailer or R.V. leasing, display or repair, (vii) skating rink or roller rink, (viii) living quarters, sleeping apartments, or lodging rooms, (ix) veterinary hospital or animal raising or grooming facilities, (x) mortuary, (xi) educational or training facility, other than ancillary to Lessee’s business at the Premises (e.g., training employees to conduct such business), (xvii) any movie theater or other theater use, and (xviii) any use which creates vibrations or offensive odors which are noticeable outside of the Premises, or any noise or sound which can be heard outside of the Premises and which is offensive due to intermittency, beat, frequency, shrillness or loudness, provided any usual paging system shall be allowed.

 

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ARTICLE VII

HAZARDOUS OR TOXIC MATERIALS

Section 7.01 . Hazardous or Toxic Materials .  As used herein, “Hazardous Materials” means any hazardous, toxic, environmentally damaging or radioactive materials, substances or wastes, including, but not limited to, those materials, substances or wastes; (1) defined or listed as hazardous or extremely hazardous materials or wastes pursuant to Title 22, Division 4.5, Chapter 10 et seq., of the California Code of Regulations, as may be amended; (2) defined or listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq . and regulations promulgated thereunder, as may be amended; (3) defined or listed as hazardous or acutely hazardous wastes pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq . and regulations promulgated thereunder, as may be amended; and/or (4) which consists in whole or part of petroleum, petroleum fractions, petroleum products or petroleum distillates.

Section 7.02 . Compliance with Environmental Laws .  Lessee, at its sole expense, shall comply with all applicable governmental rules, regulations, codes, ordinances, statutes, directives and other requirements respecting protection of the environment and/or the transport, use, storage, maintenance, generation, manufacture, handling, discharge, release or disposal of Hazardous Materials (collectively, “Environmental Laws”) in, on or from the Premises resulting from or caused by the use of the Premises by Lessee or agents, employees, contractors, assignees, sublessees or invitees of Lessee. To the extent such investigations, cleanup or other response actions referred to below in this sentence result from or are connected with the transport, use, storage, maintenance, generation, manufacture, handling, discharge, release or disposal by Lessee or agents, employees, contractors, assignees, sublessees or invitees of Lessee of Hazardous Materials in or on the Premises or the Business Park or in the groundwater or soils underneath the same occurring at any time prior to the expiration or sooner termination of the term of this Lease and vacation of the Premises by Lessee, then Lessee, at its sole cost, shall perform all investigations, cleanup and other response actions in, on, or about the Premises which may be required of Lessee or Lessor by any governmental authority. All actions by Lessee pursuant to the preceding sentence shall be taken in full compliance with all Environmental Laws. Without limiting the generality of the foregoing, Lessee shall at its sole cost: (1) at all times use, handle, generate, store, transport, and dispose of Hazardous Materials in compliance with all Environmental Laws; (2) make any and all improvements to the Premises necessary to assure the lawful and safe use, handling, generation, storage, transportation, and disposal of Hazardous Materials by Lessee and its agents, employees, contractors, assignees, sublessees or invitees; and (3) ensure that valid permits have been obtained and maintained as required by all Environmental Laws concerning the activities of Lessee and its agents, employees, contractors, assignees, sublessees and invitees.

Section 7.03 . No Underground Tanks .  Under no circumstances shall Lessee install or permit the installation of, temporarily or permanently, within the Business Park, any underground tanks relating to the use, storage or disposal of Hazardous Materials.

Section 7.04 . Indemnity .  Lessee hereby indemnifies and agrees to protect, defend (by legal counsel selected by Lessor and reasonably approved by Lessee) and hold harmless Lessor, its members, partners, directors, employees, assigns, lenders, successors, agents, representatives and their respective insurers from and against all costs (including, but not limited to, environmental response costs), expenses, claims, judgments, losses, demands, liabilities, causes of action, governmental directives, proceedings and hearings, including reasonable attorneys’ and experts’ fees and costs, to the extent relating to the transport, use, storage, maintenance, generation, manufacture, handling, discharge, release or disposal of Hazardous Materials by Lessee or agents, employees, contractors, assignees, sublessees or invitees of Lessee, in or on the Premises or in the groundwater or soils underneath the same occurring at any time prior to the expiration or sooner termination of the term of this Lease and vacation of the Premises by Lessee, and/or relating to the breach of any of the obligations of Lessee under this Article VII. Without limiting the foregoing, the foregoing indemnity shall include (A) the cost of environmental consultants, attorneys, and other consultants as Lessor reasonably determines are appropriate to assist Lessor in (1) investigating the source, extent, and composition of such Hazardous Materials, (2) cleaning up or otherwise remediating the same, (3) dealing with any potential or actual liability of Lessor and/or Lessee respecting such Hazardous Materials, and (4) otherwise dealing with such Hazardous Materials, and (B) losses in or reductions to rental income, and (C) any diminution in the fair market value of the Premises or other affected property.

 

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Section 7.05 . Notification Responsibility .   Lessee shall notify Lessor orally immediately upon becoming aware of, and in writing within 48 hours after becoming aware of: (1) any environmental investigation, cleanup or other environmental response action requested, demanded, instituted or to be instituted by any person, including a governmental entity, relating to the transport, use, storage, maintenance, generation, manufacture, handling, discharge, release, migration or disposal of Hazardous Materials on, in, beneath, about, adjacent to or from the Premises; (2) any claim or demand made or threatened by any person, including but not limited to a governmental entity, against Lessor or Lessee, relating to damages, contribution, cost recovery, compensation, loss or injury relating to, or claimed to result from, any Hazardous Materials that have come to be located on, in, beneath, or about the Premises as the result of the activities of Lessee or of Lessee s agents, employees, contractors, assignees, sublessees or invitees, or (3) any data, workplans, proposals or reports submitted to any governmental entity arising out of or in connection with any Hazardous Materials on, in, about, or beneath the Premises, including but not limited to any complaints, notices, warnings of asserted violations in connection therewith.

Lessee, at its sole cost, shall provide Lessor with copies of all chemical lists it provides to governmental entities regarding Lessee’s activities on or about the Premises, as well as any Community Right-to-Know information submitted to governmental entities regarding chemicals used by Lessee on or about the Premises, including without limitation, the information required to be submitted pursuant to California Health and Safety Code, Chapter 6.95, any Hazardous Materials management plan required by the County of Santa Clara, and any other reports submitted by Lessee to any and all governmental entities respecting Hazardous Materials.

Section 7.06 . Inspection Rights .  Lessor shall have the right, but not the obligation, in its sole discretion, to enter upon the Premises to inspect, sample and/or monitor the Premises regarding Hazardous Materials on, in, beneath or about the Premises. Lessor shall give Lessee twenty four (24) hours advance notice of any such inspection, except in the event of an emergency, in which case no such notice shall be required. When conducting any such inspections, Lessor shall avoid unreasonably disrupting Lessee’s activities on the Premises. Lessee shall reasonably cooperate with Lessor to facilitate any such inspection by Lessor. Any such entry and inspection may be conducted by Lessor or by Lessor’s designated agents, representatives or contractors. If Lessor discovers that Lessee is not in compliance with the terms of this Article VII, any costs incurred by Lessor in connection with such inspections, sampling and/or monitoring, including attorney’s and/or consultants’ fees, shall be due and payable by Lessee to Lessor within five (5) days following Lessor’s written demand therefor.

Section 7.07 . No Releases or Use; Return of Premises.   Lessee shall not cause or permit to be released any Hazardous Materials into the groundwater or soils underlying or adjacent to the Building. Lessee represents and warrants to Lessor, and covenants with Lessor, that during the Term, except for ordinary office and cleaning products in amounts reasonably necessary for Lessee’s permitted use of the Premises and then only to the extent in compliance with all Environmental Laws regarding the same, Lessee and its subtenants, assignees, employees, contractors, and invitees shall not generate, handle, place, discharge, release, store, dispose of, or otherwise use Hazardous Materials in, on, about, or under the Premises, including, without limitation, the soils and groundwater thereunder. Prior to the expiration or termination of this Lease, Lessee shall (1) remove all Hazardous Materials which have become located on, in, beneath or about the Premises as the result of, and (2) decontaminate and remove any equipment, improvements or facilities used by Lessee at the Premises in connection with the transport, use, storage, maintenance, generation, manufacture, handling, discharge, release or disposal of Hazardous Materials by Lessee or Lessee’s agents, employees, contractors, assignees, sublessees or invitees, on, in, beneath, about or from the Premises, such removal, and decontamination and removal to be performed in full compliance with applicable Environmental Laws. With respect to Hazardous Materials other than ordinary office and cleaning products in amounts reasonably necessary for Lessee’s permitted use of the Premises that have been used by Lessee in compliance with all Environmental Laws regarding the same, not later than 90 days prior to the expiration date of the Lease or immediately upon any sooner termination, Lessee shall submit to Lessor for Lessor’s approval Lessee’s written plan for such removal, decontamination and disposal of Hazardous Materials which plan shall identify (1) the Hazardous Materials to be removed and disposed of, (2) the equipment or other portions of the Premises to be removed, decontaminated and/or disposed of, (3) the method(s) by which such removal, decontamination, and disposal will be accomplished, and (4) the licensed and bonded contractor(s) who will perform such removal, decontamination and disposal. Prior to preparation of such written plan, Lessee at its sole cost shall cause to be performed such tests as Lessor may reasonably require, by an environmental consultant reasonably designated by Lessor, to ascertain whether Hazardous Materials exist in the soils or groundwater underneath the Premises, or in any improvements on the Premises.

 

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Section 7.08 . Controlling Provisions; Sur vival of Covenants .   To the extent any of the provisions of this Lease conflict with the provisions of this Article VII, the provisions of this Article VII shall be controlling. The obl igations of Lessee under this Ar ticle VII shall survive the termination or expiration of the term of this Lease.

ARTICLE VIII

MAINTENANCE. REPAIRS AND ALTERATIONS

Section 8.01 . Maintenance - Premises .

(a) Lessor shall maintain in good and safe condition, order and repair, and replace as and if necessary the following components of the Premises and the Building: (i) the roof structure, the roof membrane, and all other components of the roof of the Building, (ii) structural and nonstructural elements of the exterior walls (including windows, doors, and painting) of the Building, and structural and nonstructural elements of interior load-bearing walls, if any, of the Building, (iii) the foundation of the Building, and (iv) heating, ventilating, and air conditioning (“ HVAC ”), electrical, gas, water, sewer and all other Building systems (other than security systems and telephone and other communications systems of Lessee) including wiring, pipes, and other conduits pertaining thereto. Lessor shall initially pay the costs of such maintenance, repair and replacement, subject to payment by Lessee of all or a portion of such costs pursuant to the provisions set forth below in this Section 8.01. Lessor shall commence making repairs under this Section 8.01(a) as promptly as reasonably possible after Lessor’s receipt of notice from Lessee of the need for such repairs; provided that, in all events Lessor shall commence repairs no later than thirty (30) days after Lessor’s receipt of notice from Lessee of the need therefor and thereafter diligently continue the same until completion thereof. The preceding sentence shall not be construed to require physical repair work to have commenced within the time period specified above, as Lessor shall be deemed to have commenced repairs merely by contacting (by telephone or otherwise) a contractor to perform such work, whether or not such contractor is actually ultimately hired or is able to commence physical work within such time period. In connection with all of Lessor’s activities under this paragraph, Lessor shall make a reasonable effort to minimize any disruption of Lessee’s business, provided that Lessor shall not be obligated to incur overtime costs to employ workers who work after normal business hours and on weekends except to the extent such work entails concrete sawcutting, jackhammering, or activities of the same or higher levels of noise in which event such work shall be performed after normal business hours and/or on weekends. Except as otherwise specifically provided in Article X below (damage and destruction), there shall be no abatement of rent or other sums payable by Lessee prior to or during any repairs by Lessee or Lessor, and Lessee waives all claims for loss of business or lost profits relating to any such repairs. Lessor shall also maintain in good operating condition and repair the card security system for the Building (but not any interior card access system for entry from the Common Lobby to the Premises or for entry to the Premises from anywhere else in the Building, maintenance of which shall be the sole responsibility of Lessee), and shall issue security cards therefor to all employees of Lessee at the outset of the Lease term as well as all new employees of Lessee during the Lease term at no additional charge to Lessee; provided that, Lessee shall pay $25 per card to replace each stolen or lost card after initial issuance by Lessor. Lessor shall also cause exterior windows to be washed no less often than once per year. Notwithstanding the foregoing, Lessor in its sole discretion may by delivery to Lessee of notice thereof elect to have Lessee maintain, repair and replace as and when necessary any portion of the HVAC system serving the ground floor of the Building that serves exclusively only a portion of the Premises (such as the HVAC system serving only the server room situated within the Premises), in which event from and after delivery of such notice: (i) Lessor shall no longer have any obligation to maintain, repair or replace the same, (ii) Lessee shall maintain, repair or replace the same as specified in Section 8.0l(b) below, and (iii) the costs allocable to the entire Building that Lessee is obligated to pay 50.91% of to Lessor as additional rent pursuant to the following paragraph shall be adjusted equitably to reflect that Lessee not Lessor is responsible for costs to repair, maintain or replace the same. Notwithstanding anything to the contrary in the preceding sentence, Lessee’s obligation to maintain and repair such HVAC system shall not include an obligation to replace if and only if Lessee has Properly Maintained such HVAC system. “Properly Maintained” means that during the entire period of time that Lessee is obligated to maintain and repair such HVAC system, Lessee has hired a third party HVAC service contractor reasonably satisfactory to Lessor who has inspected such system no less frequently than once every three months, and who has performed routine maintenance, repair and/or replacement of components of such system as and to the extent recommended by such third party HVAC inspector, and Lessee at its sole expense has paid all of the costs of such inspection, maintenance, repair and/or replacement.

 

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Notwithstanding the preceding paragraph, with respect to all costs incurred by Lessor to perform its maintenance, repair and replacement obligations under Section 8.01, Lessee shall pay as additional rent 100% of such costs allocable solely to the Premises, 50.91% of such costs allocable to the entire Building and 10.12% of such costs allocable to the entire Business Park as reasonably determined by Lessor within thirty (30) days after Lessor provides Lessee with a written statement of the amount of such costs actually incurred by Lessor; provided that, to the extent such costs are capitalized by Lessor for accounting purposes, then instead of paying the entire amount of Lessee s share of such costs (as such share is specified above in this sentence) in a single payment, Lessee shall pay the Amortized Portion (as defined in Section 6.02 above) of such costs over the balance of the Lease term (with additional Amortized Portion payments during any Extended Term as provided in Section 6.02 above)as additional rent each month together with and in the same manner as payments of rent under Section 4.01 above. Further notwithstanding the preceding paragraph, the costs incurred by Lessor to perform its maintenance, repair and replacement obligations under Section 8.01 shall not include any of the items listed in clauses (i) through (xvii) of the last full paragraph of Section 8.02(b) below .

(b) Throughout the term, except as provided in Section 8.0l(a) above, Lessee agrees to keep and maintain each and every part of the Premises, in good and safe condition, order and repair, reasonable wear and tear and damage due to casualty excepted. Lessee hereby expressly waives the provisions of any law permitting repairs by a tenant at the expense of a landlord, including, without limitation, all rights of Lessee under Sections 1941 and 1942 of the California Civil Code. Lessee agrees to keep the Premises clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction. Notwithstanding anything to the contrary contained in Section 8.0l(a) above, Lessee further agrees at its sole cost (i) to keep the interior of the Premises, such as the interior surfaces of windows, carpets, floors, walls, and doors clean and neat in appearance, (ii) to place all trash and debris which may be found in or around the Premises in waste baskets, and (iii) to maintain in good operating condition all security, telephone, internet and other systems, including machinery, equipment, wiring, and other conduits pertaining thereto, serving all or a portion of the Premises only, (iv) to maintain in good condition all glass within the Premises, (v) to maintain in good operating condition the HVAC system serving exclusively only a portion of the Premises, including machinery, equipment, wiring, pipes, and other conduits pertaining thereto, from and after the delivery by Lessor of the notice specified in Section 8.01(a) by which Lessor elects to have Lessee repair, maintain and replace as and when necessary any portion of the HVAC system serving the ground floor of the Building that serves exclusively only a portion of the Premises (provided that, Lessee’s obligation to maintain and repair such HVAC system shall not include an obligation to replace if and only if Lessee has Properly Maintained such HVAC system), and (vi) to repair any damage in excess of reasonable wear and tear to portions of the Premises otherwise to be maintained by Lessor under Section 8.0l(a) above caused by Lessee or its agents, contractors, employees or invitees. If Lessee refuses or neglects to commence such repairs and/or maintenance required under this Lease or does not diligently prosecute same to completion within forty five (45) days after written notice thereof, then Lessor may enter the Premises and cause such repairs and/or maintenance to be made. Lessee agrees that upon demand, it shall pay to Lessor the cost of any such repairs, together with accrued interest from the date of payment at ten percent (10%) per annum. Notwithstanding anything to the contrary above, in the event that Lessee fails to comply with its maintenance obligations in this Section 8,01(b) and such failure continues for a period of fifteen (15) days after delivery by Lessor to Lessee of notice of such failure specifying in reasonable detail the nature of such failure, Lessor may elect to enter into a maintenance contract with a third party for the provision of all or a part of Lessee’s maintenance obligations as set forth in this Section 8.01. Upon such election, Lessee shall be relieved from its obligations to perform only those maintenance obligations covered by the maintenance contract, and Lessee shall bear its pro rata share, as set forth in Section 8.02 below, of the costs of such maintenance contract which shall be paid in advance on a monthly basis with Lessee’s rent payments.

Section 8.02 . Maintenance - Common Areas .  Lessor shall maintain in good condition and repair the Common Areas, together with all facilities and improvements now or hereafter located thereon, and together with all street improvements or other improvements adjacent thereto as may be required from time to time by governmental authority. Lessor shall also maintain in good condition and repair all interior portions of the Building other than the Premises and the premises of other tenants in the Building, including the Common Lobby and the common hallways identified on Exhibit B hereto, and provide janitorial services for such interior common areas at such times and to such extent as specified in Article XII or if not specified in Article XII then as Lessor determines in its sole discretion is appropriate. The manner in which such areas shall be maintained and the expenditures therefor shall be at the sole discretion of Lessor. Lessor shall at all times have exclusive control of the Common Areas and may at any

 

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time temporarily close any part thereof, may exclude and restrain anyone from any pa r t thereof (except the bona fide customers, employees and invitees of Lessee who use the Common Areas in accordance with the rules and regulations that Lessor may from time to time promulgate), and Lessor may change the configuration of the Common Areas or the location of facilities thereon so long as any such change by Lessor does not unreasonably interfere with Lessee s use of or access to the Premises. Lessor shall also be entitled to employ third parties to operate and maintain all or any part of such areas, and to perform janitorial work, on such terms and conditions as Lessor shall determine in its sole discretion, so long as consistent with Article XII. The surface parking facilities shall be available for the automobiles of Lessee and Lessee s customers, employees and invitees on a non­ assigned, non-exclusive basis, subject to Section 2.02. In connection with all of Lessor s activities under this paragraph, Lessor shall make a reasonable effort to minimize any disruption of Lessee s business, provided that Lessor shall not be obligated to incur overtime costs to employ workers who work after normal business hours and on weekends except to the extent such work entails concrete sawcutting, jackhammering, or activities of the same or higher levels of noise in which event such work shall be performed after normal business hours and/or on weekends. Except as otherwise specifically provided in Article X below (damage and destruction), there shall be no abatement of rent or other sums payable by Lessee prior to or during any repairs by Lessee or Lessor, and Lessee waives all claims for loss of business or lost profits relating to any such repairs. Lessee shall have the obligation to notify Lessor, in writing, of any repairs or maintenance to the Common Areas which may be required, and Lessor shall have a reasonable time to make repairs; provided that, Lessor shall commence repairs as promptly as reasonably possible, and in all events, no later than thirty (30) days, after Lessor s receipt of notice from Lessee of the need therefor and thereafter shall diligently continue the same until completion thereof. The preceding sentence shall not be construed to require physical repair work to have commenced within such thirty (30) day period of time, as Lessor shall be deemed to have commenced repairs merely by contacting (by telephone or otherwise) a contractor to perform such work, whether or not such contractor is actually ultimately hired or is able to commence physical work within such thirty (30) period.

Lessee shall pay to Lessor, as additional rent, in the manner and at the time provided below, Lessee’s proportionate share, as defined below, of all costs and expenses incurred by Lessor in the operation and maintenance of the Common Areas of the Business Park during the term of this Lease. Such costs and expenses shall include, without limiting the generality of the foregoing, all maintenance, pest control, security, gardening, landscaping, cost of public liability, property damage, vandalism and malicious mischief, earthquake, and other insurance deemed necessary by the Lessor, real property taxes, property taxes, property management costs, including a management fee as determined by Lessor (which shall in no event exceed 5% of Lessee’s base rent as set forth in Section 4.01 or as such base rent is determined pursuant to Section 3.02(b) payable for the period of time covered by such fee), painting, lighting, cleaning, trash removal, fire protection, and similar items.

Lessee’s proportionate share of such Common Area expenses shall be 10.12%, which is based on the ratio between the approximately 24,630 rentable square feet within the Premises and the total of approximately 243,364 rentable square feet within buildings in the Business Park. Such square footage is measured from the exterior surface of all exterior walls, and includes entryways and the area under covered docks. Lessee acknowledges that it has measured the square footage of the Premises, or has had adequate opportunity to do so, and that the square footage of the Premises set forth above shall be conclusive unless the area of the Premises changes subsequent to the Commencement Date. Notwithstanding Section 8.0l(a), Lessee shall also pay an equitable portion (as reasonably determined by Lessor) of any costs incurred by Lessor to maintain the front entry door to the Building, and to maintain HVAC, electrical, gas, water, sewer and all other Building systems.

Lessor shall bill Lessee monthly for Lessee’s proportionate share of costs set forth in this Section 8.02, which costs shall be based upon the previous month’s actual costs and expenses unless Lessor changes its billing system to one based on estimated costs. Lessee shall pay such proportionate share within thirty days of receipt of said billing statement from Lessor together with copies of invoices or other reasonable evidence of such costs. Lessor shall account for such expenditures in a consistent fashion, such that such costs from one year to the next are similarly identified and accounted for. In the event Lessor changes its system of billing costs set forth in this Section 8.02 from one based on actual costs incurred during the previous month to one based on estimated costs, then from and after such date, within the ninety (90) day period of time immediately following the later of the end of a calendar year or the date of Lessor’s delivery to Lessee of the billing of Lessee’s proportionate share of exterior and interior common area costs for the month of December of such calendar year, Lessee shall be entitled to examine the books and records of Lessor pertaining only to such expenditures incurred during such calendar year at Lessor’s office

 

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during normal business h ours of normal business days at Lessee s expense for a period not to exceed three (3) consecutive days; provided however, if such examination reveals that Lessor has overcharged Lessee for such costs by more than five percent (5%), Lessor shall reimburse Lessee for the costs of such examination up to but not to exceeding Five Thousand Dollars ($5,000), and if such examination reveals that Lessor has not overcharged Lessee for such costs at all, then Lessee shall pay Lessor Five Thousand Dollars ($5,000) for its time dealing with such examination; and provided further, within thirty (30) days following such examination, the parties shall reconcile such costs.

Notwithstanding anything to the contrary contained in this Section 8.02, common area expenses shall not include: (i) any fine or penalty, including interest or penalties for late payment, not caused by Lessee; (ii) to the extent recovered by Lessor, costs attributable to repairing or maintaining items which are covered by warranties, other contracts, or insurance maintained by Lessor; (iii) the cost of constructing tenant improvements for any other tenant of the Business Park; (iv) legal fees, accountants’ fees, and other expenses incurred by Lessor in connection with disputes of tenants or other occupants of the Business Park or associated with the enforcement of the terms of any leases with tenants of the Business Park or the defense of Landlord’s title to or interest in the Business Park or any part thereof; (v) payments of rent under and ground leases of the Premises or the Business Park; (vi) Lessor’s overhead and administrative costs to the extent exceeding the management fee charge permitted pursuant to the provisions of this Section 8.02; (vii) brokerage commissions, attorneys’ fees, accounting costs, and other costs directly related to leasing space in the Business Park; (viii) executive salaries or salaries of service personnel to the extent that such personnel perform services not in connection with the management, operation, repair, or maintenance of the Business Park; (ix) any costs incurred by Lessor to maintain, repair, and replace all or any portion of the exterior walls, foundation, or structural components of any building in the Business Park (provided, Lessee’s prorata share of such costs pertaining to the Building only may be charged back to Lessee pursuant to Section 8.01 above); (x) costs incurred by Lessor for repairing damage which costs are actually recovered from insurance proceeds (or if Lessor fails to carry the insurance which it is required to carry under this Lease, the costs that would have been recovered from insurance proceeds had Lessor carried such insurance) or condemnation awards; (xi) costs of new improvements to the Business Park (as opposed to repair, maintenance, or restoration of existing improvements), except to the extent required by codes, ordinances, or other laws enacted after the Effective Date in which event the cost thereof will be handled in the manner set forth in Section 6.02(b) with the Amortized Portion payable as additional rent; (xii) advertising, marketing and promotional costs; (xiii) entertainment, dining or travel expenses; (xiv) the cost of any magazine, newspaper, trade or other subscriptions; (xv) the cost of any training or incentive programs; (xvi) Lessor’s gross receipts taxes, personal and corporate income taxes, inheritance and estate taxes, and franchise, gift and transfer taxes; and (xvii) reserves of any kind.

Section 8.03 . Alterations and Additions .  No alterations or additions shall be made to the Premises by Lessee without the prior written consent of Lessor which Lessor will not unreasonably withhold, except for nonstructural work contemplated by Section 3.04 and nonstructural alterations the aggregate cost of which during the entire term of the Lease does not exceed Ten Thousand Dollars ($10,000) which Lessee shall be entitled to make without first obtaining Lessor’s consent subject to all the other provisions of this Section 8.03, and provided further that prior to expiration or sooner termination of the Lease term Tenant removes such alterations made without Lessor’s consent and restores the Premises to its condition immediately prior to making the same. In no event shall any alteration or addition be of such a nature as to reduce or otherwise adversely affect the value of the improvements within the Premises immediately before making such alterations or additions, or to diminish the general utility of the Premises for the permitted uses hereunder. Lessor shall have absolutely no obligation to consider or consent to any request by Lessee to make any alteration or addition that affects the structural elements of the Premises or the roof membrane of the Premises. As a condition of giving its consent to any proposed alterations or additions, Lessor may require that Lessee agree to remove any such alterations or improvements at the expiration of the term and to restore the Premises to their prior condition, provided that if Lessor does not as a condition of such consent so require Lessee to remove such alterations and additions at the expiration of the term and restore the Premises to its condition prior to making such alterations and additions, then Lessee shall at the expiration of the term not have an obligation to remove the same or in connection therewith to restore the Premises to its condition prior to the making of such alterations and additions. As a further condition to giving such consent, Lessor may require Lessee to provide Lessor, at Lessee’s sole cost and expense, with a lien and completion bond in an amount equal to one and one-half (l-1/2) times the estimated cost of such improvements, to insure Lessor against any liability for mechanic’s and materialmen’s liens and to insure completion of the work. As to any alterations or additions made by Lessee without Lessor’s consent (which Lessee has no right to make except as specifically

 

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provided above), Lessee shall, unless otherwise requested in writing by Lessor prior to expiration or sooner termination of the Lease term, remove the same from the Premises and restore the Premises, including any building systems affected thereby, to its condition existing immediately prior to such alteration or addition being made (subject to reasonable wear and tear). All changes, alterations, or additions to be made to the Premises shall be under the supervision of a competent architect or competent licensed structural engineer and made in accordance with plans and specifications that have been furnished to and approved by Lessor prior to commencement of work. If the written consent of Lessor to any proposed alterations by Lessee shall have been obtained, Lessee agrees to advise Lessor in writing of the date upon which such alterations will commence in order to permit Lessor to post a notice of non-responsibility. All such alterations, changes and additions shall be constructed in good and workmanlike manner in accordance with all ordinances and laws relating thereto. Lessee shall deliver to Lessor as built plans of any improvements or alterations to the Premises made by Lessee during the term of this Lease. Any such changes, alterations or additions to or on the Premises shall remain for the benefit of and become the property of Lessor, unless Lessor requires their removal by giving Lessee written notice at least ninety (90) days before the scheduled expiration o f the Lease term, or within thirty (30) days after any sooner termination of the term.

Section 8.04 . Initial Tenant Improvements .  Except as provided in Section 6.03, Lessor has no obligation to make or to cause to be made by a contractor any improvements or alterations to the Premises at the outset of the Lease term.

Section 8.05 . Plumbing .  Lessee shall not use the plumbing facilities for any purpose other than that for which they were constructed. The expense of any breakage, stoppage or other damage relating to the plumbing and resulting from the introduction by Lessee, its agents, employees, or invitees of foreign substances into the plumbing facilities shall be borne by Lessee.

ARTICLE IX

INSURANCE

Section 9.01 . Property/Rental Insurance - Premises .  During the term of this Lease, Lessor shall keep the Building insured against loss or damage by fire and those risks normally included in the term “all risk” including (a) flood coverage, (b) earthquake coverage at the election of Lessor, (c) coverage for loss of up to 12 months of rents (including taxes, insurance, and common area costs), and (d) boiler and machinery coverage if Lessor deems such coverage necessary. Lessee shall pay 50.91% of any deductibles to the extent the deductible relates to damage to the entire Building, and 100% of any deductibles shall be paid by Lessee to the extent the deductible relates solely to damage to the Premises or if Lessee causes the damage. Payment of deductibles shall be made within thirty (30) days after written request by Lessor therefor together with reasonable evidence of the amount thereof. Notwithstanding the foregoing, the amount of such deductible payable by Lessee upon request therefor by Lessor shall not exceed an amount equal to one’s month’s base rent based on the monthly rent amount payable under this lease at the time such deductible payment is so requested by Lessor, with any balance of such deductible paid by Lessee in equal installments amortized over the then remaining balance of the lease term, assuming interest thereon at the rate of the lesser of 12% per annum or the highest rate then allowed under law. For purposes of calculating the balance of the lease term pursuant to the preceding sentence, no unexercised options to extend the term shall be taken into consideration (in other words, any option period shall not be included in calculating the remaining balance of the term). The amount of such insurance shall be not less than one hundred percent (100%) of the replacement value of the Building, excluding excavations and foundations. Lessor shall be entitled to procure such insurance under a blanket policy of insurance covering one or more buildings in the Business Park owned by Lessor. Any recovery received from said insurance policy or policies shall be paid to Lessor, and Lessee shall have no interest in any such proceeds.

Lessee, in addition to the rent and other charges provided herein, agrees to pay to Lessor 50.91% of the premiums allocated by Lessor’s insurer to the Building for all such insurance; provided that, if such insurer does not so allocate insurance premiums among the buildings in the Business Park, then Lessee shall pay 10.12% of the insurance premiums payable by the Business Park for such insurance. The insurance premiums shall be paid in accordance with Article IV, within thirty (30) days of Lessee’s receipt of a copy of Lessor’s statement therefor together with reasonable evidence of the amount thereof.

 

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Section 9.02 . Property Insurance - Fixtures and Inventory .    During the term, Lessee shall, at its sole expense, maintain insurance with all risk coverage on any trade fixtures, leasehold improvements made by Lessee, furnishings, merchandise, equipment, or personal property in or on the Premises, whether in place as of the date hereof or installed hereafter, for the full replacement value thereof, and Lessor shall not have any responsibility nor pay any costs for maintaining any types of such insurance. Any deductibles under such insurance shall be paid by Lessee. All proceeds from such insurance shall belong to Lessee and shall be used to restore or replace the items damaged; provided that with respect to all such leasehold improvements and fixtures, and with respect to all equipment that services such leasehold improvements (such as HVAC serving a new server room) or other portions of the Premises, Lessee shall use such proceeds of insurance or its own monies to restore or replace the items damaged u nless the Lease is terminated pur suant to the provisions of Article X.

Section 9.03 . Lessor’s Liability Insurance .  During the term, Lessor shall maintain a policy or policies of comprehensive general liability insurance insuring Lessor (and such others as designated by Lessor) against liability for bodily injury, death and property damage on or about the Building or the Common Area of the Business Park, with a minimum combined single limit of liability coverage of no less than Two Million Dollars ($2,000,000) covering all bodily injury, property damage, and personal injury or death, however occasioned, occurring in, on, or about the Common Areas of the Business Park, or in portions of the Building outside the Premises.

Lessee, in addition to the rent and other charges provided herein, agrees to pay to Lessor 10.12% of the premiums for all such insurance (except that Lessor shall be entitled to equitably adjust such percentage if Lessor determines that any one or more tenants in the Business Park have caused an increase in such premiums through a change in use of their premises or otherwise, in which event Lessor may allocate a higher percentage of such premiums to such tenants than a percentage share based solely on square footage and correspondingly allocate a lower percentage of such premiums to the rest of the tenants in the Business Park). The insurance premiums shall be paid in accordance with Article IV, within thirty (30) days of Lessee’s receipt of a copy of Lessor’s statement therefor together with reasonable evidence of the amount thereof.

Section 9.04 . Lessee’s Liability Insurance .  Lessee shall, at its sole cost and expense, obtain and keep in force during the term of this Lease comprehensive general liability insurance against claims of bodily injury, personal injury, and property damage (including loss of use thereof) arising out of the condition, use, occupancy, and maintenance of the Premises and the business operated by Lessee (and if Lessee subleases all or any portion of the Premises then Lessee shall provide Lessor evidence reasonably satisfactory to Lessor that such sublessee has obtained such insurance covering the business operated by such sublessee in the subleased space) on the Premises and applying also to Lessee’s use of the Common Lobby for access and egress purposes. Such insurance shall include broad form contractual liability insurance coverage insuring all of Lessee’s indemnity obligations under this Lease to which such insurance applies. Such coverage shall have a minimum combined single limit of liability of at least Five Million Dollars ($5,000,000). All such liability policies shall be written to apply to bodily injuries, property damages and personal injuries. All such liability policies shall include Lessor and any lender named by Lessor as additional insureds and provide that any insurance maintained by Lessor shall be excess insurance only. Such coverage shall also contain endorsements: (i) deleting any employee exclusion on bodily injury coverage; and (ii) including employees as additional insureds. Lessee shall obtain a separate policy meeting the above coverage requirements that provides for coverage of employer’s automobile non-ownership liability. All such insurance shall provide for separation of insureds; and shall afford coverage for all claims based on acts, omissions, injury and damage, which claims occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. The limits of all insurance described in this Section 9.04 shall not, however, limit the liability of Lessee hereunder. Not more frequently than once each calendar year if, in the reasonable opinion of Lessor, the amount of insurance required hereunder is not adequate, Lessee shall increase said insurance coverage as reasonably required by Lessor; provided that, in no event shall any such increase result in an increase in the premium therefor of greater than twenty percent (20%) of the amount of the premium during the preceding year of the term of this Lease. The failure of Lessor to require any additional insurance coverage at any time shall not relieve Lessee from the obligation to provide increased coverage at any later time or relieve Lessee from any other obligations under this Lease. Lessee shall furnish to Lessor prior to the Commencement Date, and at least ten (10) days prior to the expiration date of any policy, certificates indicating that the liability insurance required to be carried by Lessee is in full force and effect. Such policy of liability insurance shall specifically provide that such policy shall not be subject to cancellation or reduction of coverage except after at least ten (10) days prior written notice to Lessor. The

 

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insurance shall be with insurers approved by Lessor and with policies in form satisfactory to Lessor, provided however, that such approval shall not be unreasonably withheld.

Section 9.05 . Waiver of Subrogation .

(a) Notwithstanding anything to the contrary contained in this Lease, Lessee hereby (i) releases and waives any rights it may have against Lessor and its officers, agents and employees from any and all claims or demands of damages, loss, expense, or injury occasioned to Lessee, or Lessee’s property within the Premises or Business Park, arising from any risk covered by fire and extended coverage insurance maintained by Lessee, whether or not due to the negligence of Lessor, its agents, employees, contractors, licensees, invitees or other persons, and (ii) waives on behalf of any insurer providing such insurance to Lessee, any right of subrogation that any such insurer may have or acquire against Lessor or such persons by virtue of payment of any loss under such insurance.

(b) Notwithstanding anything to the contrary contained herein, Lessor hereby (a) releases and waives any rights it may have against Lessee and its officers, agents and employees from any and all claims or demands of damages, loss, expense, or injury occasioned to Lessor, or Lessor’s property within the Business Park, arising from any risk covered by fire and extended coverage insurance maintained by Lessor, to the extent of insurance proceeds actually received by Lessor, whether or not due to the negligence of Lessee, its agents, employees, contractors, licensees, invitees or other persons, and (b) waives on behalf of any insurer providing such insurance to Lessor, any right of subrogation that any such insurer may have or acquire against Lessee or such persons by virtue of payment of any loss under such insurance.

(c) Lessor and Lessee shall each obtain such policies of insurance as required hereunder that are not invalidated or prejudiced by the releases described above in this Section 9.05 so long as such policies are available at commercially reasonable rates. Each party shall cause each such insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against the other party in connection with any damage covered by such policy. If either party is unable to obtain such a waiver of subrogation with respect to the applicable policies of insurance, such party shall so notify the other party hereto in writing of such failure.

Section 9.06 . Indemnification .  Except to the extent of Lessor’s active negligence or willful misconduct, Lessee will indemnify Lessor and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the Premises, or the occupancy or use by Lessee of the Premises or any part hereof, or to the extent caused by acts or omissions of Lessee, its agents, contractors, employees, servants, licensees, or concessionaires or by anyone permitted to be on the Premises by Lessee. In case Lessor shall be made a party to any such litigation commenced by or against Lessee, then Lessee shall protect and hold Lessor harmless from all claims, liabilities, costs and expenses, and shall pay all costs, expenses and reasonable legal fees incurred by Lessor in connection with such litigation, except to the extent caused by the active negligence or willful misconduct of Lessor.

Section 9.07 . Waiver of Claims .  Except to the extent caused by the active negligence or willful misconduct of Lessor, Lessee hereby waives any claims against Lessor for injury to Lessee’s business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, or for injury or death of Lessee’s agents, employees, invitees, or any other person in or about the Premises or the Business Park from any cause whatsoever, regardless of whether the same results from conditions existing upon the Premises or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Notwithstanding the foregoing, Lessee waives all claims against Lessor for loss of business or other consequential damages regardless of the cause thereof, including without limitation Lessor’s negligence or willful misconduct.

Section 9.08 . Plate Glass Replacement .  Lessee shall replace at its sole expense, any and all plate glass and other glass in and about the Premises that is damaged or broken by vandalism. If any plate glass or other glass in and about the Premises is damaged or broken by causes other than vandalism, then Lessor shall replace the same and Lessee shall reimburse Lessor an amount equal to Lessor’s cost of replacement, provided that such amount shall not

 

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exceed the deductible then in effect on Lessor s insurance policy, if any, covering the damaged glass. Nothing herein shall be construed to require Lessor to carry plate glass insurance.

ARTICLE X

DAMAGE OR DESTRUCTION

Section 10.01 . Right to Terminate on Destruction of Premises or Building .  Lessor shall have the right to terminate this Lease if, during the term, the Premises are damaged to an extent exceeding thirty-three percent (33%) of the then reconstruction cost of the Premises as a whole, or if, during the term, the Building is damaged to an extent exceeding thirty-three percent (33%) of the then reconstruction cost of the Building as a whole, excluding the cost of excavation of the foundation, regardless whether the Premises are damaged. Lessor shall also have the right to terminate this Lease if any portion of the Premises is damaged by an uninsured peril; provided that Lessor shall not have such right to terminate if the reason such damage is uninsured is because Lessor failed to obtain and maintain in effect insurance that Lessor is expressly required to obtain and maintain in effect under the provisions of this Lease. In any such case, Lessor may elect to terminate as provided above by written notice to Lessee delivered within sixty (60) days of the happening of such damage. Both Lessee and Lessor shall have a right to terminate this Lease if, during the term, the Premises are damaged to an extent that the estimated restoration time therefor, including obtaining requisite governmental permits for such restoration and any insurance proceeds necessary to pay for such restoration, as such period of time is reasonably estimated by Lessor, exceeds two hundred seventy (270) days from the date of such damage. Lessor shall notify Lessee of its estimate of the restoration time promptly after Lessor determines the same. Each party shall exercise its right of termination pursuant to the preceding sentence, if at all, by written notice to the other within twenty (20) days after Lessor delivers notice to Lessee of Lessor’s estimate of the restoration time. Any such notice of termination shall be effective, and shall result in termination of this Lease, thirty (30) days after delivery thereof. Lessor shall have no further obligation to repair such damage after the date of any such notice of termination by Lessee.

Section 10.02 . Repairs by Lessor .  If neither Lessor nor Lessee elects to terminate this Lease pursuant to Section 10.01, Lessor shall, immediately upon receipt of insurance proceeds paid in connection with such casualty, but in no event later than one hundred twenty (120) days after such damage has occurred, proceed to repair or rebuild the Premises, on the same plan and design as existed immediately before such damage or destruction occurred and will proceed expeditiously to complete such restoration, subject to such delays as may be reasonably attributable to governmental restrictions or failure to obtain materials or labor, or otherwise due to causes beyond the control of Lessor. Lessee shall be liable for the repair and replacement of all trade fixtures, leasehold improvements made by Lessee, furnishing, merchandise, equipment and personal property as provided in Section 9.02.

Section 10.03 . Reduction of Rent During Repairs .  In the event Lessee is able to continue to conduct its business from and after the occurrence of the damage until completion of repairs, the rent then prevailing under Section 4.01 will be equitably reduced in the proportion that the square footage of the unusable part of the Premises bears to the square footage of the whole thereof for such period of time. No rent shall be payable while the Premises are wholly unusable due to casualty damage.

Section 10.04 . Lessor’s Overriding Right to Terminate .  Notwithstanding anything to the contrary herein, if the proceeds payable to Lessor under insurance required to be maintained by Lessor under Section 9.01are less than the amount resulting from subtracting the proceeds payable to Lessor under insurance required to be maintained by Lessor under Section 9.01 from the cost of repairing the damage to the Premises, Lessor may at its option terminate this Lease upon thirty (30) days’ written notice. For purposes of the preceding sentence, “proceeds payable to Lessor” includes amounts of deductibles payable by tenants of the Business Park in connection with such damage collected by Lessor to the extent such deductibles are payable for insurance of the same type as Lessee is obligated to pay deductibles for under this Lease; provided that if Lessee does not pay I00% of such deductibles for such insurance under this Lease, then the amount collected from such other tenants for deductibles shall be similarly reduced as determined by Lessor in its reasonable discretion.

 

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ARTICLE XI

REAL PROPERTY TAXES

Section 11.01 . Payment of Taxes .  Lessee shall pay to Lessor the real property tax, as defined in Section 11.02, payable during the term of this Lease as follows: 100% to the extent such tax is allocable solely to the Premises (e.g. for interior improvements made to the Premises), 50.91% of such real property tax allocable to the entire Building, and 1 0.12% of all real property tax allocable to land and to site improvements other than buildings within the Business Park. Such allocations shall be based on the tax assessor’s worksheets to the extent available. All such payments shall be made thirty (30) days after Lessor’s delivery of a copy of the tax statement to Lessee specifying the share of real property taxes payable by Lessee. If any such taxes paid by Lessee shall cover any period of time prior to the Commencement Date or after the Expiration Date, Lessee’s share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee’s next rent installment together with interest at the prime commercial lending rate then in effect at the Bank of America (or if Bank of America is no longer in existence then a comparable national bank selected by Lessor). Lessor shall pay all real property taxes to the applicable taxing authorities prior to the date the same become delinquent and shall solely bear any penalties for late payment or underpayment of same.

Section 11.02 . Definition of “Real Property Tax” .  As used herein, the term “real property tax” shall include any form of real estate tax or assessment, general, special, supplemental, ordinary or extraordinary, foreseen and unforeseen, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (excluding in all instances inheritance, federal or state net income, corporate, franchise, documentary transfer, or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any improvement district thereof, as against any real property of which the Premises are a part, as against Lessor’s right to rent or other income therefrom, and as against Lessor’s business of leasing the Premises, and any taxes or levies in substitution of or in lieu of any of the foregoing.

Section 11.03 . Joint Assessment .  If the Building is not separately assessed, Lessee’s liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, as reasonably determined by Lessor. Lessee shall pay Lessor said proportionate amount within thirty (30) days after Lessor’s delivery of an invoice therefor.

Section 11.04 . Personal Property Taxes .

(a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

(b) If any of Lessee’s said personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee within thirty (30) days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

(c) If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee’s next rent installment together with interest at the Prime Rate (as defined in Section 20.02).

ARTICLE XII

UTILITIES AND JANITORIAL

Lessee shall pay prior to delinquency throughout the term the cost of water, gas, heating, cooling, sewer, telephone, electricity, garbage, air conditioning and ventilation, janitorial service, and all other materials, utilities,

 

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and services supplied to or serving the Premises. Prior to the Commencement Date, Lessor at its sole cost, and not as an item of expense charged back to Lessee under common are maintenance charges, shall cause electrical service to the Premises to be separately metered. If any such services are not separately metered to Lessee, Lessee shall pay its proportionate share (as provided in the last sentence of this Article XII) of all charges that are jointly metered, as reasonably determined by Lessor, and payment shall be made by Lessee within thirty (30) days of receipt of the statement for such charges. Lessor during the entire term of the Lease shall supply for the benefit of Lessee’s use in the Premises air conditioning of the Premises, Common Lobby, and common hallways during normal business hours (7:00 AM through 7:00 PM Monday through Friday), subject to reasonable governmental requests or requirements regarding levels to which the Premises should be heated or cooled provided the same levels are applied to all areas of the Building other than server rooms, and further subject to Lessee’s obligation to maintain, repair and replace portions of the HVAC serving the ground floor of the Building that serve exclusively only portions of the Premises if Lessor elects under Section 8.01(a) to have Lessee maintain, repair and replace the same (provided that, Lessee’s obligation to maintain and repair such HVAC system shall not include an obligation to replace if and only if Lessee has Properly Maintained such HVAC system). In the event Lessee is so obligated to maintain and repair any portion of the HVAC system serving the Premises, and provided that electrical service to the Premises is separately metered, then as to the portion of the HVAC system so maintained and repaired by Lessee, during the period of t ime that Lessee maintains and repairs the same, Lessee shall have control as to the hours and days of operation thereof. Lessor during the entire term of the Lease shall also supply for the benefit of Lessee’s use with respect to the Premises the following services and utilities: (i) reasonable levels of electricity and water consistent with the intended office use of the Premises, (ii) garbage pickup from the exterior garbage bin no less than once per week, (iii) elevator maintenance to keep the common elevator in the Building in good operating condition, and (iv) in the outside Common Areas, upkeep and replacement when necessary of landscaping, maintenance and repair in good condition of parking areas, driveways, and sidewalks (if any), and maintenance in good operating condition and operation during normal business hours of the Business Park of the water fountain in the outside Common Areas. Lessor’s performance of all of the foregoing services shall be subject to curtailment or cessation of same due to governmentally mandated or recommended curtailment or cessation. Lessee shall pay for connection charges and ongoing service charges for any telephone, DSL, cable and other television, internet and communication services Lessee desires to consume from the Premises, as well as any other services not listed above that may be desired by Lessee. Lessor shall not be liable for damage to either person or property nor shall Lessor be deemed to have evicted Lessee nor shall there be any abatement of rent nor shall Lessee be relieved from performance of any covenant on its part to be performed hereunder by reason of (i) deficiency in the provision of HVAC services described above, (ii) breakdown of equipment or machinery utilized in supplying such HVAC services, or (iii) curtailment or cessation of such HVAC services due to causes or circumstances beyond the reasonable control of Lessor. Except as to portions of the HVAC system serving exclusively portions of the Premises that Lessor has elected under Section 18.01(a) to shift to Lessee the obligation to maintain, repair and replace, as to which Lessor shall have no obligation to repair or maintain, and no obligation to replace if Lessee fails to Properly Maintain the same, Lessor shall use reasonable diligence to make such repairs as may be required to machinery or equipment within the Building or on the roof of the Building to provide restoration of such HVAC services (including using best efforts to cause a contractor or other repair person to visit the Building to conduct an inspection of such machinery or equipment within three (3) business days after Lessee notifies Lessor of cessation of HVAC services to the Premises) and, where the cessation or interruption of service has occurred due to circumstances or conditions beyond Business Park boundaries, to cause the same to be restored, by diligent application or request to the provider thereof. If Lessee requires in excess of reasonable levels of electricity consumption (based on sufficient electricity to power one personal computer or other office machine of similar low electrical consumption per 500 square feet in the Premises, plus lighting to the extent provided by Lessor in the Premises on the Commencement Date during the hours specified above), or uses more water than would normally be used for ancillary kitchen use (if applicable) and bathrooms, then Lessee shall pay the cost of such excess electricity and/or water consumption as determined by Lessor; provided that, this sentence shall not apply to electricity consumption during the period of time, if any, that both (i) electric service for the Premises is separately metered, and (ii) Lessee is obligated pursuant to Section 8.01 to maintain and repair all portions of the HVAC system serving the Premises that serve exclusively a portion of the Premises. Lessor shall be entitled to install a water meter at Lessee’s sole expense to measure such excess usage of water; provided however, if such meter shows that Lessee is not excessively consuming water, Lessor shall pay for such meter. If Lessee desires to operate the HVAC system serving the Premises before 7:00 AM, after 7:00 PM, or on weekends/holidays from 7:00 AM to 7:00 PM, then Lessee shall request the same in writing to Lessor, specifying the dates and times of extra operation of the HVAC system that Lessee desires. Lessee shall deliver such request to Lessor no later than three (3) business days in advance of the first date that Lessee desires such excess service. Lessor shall provide such excess

 

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HVAC service, and Lessee shall pay the actual costs of Lessor to provide such excess service for the HVAC zone that includes the Premises. Lessee shall pay such costs to Lessor within thirty (30) days after receipt of each billing statement from Lessor specifying such costs. Lessor shall be entitled to cease provision of such excess HVAC usage if Lessee does not fully and timely pay for any such excess usage (or is otherwise in default under this Lease). As to any portion of the HVAC system that Lessee is obligated to maintain and repair pursuant to Section 8.01, the provisions of the immediately preceding five sentences shall not be operative during the period of time, if any, that (1) Lessee is so obligated to maintain and repair the same, and (ii) electric service for the Premises is separately metered. Lessee shall pay only a portion of the total charges for electricity, gas, water and other utilities and services provided to or serving the Building (except to the extent utility charges are separately metered to the Premises, or separately charged by the service provider to the Premises such as for garbage pickup and telephone service in which event Lessee shall pay only such charges as are separately metered or separately charged to the Premises) equal to the ratio (a) the numerator of which is 24,630, and (b) the denominator of which is the sum of 24,630 plus the aggregate number of square feet of the premises leased to and occupied by other tenants in the Building (subject to equitable adjustment of such ratio for utility charges as reasonably determined by Lessor to reflect disproportionate consumption of same by one or more tenants in the Building).

ARTICLE XIII

ASSIGNMENT AND SUBLETTING

Section 13.01 . Lessor’s Consent Required .  Except as otherwise provided in Section 13.02, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee’s interest in this Lease or in the Premises, without Lessor’s prior written consent which Lessor shall not unreasonably withhold. All of the following shall be deemed an assignment within the meaning of this Article XIII: (i) any transfer resulting from the merger, consolidation or other reorganization of Lessee, or transfer to any Affiliate (as defined below) of Lessee, (ii) any transfer resulting from the sale or other transfer of all or substantially all of Lessee’s assets, (iii) if Lessee is a corporation, partnership, limited liability company, trust or unincorporated association, the sale, issuance or transfer of a controlling interest therein, or the transfer of a majority interest in or a change in the voting control of any corporation, partnership, limited liability company, trust, unincorporated association which is an Affiliate of Lessee, or the transfer of any portion of any general partnership or managing interest in Lessee or in any such Affiliate. “ Affiliate ” shall mean any Entity controlled by, under common control with, or controlling, Lessee. “ Entity ” shall mean any person, corporation, partnership (general or limited), limited liability company, joint venture, association, joint stock company, trust or other business entity or organization. For purposes of this paragraph, “ control ” shall mean (i) with respect to a corporation, the direct or indirect ownership of more than fifty percent (50%) of any class of voting shares, (ii) with respect to a partnership, the ownership of a general partnership interest, or entitlement to more than fifty percent (50%) of the partnership interests in profits or capital, (iii) with respect to any other Entity, the ownership of a majority of the voting rights thereof, or the ability to direct its management decisions. Notwithstanding the foregoing, an “assignment” for purposes of Article XIII shall not include any transfer or issuance of stock over the New York Stock Exchange, the American Stock Exchange, or NASDAQ.

Section 13.02. Permitted Transfers .  Notwithstanding Section 13.01, Lessee shall be entitled to assign this Lease or sublet the Premises or any portion thereof, without Lessor’s consent, to (i) any Affiliate, (ii) any Entity which results from a merger or consolidation with or other reorganization of Lessee, (iii) any Entity which acquires substantially all of the stock or assets of Lessee as a going concern with respect to the business that is being conducted in the Premises, or (iv) any change in ownership or control of Lessee by transfer of stock of Lessee (each of (i), (ii), (iii), and (iv) a “ Permitted Transfer ”), provided that as to each Permitted Transfer either (i) Lessee survives such transaction and remains fully and primarily liable under this Lease for the performance of all of Lessee’s obligations hereunder, or (ii) if Lessee does not survive (for example, it merges into another corporation), then the net worth of such assignee on the effective date of such assignment determined in accordance with GAAP and exclusive of any good will and other intangible assets is at least equal to the net worth of Lessee immediately prior to such transfer. The assignee or sublease under any such Permitted Transfer shall expressly assume in writing the obligations of the Lessee under this Lease.

Section 13.03 . Request for Permission to Assign or Sublease .  Lessee must make any request for Lessor’s approval of a proposed assignment, sublease, or other transfer in writing. Lessee’s written request to Lessor

 

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for consent to an assignment or subletting shall be accompanied by (a) the name and legal composition of the proposed sublease; (b) the nature of the proposed sublease’s business to be carried on in the Premises; (c) the terms and provisions of the proposed sublease; and (d) such financial and other reasonable information as Lessor may request concerning the proposed sublease. Lessor shall respond to Lessee’s request for consent hereunder within twenty (20) days after receipt of Lessee’s request and any attempted assignment, transfer, mortgage, encumbrance, or subletting without such consent shall be void, and shall constitute a breach of this Lease. Lessor’s consent shall not be deemed unreasonably withheld if consent is denied, among other reasons, because the prospective subles se e or assignee will in any way diminish the value of the Premises or increase Lessor’s exposure to risk due to the nature of Lessee’s proposed use. Each proposed assignment or sublease agreement shall recite that it is and shall be subject and subordinate to the provisions of this Lease, that the assignee or suble ssee accepts such assignment or sublease and as to any such assignment assumes and agrees to perform all of the obligations of Lessee hereunder, and that the termination of this Lease shall, at Lessor’s sole election, constitute a termination of every such assignment or sublease.

Section 13.04 . No Release of Lessee .  Regardless of Lessor’s consent, no subletting or assignment shall release Lessee of Lessee’s obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor Lessee in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. If Lessee shall purport to assign this Lease, or sublease all or any portion of the Premises, or permit any person or persons other than Lessee to occupy the Premises, without Lessor’s prior written consent, Lessor may collect rent from the person or persons then or thereafter occupying the Premises and apply the net amount collected to the rent reserved herein, but no such collection shall be deemed a waiver of Lessor’s rights and remedies under this Article XIII or the acceptance of any such purported assignee, sublease or occupant, or a release of Lessee from the further performance by Lessee of covenants on the part of Lessee herein contained.

Section 13.05 . Attorneys’ Fees .  In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do, then Lessee shall pay Lessor’s reasonable attorneys’ fees incurred in connection therewith.

Section 13.06 . Excess Rent .  In the event Lessor shall consent to a sublease or an assignment under the Lease, then Lessee shall pay to Lessor with its regularly scheduled rent payments fifty percent (50%) of all sums collected by Lessee from all sublessees and/or assignees which are in excess of the rent then owing pursuant to Article IV above, after first deducting therefrom only the following costs: (i) broker commissions paid out of pocket by Lessee in connection with such sublease or assignment, up to but not exceeding six percent (6%) of the rent payable under the sublease or assignment, (ii) reasonable attorneys’ fees not to exceed One Thousand Five Hundred Dollars ($1,500), and (iii) costs of tenant improvements paid out of pocket by Lessee, made specifically to induce such sublease or assignee to enter into such sublease or assignment, and performed no sooner than thirty (30) days before and no later than thirty (30) days after such sublessee or assignee takes occupancy of the subleased or assigned space. Lessee shall deliver to Lessor reasonable evidence that the standards and requirements of the three clauses in the preceding sentence have been met before so deducting any such costs.

Section 13.07 . Recapture of Premises .  Any purported assignment of less than all of the Lease shall be deemed a sublease for purposes of this Lease. In the event Lessee requests Lessor’s consent pursuant to Article XIII to either (i) a proposed sublease (other than to a sublessee pursuant to a Permitted Transfer) of more than fifty percent (50%) of the square footage of the Premises and for a term substantially equal to the remaining term of this Lease, or (ii) a proposed assignment of this Lease (other than to an assignee pursuant to a Permitted Transfer), then in lieu of giving or denying such consent within the twenty (20) day period of time specified in Section 13.03 therefor, Lessor may instead elect to terminate the Lease (but in the event of a sublease, only for that portion of the Premises so subleased). Such election shall be made, if at all, by written notice to Lessee thereof within said twenty (20) day period. Such termination shall be effective on the date such sublease or assignment would otherwise have been effective, or if no such date is specified in Lessee’s request for Lessor’s consent to such sublease or assignment, then on the date which is thirty (30) days after Lessor’s election to terminate. Lessor may, but shall not be obligated to, lease the Premises so recaptured by Lessor to any entity to whom Lessee requested Lessor’s consent to sublease

 

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or assign the same, at the same rent, or any higher or lower rent, as was proposed by Lessee in connection with its proposed sublease or assignment.

ARTICLE XIV

DEFAULTS; REMEDIES

Section 14.01. Defaults.   The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee:

(a) The abandonment of the Premises by Lessee, or the failure of Lessee to deliver an estoppel certificate within the period of time specified in Article XVII where such failure shall continue for a period of five (5) days after delivery of notice to Lessee that Lessee has failed to timely deliver to Lessor such estoppel certificate;

(b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of five (5) days after delivery of notice to Lessee that such payment is overdue; provided that, any such notice shall constitute the notice required under Section 1161 of the California Code of Civil Procedure (and/or any related or successor statutes regarding unlawful detainer actions) so long as such notice is given in accordance with the requirements of such statute; and provided further that, if two or more such notices that such payment is overdue shall be delivered to Lessee in any one year period during the term of this Lease, then, unless applicable law requires otherwise, each and every succeeding failure to pay any sum payable hereunder when due shall constitute a material default and breach of this Lease, and Lessee shall not be entitled to any notice or cure period with respect to any such failure to pay;

(c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in Sections 14.01(a) and 14.01(b) above, where such failure shall continue for a period of thirty (30) days after written notice hereof from Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion;

(d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a “debtor” as defined in 11 U.S.C. Section 101 or any successor statute thereto; (iii) the taking or suffering of any action by Lessee under any insolvency or bankruptcy act; (iv) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, or (v) the attachment (unless removed, released, and discharged within sixty (60) days of its origination), execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease;

(e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any successor in interest of Lessee or any guarantor of Lessee’s obligation hereunder, and any of them, was materially false.

Section 14.02 . Remedies .  In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any other right or remedy which Lessor may have by reason of such default or breach, take any of the following actions:

(a) Lessor shall be entitled to terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In the event of any such termination of this Lease, Lessor shall be entitled to recover from Lessee (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; plus, (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Lessee proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss for the same period that Lessee proves

 

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could be reasonably avoided; plus (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee’s failure to perform Lessee’s obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom. The “worth at the time of award” of the amounts referred to in clauses (i) and (ii) of this Section 14.02(a) shall be computed by allowing interest at the lower of ten percent (10%) per annum, or the maximum rate then permitted by law. The “worth at the time of award” of the amount referred to in clause (iii) of this Section 14.02(a) shall be computed by discounting such amount at the discount rate of the Federal Reserve Board of San Francisco at the time of award plus one percent (1%). The term “time of award” as used in subparagraphs (i), (ii), and (iii) shall mean the date of entry of a judgment or award against Lessee in an action or proceeding arising out of Lessee’s breach of this Lease. This Lease may be terminated by a judgment specifically providing for termination, or by Lessor’s delivery to Lessee of written notice specifically terminating this Lease. In no event shall any one or more of the following actions by Lessor, in the absence of a written election by Lessor to terminate this Lease, constitute a termination of this Lease or a waiver of Lessor’s right to recover damages under this Section 14.02(a): appointment of a receiver in order to protect Lessor’s interest hereunder; consent to any subletting of the premises or assignment of this Lease by Lessee, whether pursuant to provisions hereof concerning subletting and assignment or otherwise; or any other action by Lessor or Lessor’s agents intended to mitigate the adverse effects of any breach of this Lease by Lessee, including without limitation any action taken to maintain and preserve the Premises, or any action taken to relet the Premises or any portion thereof for the account of Lessee and in the name of Lessee.

(b) Lessor shall be entitled to maintain Lessee’s right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor’s rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.

(c) Lessor shall be entitled to pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state of California. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the Prime Rate (as defined in Section 20.02).

Section 14.03 . Default by Lessor .  Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor’s obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. In the event Lessor does not commence performance within the thirty (30) day period provided herein, or does not diligently prosecute the same to completion, Lessee may perform such obligation and will be reimbursed for its expenses by Lessor together with interest thereon at the Prime Rate (as defined in Section 20.02). , provided, however, that if the parties are in dispute as to what constitutes Lessor’s obligations under this Lease, any such dispute shall be resolved by arbitration in accordance with the rules of the American Arbitration Association as then in effect, and judgment upon the award rendered by the arbitration may be entered in any court having jurisdiction. The expenses of arbitration shall be borne by the parties as allocated by the arbitrators. The party desiring arbitration shall serve notice upon the other party, together with designation of the first party’s arbitrator.

Section 14.04 . Late Charges .  Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor’s designated agent when such amount is due and owing, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of any such late charge by Lessor shall in no event constitute a waiver of Lessee’s default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. Notwithstanding the foregoing, Lessor will not assess a late charge until Lessor has given written notice of such late payment for the first

 

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late payment in any twelve (12) month period and after Lessee has not cured such late payment within three (3) days from receipt of such notice. No other notices will be required during the following twelve (12) months for a late charge to be incurred.

Section 14.05 . Impounds .  In the event Lessee fails on three (3) occasions during any consecutive twelve (12) month period to make rental payments within ten (10) days of Lessee’s receipt of written notice of such delinquency, or shall on three (3) occasions issue a check which is declined by Lessee’s bank for insufficient funds, Lessor may require, by delivery of notice thereof to Lessee, that Lessee pay all rent quarterly in advance for the balance of the Lease term, and that all such payments be made by cash, cashier’s check or money order in lieu of Lessee’s check. Acceptance of payment by check shall not be construed as a waiver of any such rights. The exercise of any rights under this paragraph shall not limit or otherwise affect Lessor’s other rights and remedies under this Lease or by law. Such quarterly advance installment shall be payable on each January 1, April 1, July 1, and October 1 thereafter occurring during the Lease term in the amount of rent, real property tax and insurance expenses as estimated by Lessor which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such rent. All moneys paid to Lessor under this paragraph may be intermingled with other money of Lessor, shall not bear interest, and shall not create any trust relationship between Lessor and Lessee or any fiduciary duties on the part of Lessor to Lessee. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of rent.

ARTICLE XV

CONDEMNATION OF PREMISES

Section 15.01 . Total Condemnation .  If the entire Premises, whether by exercise of governmental power or the sale or transfer by Lessor to any condemnor under threat of condemnation or while proceedings for condemnation are pending, at any time during the term, shall be taken by condemnation, this Lease shall then terminate as of the date transfer of possession is required. Upon such condemnation, all rent shall be paid up to the date transfer of possession is required, and Lessee shall have no claim against Lessor for the value of the unexpired term of this Lease.

Section 15.02 . Partial Condemnation .  If any portion of the Premises is taken by condemnation during the term, whether by exercise of governmental power or the sale or transfer by Lessor to a condemnor under threat of condemnation or while proceedings for condemnation are pending, this Lease shall remain in full force and effect except that in the event such taking leaves the Premises unfit for normal and proper conduct of the business of Lessee, then Lessee shall have the right to terminate this Lease effective upon the date transfer of possession is required. Moreover, Lessor and Lessee shall have the right to terminate this Lease effective on the date transfer of possession is required if more than thirty-three percent (33%) of the total square footage of the Premises is taken by condemnation. Lessee and Lessor may elect to exercise their respective rights to terminate this Lease pursuant to this Section by serving written notice to the other within one hundred twenty (120) days of their receipt of notice of condemnation. All rent shall be paid up to the date of termination, and Lessee shall have no claim against Lessor for the leasehold value, or the value of any unexpired term of this Lease. If this Lease shall not be canceled, the rent after such partial taking shall be that percentage of the adjusted base rent specified herein, equal to the percentage which the square footage of the untaken part of the Premises, immediately after taking, bears to the square footage of the entire Premises immediately before the taking. Any sums owing hereunder which are calculated on the basis of Lessee’s pro rata share (as set forth in Section 8.02) shall also be adjusted to reflect the decreased square footage of the Premises due to the condemnation. If Lessee’s continued use of the Premises requires alterations and repair by reason of a partial taking, all such alterations and repair shall be made by Lessee at Lessee’s expense.

Section 15.03 . Award to Lessee .  In the event of any condemnation, whether total or partial, Lessee shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Lessee for moving expenses and loss of its business fixtures, or equipment belonging to Lessee immediately prior to the condemnation. The balance of any condemnation award shall belong to Lessor and Lessee shall have no further right to recover from Lessor or the condemning authority for any additional claims arising out of such taking.

 

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ARTICLE XVI

ENTRY BY LESSOR

Lessee shall permit Lessor and its agents, contractors, and employees to enter the Premises at all reasonable times upon written or oral notice from Lessor to Lessee of Lessor’s entry no less than 24 hours prior to such entry, for any of the following purposes: to inspect the Premises; to maintain the Building; to make such repairs, alterations, and additions to the Premises as Lessor is obligated or may elect to make; to deal with emergencies; to show the Premises and post “To Lease” signs for the purposes of reletting during the last one hundred eighty (180) days of the term; to show the Premises as part of a prospective sale by Lessor or prospective loan to Lessor or to post notices of non-responsibility. Lessee shall be entitled to accompany Lessor’s agents, employees, and contractors entering the Premises pursuant to this paragraph provided that Lessee provides the personnel for such accompaniment at the time Lessor enters onto the Premises; any failure by Lessee to so provide such personnel shall not delay Lessor’s entry onto the Premises. Lessor shall have such right of entry without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the Premises thereby occasioned. Except in the event of fire or other emergencies entailing a threat of imminent harm or occurrence of harm to property or any one or more persons, in connection with any such entries Lessor shall not access any areas of the Premises designated by Lessee as “SECURE AREAS” in written notice from Lessee to Lessor describing precisely such secure area(s) which in no event shall exceed 2,000 square feet of floor space.

ARTICLE XVII

ESTOPPEL CERTIFICATE

Section 17.01 Requirement .  Lessee shall at any time upon not less than ten (10) business days’ prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed, (iii) acknowledging that to Lessee’s actual knowledge after reasonably diligent and thorough inspection of the Premises and examination of whether any Lessor defaults could be claimed by Lessee based on events that have occurred or any failure by Lessor to perform something it is obligated to perform but which events or failures have not yet ripened into defaults only because Lessee has not yet given Lessor the notice or period of time to cure specified for Lessor defaults under this Lease, there are no such events or failures by Lessor, or if there are such events or failures then specifying the same, and (iv) certifying such other information regarding this Lease as Lessor or a prospective purchaser or lender of Lessor may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.

Section 17.02 Failure .  Lessee’s failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor’s performance and no matters with the passage of time or giving of notice, or both, could constitute a default on Lessor’s part, and (iii) that not more than one month’s rent has been paid in advance. Alternatively, such failure may be considered by Lessor as a default by Lessee under this Lease.

ARTICLE XVIII

LESSOR’S LIABILITY, SUBORDINATION AND ATTORNMENT

Section 18.01 . Transfer of Ownership .  The term “Lessor” as used herein shall mean only the owner or owners at the time in question of the fee title of the Premises, In the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor’s obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be

 

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delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor’s successors and assigns, only during their respective periods of ownership.

Section 18.02 . Attornment .  Lessee shall attorn to any third party purchasing or otherwise acquiring the premises at any sale or other proceeding, or pursuant to the exercise of any rights, powers or remedies under any mortgages or deeds of trust or ground leases now or hereafter encumbering all or any part of the premises, as if such third party had been named as Lessor under this Lease. Lessee shall execute a new lease with such new Lessor on the same terms of this Lease if so required by such new Lessor.

Section 18.03 . Subordination .  Lessee agrees that this Lease shall be subject and subordinate to any mortgage, deed of trust, or other instrument of security (each, a “ Mortgage ”) now of record. Lessee agrees that this Lease shall be subject and subordinate to any Mortgage which is recorded after the date of this Lease affecting the Premises, and such subordination is hereby made effective without any further act of Lessee; provided that, no such subordination shall be effective unless Lessor first obtains from a lender a written subordination, nondisturbance and attornment agreement substantially in the form of Exhibit E attached hereto. Lessee shall execute in recordable form and return to Lessor said subordination, nondisturbance and attornment agreement within ten (10) business days after delivery thereof to Lessee, and the failure of Lessee to so execute and return the same shall constitute a default hereunder subject to applicable notice and cure periods set forth in Article XIV. Notwithstanding anything to the contrary set forth above, the lender under any Mortgage may at any time subordinate its Mortgage to this Lease, without any need to obtain Lessee’s consent, by execution of a written document subordinating such Mortgage to this Lease and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery, and/or recording.

Section 18.04 . No Recourse .  The obligations of Lessor under this Lease shall be without recourse to any partner, officer, trustee, beneficiary, shareholder, director, member, unit holder or employee of Lessor or to any of their respective assets. It is expressly agreed that if Lessee obtains a money judgment against Lessor resulting from a default by Lessor under this Lease, that judgment shall be satisfied only out of the rents, issues, profits and other income actually received on account of Lessor’s right, title and interest in the Premises and no other real, personal or mixed property of Lessor shall be subject to levy, attachment or execution, or otherwise used to satisfy any such judgment. Lessee hereby waives any right to satisfy a judgment against Lessor except from the rents, issues, profits and other income actually received on account of Lessor’s right, title and interest in the Premises.

ARTICLE XIX

EXPIRATION ON TERMINATION

Section 19.01 . Surrender of Possession .  Lessee agrees to deliver up and surrender to Lessor possession of the Premises and all improvements thereon, in as good order and condition as when possession was taken by Lessee, excepting only ordinary wear and tear and any alterations made by Lessee with Lessor’s consent to the extent Lessor did not require as a condition to such consent that Lessee remove the same upon expiration of the term of the Lease, Upon termination of this Lease, Lessor may reenter the Premises and remove all persons and property therefrom. If Lessee shall fail to remove any effects which it is entitled to remove from the Premises upon the termination of this Lease, for any cause whatsoever, Lessor, at its option, may remove the same and store or dispose of them, and Lessee agrees to pay to Lessor on demand any and all expenses incurred in such removal and in making the Premises free from all dirt, litter, and debris, including all storage and insurance charges. If the Premises are not surrendered at the end of the Lease term, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, actual damages for lost rents.

Section 19.02 . Holding Over .  If Lessee, with or without Lessor’s consent, remains in possession of the Premises after expiration of the term, then (i) if Lessee remains in such possession without Lessor’s express written consent, then such occupancy shall be a tenancy from month to month at a monthly rental equivalent to 150% of the monthly rental in effect immediately prior to such expiration, and (ii) if Lessee remains in such possession with Lessor’s express written consent, then such occupancy shall be a tenancy from month to month at a monthly rental equivalent to 125% of the monthly rental in effect immediately prior to such expiration.

 

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ARTICLE XX

MISCELLANEOUS PROVISIONS

Section 20.01 . Severability .  The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

Section 20.02 . Interest on Past-due Obligations .  Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the Prime Rate. The “Prime Rate” shall mean the lesser of ten percent (10%) per annum or the prime commercial lending rate then in effect at Bank of America (or if Bank of America is no longer in existence then a comparable national bank selected by Lessor). Payment of such interest shall not excuse or cure any default by Lessee under this Lease.

Section 20.03 . Time .  Time is of the essence in the performance of all obligations under this Lease. All references to days contained in this Lease shall be deemed to mean calendar days, unless otherwise specifically stated.

Section 20.04 . Additional Rent .  Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent.

Section 20.05 . Incorporation of Prior Agreements; Amendments .  This Lease contains all agreements of the parties with respect to any matter mentioned herein, No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither Lessor nor any employees or agents of the Lessor has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the Americans With Disabilities Act, and the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease.

Section 20.06 . Notices .  Any notice required or permitted to be given hereunder shall be in writing and shall be given by personal delivery or email (provided confirmation of receipt is obtained from the recipient), overnight courier, or certified mail, and if given personally, by courier, or by mail, shall be addressed to Lessee or to Lessor at the property address noted below the signature line of the respective parties, as the case may be, and if given by email shall be emailed to the email address noted below the signature line of the respective parties. Either party may by notice to the other specify a different property or email address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. Any notice delivered in accordance with the foregoing (i) by commercial courier or other personal delivery shall be deemed delivered on the date of actual receipt (as evidenced by signed receipt), or upon refusal of receipt, (ii) by email shall be deemed delivered on the date of receipt (as evidenced by written confirmation of receipt by the recipient), or (iii) if delivered by United States mail on the date of receipt evidenced by the return receipt, or upon refusal of receipt. No notice shall be deemed effective under this Lease unless delivered in compliance with the provisions of this Section 20.06.

Section 20.07 . Waivers .  No waiver by either party of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by the other party of the same or any other provisions. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor’s knowledge of such preceding breach at the time of acceptance of such rent.

Section 20.08 . Recording .  Upon request by Lessor to Lessee, Lessee shall execute, acknowledge and deliver to Lessor a “short form” memorandum of this Lease for recording purposes. If any such short form

 

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memorandum of this Lease is recorded in the public records, then upon expiration or sooner termination of the term of this Lease, Lessee shall within ten (10) business days after request by Lessor therefor execute in recordable form and deliver to Lessor a quitclaim deed or such other documentation as Lessor shall reasonably request in order to evidence the termination of this Lease. Except as provided above, neither this Lease nor any memorandum thereof shall be recorded in the public records,

Section 20.09 . Cumulative Remedies .  No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

Section 20.10 . No Jury Trial .  Each party waives any rights it may have to a jury trial respecting any dispute or other matter arising under or relating to this Lease.

Section 20.11 . Binding Effect; Choice of Law; Venue .  Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Article XVIII, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California, Venue for any action or proceeding brought to enforce or defend this agreement, and for any other purpose hereunder, shall be Santa Clara County.

Section 20.12 . No Accord and Satisfaction .  No payment by Lessee, or receipt by Lessor, of an amount which is less than the full amount of rent and all other sums payable by Lessee hereunder at such time shall be deemed to be other than on account of (a) the earliest of such other sums due and payable, and thereafter (b) to the earliest rent due and payable hereunder. No endorsement or statement on any check or any letter accompanying any payment of rent or such other sums shall be deemed an accord and satisfaction, and Lessor may accept any such check or payment without prejudice to Lessor’s right to receive payment of the balance of such rent and/or the other sums, or Lessor’s right to pursue any remedies to which Lessor may be entitled to recover such balance.

Section 20.13 . Attorneys’ Fees .

(a) Lessor Made Party to Litigation .  If Lessor becomes a party to any litigation brought by someone other than Lessee and concerning this Lease, or the Lessee’s use or occupancy of the Premises or the condition thereof, based upon any real or alleged act or omission of Lessee or its authorized agents or representative, Lessee shall be liable to Lessor for reasonable attorneys’ fees and court costs incurred by Lessor in the litigation.

(b) Certain Litigation Between the Parties .  If any action or proceeding in law or in equity or any arbitration proceeding is instituted by Lessor for damages or possession of the Premises or both, for an alleged breach of any obligation of Lessee under this Lease, to recover rent, to terminate the tenancy of Lessee at the Premises, to enforce, protect, or establish any right or remedy of Lessor, or to enforce any other right of Lessor under this Lease or interpret any provision of this Lease, the prevailing party in such action or proceeding shall be entitled to collect from the other party all attorneys’ fees, expert witness fees, and court costs incurred by the prevailing party, or as may be fixed by the court or jury, but this provision shall not apply to any cross-complaint filed by anyone other than Lessor in such action or proceeding.

Section 20.14 . Interpretation .  The captions and headings of the numbered paragraphs of this Lease are inserted solely for the convenience of the parties hereto, and are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. When required by the context of this Lease, the neuter includes the masculine, the feminine, a partnership, a corporation, or a joint venture, and the singular shall include the plural. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Lessor or Lessee, and without regard to which party prepared this Lease.

Section 20.15 . Signs .  Lessee shall not place any sign upon the Premises without Lessor’s prior written consent, which consent shall not be unreasonably withheld. Notwithstanding the preceding sentence, Lessee shall have the right to install in the Common Lobby signage and marketing materials, in locations within the Common Lobby approved or designated by Lessor in its reasonable discretion, and provided all such signage and marketing materials are first submitted to Lessor for review and approval, which approval shall not be unreasonably withheld or

 

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delayed beyond ten (10) business days after Lessee’s request for Lessor’s approval thereof. Any and all signs shall be in accordance with standards generally observed for signage throughout the Business Park. Subject to the foregoing requirements, Lessee shall be entitled at its sole cost to place its name identification signage on the door to the Premises leading to the front Common Lobby of the Building, on the front door to the Building, and on the exterior monument for the Building, provided that, Lessee shall not take more than 50% of the space provided for tenant signage on such monument. The size, coloring, and font of the lettering of each such sign and all other elements of such signage shall be subject to Lessor’s prior written approval. Lessee shall maintain all such signage in good condition with all lettering in place at all times during the term of this Lease, and at Lessee’s sole cost shall remove the same at the end of the Lease and immediately thereafter repair all damage occasioned by such removal.

Section 20.16 . Voluntary Surrender or Merger .  The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.

Section 20.17 . Guarantor .  In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease.

Section 20.18 . Quiet Possession .  Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee’s part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.

Section 20.19 . Rules and Regulations .  Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of the Premises and Common Areas, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the Business Park. The violations of any such rules and regulations shall be deemed a material breach of this Lease. Lessee, however, shall not be bound by any future rules or regulations, unless it shall approve same, which approval shall not be unreasonably withheld.

Section 20.20 . Easements .  Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee.

Section 20.21 . Authority to Sign .  The individuals executing this Lease on behalf of each party represent and warrant to the other party that they are fully authorized and legally capable of executing this Lease on behalf of such party and that such execution is binding upon such party. Each individual executing this Lease on behalf of a corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of the corporation, and that this Lease is binding upon said corporation in accordance with its terms.

Section 20.22 . Delays for Cause .  In any case where either party hereto is required to do any act, delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather, or other causes beyond such party’s reasonable control (other than financial inability) shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or “a reasonable time”, and such time shall be deemed to be extended by the period of such delay.

Section 20.23 . Brokers .  Except for Newmark Knight Frank (“NMF”) representing Lessor and Kidder Mathews representing Lessee (together called “ Brokers ”), whose commissions shall be paid by Lessor in accordance with the provisions of a separate commission agreement between Lessor and NMF, each party represents to the other that it has not had any dealings with any real estate broker, finder, or other person, with respect to this Lease, and each party shall indemnify and hold harmless the other party from all damages, expenses, and liabilities

 

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resulting from any claims that may be asserted against the indemnified party by any broker, finder, or other person other than Brokers with whom the indemnifying party has or purportedly has dealt.

Section 20.24 . Joint and Several Liability .  If Lessee is more than one person or entity, each such person or entity shall be jointly and severally liable for the obligations of Lessee hereunder.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

Executed in Mountain View, California by Lessee and in Gilroy, California, by Lessor as of April 11, 2018.

 

Lessor:

 

 

 

Address:

 

 

 

 

 

VANNI BUSINESS PARK, LLC,

 

 

a Delaware limited liability company

 

 

 

 

 

 

 

By:

 

/s/ Christopher Vanni

 

c/o Chris Vanni

 

 

Christopher Vanni, Manager

 

8080 Santa Teresa Blvd., Ste 210

 

 

 

 

Gilroy, California 95020

 

 

 

 

Email: Chris@VanniProp.com

 

 

 

 

 

Lessee:

 

 

 

 

 

 

 

 

 

VIEWRAY, INC.,

 

 

a Delaware corporation

 

 

 

 

 

 

 

By:

 

/s/ Doug Keare

 

 

Its:

 

Chief Operating Officer

 

ViewRay, Inc.

 

 

 

 

339 North Bernardo Ave., Ste 339-A

 

 

 

 

Mountain View, CA 94043-5226

 

 

 

 

Attn: Doug Keare, Chief Operating Officer

 

 

 

 

Email: dkeare@viewray.com

 

 

 

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EXHIBIT A

Site Plan

 

 

 

 

 

 


EXHIBIT B

Premises & Common Portions of Interior of Building (Note: Premises are part of the 1st Floor; NO PORTION OF THE PREMISES ARE ON THE 2ND FLOOR)

 

 

 

 

 

 


EXHIBIT B

Premises & Common Portions of Interior of Building (Note: Premises are part or the 1st Floor; NO PORTION OF THE PREMISES ARE ON THE 2ND FLOOR)

 

 

 

 

 


 

EXHIBIT C

TERM COMMENCEMENT DATE AGREEMENT

This Agreement is made as of                                 , 20         by and between Vanni Business Park, LLC, a Delaware limited liability company (“ Lessor ”), and ViewRay, Inc., a Delaware corporation (“ Lessee ”).

WHEREAS, Lessor and Lessee have entered into a Lease (the “ Lease ”) dated                                                     , 2018 for premises situated on the ground floor of the building located at 339 North Bernardo Avenue, Mountain View, California 94043 and more particularly described in the Lease;

WHEREAS, the term Commencement Date as referred to in Section 3.01 of the Lease, has occurred, and pursuant to Section 3.05 of the Lease, Lessor desires to confirm various dates relating to the Lease;

NOW THEREFORE, Lessor and Lessee agree and acknowledge that the information set forth below is true and accurate.

Commencement Date:                                                    

Dates in Section 4.01 Regarding Payment of monthly base rent:

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

$                                    from                                    to                                   

Expiration Date of initial 7 year term:

Extended Term Commencement Date (if option to extend for five years is exercised):

The execution of this Agreement shall not constitute an exercise by Lessee of any option to extend the term.

EXECUTED as of the date first set forth above.

 

Lessor:

 

 

 

 

 

VANNI BUSINESS PARK, LLC,

a Delaware limited liability company

 

 

 

By:

 

 

Chris Vanni

 

 

 

Lessee:

 

 

 

 

 

VIEWRAY, INC.,

a Delaware corporation

 

 

 

By:

 

 

 

 

 

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EXHIBIT D - LESSOR"S WORK

 

 

 

 


EXHIBIT D - LESSOR"S WORK

 

 

 

 


 

EXHIBIT E

RECORDING REQUESTED
BY AND WHEN

RECORDED RETURN TO:

 

 

                                           

                                           

                                           

                                           

SUBORDINATION,

NONDISTURBANCE

AND ATTORNMENT AGREEMENT

NOTICE:

THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.

DEFINED TERMS

 

Execution Date:

Beneficiary & Address:

 

 

with a copy to:

 

Tenant & Address:

 

Landlord & Address:

 

Loan: A first mortgage loan in the original principal amount of $

from Beneficiary to Landlord.

Note: A Promissory Note executed by Landlord in favor of Beneficiary in the amount of the Loan dated as of

 

Deed of Trust: A Deed of Trust, Security Agreement and Fixture Filing dated as of executed by Landlord, to                                           as Trustee, for the benefit of Beneficiary securing repayment of the Note to be recorded in the records of the County in which the Property is located.

 

Lease and Lease Date: The lease entered into by Landlord and Tenant dated as of                                                   covering the Premises.

[Add amendments]

Property: [Property Name]
[Street Address 1]
[City, State, Zip]
The Property is more particularly described on Exhibit A .

 

 

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THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (the “Agreement”) is made by and among Tenant, Landlord, and Beneficiary and affects the Property described in Exhibit A . Certain terms used in this Agreement are defined in the Defined Terms. This Agreement is entered into as of the Execution Date with reference to the following facts:

A. Landlord and Tenant have entered into the Lease covering certain space in the improvements located in and upon the Property (the “Premises”).

B. Beneficiary has made or is making the Loan to Landlord evidenced by the Note. The Note is secured, among other documents, by the Deed of Trust.

C. Landlord, Tenant and Beneficiary all wish to subordinate the Lease to the lien of the Deed of Trust.

D. Tenant has requested that Beneficiary agree not to disturb Tenant’s rights in the Premises pursuant to the Lease in the event Beneficiary forecloses the Deed of Trust, or acquires the Property pursuant to the trustee’s power of sale contained in the Deed of Trust or receives a transfer of the Property by a conveyance in lieu of foreclosure of the Property (collectively, a “Foreclosure Sale”) but only if Tenant is not then in default under the Lease and Tenant attorns to Beneficiary or a third party purchaser at the Foreclosure Sale (a “Foreclosure Purchaser”).

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows:

1. Subordination . The Lease and the leasehold estate created by the Lease and all of Tenant’s rights under the Lease are and shall remain subordinate to the Deed of Trust and the lien of the Deed of Trust, to all rights of Beneficiary under the Deed of Trust and to all renewals, amendments, modifications and extensions of the Deed of Trust.

2. Acknowledgments by Tenant . Tenant agrees that: (a) Tenant has notice that the Lease and the rent and all other sums due under the Lease have been or are to be assigned to Beneficiary as security for the Loan. In the event that Beneficiary notifies Tenant of a default under the Deed of Trust and requests Tenant to pay its rent and all other sums due under the Lease to Beneficiary, Tenant shall pay such sums directly to Beneficiary or as Beneficiary may otherwise request; (b) Tenant shall send a copy of any notice or statement under the Lease to Beneficiary at the same time Tenant sends such notice or statement to Landlord; (c) this Agreement satisfies any condition or requirement in the Lease relating to the granting of a nondisturbance agreement.

3. Foreclosure and Sale . In the event of a Foreclosure Sale,

(a) So long as Tenant complies with this Agreement and is not in default under any of the provisions of the Lease, the Lease shall continue in full force and effect as a direct lease between Beneficiary and Tenant, and Beneficiary will not disturb the possession of Tenant, subject to this Agreement. To the extent that the Lease is extinguished as a result of a Foreclosure Sale, a new lease shall automatically go into effect upon the same provisions as contained in the Lease between Landlord and Tenant, except as set forth in this Agreement, for the unexpired term of the Lease. Tenant agrees to attorn to and accept Beneficiary as landlord under the Lease and to be bound by and perform all of the obligations imposed by the Lease, or, as the case may be, under the new lease, in the event that the Lease is extinguished by a Foreclosure Sale. Upon Beneficiary’s acquisition of title to the Property, Beneficiary will perform all of the obligations imposed on the Landlord by the Lease except as set forth in this Agreement; provided, however, that Beneficiary shall not be: (i) liable for any act or omission of a prior landlord (including Landlord); or (ii) subject to any offsets or defenses that Tenant might have against any prior landlord (including Landlord); or (iii) bound by any rent or additional rent which Tenant might have paid in advance to any prior landlord (including Landlord) for a period in excess of one month or by any security deposit, cleaning deposit or other sum that Tenant may have paid in advance to any prior landlord (including Landlord); or (iv) bound by any amendment, modification, assignment or termination of the Lease made without the written consent of Beneficiary; (v) obligated or liable with respect to any representations, warranties or indemnities contained in the Lease; or (vi)

 

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liable to Tenant or any other party for any conflict between the provisions of the Lease and the provisions of any other lease affecting the Property which is not entered into by Beneficiary.

(b) Upon the written request of Beneficiary after a Foreclosure Sale, the parties shall execute a lease of the Premises upon the same provisions as contained in the Lease between Landlord and Tenant, except as set forth in this Agreement, for the unexpired term of the Lease.

(c) Notwithstanding any provisions of the Lease to the contrary, from and after the date that Beneficiary acquires title to the Property as a result of a Foreclosure Sale, (i) Beneficiary will not be obligated to expend any monies to restore casualty damage in excess of available insurance proceeds; (ii) tenant shall not have the right to make repairs and deduct the cost of such repairs from the rent without a judicial determination that Beneficiary is in default of its obligations under the Lease; (iii) in no event will Beneficiary be obligated to indemnify Tenant, except where Beneficiary is in breach of its obligations under the Lease or where Beneficiary has been actively negligent in the performance of its obligations as landlord; and (iv) other than determination of fair market value, no disputes under the Lease shall be subject to arbitration unless Beneficiary and Tenant agree to submit a particular dispute to arbitration.

4. Subordination and Release of Purchase Options . Tenant represents that it has no right or option of any nature to purchase the Property or any portion of the Property or any interest in the Borrower. To the extent Tenant has or acquires any such right or option, these rights or options are acknowledged to be subject and subordinate to the Mortgage and are waived and released as to Beneficiary and any Foreclosure Purchaser.

5. Acknowledgment by Landlord . In the event of a default under the Deed of Trust, at the election of Beneficiary, Tenant shall and is directed to pay all rent and all other sums due under the Lease to Beneficiary.

6. Construction of Improvements . Beneficiary shall not have any obligation or incur any liability with respect to the completion of the tenant improvements located in the Premises at the commencement of the term of the Lease.

7. Notice . All notices under this Agreement shall be deemed to have been properly given if delivered by overnight courier service or mailed by United States certified mail, with return receipt requested, postage prepaid to the party receiving the notice at its address set forth in the Defined Terms (or at such other address as shall be given in writing by such party to the other parties) and shall be deemed complete upon receipt or refusal of delivery.

8. Miscellaneous . Beneficiary shall not be subject to any provision of the Lease that is inconsistent with this Agreement. Nothing contained in this Agreement shall be construed to derogate from or in any way impair or affect the lien or the provisions of the Deed of Trust. This Agreement shall be governed by and construed in accordance with the laws of the State of in which the Property is located.

9. Liability and Successors and Assigns . In the event that Beneficiary acquires title to the Premises or the Property, Beneficiary shall have no obligation nor incur any liability in an amount in excess of $10,000,000 and Tenant’s recourse against Beneficiary shall in no extent exceed the amount of $10,000,000. This Agreement shall run with the land and shall inure to the benefit of the parties and, their respective successors and permitted assigns including a Foreclosure Purchaser. If a Foreclosure Purchaser acquires the Property or if Beneficiary assigns or transfers its interest in the Note and Deed of Trust or the Property, all obligations and liabilities of Beneficiary under this Agreement shall terminate and be the responsibility of the Foreclosure Purchaser or other party to whom Beneficiary’s interest is assigned or transferred. The interest of Tenant under this Agreement may not be assigned or transferred except in connection with an assignment of its interest in the Lease which has been consented to by Beneficiary.

IN WITNESS WHEREOF, the parties have executed this Subordination, Nondisturbance and Attornment Agreement as of the Execution Date.

 

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IT IS RECOMMENDED THAT THE PARTIES CONSULT WITH THEIR ATTORNEYS PRIOR TO THE EXECUTION OF THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT.

 

BENEFICIARY:

 

 

 

 

 

a                                                                   

 

 

 

 

By:                                                                

 

 

 

 

Its:                                                                 

 

 

 

 

 

 

 

TENANT:

 

 

 

 

 

a                                                                   

 

 

 

 

 

 

 

 

 

By:                                                                

 

 

 

 

Its:                                                                 

 

 

 

 

 

 

 

 

 

By:                                                                

 

 

 

 

Its:                                                                 

 

 

 

 

 

 

 

LANDLORD:

 

 

 

 

 

a                                                                   

 

 

 

 

 

 

 

 

 

By:                                                                

 

 

 

 

Its:                                                                 

 

 

 

 

 

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Exhibit 10.2

SECOND AMENDMENT TO OFFICE LEASE

This SECOND AMENDMENT TO OFFICE LEASE (this “Amendment”) is made and entered into as of June I, 2018 by and between BXP RESEARCH PARK LP, a Delaware limited partnership (“Landlord”), and VIEWRAY, INC., a Delaware corporation (“Tenant”).

RECITALS

A . Landlord and Tenant entered into that certain Office Lease dated June 19, 2014, as amended by that certain First Amendment to Lease Agreement dated September 2, 2014 (collectively, the “Original Lease”), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately 25,518 rentable square feet of space (the “Premises”) and located in that certain office building known as 815 E. Middlefield Road, Mountain View, California 94043 (the “Building”).

B. Landlord and Tenant desire to: (i) extend the term of the Original Lease for the Premises for a period of Sixty-Eight (68) months; and (ii) make certain other modifications to the Original Lease, and in connection therewith Landlord and Tenant desire to amend the Original Lease on the terms and conditions contained herein.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Defined Terms . All capitalized terms not otherwise defined herein shall have the same meaning as is given such terms in the Original Lease. From and after the date hereof, all references in the Original Lease and herein to the “Lease” shall mean and refer to the Original Lease, as amended hereby.

2. Extended Term . Landlord and Tenant acknowledge and agree that the Lease Term for the Premises is scheduled to expire on November 30, 2019 (the “Scheduled Expiration Date”) pursuant to the terms of the Original Lease. Notwithstanding anything to the contrary in the Lease, the Term of Tenant’s lease of the Premises shall expire on July 31, 2025 (the “Extended Term Expiration Date”), unless sooner terminated by the terms of the Lease. The period of time commencing on December 1, 2019 (the “Extended Term Commencement Date”) and terminating on the Extended Term Expiration Date shall be referred to as the “Extended Term.” Effective upon the Extended Term Commencement Date, all references in the Lease to the “Lease Term” shall mean and refer to the Extended Term.

3. Base Rent . Commencing on the Extended Term Commencement Date, and continuing throughout the Extended Term, Tenant shall pay Base Rent for the Premises in accordance with the following schedule:

 

Period During Extended Term

Annual

Base Rent

Monthly Installment

of Base Rent

 

 

 

December 1, 2019 - November 30, 2020

$1,408,593.60

$117,382.80

December 1, 2020 - November 30, 2021

$1,450,851.41

$120,904.28

December 1, 2021 - November 30, 2022

$1,494,376.95

$124,531.41

December 1, 2022 - November 30, 2023

$1,539,208.26

$128,267.35

December 1, 2023 - November 30, 2024

$1,585,384.51

$132,115.38

December 1, 2024 - July 31, 2025

$1,632,946.04

$136,078.84

4. Letter of Credit . Landlord currently holds a letter of credit (the “L-C”) in the amount of $450,137.52. Tenant’s obligation to maintain the L-C shall continue in accordance with the provisions of Article 21 of the Original Lease throughout the Extended Term. In the event Tenant elects to install any additional “Test Cells”

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-1

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

(as defined in Section 29.39. l of the Original Lease) in the Premises in accordance with Section 29.31 of the Original Lease, as amended by Section 5 below, prior to the commencement of construction of the additional Test Cell, the L-C Amount shall be increased by the amount equal to the estimated cost to remove  such additional Test Cells and to restore the Premises to its condition prior to the installation of such additional Test Cells. Tenant shall deliver to Landlord a new L-C or a certificate of amendment to the existing L-C, conforming in all respects to the requirements of Article 21 of  the Original Lease in such increased L-C Amount. Any increase of the L-C Amount pursuant to this Section 4 shall not be subject to reduction.

5. Test Cells . Tenant has requested the right to install additional “Test Cells” (as defined in Section 29.39.1 of the Original Lease) in the Premises. Landlord hereby agrees that Tenant shall have the right to install such additional Test Cells in the Premises, provided Tenant complies with the terms and conditions of Section 29.39 of the Original Lease, including, but not limited to, provisions relating to Landlord approval and the removal of the test cells and the restoration of the affected portion of the Premises after such removal.

6. Tenant Improvement Allowance . Landlord shall provide Tenant with a tenant improvement allowance in an amount not to exceed $255,180 (i.e., $10 per rentable square foot of the Premises) in accordance with the provisions of the tenant work letter attached hereto as Exhibit A (the “Tenant Work Letter”).

7. Condition of Premises . Tenant hereby acknowledges that Tenant is currently in possession of the Premises and that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project, or with respect to the suitability of any of the foregoing for the conduct  of Tenant’s  business. Except as expressly set forth in Section 6, above, and in the Tenant Work Letter, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises, and Tenant shall continue to accept the Premises in its presently existing, “as-is” condition. Tenant hereby acknowledges and agrees that any improvements, alterations, additions or changes to the Premises shall be completed pursuant to the terms and conditions of Article 8 of the Lease. The parties acknowledge and agree that the restoration obligations set forth in Section 8.5 of the Lease are supplemented by and subject to those certain letters regarding alterations at the Premises from Landlord to Tenant dated September 15, 2014, June 29, 2016, and October 26, 2017 attached hereto as Exhibit B (the “Restoration Letters”). Except as set forth in the Restoration Letters and except for the Test Cells and  the Lines which are subject to the terms and conditions set forth in the Lease, Tenant shall have no obligation to remove any other improvements or Alterations in the Premises which exist as of the date of this Amendment.

8. Brokers . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment and that they know of no real estate broker or agent, other than Cushman & Wakefield and Kidder Mathews, who are entitled to a commission in connection with this Amendment. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent occurring by, through, or under the indemnifying party. The terms of this Section 8 shall survive the expiration or earlier termination of the Original Lease, as amended by this Amendment.

9. No Further Modification . Except as specifically set forth in this Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect. In the event of any conflict between the terms and conditions of the Lease, and the terms and conditions of this Amendment, the terms and conditions of this Amendment shall prevail.

10. No Default . Tenant represents, warrants and covenants to Landlord that, to Tenant’s knowledge as of the date of this Amendment, Landlord is not in default of any of its obligations under the Original Lease and no event has occurred  which, with the passage of time or the giving of notice, or both, would constitute a default by Landlord. As of the date hereof, Tenant has no offsets, setoffs, rebates, concessions, claims or defenses against or with respect to the payment of Base Rent, Additional Rent or any other sums payable under the Lease. Landlord represents, warrants and covenants to Tenant that, to Landlord’s knowledge as of the date of this Amendment,

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-2

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

Tenant is not in default of any of its obligations under the Original Lease and no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default by Tenant.

11. Statutory Disclosure and Related Terms . For purposes of Section l 938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that to Landlord’s actual knowledge, that the Premises have not undergone inspection by a Certified Access Specialist (CASp). As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”  In furtherance of the foregoing,  Landlord  and  Tenant  hereby  agree as follows: (a) any CASp inspection requested by Tenant shall be conducted, at Tenant’s sole cost and expense, by a CASp designated by Landlord, subject to Landlord’s reasonable rules and requirements; (b) Tenant, at its sole cost and expense, shall be responsible for making any improvements or repairs within the Premises to correct violations of construction-related accessibility  standards  which are disclosed  by such CASp inspection  requested  by Tenant; and (c) if such CASp inspection discloses that anything done by or for Tenant in its use or occupancy of the Premises shall require any improvements or repairs to the Building or Project (outside the Premises) to correct violations of construction-related accessibility standards, then Tenant shall reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of performing such improvements or repairs. The terms of this Section 11 do not amend or reduce the obligations of Landlord and Tenant set forth in the Lease regarding compliance with Applicable Laws and repair and maintenance of the Premises and the Project, but apply solely to the obligations of Landlord and Tenant in connection with Tenant’s election to conduct a CASp inspection hereunder.

12. Counterparts . This Amendment may be executed in counterparts with the same effect as if both parties hereto had executed the same document. All counterparts shall be construed together and shall constitute a single agreement.

13. Authority . Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Amendment and that each person signing on behalf  of Tenant is authorized to do so.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-3

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written.

“Landlord”:

BXP RESEARCH PARK LP,

a Delaware limited partnership

BY: BXP CALIFORNIA GP LLC,

a Delaware limited liability company,

its general painter

 

BY:

BOSTON PROPERTIES LIMITED PARTNERSHIP,

 

a Delaware limited partnership,

 

its sole member

 

 

 

BY:

BOSTON PROPERTIES, INC.,

 

 

a Delaware corporation,

 

 

its general partner

 

 

 

 

 

BY:

/s/ Bob Pester

 

 

 

 

Name: Bob Pester

 

 

 

Title: Executive Vice President, San Francisco Region

 

BY:

BOSTON PROPERTIES LIMITED PARTNERSHIP,

 

a Delaware limited partnership,

 

its Series A Limited Partner

 

 

 

BY:

BOSTON PROPERTIES, INC.,

 

 

a Delaware corporation,

 

 

its general partner

 

 

 

 

 

BY:

/s/ Bob Pester

 

 

 

 

Name: Bob Pester

 

 

 

Title: Executive Vice President, San Francisco Region

 

BY:

BOSTON PROPERTIES LIMITED PARTNERSHIP,

 

a Maryland corporation,

 

its Series B Limited Partner

 

 

 

BY:

/s/ Bob Pester

 

 

 

Name: Bob Pester

 

 

Title: Executive Vice President, San Francisco Region

 

[signature pages continue on following page]

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-4

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

Tenant :

VIEWRAY, INC.,

a Delaware corporation

 

BY:

/s/ Doug Keare

Name:

Doug Keare

Title:

C.O.O

 

BY:

/s/ Chris A. Raanes

Name:

Chris A. Raanes

Title:

President & CEO

 

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-5

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

EXHIBIT A

TENANT WORK LETTER

This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the “Tenant Improvements” (defined below) in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Tenant Improvements. All references in this Tenant Work Letter to Articles or Sections of “the Lease” shall mean the relevant portions of Articles 1 through 29 of the Original Lease, all references in this Tenant Work Letter to “the Amendment” shall mean the amendment to which this Tenant Work Letter is attached, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portions of Sections 1 through 5 of this Tenant Work Letter.

SECTION 1

CONDITION OF THE PREMISES AND BASE BUILDING

Tenant is currently in possession of the Premises.  Upon the full execution  and delivery of the Amendment, except as expressly provided in the Amendment or in this Tenant Work Letter, Tenant shall continue to accept the Premises and Base Building from Landlord in their presently existing, “as-is” condition.

SECTION 2

TENANT IMPROVEMENTS

2.1 Tenant Improvement Allowance . Tenant shall be entitled to a one-time tenant improvement allowance (the “Tenant Improvement Allowance”) in the amount set forth  in Item 12 of the Summary of this Lease for the costs relating to the initial design and construction of Tenant’s improvements, which are permanently affixed to the Premises (the “Tenant Improvements”). In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. In the event that the Tenant Improvement Allowance is not fully utilized by Tenant by the one (1) year anniversary of the date upon which the Amendment is executed and delivered by both Landlord and Tenant, then such unused amounts shall revert to Landlord, and Tenant shall have no further rights with respect thereto. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease; provided, however, Landlord may, by written notice to Tenant  prior to the end of the Extended Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to remove any Tenant Improvements and to repair any damage to  the Premises and Building caused by such removal and return the affected po11ion of the Premises to their condition existing prior to the installment of such Tenant Improvements. Notwithstanding the foregoing, Section 8.6 of the Original Lease shall apply with respect to the Tenant Improvements, except that, by execution of this Amendment, Tenant shall be deemed to have sent a written request complying with the provisions of Section 8.6 of the Original Lease in connection with Tenant’s submission to Landlord of the Final Working Drawings for Landlord’s approval.

2.2 Disbursement of the Tenant Improvement Allowance.

2.2.1 Tenant Improvement Allowance Items . Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively the “Tenant Improvement Allowance Items”):

2.2.1.1 Payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, which fees shall, notwithstanding anything to the contrary contained in this Tenant Work Letter, not exceed an aggregate amount equal to $3.00 per rentable square foot of the Premises, and payment of the  fees incurred by, and the cost of documents and materials

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-1

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

supplied by, Landlord and Landlord s consultants in connection with the preparation and review of the Construction  Drawings, as that term is defined in Section 3.1 of this Tenant Work Letter;

2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements;

2.2.1.3 The cost of construction of the Tenant Improvements, including, without limitation, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, and contractors’ fees and general conditions;

2.2.1.4 The cost of any changes in the Base Building when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.2.1.5 The cost of any changes to the Construction Drawings or Tenant Improvements required by all applicable building codes (the “Code”);

2.2.1.6 The cost of connection of the Premises to the Building’s energy management systems;

2.2.1.7 The cost of the “Coordination Fee,” as that term is defined in Section 4.2.2 of this Tenant Work Letter;

2.2.1.8 Sales and use taxes and Title 24 fees; and

2.2.1.9 All other costs to be expended by Landlord in connection with the construction of the Tenant Improvements.

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

2.2.2.1 Monthly Disbursements . On or before the day of each calendar month, as determined by Landlord, during the construction of Tenant Improvements (or such other date as Landlord may designate), Tenant shall deliver to Landlord: (i) a request for payment of the “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter approved by Tenant, in a form to be provided by Landlord, showing the schedule, by trade, of percentage of completion of Tenant Improvements, detailing the portion of the work completed and the portion not completed; (ii) invoices from all of “Tenant’s Agents,” as that tenn is defined in Section 4.1.2 of this Tenant Work Letter, for labor rendered and materials delivered to the Premises for which the request for payment of the Tenant Improvement Allowance relates; (iii) executed mechanic’s lien releases from all of Tenant’s Agents which shall comply with the appropriate provisions, as reasonably detem1ined by Landlord, of  California  Civil  Code  Section 8132, 8134, 8136 and 8138, as applicable; and (iv) all other information reasonably requested by Landlord. Tenant’s request for payment shall be deemed Tenant’s acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant’s payment request. Thereafter, Landlord shall .deliver a check to Tenant in payment of the lesser of: (A) the amounts so requested by Tenant, 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 Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the “Approved Working Drawings,” as that term is defined in Section 3.4 below, or due to any substandard work, or for any other reason. Landlord’s payment of such amounts shall not be deemed Landlord’s approval or acceptance of the work furnished or materials supplied as set forth in Tenant’s payment request.

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-2

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

2.2.2.2 Final Retention . Subject to the provisions of this Tenant Work Letter, a check for the Final Retention shall be delivered by Landlord to Tenant following the completion of construction of the Premises, provided that (i) Tenant delivers to Landlord properly executed mechanics lien releases in compliance with both  California  Civil  Code Section 8132 and either Section 8136 or Section 8138, (ii) La ndlord has determ ined 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 and (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the  construction  of Tenant Improvements in the Premises has been substantially completed.

2.2.2.3 Other Terms . Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items.  All Tenant Improvement Allowance Items for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of this Lease. Notwithstanding anything to the contrary in the Lease, Landlord shall not be obligated to disburse any portion of the Tenant Improvement Allowance during the continuance of an uncured default under the Lease, and Landlord’s obligation to disburse shall only resume when and if such default is cured.

2.3 Standard Tenant Improvement Package . Landlord has established specifications (the “Specifications”) for the Building standard components to be used in the construction of the Tenant Improvements in the Premises (collectively, the “Standard Improvement Package”), which Specifications shall be supplied to Tenant by Landlord prior to execution of this Amendment. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications, provided that the Tenant Improvements shall comply with certain Specifications as designated by Landlord. Landlord may make changes to the Specifications for the Standard Improvement Package from time to time; provided, however, that Tenant shall not be required to make any changes to any Approved Working Drawings as a result of any such changes.

SECTION 3

CONSTRUCTION ORAWINGS

3.1 Selection of Architect/Construction Drawings . Tenant shall retain the architect/space planner reasonably approved by Landlord (the “Architect”) to prepare the “Construction Drawings,” as that tenn is defined in this Section 3.1 . Tenant shall retain the engineering consultants designated by Landlord (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HYAC, life safety, and sprinkler work in the Premises, which work is not part of the Base Building. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” All Construction Drawings shall comply with the drawing format and specifications reasonably determined by Landlord, and shall be subject to Landlord’s reasonable approval. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3 , shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings  are  reviewed  by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenant’s waiver and indemnity set forth in this Lease shall specifically  apply to the Construction Drawings.

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-3

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

3.2 Final Space Plan . Tenant shall supply Landlord with four (4) copies signed by Tenant of its final space plan for the Premises before any architectural working drawings or engineering drawings have been commenced. The final space plan (the 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. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord shall advise Tenant within five (5) business days after Landlord s receipt of the Final Space Plan for the Premises if the same is unsatisfactory or incomplete in any respect as Landlord shall reasonably determine. If Tenant is so advised, Tenant shall promptly cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require.

3.3 Final Working Drawings . After the Final Space Plan has been approved by Landlord, Tenant shall supply the Engineers with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Premises, to enable the Engineers and the Architect to complete the “Final Working Drawings” (as that term is defined below) in the manner as set forth below. Upon the approval of the Final Space Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing  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 Working Drawings”) and shall submit the same to Landlord for Landlord’s approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall advise Tenant within five (5) business days after Landlord’s receipt of the Final Working Drawings for the Premises if the same is unsatisfactory or incomplete in any respect as reasonably detem1ined by Landlord.  If Tenant is so advised, Tenant shall immediately revise the Final Working Drawings in accordance  with such review and any disapproval of Landlord in connection therewith.

3.4 Approved Working Drawings . The Final Working Drawings shall be reasonably approved by Landlord (the “Approved Working Drawings”) prior to the commencement of construction of the Premises by Tenant. After approval by Landlord of the Final Working Drawings, Tenant may submit the same to the appropriate municipal authorities for all applicable building permits (the “Permits”). Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided,  however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working  Drawings  may be made without the prior written consent of Landlord, which consent may not be unreasonably withheld.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Tenant’s Selection of Contractors .

4.1.1 The Contractor . A general contractor shall be retained by Tenant to construct the Tenant Improvements. Such general contractor (“Contractor”) shall be selected by Tenant and reasonably approved by Landlord, and Tenant shall deliver to Landlord notice of its selection of the Contractor upon such selection.

4.1.2 Tenant’s Agents . All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as “Tenant’s Agents”) shall be reasonably approved by Landlord.

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-4

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

4.2 Construction of Tenant Improvements by Tenant s Agents .

4.2.1 Construction Contract; Cost Budget .

4.2.1.1 Tenant shall deliver to Landlord a copy of the construction contract and general conditions with Contractor (the “Contract”) promptly after execution thereof.

4.2.1.2 Prior to the commencement of Tenant Improvements, and after Tenant has accepted all bids for Tenant Improvements, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred in connection with the design and construction of Tenant Improvements, which costs form a basis for the amount of the construction contract with Tenant’s contractor (the “Final Costs”). Prior to the commencement of construction of Tenant Improvements, Tenant shall identify the amount (the “Over-Allowance Amount”) equal to the difference between the amount of the Final Costs and the amount of the Tenant Improvement Allowance. In the event that the Final Costs are greater than the amount of the Tenant Improvement Allowance (the “Over-Allowance Amount”), then Tenant shall pay a percentage of each amount requested by the Contractor or otherwise to be disbursed under this Tenant Work Letter, which percentage shall be equal to the Over-Allowance Amount divided by the amount of the Final Costs, and such payments by Tenant (the “Over-Allowance Payments”) shall be a condition to Landlord’s obligation to pay any amounts from the Tenant Improvement Allowance. In the event that, after  the  Final Costs have been delivered by Tenant to Landlord, the costs relating to Tenant Improvements shall change, any additional costs for such design and construction in excess of the Final Costs shall be added to the Over-Allowance Amount and the Final Costs, and the Over-Allowance Payments shall be recalculated in accordance with the terms of the immediately preceding sentence. In connection with any payment of the Over-Allowance Amount made by Tenant pursuant to this Section 4 , Tenant shall provide Landlord with the documents described in Sections 2.2.2.1 (i). (ii). (iii) and  iv) of this Tenant Work Letter, below, for Landlord’s approval, prior to Tenant paying such costs.

4.2.2 Tenant’s Agents .

4.2.2.1 Landlord’s General Conditions for Tenant’s Agents and Tenant Improvement Work . Tenant’s and Tenant’s Agent’s construction of the Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall  be constructed in strict accordance with the Approved Working Drawings; (ii) Landlord’s rules and regulations for the construction of improvements in the Building, (iii) Tenant’s Agents shall submit schedules of all work relating to the Tenant’s Improvements to Contractor and Contractor shall, within five (5) business days of receipt thereof, inform Tenant’s Agents of any changes which are necessary thereto, and Tenant’s Agents shall adhere to such corrected schedule; and (iv) Tenant shall abide by all reasonable rules made by Landlord’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 Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements. Tenant shall pay a logistical coordination fee (the “Coordination Fee”) to Landlord in an amount equal to three percent (3%) of the hard costs of construction for the Tenant Improvements, not to exceed $25,518.00 (or $1.00 per rentable square foot of the Premises), which Coordination Fee shall be for services relating to the coordination of the construction of the Tenant Improvements. In the event of a conflict between the Approved Working Drawings and Landlord’s construction rules and regulations, Landlord, in its reasonable discretion, shall determine which shall prevail.

4.2.2.2 Indemnity . Tenant’s indemnity of Landlord as set forth in 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 Tenant or Tenant’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant’s non-payment of any amount arising out of the Tenant Improvements and/or Tenant’s disapproval of all or any po11ion of any request for payment. Such indemnity by Tenant, as set forth in this Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord’s performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises.

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-5

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

4.2.2.3 Requirements of Tenant s Agents .  Each  of  Tenant s Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant 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 Tenant 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 completion of the work performed by such contractor or subcontractors. 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  Tenant 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 Tenant Improvements shall be contained in the Contract or sub contract and  shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.

4.2.3 Governmental Compliance . The Tenant 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.

4.2.4 Inspection by Landlord . Tenant shall provide Landlord with reasonable prior notice of any inspection to be performed by a governmental entity in connection with the construction of the Tenant Improvements in order to allow Landlord to be present during such inspection. Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that Landlord’s failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant Improvements constitute Landlord’s reasonable approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord (subject to the Tenant Improvement Allowance), provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant’s use of such other tenant’s leased premises, Landlord may, take such action as Landlord deems necessary, at Tenant’s expense and without incurring any liability on Landlord’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing  the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord’s satisfaction.

4.2.5 Meetings . Commencing upon the execution of the Amendment, Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements, which meetings shall be held at a location designated by Landlord, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend,  all  such meetings, and, upon Landlord’s request, certain  of Tenant’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 Landlord. One such meeting each month shall include the review of Contractor’s current request for payment.

4.3 Notice of Completion; Copy of Record Set of Plans . Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant’s agent for such purpose, at Tenant’s sole cost and expense. At the conclusion of construction, (i)

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-6

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the record-set of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord four (4) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.

SECTION 5

MISCELLANEOUS

5.1 Tenant’s Representative . Tenant has designated Doug Keare as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall  have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

5.2 Landlord’s Representative . Landlord has designated Peter Back as its sole representatives with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

5.3 Tenant’s Lease Default . Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease or this Tenant Work Letter has occurred at any time on or before the completion of the Tenant Improvements,  then  (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall  be forgiven,  in each case, until such time as such default is cured pursuant to the terms of this Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such inaction by Landlord).

 

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit A-7

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

EXHIBIT B

RESTORATION LETTERS

 

 

 

 

 

Boston, MA

New York, NY

San Francisco, CA

Washington, D.C.

September 14, 2015

Ms. Amy Hanson

ViewRay Technologies, Inc.

2 Thenno Fisher Way

Oakwood Village, OH 44146

RE: Alterations - 815 E. Middlefield Road

Dear Ms. Hanson:

General Tenant Alteration Requirements:

    Provide a copy of the contract between tenant and general contractor for Landlord file.

    Provide a copy of all permits required for the work prior to the start of construction. Upon completion, provide a copy of the completed permits as part of the close out package with all as-builds.

    Provide your operating plan, including required approvals by all jurisdictions having authority.

    Provide a schedule and logistical plan For Landlord to approve. Include any activities that might be disruptive to other tenants/buildings/parking spaces on this site and staging or temporary storage areas that you are contemplating.

ViewRay Specified Requirements:

     FULL RESTORATION AND RESTORAL OF THE BUILDING AT THE END OF THE LEASE WOULD BE REQUIRED FOR THESE ALTERATIONS AND SCOPES.

    Per section 29.39.2 of your lease, “Tenant shall be responsible for assuring that the installation, maintenance, operation and removal of the Test Cells shall in no way damage any portion of the Building or Project. To the maximum extent permitted by Applicable Law, the Test Cells shall be at the sole risk of Tenant”.

    Per section 21.8 of your lease, “in the even Tenant installs a Test Cell... prior to the commencement of construction of the Test Cell, the [Letter of Credit] amount shall be increased by the Premises to its condition prior to the installation of the Test Cell”.

    Provide additional information on construction and industry standards on regulations, operations, and quality control for potential exposure both outside and inside the premises for any special equipment.

WWW.BOSTONPROPERTIES.COM - BOSTON PROPERTIES, INC. (NYSE, BXP)

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-1

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

 

Page 2

 

    Provide required regulations and plan to prevent radiation exposure while equipment is in use. This includes, but is not limited to, roof access. Any mechanical equipment above the existing “no fly zone” may be required to be relocated in addition to restricting roof access with signs and locks.

    The fence is required to be an architectural roof screen enclosure for equipment for aesthetic reasons and installation to include a controllable and lockable gate. A chain-link fence is not preferred. There is no enclosure area details provided on the roof screen/fencing enclosure on the roof in these plans aside from one post detail.

     SPEC Division 17 Electrical Section: The required additional 400 amp at 480 volts may not be readily available capacity in the existing building service in addition to all of the current connected loads. Tenant may have to install a new service to achieve their required capacity. This alteration is also subject to restoration.

    SPEC Division 12 Equipment Section: Emergency Generator called out to be installed. A propane driven generator is shown. Diesel fuel is the preferred medium for this application, however if the tenant is comfortable with propane and the City approves as such we will not require Diesel. That being said, this will fall under the removal and restoration requirement above at the end of the lease.

    SPEC Division 18 Alternates: New roll up door called out at rear of building. This will require structural design review and physical improvements to assure no material weakening of the building wall system.

    Landlord is to be updated on construction and operation progress.

    Per section 8.3 of your lease, Tenant is to provide landlord with copies of all final lien releases and unconditional waivers.

    Tenant shall be responsible for all CAL-OSHA general industry requirements around this type of installation and operation, including all safety signs, warnings, training and operating protocols.

If you have any questions, please do not hesitate to contact me at 650.930.9467 or khattley@bostonproperties.com

Sincerely,

/s/ Kelly Hattley

Kelly Hettley, RPA

Property Manager

 

 

 

cc:

Steve Colvin

 

 

Peter Back

 

 

Danny Murtagh

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-2

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

 

 

 

 

Boston, MA

New York, NY

San Francisco, CA

Washington, D.C

June 29, 2016

Mr. Stephen Strunk

Ms. Amy Hanson

ViewRay Technologies, Inc.

815 E. Middlefield Road

Mountain View, CA 94043

RE: Alterations - 815 E. Middlefield Road

Dear Mr. Strunk and Ms. Hanson:

As your alterations have completed, you will be required to perform the following restoration requirements below at the end of the lease term. This letter is not in any way altering any prior agreements, lease, or amendments, etc., rather this is in addition.

Restoration

    The new roll-up door must be operational and returned in good working order condition.

    The generator, pad and facing must be removed and restored to original condition per the First Amendment to the Lease Agreement.

    HVAC to be fully restored and returned in good working condition.

     Pre-action systems, systems installed, machines, specialized and non-specialized equipment and all other nonstandard office equipment and systems must be fully removed and returned in original condition.

    Per section 29.18 of your lease, provide a completed hazardous material disclosure certification and close out document at the end of the lease and compliance with environmental laws requirements.

    All concrete areas, walls and partitions installed during construction will need to be fully removed and restored to original condition.

    All walls need to be painted in a neutral standard color.

    Carpet to be restored and returned in good shape, continues, all repairs must be made and cannot have patchwork of any sort.

    The back second kitchen that is being removed must be fully restored in a like fashion. The details will be determined at the end of the lease and must meet the specifications of the Landlord.

    Ceiling grid and ceiling tiles to be fully restored. All repairs must be made and cannot be patchwork.

    Roof to be fully restored and in good working order and condition.

    Roof screen may remain and returned in good working condition. All antennas and equipment on the roof to be fully removed and restored.

    Structure to be sound and fully restored.

      Any and all scope shown in the contract to be restored to its preconstruction condition with the exception of any interior walls and partitions removed to accommodate tenant’s alteration which do not have to be reinstalled, but the space shall be delivered in a usable open area.

WWW.BOSTONPROPERTIES.COM - BOSTON PROPERTIES, INC. (NYSE, BXP)

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-3

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

Also enclosed is a copy of the correspondence sent on September 14, 2015 for your reference. If you have any question, please do not hesitate to contact me at 650.930.9467 or khattley@bostonproperties.com

Sincerely,

/s/ Kelly Hattley

Kelly Hattley, RPA

Property Manager

 

cc:

Steve Colvin

 

Peter Back

 

Linda Ray

 

Danny Murtagh

 

Don Colquhoun

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-4

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

453 Ravendale Drive, suite D

Mountain View, CA 94043

 

www.bostonproperties.com

Boston Properties, Inc.

(NYSE: BXP)

 

 

 

 

 

Boston

Los Angeles

New York

San Francisco

Washington, DC

October 26, 2017

 

Ms. Sherry Keselman

ViewRay Technologies, lnc.

815 E Middlefield Road

Mountain View, CA 94043

 

RE:   Alterations at 815 E Middlefield Road

 

Dear Ms. Keselman:

 

We are in receipt of the emailed drawings for alterations of the new Laboratory space and broadened scope including the Software laboratory which will take up to 3 office spaces requiring the wall dividing these areas to be removed. We find no objections and will require ViewRay to restore the alteration at end of Lease and to perform all work in compliance with codes and a proper building permit from the City of Mountain view. All of this scope requires a building permit, so to comply with law, ViewRay must execute a building permit and have it properly inspected and signed off. ViewRay to provide the Landlord with the permit set prior to construction commencement.

 

Your request to extend your Laboratory area is approves and is also contingent on the general requirements for all tenant alterations to be followed:

 

General Tenant Alteration Requirements:

 

1.   Provide structural, mechanical and electrical stamped engineering drawings for Landlord review and approval, as well as final permit set to the city.

2.   Provide a copy of the contract between tenant and general contractor for Landlord file.

3.   Provide a copy of all permits required for the work prior to the start of construction. Upon completion, provide a copy of the completed permits as part of the close out package with all as-builts, please send this information to the attention of Linda Ray at lray@bostonproperties.com.

4.   Provide your operating plan, including required approvals by all jurisdictions having authority.

5.   Provide a schedule and logistical plan for Landlord to approve. Include any activities that might be disruptive to other tenants/buildings/parking spaces on this site and staging or temporary storage areas that you are contemplating.

6.   A copy of the Conditional Waiver on Progress Payments and Unconditional Waiver and Release on Final Payment to be provided.

7.   Tenant shall have the installation reviewed and approved by a licensed contractor.

 

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-5

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 


 

 

Page 2 of 2

 

 

8.   Tenant shall have the additional construction insurance for alterations.

9.   Tenant shall at its sole cost and expense, make any required structural or other types of improvements necessary to support and condition the installed equipment.

10.    All penetrations into and/or through the roofing system shall be performed by the Landlord’s roofing contractor Statewide Roofing in a manner consistent with the installed roofing system, at the Tenant’s sole cost and expense.

11.  Any nonstandard finishes must be removed at the end of the Lease and restore area.

12.  Any cabling installed to be removed at the end of the Lease and restore area,

13.  All work shall be performed in compliance with applicable building and industry codes and with a building permit from the City of Mountain View.

14.  All work subject to restoration at the end of the lease term(s).

15.  Modifications to fire monitoring/supervision if required and shall be performed with the appropriate permits and approvals and area to be restored.

16.  All equipment being installed and/or relocated to the roof shall be reviewed by a Califonia licensed structural engineer and supplemented as required to assure the existing roof structure will support the weights, load and reactions and meet all code and city requirements. All changes to building structure shall be at the tenant’s sole cost and expense. This work may be subject to restoration at the end of the lease.

17.  All work performed outside of the building footprint and in the Premises is subject to full restoration at the end of the lease. Full restoration shall mean the removal of tenant alterations and replacement of prior elements and finishes to their pre­modified condition, function and use.

If you have any questions, please contact me on my moble (408) 306-3242 or khattley@bostonproperties.com.

 

Sincerely,

/s/ Kelly Hattley

Kelley Hattley, RPA, Leed GA

Property Manager

 

Enclosures

 

 

cc:

Steve Colvin, Boston Properties

 

 

Peter Back, Boston Properties

 

 

Linda Ray, Boston Properties

 

 

Danny Murtagh, Boston Properties

 

 

Don Colquhoun, Boston Properties

 

 

S\LEGAL\BPTENANTS\MV RESEARCH

TENANTS\VIEWRAY

Exhibit B-6

Mountain View Research Park

ViewRay, Inc.

SFLEGAL\MY

 

Exhibit 10.3

 

ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146

 

July 22, 2018

Mr. Chris A. Raanes

President and Chief Executive Officer

ViewRay, Inc.

c/o ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146

 

Dear Chris:

This letter agreement (the “ Agreement ”) sets forth our mutual agreement concerning the termination of your employment as an executive officer and employee of ViewRay, Inc., a Delaware corporation (the “ Company ”), and resignation from the Board of Directors of the Company.  The Agreement supersedes the terms provided for in the employment agreement entered into by you and the Company on January 18, 2013 (the “ Employment Agreement ”).

1. Termination .  Your employment with the Company and its subsidiaries and affiliates will terminate in all capacities as of July 22, 2018 (the “ Effective Date ”); provided, however, that you hereby resign, effective as of the date of this Agreement, from your positions as President and Chief Executive Officer and as a director of the Company and from all other officer positions, directorships and positions that you currently hold with the Company or any of its subsidiaries or affiliates.

2. Payments Upon Termination .  On the Effective Date, the Company will pay to you: (i) any Base Salary (as defined in the Employment Agreement) as well as accrued vacation pay, expense reimbursements, earned compensation and vested benefits under any Company Plan, and any and all other similar amounts, accrued but unpaid as of the Effective Date, and (ii) the awarded but unpaid portion, if any, of the Performance Bonuses (as defined in the Employment Agreement) for any year prior to 2018.

3. Consulting Engagement.   Subject to your compliance with your obligations under this Agreement and in consideration of the covenants set forth herein and the waiver and release set forth below and the reaffirmation of such release at the conclusion of the Consulting Period (as defined below) by signing Schedule B, you will be engaged as a consultant to the Company for a period  beginning on the Effective Date and ending on the first anniversary of the Effective Date, unless earlier terminated by you or the Company upon 30 days

1


written notice (the “ Consulting Period ”).  Your services hereunder during the Consulting Period shall consist o f such consulting and advisory services, and shall be provided at such times, as may be requested from time to time by the Company; provided, however, that such services shall not be required for more than an average of twenty (20) hours per month (for an expected total of 240 hours) with any fewer or additional hours in a given month subject to the mutual agreement of the parties.  During the Consulting Period, you will not be treated as an employee of the Company or any of its subsidiaries or affiliates a t any time after the Effective Date including, without limitation, during the Consulting Period, for any purposes, including, without limitation, for purposes of any past, present or future employee benefit plan, program or arrangement of the Company or an y of its subsidiaries or affiliates, except as provided for under the ViewRay, Inc. 2015 Equity Incentive Award Plan (the “ Equity Plan ”) as set forth in Section 4(d).  Your services hereunder during the Consulting Period, if any, will be performed in the c apacity of an “independent contractor.”  In your role as a consultant, the Company will not share with you any material, non-public confidential information.

4. Payments and Benefits .  Subject to your compliance with your obligations under this Agreement and in consideration of the covenants set forth herein and the waiver and release set forth below, and provided that you do not revoke this Agreement in accordance with Section 15(i), the Company will provide you with the following payments and benefits:

(a) Payment .  The Company will pay you an amount equal to twelve months of your current base salary, or $475,000 (the “Salary Payments”), to be paid in equal installments in accordance with the Company’s usual payroll practices during the Consulting Period.  In the event this Agreement is terminated by either party the Company shall continue to make the Salary Payments through the one-year anniversary of the Effective Date.

(b) 2018 Performance Bonus .  The Company will pay you an amount equal to $155,944 (the “Bonus Payments”), which represents the amount of the performance bonus you would have received for the 2018 Fiscal Year, prorated for the number of days you served as Chief Executive Officer.  This amount has been determined using (i) actual performance for the first and second quarters of 2018 for the portion of the annual bonus based on the achievement of financial metrics, and (ii) targeted performance for the third and fourth quarters of 2018 through the Effective Date for the portion of the annual bonus based on the achievement of financial metrics.  Your prorated 2018 Performance Bonus will be paid in equal installments in accordance with the Company’s usual payroll practices during the Consulting Period.  In the event this Agreement is terminated by either party the Company shall continue to make the Bonus Payments through the one-year anniversary of the Effective Date.

(c) Continuation of Medical Benefits .   Provided that you timely and properly apply for continued medical insurance coverage pursuant to

2


the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”), the Company will, for twelve (12) months following the Effective Date, reimburse you for the cost of the insurance premiums for such coverage .

(d) Company Stock Options and Restricted Stock Units .  As of the date hereof, you hold (i) exercisable options (the “ Exercisable Options ”) to purchase 2,053,009 shares of the Company’s common stock (“ Common Stock ”), as evidenced by the Stock Option Grant Notices described on Schedule A hereto, and (ii) unexercisable options (the “ Unexercisable Options ”) to purchase 876,671 shares of Common Stock, as evidenced by the Stock Option Grant Notices described on Schedule A hereto (together, the “ Options ”). For purposes of the Options, your termination will not be considered a Termination of Service as defined in the Equity Plan, and the Options will not expire under the terms of your Stock Option Grant Notices.  Your work providing services as a consultant will be considered continuing service for the Company, and your Options will continue to vest in accordance with the vesting schedule provided in the Stock Option Grant Notices during the Consulting Period.  In the event the Company terminates this Agreement without Cause or if you die or become disabled prior to the one-year anniversary of the Effective Date, any unvested Options you hold that would have vested during a period equal to 24 months from the Effective Date shall vest and become exercisable immediately on the final day of the Consulting Period.  For the avoidance of doubt, the final day of the Consulting Period will represent a Termination of Service pursuant to the Equity Plan.  In addition, if you terminate the Agreement prior to the one-year anniversary of the Effective Date, you will (i) receive vesting credit for the period prior to the termination of the Agreement and (ii) any unvested Options you hold that would have vested during the twelve (12) months following the termination of the Agreement shall vest and become exercisable on the termination date.  The post-termination exercise period of your Options will be extended to the longer of (i) one (1) year from the Effective Date or (ii) six (6) months from the final date of the Consulting Period.  The terms provided by the Equity Plan and the Stock Option Grant Notices shall continue to apply during the Consulting Period.  

5. Reimbursement Expenses .  During the Consulting Period, the Company will promptly reimburse you for pre-approved business expenses incurred in connection with travel at the Company’s request (which shall be in accordance with the Company’s policies) and any other business expenses which are authorized or approved by the Company in advance.

6. No Other Compensation or Benefits for Which You May Have Been Eligible .  The compensation provided for in Sections 2 and 4 replaces any compensation under Section 6 of the Employment Agreement.  By entering into this Agreement, you agree that you will not be entitled to any additional compensation in connection with your termination as set forth in the Employment Agreement.  Further, except as otherwise specifically provided herein or as required by Section 4980B(f) of the Internal Revenue Code (the “ Code ”) (relating to COBRA coverage) or other applicable law, you will not be entitled to any

3


compensation or benefits or to participate in any past, present or future employee benefit programs or arrangements of the Company or any of its subsidiaries or affiliates on or after the Effective Date.

7. Cooperation .  From and after the date hereof, you will (i) cooperate in all reasonable respects (after taking into account any employment obligations or business endeavors you may have and such obligation to cooperate shall not require you to provide any such cooperation to the extent it would unreasonably interfere with such employment or business endeavors) with the Company and its subsidiaries and affiliates and its directors, officers, attorneys and experts in connection with the conduct of any action, proceeding, investigation or litigation involving the Company or any of its subsidiaries or affiliates, including any such action, proceeding, investigation or litigation in which you are called to testify and (ii) promptly respond to all reasonable requests by the Company and its subsidiaries and affiliates relating to information concerning actual or prospective customers of the Company or any subsidiary or affiliate which may be in your possession.  The Company will reimburse you for any reasonable out-of-pocket expenses incurred by you in connection with any such cooperation by you, provided that such expenses have been approved in writing in advance by the Chief Executive Officer or the Board of Directors of the Company.  To the extent that such expenses are reasonably estimated by you to be other than de minimis, the Company shall, subject to the approval set forth in the preceding sentence, advance you the amount of expenses that you reasonably believe you will incur in connection with such cooperation for the ensuing 15 day period upon your agreement to properly account to the Company for actual expenses and to pay back the Company any amount of such advancements that are not actually used to pay such estimated expenses.

8. Return of Property .  You represent that you have surrendered or will surrender within 10 days after the Effective Date to the Company all property of the Company and its subsidiaries and affiliates in your possession and all property made available to you in connection with your employment by the Company including, without limitation, any and all records, manuals, customer lists, notebooks, computers, computer programs and files, papers, electronically stored information and documents kept or made by you in connection with your employment.

9. Non-Disparagement .  You shall refrain from any derogatory or disparaging comments about the Company and its affiliates and any of their respective directors, officers and executives, including any such comments relating to your employment, service as a director or separation from service.  The Company shall instruct its officers and executives to refrain from making any derogatory or disparaging comments about you, including any such comments relating to your employment, service as a director or separation from service. These obligations shall not apply to or restrict the communication of information by you or the Company to any state or federal law enforcement agency or testimony or disclosure compelled by law or regulation or process of law.  A

4


violation, or threatened violation, of this Section 9 may be temporarily enjoined by a duly authorized court.  The rights afforded under this Section 9 are in addition to any and all rights and r emedies otherwise afforded by applicable law.

10. Release .  

(a) General Release .    In consideration of the Company’s obligations under this Agreement and for other valuable consideration, you hereby release and forever discharge the Company, its subsidiaries and affiliates and each of their officers, employees, directors and agents (collectively, the “ Released Parties ”) from any and all claims, actions and causes of action (collectively, “ Released Claims ”), including, but not limited to, any claims for wages, bonuses, employment benefits, or damages, restitution or other relief of any kind whatsoever, including without limitation claims arising out of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, any theory of unlawful discharge, any theory of discrimination, harassment or retaliation, any theory of defamation, any theory of fraud or misrepresentation, any theory of negligence or any other violation of tort law, arising from any act, omission or occurrence occurring up to and including the date you sign this Agreement.  The Released Claims also include any claim arising out of any federal, state or other governmental statute or ordinance, including, without limitation, any rights or claims under the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Older Worker Benefits Protection Act, the Equal Pay Act, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, and the Employee Retirement Income Security Act of 1974; the California Fair Employment and Housing Act, Cal. Gov’t Code, § 12900 et seq.; the California Unruh Civil Rights Act, Cal. Civ. Code § 51; the California Sexual Orientation Bias law, Cal. Lab. Code § 1102.1; Cal. Lab. Code § 1102.5; any other provision of the California Labor Code, including without limitation California Labor Code §§ 203, 218, 226.7, 510, 515, 1194, 2698 et seq.; the California Business and Professions Code § 17200 et seq.; and any other federal, state, local or municipal statute, order, or ordinance, each as amended. This Section 10(a) does not apply to any Released Claims that you may have as of the date you sign this Agreement arising under the Federal the Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”) or the Older Workers Benefit Protection Act of 1990 (“ OWBOP ”).  Released Claims arising under ADEA are addressed in Section 10(b) of this Agreement.  This waiver and release shall not preclude you or the Company from filing a claim in accordance with Section 13, below, for the exclusive purpose of enforcing their respective rights under this Agreement.  Notwithstanding any other provision of this Agreement, nothing in this Agreement shall affect or modify the Company’s or your obligations under the Consulting Agreement.  

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The Parties agree that this is a compromise settlement of all claims and therefore it is not an admission of liability on the part of the Company.  The Executive agrees and acknowledges that the release contained in this Section 10 applies to all unknown and unanticipated injuries and/or damages (as well as those now disclosed) arising from any act, omission or occurrence occurring up to and including the date you sign this Agreement.  Section 1542 of the California Civil Code provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his/her favor at the time of executing the release, which is known by him/her must have materially affected his/her settlement with the debtor.

By signing this Agreement, you waive the provisions of Section 1542.  Further, you agree that the benefits provided under this agreement are in lieu of any benefits (including but not limited to severance) you may have been entitled to upon separation based upon any oral or written promises made to you, including those outlined in your Employment Agreement.

(b) Specific Release of ADEA Claims .  In consideration of the payments and benefits provided to you under this Agreement, you hereby release and forever discharge the Company, its subsidiaries and affiliates and each of their officers, employees, directors and agents from any and all Released Claims that you may have as of the date you sign this Agreement arising under ADEA.  By signing this Agreement, you hereby acknowledge and confirm the following: (i) you were advised by the Company in connection with your termination to consult with an attorney of your choice prior to signing this Agreement and to have such attorney explain to you the terms of this Agreement, including, without limitation, the terms relating to your release of claims arising under ADEA; (ii) you have been given a period of not fewer than 45 days to consider the terms of this Agreement and to consult with an attorney of your choosing with respect thereto; (iii) you are providing the release and discharge set forth in this Section10(b) only in exchange for consideration in addition to anything of value to which you are already entitled; (iv) you will have seven days following your execution of this agreement to revoke your signature by notifying, in writing, ViewRay, Inc. 2 Thermo Fisher Way, Oakwood Village, OH 44146, Attention: Daniel Moore, Chairman; (v) this agreement will be effective as of the eighth day following the execution of this Agreement, assuming you have not delivered a revocation; and (vi) you have received the disclosure required by the OWBPA and attached hereto as Schedule C, identifying and comparing the job positions eliminated and retained in conjunction with this Agreement.

(c) Notwithstanding the foregoing, you specifically do not release, and this Agreement does not affect: (1) any claim(s) to enforce this Agreement; (2) any claim(s) to indemnification under the Company’s Certificate of Incorporation, the Directors Indemnification Agreement between you and the Company, or any other governing document or agreement and/or under applicable

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law; (3) your rights as a shareholder of the Company; and (4) any claim(s) that by law cannot be released.

11. Reaffirmation of Release .  As a condition of receiving the compensation outlined in Section 4, you agree that, on the last day of the Consulting Period, you will execute the reaffirmation of your release set forth in the Section 10, as set forth in Schedule B hereto and that such reaffirmation will cover the period from the Effective Date through the end of the Consulting Period.

12. Restrictive Covenants .  

(a) Reaffirmation of Restrictive Covenants .  You acknowledge that you are, and will remain, subject to the Confidentiality, Inventions and Non-Interference Agreement (the “ Restrictive Covenant Agreement ”), signed in conjunction with your Employment Agreement.  You agree that the provisions of the Restrictive Covenant Agreement will continue to apply until the end of the Consulting Period, plus any additional years provided for in the Restrictive Covenant Agreement.

(b) Confidentiality .

(i) Confidentiality .  You agree that you will not at any time, except with the prior written consent of the Company, directly or indirectly, reveal to any person, entity or other organization (other than the Company or its employees, officers, directors or agents) or use for your own benefit any Confidential Information (as defined below).  Notwithstanding anything in this Section 12(b) to the contrary, in the event that you become legally compelled to disclose any Confidential Information, you will provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy.  In the event that such protective order or other remedy is not obtained, you will furnish only that portion of such Confidential Information or take only such action as is legally required by binding order and you will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded for any such Confidential Information.

(ii) Confidential Information .  “ Confidential Information ” means, without limitation and regardless of whether such information or materials are expressly identified as confidential or proprietary, (i) any and all non-public, confidential or proprietary information of the Company or any of its subsidiaries or affiliates, (ii) any information of the Company or any of its subsidiaries or affiliates that gives the Company or any of its subsidiaries or affiliates a competitive business advantage or the opportunity of obtaining such advantage, (iii) any information of the Company or any of its subsidiaries or affiliates the disclosure or improper use of which would reasonably be expected to be detrimental to the interests of the Company or any of its subsidiaries or affiliates and (iv) any trade secrets of the Company or any of its subsidiaries or

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affiliates.  Confidenti al Information also includes any non-public, confidential or proprietary information about, or belonging to, any third party that has been entrusted to the Company or any of its subsidiaries or affiliates.  The term “Confidential Information” shall not inc lude information that is or becomes generally available to the public other than as a result of a disclosure by you, or at your direction.  The term “Confidential Information” also shall not include the existence and terms of this Agreement.

(iii) Whistleblower Protection .  Notwithstanding anything in this Agreement or otherwise, it is understood that you have the right under federal law to certain protections for cooperating with or reporting legal violations to the Securities and Exchange Commission (the “ SEC ”) and/or its Office of the Whistleblower, as well as certain other governmental authorities and self-regulatory organizations, and as such, nothing in this Agreement or otherwise is intended to prohibit you from disclosing this Agreement to, or from cooperating with or reporting violations to, the SEC or any other such governmental authority or self-regulatory organization, and you may do so without notifying the Company.  The Company may not retaliate against you for any of these activities, and nothing in this Agreement or otherwise would require you to waive any monetary award or other payment that you might become entitled to from the SEC or any other governmental authority.

(c) Restrictions on Solicitation .  During the period beginning on the Effective Date and ending on the later of (i) the first anniversary of the Effective Date or (ii) twelve (12) months following the end of the Consulting Period (the “ Restricted Period ”), you will not, without the Company’s express written consent, directly or indirectly, solicit or attempt to solicit any employees, agents or consultants of the Company or its subsidiaries or affiliates to terminate their employment or engagement with the Company or any of its subsidiaries or affiliates and/or to enter into an employment, agency or consultancy relationship with you or any other person or entity with whom you are affiliated.

13. Certain Remedies.   

(a) Cessation of Payments and Benefits .  In the event that you (i) file any charge, claim, demand, action or arbitration with regard to your employment, compensation or termination of employment under any federal, state or local law, or an arbitration under any industry regulatory entity, except in either case for a claim for breach of this Agreement or failure to honor the obligations set forth herein, or (ii) breach any of the covenants contained in this Agreement, the Company shall be entitled to cease making any payments or providing any benefits due hereunder.

(b) Arbitration .   Each of the parties hereto hereby consents to the jurisdiction of all state and federal courts located in San Mateo County, California, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the

8


purpose of any suit, action or other proceeding arising out of, or in connecti on with, this agreement or any of the transactions contemplated hereby, including, without limitation, any proceeding relating to ancillary measures in aid of arbitration, provisional remedies and interim relief, or any proceeding to enforce any arbitral d ecision or award. Each party hereby expressly waives any and all rights to bring any suit, action or other proceeding in or before any court or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute arising out of, or in connection with, this agreement or any of the transactions contemplated hereby other than as set forth in this Section 13 or as provi ded in the Restrictive Covenants Agreement, or to challenge or set aside any decision, award or judgment obtained in accordance with the provisions hereof.  Each of the parties hereto hereby expressly waives any and all objections it may have to venue, inc luding, without limitation, the inconvenience of such forum, in any of such courts. In addition, each of the parties consents to the service of process by personal service or any manner in which notices may be delivered hereunder in accordance with Section 15(j) of this agreement.

(c) Waiver of Jury Trial .   Each of the parties hereto hereby voluntarily and irrevocably waives trial by jury in any action or other proceeding brought in connection with this agreement or any of the transactions contemplated hereby.

14. Section 409A .

(a) General .  The intent of the parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A of the Code and the regulations and interpretive guidance promulgated thereunder (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.  The Company and you shall take commercially reasonable efforts to reform or amend any provision hereof consistent with the foregoing intent of the parties to the extent that the Company reasonably determines that such provision would or could reasonably be expected to cause you to incur any additional tax or interest under Section 409A, provided that any such modifications shall not increase the, or result in any, cost or liability to the Company.  

(b) Separation from Service .  Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is designated under this Agreement as payable upon your termination of employment shall (subject to Section 409A(a)(2)(B)(i) of the Code) be payable only upon your “separation from service” with the Company within the meaning of Section 409A.

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(c) Expense Reimbursements .  To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to you shall be paid to you no later than December 31 of the year following the year in which the expense was incurred; provided that you submit your reimbursement request promptly following the date the expense is incurred in accordance with the Company’s expense reimbursement policy, the amount of expenses re imbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, and your right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

15. Miscellaneous .

(a) Entire Agreement .  This Agreement and any terms provided for in the Restrictive Covenant Agreement, the Equity Plan, the Stock Option Grant Notices, and the Directors Indemnification Agreement between you and the Company set forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby and supersede and replace any express or implied prior agreement with respect to the terms of your employment and the termination thereof which you may have had with the Company or any of its subsidiaries or affiliates.  This Agreement may be amended only by a written document signed by the parties hereto.

(b) Governing Law .  This Agreement will be governed by, and construed in accordance with, the laws of the State of California (determined without regard to the choice of law provisions thereof).  

(c) Withholding Taxes .  Any payments made or benefits provided to you under this Agreement will be reduced by any applicable withholding taxes.

(d) Voluntary Assent .  You affirm that you have read this Agreement, and understand all of its terms, including the full and final release of claims set forth in Section 10.  You further acknowledge that you have voluntarily entered into this Agreement; that you have not relied upon any representation or statement, written or oral, not set forth in this Agreement; that the only consideration for signing this Agreement is as set forth herein; and that this document gives you the opportunity and encourages you to have this Agreement reviewed by your attorney and/or tax advisor.

(e) Waiver .  The failure of either party to this Agreement to enforce any of its terms, provisions or covenants will not be construed as a waiver of the same or of the right of such party to enforce the same.  Waiver by either party hereto of any breach or default by the other party of any term or provision of this Agreement will not operate as a waiver of any other breach or default.

(f) Severability .  In the event that any provision of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and

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enforceability of the remainder of the Agreement will not in any way be affected or impaired thereby.  If any provision of this Agreement is held to b e excessively broad as to duration, activity or subject, such provision will be construed by limiting and reducing it so as to be enforceable to the maximum extent allowed by applicable law.

(g) Counterparts .  This Agreement may be executed in one or more counterparts, which together will constitute one and the same agreement.

(h) Successors and Assigns .  Except as otherwise provided herein, this Agreement will inure to the benefit of and be enforceable by you and the Company and your and its respective successors and assigns.

(i) Revocation .  This Agreement may be revoked by you within the 7-day period commencing on the date you sign this Agreement (the “ Revocation Period ”).  In the event of any such revocation by you, all obligations of the Company and you under this Agreement will terminate and be of no further force and effect as of the date of such revocation.  No such revocation by you will be effective unless it is in writing and signed by you and received by the Company prior to the expiration of the Revocation Period.

(j) Notices .  Any notices required or made pursuant to this Agreement will be in writing and will be deemed to have been given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, as follows:

Chris A. Raanes:

at the address reflected in the Company’s records as of the Effective Date, as updated from time to time

if to the Company:

ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146
Attention: Daniel Moore, Chairman

 

or to such other address as either party may furnish to the other in writing in accordance with this Section 15(j).  Notices of change of address will be effective only upon receipt.

 

[The Following Page is the Signature Page]

 

 

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

VIEWRAY, INC.

By:

/s/ Daniel Moore

Name:Daniel Moore

Title:Chairman of the Board, ViewRay Inc.

 

Accepted and Agreed:

/s/ Chris A. Raanes

Chris A. Raanes

 

[ Signature Page for Chris A. Raanes Separation and Consulting Agreement ]


 

SCHEDULE A

 

Stock Option Agreements (Exercisable Options)

No. of Shares of Common Stock

Grant Date

984,861

February 7, 2013

538,846

April 11, 2014

331,615

July 23, 2015

177,089

February 18, 2017

20,598

February 2, 2018

Stock Option Agreements (Unexercisable Options)

No. of Shares of Common Stock

Grant Date

123,162

July 23, 2015

322,911

February 18, 2017

410,000

May 15, 2018

20,598

February 2, 2018

 

 


 

SCHEDULE B

 

REAFFIRMATION PAGE

 

This page represents your reaffirmation of the commitments set forth in the Agreement from the date you signed the Agreement through the date that you sign this reaffirmation, and you hereby agree that the release of claims pursuant to Section 10 of the Agreement will be extended to cover any act, omission or occurrence occurring up to and including the date you sign this reaffirmation.   You will have seven (7) days following your execution of this reaffirmation to revoke your signature by notifying, in writing, Daniel Moore, Chairman, of this fact within such seven (7) day period.

I ratify and reaffirm the commitments set forth in the Agreement:

 

 

__________________________ ___________________________

Chris A. Raanes Date

 

 


 

SCHEDULE C

 

Older Workers Benefit Protection Act Disclosure

 

The following information is provided in accordance with the Older Workers Benefit Protection Act (“ OWBPA ”) and the Age Discrimination in Employment Act (“ ADEA ”).  

 

Unit Covered by the Program :

The decisional unit includes members of senior management for ViewRay, Inc. (the “ Decisional Unit ”).

 

Eligibility Factors for the Program :

All persons who are being separated are selected for the program and eligible for severance benefits, provided they execute a separation agreement and general release (the “ Agreement ”) in the form provided to them by the Company.  The persons who are being separated were selected based on reasons related to business needs, attempts to increase efficiencies, and other business concerns.

 

Time Limits Applicable to the Program :

The layoff is being announced and implemented on July 22, 2018.  All persons who are being offered consideration under the Agreement must sign and return the Agreement within the applicable consideration period in order to receive severance benefits.        

 

Persons Selected For Separation :

The following is a listing of the job titles and ages of persons who were and were not selected for separation and the offer of severance benefits in exchange for signing the Agreement:

 

Individuals Selected for Separation :

Title

Age

Chief Executive Officer

53

Chief Operating Officer

53

 

Individuals Not Selected for Separation :

Title

Age

Chief Scientific Officer

47

Chief Financial Officer

56

Chief Medical Officer

54

Vice President and Chief Counsel

59

Senior Vice President of Marketing

50

 

 

Exhibit 10.4

 

ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146

 

July 22, 2018

Mr. Doug Keare

Chief Operating Officer

ViewRay, Inc.
c/o ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146

 

Dear Doug:

This letter agreement (the “ Agreement ”) sets forth our mutual agreement concerning the termination of your employment as an executive officer and employee of ViewRay, Inc., a Delaware corporation (the “ Company ”).  The Agreement supersedes the terms provided for in the offer letter entered into by you and the Company on April 30, 2015 (the “ Offer Letter ”).

1. Termination .  Your employment with the Company and its subsidiaries and affiliates will terminate in all capacities as of July 22, 2018 (the “ Effective Date ”); provided, however, that you hereby resign, effective as of the date of this Agreement, from your position as Chief Operating Officer and from all other officer positions, directorships and positions that you currently hold with the Company or any of its subsidiaries or affiliates.

2. Consulting Engagement.   Subject to your compliance with your obligations under this Agreement and in consideration of the covenants set forth herein and the waiver and release set forth below and the reaffirmation of such release at the conclusion of the Consulting Period (as defined below) by signing Schedule B, you will be engaged as a consultant to the Company for a period  beginning on the Effective Date and ending on the six-month anniversary of the Effective Date, unless earlier terminated by you or the Company upon 30 days written notice (the “ Consulting Period ”).  Your services hereunder during the Consulting Period shall consist of such consulting and advisory services, and shall be provided at such times, as may be requested from time to time by the Company; provided, however, that such services shall not be required for more than an average of forty (40) hours per month with any fewer or additional hours in a given month subject to the mutual agreement of the parties.  During the Consulting Period, you will not be treated as an employee of the Company or any of its subsidiaries or affiliates at any time after the Effective Date including, without limitation, during the Consulting Period, for any purposes, including, without limitation, for purposes of any past, present or future employee benefit


plan, program or arrangement of the Company or any of its subsidiaries or affiliates, except as provided for under the ViewRay, Inc. 2015 Equity Incentive Award Plan (the “ Equity Plan ”) as set forth in Section 3(d) .  Your services hereunder during the Consulting Period, if any, will be performed in the capacity of an “independent contractor.”

3. Payments and Benefits .  Subject to your compliance with your obligations under this Agreement and in consideration of the covenants set forth herein and the waiver and release set forth below, and provided that you do not revoke this Agreement in accordance with Section ‎16(i), the Company will provide you with the following payments and benefits:

(a) Payment .  The Company will pay you an amount equal to six months of your current base salary, or $164,800 (the “Severance Payment”), to be paid in equal installments in accordance with the Company’s usual payroll practices during the Consulting Period.  In the event that the Company or you terminate this Agreement, the Company shall accelerate any portion of the Severance Payment that has not yet been paid as of the end of the Consulting Period and pay it as soon as reasonably practicable, but not later than the next regularly scheduled payroll date following the date on which the Consulting Period ends.  It is understood that you are entitled to the Severance Payment and that it is not consideration for your continued consulting service with the Company.  As such your right to receive the Severance Payment is only conditioned upon your release of claims, contained herein.  In the event of a conflict between this subsection and any other section of this Agreement, this subsection shall control.  

(b) 2018 Performance Bonus .  In consideration for your services rendered pursuant to your employment with the Company in 2018 up through the Effective Date, the Company will pay you an amount equal to $74,891 (the “ 2018 Pro-Rata Bonus ”), which represents the amount of the performance bonus you would have received for the 2018 Fiscal Year, prorated for the number of days you served as Chief Operating Officer.  This amount has been determined using (i) actual performance for the first and second quarters of 2018 for the portion of the annual bonus based on the achievement of financial metrics, and (ii) targeted performance for the third and fourth quarters of 2018 through the Effective Date for the portion of the annual bonus based on the achievement of financial metrics.  In consideration of your consulting services, the Company will pay you an additional amount equal to $47,275 (the “ Additional Bonus ”), which represents one-half of the amount of the performance bonus you received for the 2017 Fiscal Year.  Your 2018 Pro-Rata Bonus and Additional Bonus will be paid in equal installments in accordance with the Company’s usual payroll practices during the Consulting Period.  In the event that the Company terminates this Agreement without Cause or if you die or become disabled prior to the six-month anniversary of the Effective Date, any portion of the 2018 Pro-Rata Bonus or the Additional Bonus that has not yet been paid as of the end of the Consulting Period, will be paid to you as soon as

2


reasonably practicable, but not later than the next regularly scheduled payroll date following the date on which the Consulting Pe riod ends.  In the event you terminate this Agreement prior to six (6) months following the Effective Date, you will not be entitled to receive any portion of the 2018 Pro-Rata Bonus that has not yet been paid, but you will continue to receive the Addition al Bonus paid on the same schedule as if you had continued to provide services to the Company pursuant to the terms of this Agreement.

(c) Continuation of Medical Benefits .   Provided that you timely and properly apply for continued medical insurance coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”), the Company will, for six (6) months following the Effective Date, reimburse you for the cost of the insurance premiums for such coverage (in an amount expected to be $2,200 per month).

(d) Company Stock Options and Restricted Stock Units .  As of the date hereof, you hold (i) exercisable options (the “ Exercisable Options ”) to purchase 370,389 shares of the Company’s common stock (“ Common Stock ”), as evidenced by the Stock Option Grant Notices described on Schedule A hereto, and (ii) unexercisable options (the “ Unexercisable Options ”) to purchase 309,295 shares of Common Stock, as evidenced by the Stock Option Grant Notices described on Schedule A hereto (together, the “ Options ”). For purposes of the Options, your termination will not be considered a Termination of Service as defined in the Equity Plan, and the Options will not expire under the terms of your Stock Option Grant Notices.  Your work providing services as a consultant will be considered continuing service for the Company, and your Options will continue to vest in accordance with the vesting schedule provided in the Stock Option Grant Notices during the Consulting Period.  Unless the Consulting Period is terminated by you, on the final day of the Consulting Period, any unvested equity awards you hold that would have vested during a period equal to 6 months from the Effective Date shall vest and become exercisable immediately on the final day of the Consulting Period. For the avoidance of doubt, the final day of the Consulting Period will represent a Termination of Service pursuant to the Equity Plan.  The Options may not be exercised to any extent after the expiration of three (3) months following the final date of the Consulting Period or, in the case of your death or disability, the expiration of one (1) year from the final date of the Consulting Period.  The terms provided by the Equity Plan and the Stock Option Grant Notices shall continue to apply during the Consulting Period.  

4. Vacation .  Any accrued but unused vacation you have as of the Effective Date will be paid to you in accordance with the Company’s vacation policy.

5. Reimbursement Expenses .  During the Consulting Period, the Company will promptly reimburse you for pre-approved business expenses incurred in connection with travel at the Company’s request (which shall be in

3


accordance with the Company’s policies) and any other business expenses which are authorized or approved by the Company in advance.

6. No Other Compensation or Benefits for Which You May Have Been Eligible .  The compensation provided for in Section 3 replaces any compensation under Section 11 of the Offer Letter.  By entering into this Agreement, you agree that you will not be entitled to any compensation in connection with your termination as set forth in the Offer Letter.  Further, except as otherwise specifically provided herein or as required by Section 4980B(f) of the Internal Revenue Code (the “ Code ”) (relating to COBRA coverage) or other applicable law, you will not be entitled to any compensation or benefits or to participate in any past, present or future employee benefit programs or arrangements of the Company or any of its subsidiaries or affiliates on or after the Effective Date.

7. Cooperation .  From and after the date hereof, you will (i) cooperate in all reasonable respects (after taking into account any employment obligations or business endeavors you may have and such obligation to cooperate shall not require you to provide any such cooperation to the extent it would unreasonably interfere with such employment or business endeavors) with the Company and its subsidiaries and affiliates and its directors, officers, attorneys and experts in connection with the conduct of any action, proceeding, investigation or litigation involving the Company or any of its subsidiaries or affiliates, including any such action, proceeding, investigation or litigation in which you are called to testify and (ii) promptly respond to all reasonable requests by the Company and its subsidiaries and affiliates relating to information concerning actual or prospective customers of the Company or any subsidiary or affiliate which may be in your possession.  The Company will reimburse you for any reasonable out-of-pocket expenses incurred by you in connection with any such cooperation by you, provided that such expenses have been approved in writing in advance by the Chief Executive Officer or the Board of Directors of the Company.  To the extent that such expenses are reasonably estimated by you to be other than de minimis, the Company shall, subject to the approval set forth in the preceding sentence, advance you the amount of expenses that you reasonably believe you will incur in connection with such cooperation for the ensuing 15 day period upon your agreement to properly account to the Company for actual expenses and to pay back the Company any amount of such advancements that are not actually used to pay such estimated expenses.

8. Return of Property .  You represent that you have surrendered or will surrender within 10 days after the Effective Date to the Company all property of the Company and its subsidiaries and affiliates in your possession and all property made available to you in connection with your employment by the Company including, without limitation, any and all records, manuals, customer lists, notebooks, computers, computer programs and files, papers, electronically stored information and documents kept or made by you in connection with your employment.

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9. Non-Disparagement .  You shall refrain from any derogatory or disparaging comments about the Company and its affiliates and any of their respective directors, officers and executives, including any such comments relating to your employment, service as a director or separation from service; provided, however, that this obligation shall not apply to or restrict the communication of information by you to any state or federal law enforcement agency or testimony or disclosure compelled by law or regulation or process of law.  A violation, or threatened violation, of this Section 10 may be temporarily enjoined by a duly authorized court.  The rights afforded under this Section 10 are in addition to any and all rights and remedies otherwise afforded by applicable law.

10. Release .  

(a) General Release .    In consideration of the Company’s obligations under this Agreement and for other valuable consideration, you hereby release and forever discharge the Company, its subsidiaries and affiliates and each of their officers, employees, directors and agents (collectively, the “ Released Parties ”) from any and all claims, actions and causes of action (collectively, “ Released Claims ”), including, but not limited to, any claims for wages, bonuses, employment benefits, or damages, restitution or other relief of any kind whatsoever, including without limitation claims arising out of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, any theory of unlawful discharge, any theory of discrimination, harassment or retaliation, any theory of defamation, any theory of fraud or misrepresentation, any theory of negligence or any other violation of tort law.  The Released Claims also include any claim arising out of any federal, state or other governmental statute or ordinance, including, without limitation, any rights or claims under the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Older Worker Benefits Protection Act, the Equal Pay Act, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, and the Employee Retirement Income Security Act of 1974; the California Fair Employment and Housing Act, Cal. Gov’t Code, § 12900 et seq.; the California Unruh Civil Rights Act, Cal. Civ. Code § 51; the California Sexual Orientation Bias law, Cal. Lab. Code § 1102.1; Cal. Lab. Code § 1102.5; any other provision of the California Labor Code, including without limitation California Labor Code §§ 203, 218, 226.7, 510, 515, 1194, 2698 et seq.; the California Business and Professions Code § 17200 et seq.; and any other federal, state, local or municipal statute, order, or ordinance, each as amended. This Section ‎11(a) does not apply to any Released Claims that you may have as of the date you sign this Agreement arising under the Federal the Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”) or the Older Workers Benefit Protection Act of 1990 (“ OWBOP ”).  Released Claims arising under ADEA are addressed in Section ‎11(b) of this Agreement.  This waiver and release shall not preclude you or the Company from filing a claim in

5


accordance with Section 14 , below, for the exclusive purpose of enforcing their respective rights under this Agreement.  Notwithst anding any other provision of this Agreement, nothing in this Agreement shall affect or modify the Company’s or your obligations under the Consulting Agreement.  

The Parties agree that this is a compromise settlement of all claims and therefore it is not an admission of liability on the part of the Company.  The Executive agrees and acknowledges that the release contained in this Section ‎10 applies to all unknown and unanticipated injuries and/or damages (as well as those now disclosed).  Section 1542 of the California Civil Code provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his/her favor at the time of executing the release, which is known by him/her must have materially affected his/her settlement with the debtor.

By signing this Agreement, you waive the provisions of Section 1542.  Further, you agree that the benefits provided under this agreement are in lieu of any benefits (including but not limited to severance) you may have been entitled to upon separation based upon any oral or written promises made to you, including those outlined in your Offer Letter.

(b) Specific Release of ADEA Claims .  In consideration of the payments and benefits provided to you under this Agreement, you hereby release and forever discharge the Company, its subsidiaries and affiliates and each of their officers, employees, directors and agents from any and all Released Claims that you may have as of the date you sign this Agreement arising under ADEA.  By signing this Agreement, you hereby acknowledge and confirm the following: (i) you were advised by the Company in connection with your termination to consult with an attorney of your choice prior to signing this Agreement and to have such attorney explain to you the terms of this Agreement, including, without limitation, the terms relating to your release of claims arising under ADEA; (ii) you have been given a period of not fewer than 45 days to consider the terms of this Agreement and to consult with an attorney of your choosing with respect thereto; (iii) you are providing the release and discharge set forth in this Section ‎‎10(b) only in exchange for consideration in addition to anything of value to which you are already entitled; (iv) you will have seven days following your execution of this agreement to revoke your signature by notifying, in writing, ViewRay, Inc. 2 Thermo Fisher Way, Oakwood Village, OH 44146, Attention: Daniel Moore, Chairman; (v) this agreement will be effective as of the eighth day following the execution of this Agreement, assuming you have not delivered a revocation; and (vi) you have received the disclosure required by the OWBPA and attached hereto as Schedule C, identifying and comparing the job positions eliminated and retained in conjunction with this Agreement.

11. Reaffirmation of Release .  As a condition of receiving the compensation outlined in Section 3, you agree that, on the last day of the

6


Consulting Period, you will execute the reaffirmation of your release, as set forth in Schedule B hereto.

12. Restrictive Covenants .  

(a) Reaffirmation of Restrictive Covenants .  You acknowledge that you are, and will remain, subject to the Confidentiality, Inventions and Non-Interference Agreement (the “ Restrictive Covenant Agreement ”), signed in conjunction with your Offer Letter.  You agree that the provisions of the Restrictive Covenant Agreement will continue to apply until the end of the Consulting Period, plus any additional years provided for in the Restrictive Covenant Agreement.

(b) Confidentiality .

(i) Confidentiality .  You agree that you will not at any time, except with the prior written consent of the Company, directly or indirectly, reveal to any person, entity or other organization (other than the Company or its employees, officers, directors or agents) or use for your own benefit any Confidential Information (as defined below).  Notwithstanding anything in this Section ‎13(b) to the contrary, in the event that you become legally compelled to disclose any Confidential Information, you will provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy.  In the event that such protective order or other remedy is not obtained, you will furnish only that portion of such Confidential Information or take only such action as is legally required by binding order and you will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded for any such Confidential Information.

(ii) Confidential Information .  “ Confidential Information ” means, without limitation and regardless of whether such information or materials are expressly identified as confidential or proprietary, (i) any and all non-public, confidential or proprietary information of the Company or any of its subsidiaries or affiliates, (ii) any information of the Company or any of its subsidiaries or affiliates that gives the Company or any of its subsidiaries or affiliates a competitive business advantage or the opportunity of obtaining such advantage, (iii) any information of the Company or any of its subsidiaries or affiliates the disclosure or improper use of which would reasonably be expected to be detrimental to the interests of the Company or any of its subsidiaries or affiliates and (iv) any trade secrets of the Company or any of its subsidiaries or affiliates.  Confidential Information also includes any non-public, confidential or proprietary information about, or belonging to, any third party that has been entrusted to the Company or any of its subsidiaries or affiliates.  The term “Confidential Information” shall not include information that is or becomes generally available to the public other than as a result of a disclosure by you, or at your direction.

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(iii) Whistleblower Protection .  Notwithstanding anything in this Agreement or otherwise, it is understood that you have the right under federal law to certain protections for cooperating with or reporting legal violations to the Securities and Exchange Commission (the “ SEC ”) and/or its Office of the Whistleblower, as well as certain other governmental authorities and self-regulatory organizations, and as such, nothing in this Agreement or otherwise is intended to prohibit you from disclosing this Agreement to, or from cooperating with or reporting violations to, the SEC or any other such governmental authority or self-regulatory organization, and you may do so without notifying the Company.  The Company may not retaliate against you for any of these activities, and nothing in this Agreement or otherwise would require you to waive any monetary award or other payment that you might become entitled to from the SEC or any other governmental authority.

(c) Restrictions on Solicitation .  During the period beginning on the Effective Date and ending on the first anniversary of the date the Consulting Period ends (the “ Restricted Period ”), you will not, without the Company’s express written consent, directly or indirectly, solicit any employees, agents or consultants of the Company or its subsidiaries or affiliates to do anything from which you are restricted by reason of this Agreement nor will you, directly or indirectly, solicit or aid others to solicit any employees, agents or consultants of the Company or any of its subsidiaries or affiliates to terminate their employment or engagement with the Company or any of its subsidiaries or affiliates and/or to enter into an employment, agency or consultancy relationship with you or any other person or entity with whom you are affiliated; provided , however , that you shall not be deemed to be in breach of your obligations under this Section 12(c), (i) to the extent that any future employer of yours solicits any employees, agents or consultants of the Company without your participation or as a result of any general solicitation targeted at the public generally or (ii) you share any job posting of any future employer generally with any of your professional or personal social media contacts.

13. Certain Remedies.   

(a) Cessation of Payments and Benefits .  In the event that you (i) file any charge, claim, demand, action or arbitration with regard to your employment, compensation or termination of employment under any federal, state or local law, or an arbitration under any industry regulatory entity, except in either case for a claim for breach of this Agreement or failure to honor the obligations set forth herein, or (ii) breach any of the covenants contained in this Agreement, the Company shall be entitled to cease making any payments or providing any benefits due hereunder.

(b) Arbitration .   Each of the parties hereto hereby consents to the jurisdiction of all state and federal courts located in San Mateo County, California, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the

8


purpose of any suit, actio n or other proceeding arising out of, or in connection with, this agreement or any of the transactions contemplated hereby, including, without limitation, any proceeding relating to ancillary measures in aid of arbitration, provisional remedies and interim relief, or any proceeding to enforce any arbitral decision or award. Each party hereby expressly waives any and all rights to bring any suit, action or other proceeding in or before any court or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in this Section 14 or as provided in the Restrictive Covenants Agreement, or t o challenge or set aside any decision, award or judgment obtained in accordance with the provisions hereof.  Each of the parties hereto hereby expressly waives any and all objections it may have to venue, including, without limitation, the inconvenience of such forum, in any of such courts. In addition, each of the parties consents to the service of process by personal service or any manner in which notices may be delivered hereunder in accordance with Section 16(j) of this agreement.

(c) Waiver of Jury Trial .   Each of the parties hereto hereby voluntarily and irrevocably waives trial by jury in any action or other proceeding brought in connection with this agreement or any of the transactions contemplated hereby.

14. Section 409A .

(a) General .  The intent of the parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A of the Code and the regulations and interpretive guidance promulgated thereunder (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.  The Company and you shall take commercially reasonable efforts to reform or amend any provision hereof consistent with the foregoing intent of the parties to the extent that the Company reasonably determines that such provision would or could reasonably be expected to cause you to incur any additional tax or interest under Section 409A, provided that any such modifications shall not increase the, or result in any, cost or liability to the Company.  

(b) Separation from Service .  Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is designated under this Agreement as payable upon your termination of employment shall (subject to Section 409A(a)(2)(B)(i) of the Code) be payable only upon your “separation from service” with the Company within the meaning of Section 409A.

(c) Expense Reimbursements .  To the extent that any reimbursements under this Agreement are subject to Section 409A, any such

9


reimbursements payable to you shall be paid to you no later than December 31 of the year following the year in which the expe nse was incurred; provided that you submit your reimbursement request promptly following the date the expense is incurred in accordance with the Company’s expense reimbursement policy, the amount of expenses reimbursed in one year shall not affect the amou nt eligible for reimbursement in any subsequent year, and your right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

15. Miscellaneous .

(a) Entire Agreement .  This Agreement and any terms provided for in the Restrictive Covenant Agreement or the Stock Option Grant Notices set forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby and supersede and replace any express or implied prior agreement with respect to the terms of your employment and the termination thereof which you may have had with the Company or any of its subsidiaries or affiliates.  This Agreement may be amended only by a written document signed by the parties hereto.

(b) Governing Law .  This Agreement will be governed by, and construed in accordance with, the laws of the State of California (determined without regard to the choice of law provisions thereof).  

(c) Withholding Taxes .  Any payments made or benefits provided to you under this Agreement will be reduced by any applicable withholding taxes.

(d) Voluntary Assent .  You affirm that you have read this Agreement, and understand all of its terms, including the full and final release of claims set forth in Section 11.  You further acknowledge that you have voluntarily entered into this Agreement; that you have not relied upon any representation or statement, written or oral, not set forth in this Agreement; that the only consideration for signing this Agreement is as set forth herein; and that this document gives you the opportunity and encourages you to have this Agreement reviewed by your attorney and/or tax advisor.

(e) Waiver .  The failure of either party to this Agreement to enforce any of its terms, provisions or covenants will not be construed as a waiver of the same or of the right of such party to enforce the same.  Waiver by either party hereto of any breach or default by the other party of any term or provision of this Agreement will not operate as a waiver of any other breach or default.

(f) Severability .  In the event that any provision of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Agreement will not in any way be affected or impaired thereby.  If any provision of this Agreement is held to be excessively broad as to duration, activity or subject, such provision will be construed by

10


limiting and reducing it so as to be enforceable to the maximum extent allowed by applicable law.

(g) Counterparts .  This Agreement may be executed in one or more counterparts, which together will constitute one and the same agreement.

(h) Successors and Assigns .  Except as otherwise provided herein, this Agreement will inure to the benefit of and be enforceable by you and the Company and your and its respective successors and assigns.

(i) Revocation .  This Agreement may be revoked by you within the 7-day period commencing on the date you sign this Agreement (the “ Revocation Period ”).  In the event of any such revocation by you, all obligations of the Company and you under this Agreement will terminate and be of no further force and effect as of the date of such revocation.  No such revocation by you will be effective unless it is in writing and signed by you and received by the Company prior to the expiration of the Revocation Period.

(j) Notices .  Any notices required or made pursuant to this Agreement will be in writing and will be deemed to have been given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, as follows:

Doug Keare:

at the address reflected in the Company’s records as of the Effective Date, as updated from time to time

if to the Company:

ViewRay, Inc.

2 Thermo Fisher Way

Oakwood Village, OH 44146
Attention: Daniel Moore, Chairman

 

or to such other address as either party may furnish to the other in writing in accordance with this Section ‎16(j).  Notices of change of address will be effective only upon receipt.

 

[ The Following Page is the Signature Page ]

 

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

 

 

VIEWRAY, INC.

By:

/s/ Daniel Moore

Name:Daniel Moore

Title:Chairman of the Board, ViewRay Inc.

 

Accepted and Agreed:

/s/ Doug Keare

Doug Keare

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[ Signature Page for Doug Keare Separation and Consulting Agreement ]


 

SCHEDULE A

 

Stock Option Agreements (Exercisable Options)

No. of Shares of Common Stock

Grant Date

213,504

July 23, 2015

79,170

September 4, 2015

70,839

February 18, 2017

6,876

April 16, 2018

Stock Option Agreements (Unexercisable Options)

No. of Shares of Common Stock

Grant Date

56,180

July 23, 2015

20,830

September 4, 2015

129,161

February 18, 2017

103,124

April 16, 2018

 

 


 

SCHEDULE B

 

REAFFIRMATION PAGE

 

This page represents your reaffirmation of the commitments set forth in the Agreement from the date you signed the Agreement through the date that you sign this reaffirmation, and you hereby agree that the release of claims pursuant to Section ‎11 of the Agreement will be extended to cover any act, omission or occurrence occurring up to and including the date you sign this reaffirmation.   You will have seven (7) days following your execution of this reaffirmation to revoke your signature by notifying, in writing, to Daniel Moore, Chairman, of this fact within such seven (7) day period.

I ratify and reaffirm the commitments set forth in the Agreement:

 

 

__________________________ ___________________________

Doug Keare Date

 

 


 

SCHEDULE C

 

Older Workers Benefit Protection Act Disclosure

 

The following information is provided in accordance with the Older Workers Benefit Protection Act (“ OWBPA ”) and the Age Discrimination in Employment Act (“ ADEA ”).  

 

Unit Covered by the Program :

The decisional unit includes members of senior management for ViewRay, Inc. (the “ Decisional Unit ”).

 

Eligibility Factors for the Program :

All persons who are being separated are selected for the program and eligible for severance benefits, provided they execute a separation agreement and general release (the “ Agreement ”) in the form provided to them by the Company.  The persons who are being separated were selected based on reasons related to business needs, attempts to increase efficiencies, and other business concerns.

 

Time Limits Applicable to the Program :

The layoff is being announced and implemented on July 22, 2018.  All persons who are being offered consideration under the Agreement must sign and return the Agreement within the applicable consideration period in order to receive severance benefits.        

 

Persons Selected For Separation :

The following is a listing of the job titles and ages of persons who were and were not selected for separation and the offer of severance benefits in exchange for signing the Agreement:

 

Individuals Selected for Separation :

Title

Age

Chief Executive Officer

53

Chief Operating Officer

53

 

Individuals Not Selected for Separation :

Title

Age

Chief Scientific Officer

47

Chief Financial Officer

56

Chief Medical Officer

54

Vice President and Chief Counsel

59

Senior Vice President of Marketing

50

 

 

 

Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“ Agreement ”) is made as of July 22, 2018 (the “ Effective Date ”) by and between ViewRay, Inc. (the “ Company ”) and Scott Drake (the “ Executive ”).

WHEREAS, the Company desires to procure the services of the Executive, and the Executive is willing to be employed by the Company, upon the terms and subject to the conditions contained herein.

NOW, THEREFORE, intending to be legally bound, the Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, upon the following terms and conditions:

1. Employment . Subject to and upon the terms and conditions set forth in this Agreement, the Company agrees to employ the Executive and the Executive accepts employment. The Executive’s employment with the Company is effective as soon as practicable, but no later than July 22, 2018 (the “ Executive Start Date ”).

2. Employment at Will . The Executive and the Company understand and agree that the Executive is an employee at-will, and that the Executive may resign, or the Company may terminate the Executive’s employment, at any time and for any or for no reason. Nothing in this Agreement, the Related Agreement (as hereinafter defined) or any associated award agreements shall be construed to alter the at-will nature of the Executive’s employment, nor shall anything in this Agreement, the Related Agreement or the associated award agreements be construed as providing the Executive with a definite term of employment.

3. Position .

3.1. During the Executive’s employment with the Company, the Executive shall serve as President and Chief Executive Officer. The Executive shall perform those duties generally required of persons in the position of President and Chief Executive Officer, including but not limited to, direct oversight of the day-to-day management of the Company’s facilities, personnel, finances, research and development, business development, marketing and sales and other related functions, as well as such other duties, not inconsistent with this Agreement, the Bylaws of the Company as the same may be amended or amended and restated from time to time, or the Amended and Restated Certificate of Incorporation of the Company as the same may be amended or amended and restated from time to time (the “ Certificate of Incorporation ”), as the Company’s Board of Directors (the “ Board ”) may from time to time direct (the “ Executive Duties ”). The Executive shall be subject to the authority of the Board and shall report and be responsible to the Board.

3.2. Upon the Executive’s appointment as President and Chief Executive Officer, the Board will appoint the Executive as a director.  The Board shall nominate the

 


Executive to the Board as a Class I Directo r at the subsequent Annual Meeting of Stockholders, to be held in June 2019. In addition, the Board will consider from time to time whether to appoint the Executive as the Chairman of the Board.

4. Scope of Services . The Executive agrees to devote his full business time and attention, skills and best efforts to the performance of the Executive Duties and shall not, during his employment by the Company, without the prior written approval of the Board, be employed by or otherwise engaged in any other business activity requiring any of the Executive’s time, except as expressly set forth on Exhibit A attached hereto.

From the Executive Start Date through August 31, 2019, the Executive will perform his services hereunder at the offices of the Company to be opened in Colorado; provided , however, that during such time, the Executive will work from the Company’s offices in Mountain View, California  generally four business days per week, unless the Executive is otherwise traveling for business reasons to other locations. Beginning on or before September 1, 2019, the Executive will perform services hereunder at the offices of the Company located in Mountain View, California, Oakwood Village, Ohio or such other location as determined by the Board; provided , however , that the Executive shall be required to travel from time to time as reasonably necessary for business purposes, including work to be performed out of the Company’s offices in Mountain View, California and Oakwood Village, Ohio (or such other location in the Mountain View, California, the greater Cleveland, Ohio area or such other location as the Company may from time to time utilize as its principal offices).  Notwithstanding the location requirement set forth in this Section ‎4, the Executive may review the Company’s current office locations and present a plan to be approved by the Board before August 31, 2019, recommending the Company relocate its headquarters; provided such plan is approved, the Executive shall relocate within a reasonable timeframe to the location of the Company’s new headquarters.

5. Salary, Compensation and Benefits .

5.1. Base Salary . The Company agrees to pay, and the Executive agrees to accept, as the Executive’s salary for all services to be rendered by the Executive hereunder, a salary at an annual rate of $700,000 (as applicable, the “ Base Salary ”), payable in accordance with the Company’s standard payroll practices. The Base Salary is subject to annual increases in the sole discretion of the Board, such increased amount shall thereafter constitute the Base Salary.

5.2. Performance Bonus . For each calendar year during which the Executive is employed by the Company, the Executive will be eligible (but not entitled) to receive, a target performance bonus of 100% of the Base Salary, with a threshold of 50% and maximum of 200% of the Base Salary, with the actual amount payable determined based on the extent to which individual and the Company goals for such calendar year are achieved (the “ Performance Bonus ”).  The individual and the Company goals will be established at the beginning of the year, through good faith collaboration between the Executive and the Board. Any Performance Bonus will be paid on or before such date or dates as may from time to time be established by the Board. The Performance Bonus

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target and maximum is subject to annual increases in the sole discretion of the Board. For the calendar year 2018, the Performance Bonus, if any, will be pro-rated b ased on the Executive Start Date.

5.3. Inducement Equity Grant .  As soon as practicable following the Effective Date, subject to Compensation Committee approval, the Executive will be granted an initial equity award (the “ Inducement Equity Grant ”) as follows: (1) a grant of 1,925,000 stock options and (2) a grant of 1,155,000 restricted stock units (“ RSUs ”).  The stock options will have an exercise price equal to the closing price on the date the option is granted (the “ Grant Date ”).  The Grant Date will fall on the same day this agreement is approved by the Board.  The stock options and RSUs will otherwise be subject to the terms and conditions of the ViewRay, Inc. 2018 Equity Inducement Award Program (the “ Equity Inducement Program ”) and the terms outlined in the associated award agreements. As provided in the associated award agreements, the stock options will vest on the following schedule: (1) 25% of the stock options will vest and become exercisable on the first anniversary of the Grant Date; and (2) 75% of the stock options will vest and become exercisable in substantially equal monthly installments following the first anniversary of the Grant Date until fully vested on the fourth anniversary of the Grant Date.  In addition, as provided in the associated award agreements, 33.3% of the RSUs will vest on each of the first three anniversaries of the Grant Date. The Company agrees to register the Inducement Equity Grant by timely filing a Registration Statement on Form S-8 with the U.S. Securities and Exchange Committee.

5.4. Incentives, Savings and Retirement Plans .

5.4.1. Beginning in 2019, the Executive will be eligible to receive annual equity grants pursuant to the terms of the ViewRay, Inc. 2015 Equity Incentive Award Plan (the “ Equity Incentive Plan ”).  Subject to the terms of the Equity Incentive Plan, the equity awards will be awarded at the discretion of the Board and the Compensation Committee.

5.4.2. In addition, during the Executive’s employment with the Company, the Executive shall also be entitled to participate in all savings and retirement plans, policies and programs, made available by the Company to executive-level employees generally (“ Plans ”). Such Plans shall be subject to change from time to time as deemed appropriate and necessary by the Company.

5.5. Fringe Benefits . During the Executive’s employment with the Company, the Executive shall be entitled to participate in such group medical, travel and accident, short and long-term disability and term life insurance benefits, if any, as the Company shall make generally available from time to time to executive-level employees. Such benefits shall be subject to change from time to time as deemed appropriate and necessary by the Company.

5.6. Reimbursement .

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5.6.1. General . During the Executive’s employment with the Company, the Company shall reimburse the Executive (or, in the Company’s sole discretion, shall pay directly), upon presentation of vouchers and other supporting documentation as the Company may reasonably require, for reasonable out-of-pocket expenses incurred by the Executive relating to the business or affairs of the Company or the performance of the Executive’s duties hereunder, including, without limitation, reasonable expenses with respect to travel, lodging and similar items (other than those expenses addressed b y Sections 5.6.2 and 5.6.3 herein), provided that the incurring of s uch expenses shall have been approved in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time. The Company’s regular reimbursement procedures and practices and the reasonableness of future travel, lodging and similar items shall be subject to the periodic review and amendment by the Board.

5.6.2. Travel Stipend; Relocation Reimbursement . The Company shall provide the Executive payments of $75,000 on each of August 1, 2018, November 1, 2018, February 1, 2019 and May 1, 2019, subject to Executive’s continued service with the Company on such dates.  These payments are intended to cover, through September 1, 2019, the Executive’s personal costs of housing in the greater Mountain View, California area and commercial air travel by the Executive between his home in Niwot, Colorado and the Company’s principal offices in Mountain View, California, or such other location where the Company’s headquarters are established. Notwithstanding the foregoing, if the Executive shall relocate to the Company’s headquarters as established by the Board at any time prior to September 1, 2019, then the Company shall no longer be required to provide the Executive payments described in this Section 5.6.2; provided , that the Executive will be entitled to receive a pro rata portion of the $75,000 payment that would have been payable on the next scheduled payment date, determined based on the number of days that have elapsed since the most recent payment date divided by the total number of days between the most recent and next scheduled payment dates.  By no later than September 1, 2019, Executive shall relocate to the Company’s headquarters as established by the Board.  Notwithstanding anything in this Section 5.6.2 to the contrary, if the Executive relocates to the Mountain View, California area, the Greater Cleveland, Ohio area or such other location where the Company’s headquarters are established pursuant to a plan presented by the Executive to the Board, if approved, in accordance with Section ‎4, the Company shall reimburse the Executive for all reasonable and customary expenses commensurate with the Executive's position incurred in connection with the Executive’s relocation from his current home in Niwot, Colorado subject to the Executive’s submission to the Company of documentation reasonably evidencing such expenses.

5.6.3. Legal Fees .  The Company shall reimburse the Executive for all legal fees in connection with the negotiation and acceptance of the Agreement in an amount not to exceed $25,000.  The reimbursement provided for in this Section 5.6.3 shall be contingent on the Executive submitting to the Company any

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invoices received from legal counsel demon strating services rendered in connection with the Agreement.   

5.7. Vacation . In addition to statutory holidays, the Executive shall be entitled to four weeks paid vacation each calendar year during the Executive’s employment, subject to and in accordance with the Company’s vacation and paid time off policies as in effect from time to time.

5.8. Withholding . The Company may withhold from the Executive’s compensation all applicable tax amounts required by law.

6. Termination of Employment .

6.1. General . In the event the Executive’s employment with the Company terminates for any reason (including death or disability), the Company shall pay to the Executive (i) any Base Salary as well as accrued vacation pay, expense reimbursements, compensation and benefits under any Plan, and any and all benefits and other similar amounts, accrued but unpaid as of the date of termination, and (ii) the awarded but unpaid portion, if any, of the Performance Bonus (or any other bonus program then in effect) for any prior year.

6.2. Without Cause or With Good Reason . If the Company terminates the Executive’s employment without Cause (as defined below), or the Executive resigns for Good Reason (as defined below), then, provided that the Executive executes and delivers, and does not revoke, a general release of claims in a customary form mutually satisfactory to the Company and Executive (i) the Company shall pay an amount equal to two times the sum of (x) Base Salary, and (y) the target Performance Bonus, both as determined and in effect at the date of the Executive’s termination, payable in substantially equal monthly installments during the twenty-four month period following termination, and (ii) the Company will pay the Executive an amount equal to twelve multiplied by the difference between the monthly COBRA premium cost and the monthly contribution previously paid by the Executive as an active employee for the same coverage prior to such termination or resignation. In addition, the award agreements issued in connection with the Inducement Equity Gr ant and any award agreements governing any other equity awards issued to the Executive after the date hereof shall provide that, if the Company terminates the Executive’s employment without Cause, or the Executive resigns for Good Reason, then such equity awards that would otherwise (absent the termination) have vested during the twenty-four (24) month period following the Executive’s termination shall accelerate and become fully-vested as of the date of the Executive’s termination. Executive’s equity award agreements will also provide that Executive shall have 12 months from the date of any such termination to exercise any remaining stock options held by Executive. Any other unvested equity awards will be forfeited upon any termination of employment. In no event shall the Executive or the Executive’s estate or beneficiaries be entitled to any of the payments or benefits set forth in this Section ‎6.2 upon termination of the Executive’s employment by reason of his disability or death other than the right to a pro rata Performance Bonus based on the

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number of months Executive was employed in the calendar year prior to such death or disability.

6.3. Change in Control . In the event that a Change in Control (as defined in  the Equity Incentive Plan) occurs during the Executive’s employment hereunder and the Executive’s employment is terminated by the Company (or its successor) without Cause or by the Executive for Good Reason at any time three months prior to or eighteen months following such Change in Control, in addition to the remuneration outlined in Section ‎6.2, all equity awards issued to and held by the Executive, including those issued in the Equity Inducement Grant and any awards issued under the Equity Incentive Plan or any successor plan, shall accelerate and become vested and exercisable as of the date of such termination.  A “Change in Control” shall have the same meaning given to such term in the Equity Incentive Plan.  

6.4. Section 280G .

6.4.1. In the event it shall be determined that any payment or distribution to the Executive or for the Executive’s benefit which is in the nature of compensation and is contingent on a change in the ownership or effective control of the Company or the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G(b)(2) of the Internal Revenue Code (the “ Code ”)), whether paid or payable pursuant to this Agreement or otherwise (a “ Payment ”), would constitute a “parachute payment” under Section 280G(b)(2) of the Code and would be subject to the excise tax imposed by Section 4999 of the Code (together with any interest or penalties imposed with respect to such excise tax, the “ Excise Tax ”), then the Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of such reduction, the net after-tax benefit received by the Executive shall exceed the net after-tax benefit received by the Executive if no such reduction was made. The specific payments shall be reduced and the order of such reduction shall be determined so as to achieve the most favorable economic impact to the Executive. To the extent such determination by the Executive is permitted by Section 409A (as hereafter defined) and other tax requirements, the Executive shall determine the ordering of any reduction. To the extent the ordering of the reduction is required by Section 409A or other tax principles to be done other than by the Executive, the Accounting Firm (as hereinafter defined) shall determine the ordering of any reduction to achieve the most favorable economic benefit to the Executive.   To the extent the ordering of the reduction is required by Section 409A or other tax principles to be done other than by the Executive and to be more specifically set forth in advance then such reduction to achieve the most favorable economic benefit to the Executive shall be determined by the Accounting Firm. Any reduction in the Payments as determined by the Accounting Firm shall be applied first against the latest scheduled cash payments; then current cash payments; then any equity or equity derivatives that are included under Section 280G of the Code at an accelerated value (and not at full value) shall be reduced with the highest value reduced first (as such values are determined under Treasury Regulation

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Section 1.280G-1, Q&A 24); finally any other non-cash benefits will be reduced.    For purposes of this Section 6.4.1 , “net after-tax benefit” shall mean (i) the Payments which the Executive receives or are then entitled to receive from the Company that would constitute “parachute payments” within the meaning of Section 280G of the Code, less (ii) the amount of all federal, st ate and local income taxes payable with respect to the Payments calculated at the maximum marginal income tax rate for each year in which the Payments shall be paid to the Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Taxes imposed with respect to the Payments.

6.4.2. All determinations required to be made under this Section ‎6.4 shall be made by such nationally recognized accounting firm as may be selected by the Company after reasonable consultation with the Executive (the “ Accounting Firm ”), provided , that the Accounting Firm’s determination shall be made based upon “substantial authority” within the meaning of Section 6662 of the Code. The Accounting Firm shall provide its determination, together with detailed supporting calculations and documentation, to the Executive and the Company within 15 business days following the date of termination of the Executive’s employment, if applicable, or such other time as requested by the Executive ( provided that the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) or the Company. All reasonable fees and expenses of the Accounting Firm in reaching such a determination shall be borne solely by the Company.

7. Related Agreement . It shall be a condition precedent to the Executive’s effective employment under this Agreement that the Executive will execute and deliver to the Company the Confidentiality, Inventions and Non-Interference Agreement (as may be amended from time to time, the “ Related Agreement ”) in a customary and mutually acceptable form within ten (10) business days following the execution of this Agreement. The Executive hereby covenants and agrees to abide by the terms of the Related Agreement at all times.

8. Executive’s Representations, Warranties and Covenants . The Executive represents and warrants that the Executive is not a party to any other employment, non-competition, or other agreement or restriction other than the Severance Agreement between the Executive and the Spectranetics Corporation, which could interfere with the Executive’s employment with the Company or the Executive’s or the Company’s rights and obligations hereunder and that the Executive’s acceptance of employment with the Company and the performance of the Executive’s duties hereunder will not breach the provisions of any contract, agreement, or understanding to which the Executive is party or any duty owed by the Executive to any other person. The Executive hereby further covenants and agrees that the Executive shall abide by all Company policies, procedures, rules and regulations, including, without limitation, those policies, procedures, rules and regulations set forth in the Company’s Employee Handbook, as may be amended from time to time.

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9. Definitions . Capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning hereby assigned to them as follows:

9.1. Cause ” shall mean the Executive’s: (i) theft or embezzlement of Company funds or assets; (ii) conviction of, or guilty or no contest plea, to a felony charge or any misdemeanor involving moral turpitude; (iii) material violation of any express direction or any rule, regulation or policy established by the Board that is consistent with the terms of this Agreement; (iv) material breach of this Agreement or material breach of the Executive’s fiduciary duties to the Company; (v) fraud, gross incompetence, gross neglect, or gross misconduct in the performance of the Executive’s duties (including a material violation or breach of any Company policy applicable to the Executive); or (vi) repeated and consistent failure to perform the duties under this Agreement during normal business hours except during vacation periods or absences due to temporary illness. If the Board determines in good faith (if the Executive is a member of the Board at such time he shall not be entitled to participate in such determination) that Cause for termination exists, the Executive shall be given written notice by the Board that provides the factual basis for the determination and the Executive shall have ten business days to respond and to try and cure the condition(s) giving rise to the determination prior to that determination becoming final; provided , however , that this sentence shall not apply to, nor shall the Board be obligated to provide any such cure period for conditions of Cause which by their nature, and as reasonably determined by the Board, are not subject to cure.

9.2. Good Reason ” shall mean, in the context of a resignation by the Executive, a resignation that occurs within thirty days following the Executive’s first having knowledge of any (i) material reduction in the Base Salary, (ii) material breach of this Agreement by the Company, (iii) material diminution of the Executive’s authority, duties or title as Chief Executive Officer or responsibilities as Chief Executive Officer imposed by the Board (other than in response to an event constituting Cause), (iv) a material reduction in the Executive’s annual Performance Bonus or equity compensation opportunity or (v) requirement that Executive relocate, without the Executive’s consent, in excess of 25 miles beyond the geographic limits of Mountain View, California, Denver, Colorado or Oakwood Village, Ohio or such other location as has been established by the Company as its headquarters in consultation with the Executive; provided , however , with respect to subclause (i) above, that any reduction of the Base Salary that is consistent with general reductions in the base salaries of other executives of the Company as part of a plan to avoid insolvency of the Company or manage any financial distress or hardship of the Company shall not be deemed to constitute a material reduction in the Base Salary for purposes of this Section ‎9.2; and provided , further , with respect to subclause (ii) above, that in the case of a material breach, Good Reason shall only exist where the Executive has provided the Company with written notice of the breach within 30 days of the occurrence of the events constituting “Good Reason,” the Company has failed to cure such breach within ten business days of such written notice of breach and the Executive actually resigns his employment within 45 days of the occurrence of the events constituting “Good Reason.”

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10. Indemnification . During the Executive’s employment with the Company and thereafter, the Company shall indemnify, defend and hold the Executive harmless to the fullest extent permissible under a nd pursuant to: (i) Articles Seventh and Eighth of the Certificate of Incorporation, and (ii) the terms and conditions of a Directors Indemnification Agreement between the Executive and the Company, if any, as the same may be amended or amended and restate d from time to time.

11. Waivers and Amendments . The respective rights and obligations of the Company and the Executive under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely) or amended and the terms and conditions of this Agreement may be amended only with the written consent of a duly authorized representative of the Company and the Executive. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

12. Successors and Assigns . The provisions hereof shall inure to the benefit of, and be binding upon, the Company’s successors and assigns. The Executive may not assign or delegate to any third person the Executive’s obligations under this Agreement. The rights and benefits of the Executive under this Agreement are personal to him and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer.

13. Entire Agreement . This Agreement, the Related Agreement and the associated award agreements constitute the full and entire understanding and agreement of the parties with regard to the subjects hereof and thereof and supersede in their entirety all other or prior agreements, whether oral or written, with respect thereto.

14. Notices . All demands, notices, requests, consents and other communications required or permitted under this Agreement shall be in writing and shall be personally delivered or sent by electronic mail or facsimile machine (with a confirmation copy sent by one of the other methods authorized in this Section), reputable commercial overnight delivery service (including Federal Express and U.S. Postal Service overnight delivery service) or, deposited with the U.S. Postal Service mailed first class, registered or certified mail, postage prepaid, as set forth below:

If to the Company, addressed to:

ViewRay Inc.
2 Thermo Fisher Way
Oakwood Village, OH 44146
Attn: Board of Directors
Fax: 1-800-417-3459

with a copy, which shall not constitute notice, to:

Davis Polk & Wardwell LLP
1600 El Camino Real

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Menlo Park, CA 94025
Attn: Alan Denenberg and David Mollo-Christensen

Email: alan.denenberg@davispolk.com and david.mollo@davispolk.com
Fax: 650.752.2111

 

If to the Executive, to the address set forth on the signature page of this Agreement or at the current address listed in the Company’s records, with a copy, which shall not constitute notice, to:

Perkins Coie LLP

1900 Sixteenth Street

Suite 1400

Denver, CO 80202-5255

Attn: Jason Day

Email: Jday@perkinscoie.com

Fax: 303.291.2400

 

Notices shall be deemed given upon the earlier to occur of (i) receipt by the party to whom such notice is directed; (ii) if sent by facsimile machine or electronic mail, on the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) such notice is sent if sent (in the case of a facsimile, as evidenced by the facsimile confirmed receipt) prior to 5:00 p.m. Eastern Time and, if sent after 5:00 p.m. Eastern Time, on the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) after which such notice is sent; (iii) on the first business day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following the day the same is deposited with the commercial courier if sent by commercial overnight delivery service; or (iv) the fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following deposit thereof with the U.S. Postal Service as aforesaid. Each party, by notice duly given in accordance therewith, may specify a different address for the giving of any notice hereunder.

15. Governing Law . This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of California (without giving effect to any conflicts or choice of laws provisions thereof that would cause the application of the domestic substantive laws of any other jurisdiction).

16. Consent to Jurisdiction

(a)

EACH OF THE PARTIES HERETO HEREBY CONSENTS TO THE JURISDICTION OF ALL STATE AND FEDERAL COURTS LOCATED IN SAN MATEO COUNTY, CALIFORNIA, AS WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY PROCEEDING RELATING TO ANCILLARY MEASURES IN

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AID OF ARBITRATION, PROVISIONAL REMEDIES AND INTERIM RELIEF, OR ANY PROCEEDING TO ENFORCE ANY ARBITRAL DECISION OR AWARD. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO BRING ANY SUIT, ACTION OR OTHER PROCEEDING IN OR BEFORE ANY COURT OR TRIBUNAL OTHER THAN THE COURTS DESCRIBED ABOVE AND COVENANTS THAT IT SHALL NOT SEEK IN ANY MANNER TO RESOLVE ANY DISPUTE OTHER THAN AS SET FORTH IN THIS SECTION OR AS PROVIDED IN THE NONDISCLOSURE AND DEVELOPMENTS AGREEMENT, OR TO CHALLENGE OR SET ASIDE ANY DECISION, AWARD OR JUDGMENT OBTAINED IN ACCORDANCE WITH THE PROVISIONS HEREOF.

EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE TO VENUE, INCLUDING, WITHOUT LIMITATION, THE INCONVENIENCE OF SUCH FORUM, IN ANY OF SUCH COURTS. IN ADDITION, EACH OF THE PARTIES CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE OR ANY MANNER IN WHICH NOTICES MAY BE DELIVERED HEREUNDER IN ACCORDANCE WITH SECTION ‎14 OF THIS AGREEMENT.

17. Equitable Remedies . The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement, such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity.

18. Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

19. Section 409A . This section is intended to help ensure that compensation paid or delivered to the Executive pursuant to this Agreement either is paid in compliance with, or is exempt from, Section 409A of the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder (collectively, “ Section 409A ”). However, the Company does not warrant to the Executive that all compensation paid or delivered to the Executive for the Executive’s services will be exempt from, or paid in compliance with, Section 409A. The Executive bears the entire risk of any adverse federal, state or local tax consequences and penalty taxes which may result from payment of compensation for the Executive’s services on a basis contrary to the provisions of Section 409A or comparable provisions of any applicable state or local income tax laws.  

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19.1. Amounts Payable On Account of Termination; Short-Term Deferral .  A ll payments to be made upon a termination of employment under this Agreement that are deferred compensation may only be made upon a “separation from service” under Section 409A.  The Executive shall not be entitled to any payment or benefit under this Agre ement to the extent such payment or benefit constitutes deferred compensation subject to Section 409A payable upon a “separation from service” under Section 409A until the earlier of (i) the date which is six (6) months after his separation from service fo r any reason other than death, or (ii) the date of the Executive’s death. For purposes of Section 409A, each payment made under this Agreement shall be treated as a separate payment.  Any amounts otherwise payable to the Executive upon or in the six (6) mo nth period following the Executive’s separation from service that are not so paid by reason of this Section 19.1 shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the Executive’s separation from service (or, if earlier, as soon as practicable, and in all events within thirt y (30) days, after the date of the Executive’s death).  In no event may the Executive, directly or indirectly, designate the calendar year of payment of deferred compensation.  To the maximum extent permitted under Section 409A, the severance benefits paya ble under this Agreement are intended  to  comply  with  the  “short-term  deferral  exception”  under  Treas.  Reg.  §1.409A-1(b)(4), and  any  remaining  amount  is  intended  to  comply  with  the  “separation  pay exception” under Treas. Reg. §1.409A- 1(b)(9)(iii).   

19.2. Reimbursements . Any taxable reimbursement of business or other expenses, or any provision of taxable in-kind benefits to the Executive, as specified under this Agreement, shall be subject to the following conditions: (1) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code (and, as a result, if there is a maximum dollar amount of expense reimbursement specified in this Agreement, only expenses in the first taxable year in which the Executive could incur eligible expenses shall be eligible for reimbursement, to the limitation specified); (2) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit. Any reimbursement of taxes, as specified under this Agreement, shall be paid in any event not later than the end of the Executive’s taxable year next following the taxable year in which the Executive remits the applicable taxes to the appropriate taxing authority.

19.3. Releases . The payment of any amounts otherwise payable to the Executive on account of termination of employment under this Agreement which constitute deferred compensation within the meaning of Section 409A and which are subject (among other conditions, if any) to a release of claims in a customary form mutually satisfactory to the Company and Executive may be delayed at the discretion of the Company for up to three (3) days following the Executive’s delivery of release and such release becoming irrevocable (an “ Effective Release ”)) but in no event later than sixty (60) days following the Executive’s termination of employment, subject to Section ‎19.1. Regardless of any payment, however, all such amounts remain conditioned on an Effective Release such

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that if the Executive fails to deliver (or if the Executive revokes) the Executive’s release the Executive will forfeit and must immediately return such amounts on the Company’s demand.  If the sixty (60)-day period following a separation from service begins in one calendar year and ends in a second calendar year (a “ Crossover 60-Day Period ”) and if there are any payments that are subject to Section 409A that are:  (i) conditioned on the Executive signing and not revoking a release of claims and (ii) otherwise due to be paid during the portion of the Crossover 60-Day Period that falls within the first year, then such payments will be delayed and paid in a lump sum during the portion of the Crossover 60-Day Period that falls within the second year.

19.4. Interpretative Rules . In applying Section 409A to compensation paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

20. Severability; Titles and Subtitles; Gender: Singular and Plural; Counterparts; Facsimile .

(a) In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

(b) The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

(c) The use of any gender in this Agreement shall be deemed to include the other genders, and the use of the singular in this Agreement shall be deemed to include the plural (and vice versa), wherever appropriate.

(d) This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument.

(e) Counterparts of this Agreement (or applicable signature pages hereof) that are manually signed and delivered by facsimile transmission shall be deemed to constitute signed original counterparts hereof and shall bind the parties signing and delivering in such manner.

[ The Following Page is the Signature Page ]

 

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

COMPANY:

 

EXECUTIVE:

VIEWRAY INC.

 

 

By:

/s/ Daniel Moore

 

By:

/s/ Scott Drake

Name:

Daniel Moore

 

 

 

Title:

Chairman of the Board, ViewRay Inc.

 

Print Name: Scott Drake
Address:

 

 

 

 

 

 

[ Signature Page for Scott Drake Employment Agreement ]


 

EXHIBIT A
PERMITTED ACTIVITIES

 

AtriCure, Inc. - Chairman of the Board

 

JustRight Surgical, LLC - Board Member

 

 

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“ Agreement ”) is made as of July 22, 2018 (the “ Effective Date ”) by and between ViewRay, Inc. (the “ Company ”) and Shahriar Matin (the “ Executive ”).

WHEREAS, the Company desires to procure the services of the Executive, and the Executive is willing to be employed by the Company, upon the terms and subject to the conditions contained herein.

NOW, THEREFORE, intending to be legally bound, the Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, upon the following terms and conditions:

1. Employment . Subject to and upon the terms and conditions set forth in this Agreement, the Company agrees to employ the Executive and the Executive accepts employment. The Executive’s employment with the Company is effective as soon as practicable, but no later than July 22, 2018 (the “ Executive Start Date ”).

2. Employment at Will . The Executive and the Company understand and agree that the Executive is an employee at-will, and that the Executive may resign, or the Company may terminate the Executive’s employment, at any time and for any or for no reason. Nothing in this Agreement, the Related Agreement (as hereinafter defined) or any associated award agreements shall be construed to alter the at-will nature of the Executive’s employment, nor shall anything in this Agreement, the Related Agreement or the associated award agreements be construed as providing the Executive with a definite term of employment.

3. Position . During the Executive’s employment with the Company, the Executive shall serve as Chief Operating Officer. Upon the Executive’s appointment as Chief Operating Officer, the Executive will have responsibility for performing those duties as are customary for, and are consistent with, such position (the “ Executive Duties ”). The Executive shall be subject to the authority of the Board of Directors (the “ Board ”) and the Chief Executive Officer and shall report and be responsible to the Chief Executive Officer.

4. Scope of Services . The Executive agrees to devote his full business time and attention, skills and best efforts to the performance of the Executive Duties and shall not, during his employment by the Company, without the prior written approval of the Board, be employed by or otherwise engaged in any other business activity requiring any of the Executive’s time, except as expressly set forth on Exhibit A attached hereto.

From the Executive Start Date through August 31, 2019, the Executive will perform his services hereunder at the offices of the Company to be opened in Colorado; provided , however, that during such time, the Executive will work from the Company’s offices in Mountain View, California generally four business days per week, unless the Executive is


otherwise traveling for business reasons to other locations . Beginning on or before September 1, 2019, the Executive will perform services hereunder at the offices of the Company located in Mountain View, California, Oakwood Village, Ohio or such other location as determined by the Board and the Chief Executive Officer; provided , however , that the Executive shall be required to travel from time to time as reasonably necessary for business purposes, includi ng work to be performed out of the Company’s offices in Mountain View, California and Oakwood Village, Ohio (or such other location in the Mountain View, California, the greater Cleveland, Ohio area or such other location as the Company may from time to ti me utilize as its principal offices).  Notwithstanding the location requirement set forth in this Section 4 , the Executive may review the Company’s current office locations and present a plan to be approved by the Board before August 31, 2019, recommending the Company relocate its headquarters; provided such plan is approved, the Executive shall relocate within a reasonable timeframe to the location of the Company’s new headquarters.

5. Salary, Compensation and Benefits .

5.1. Base Salary . The Company agrees to pay, and the Executive agrees to accept, as the Executive’s salary for all services to be rendered by the Executive hereunder, a salary at an annual rate of $425,000 (as applicable, the “ Base Salary ”), payable in accordance with the Company’s standard payroll practices. The Base Salary is subject to annual increases in the sole discretion of the Board, such increased amount shall thereafter constitute the Base Salary.

5.2. Performance Bonus . For each calendar year during which the Executive is employed by the Company, the Executive will be eligible (but not entitled) to receive, a target performance bonus of 75.0% of the Base Salary, with a threshold of 37.5% and maximum of 150.0% of the Base Salary, with the actual amount payable determined based on the extent to which individual and the Company goals for such calendar year are achieved (the “ Performance Bonus ”).  The individual and the Company goals will be established at the beginning of the year by the Board in collaboration with the Chief Executive Officer. Any Performance Bonus will be paid on or before such date or dates as may from time to time be established by the Board. The Performance Bonus target and maximum is subject to annual increases in the sole discretion of the Board. For the calendar year 2018, the Performance Bonus, if any, will be pro-rated based on the Executive Start Date.

5.3. Inducement Equity Grant .  As soon as practicable following the Effective Date, subject to Compensation Committee approval, the Executive will be granted an initial equity award (the “ Inducement Equity Grant ”) as follows: (1) a grant of 962,500 stock options and (2) a grant of 577,500 restricted stock units (“ RSUs ”).  The stock options will have an exercise price equal to the closing price on the date the option is granted (the “ Grant Date ”).  The Grant Date will fall on the same day this agreement is approved by the Board.  The stock options and RSUs will otherwise be subject to the terms and conditions of the ViewRay, Inc. 2018 Equity Inducement Award Program (the “ Equity Inducement Program ”) and the terms outlined in the associated award agreements. As provided in the associated award agreements, the stock options will vest

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on the foll owing schedule: (1) 25% of the stock options will vest and become exercisable on the first anniversary of the Grant Date; and (2) 75% of the stock options will vest and become exercisable in substantially equal monthly installments following the first anni versary of the Grant Date until fully vested on the fourth anniversary of the Grant Date.  In addition, as provided in the associated award agreements, 33.3% of the RSUs will vest on each of the first three anniversaries of the Grant Date. The Company agre es to register the Inducement Equity Grant by timely filing a Registration Statement on Form S-8 with the U.S. Securities and Exchange Committee.

5.4. Incentives, Savings and Retirement Plans .

5.4.1. Beginning in 2019, the Executive will be eligible to receive annual equity grants pursuant to the terms of the ViewRay, Inc. 2015 Equity Incentive Award Plan (the “ Equity Incentive Plan ”).  Subject to the terms of the Equity Incentive Plan, the equity awards will be awarded at the discretion of the Board and the Compensation Committee.

5.4.2. In addition, during the Executive’s employment with the Company, the Executive shall also be entitled to participate in all savings and retirement plans, policies and programs, made available by the Company to executive-level employees generally (“ Plans ”). Such Plans shall be subject to change from time to time as deemed appropriate and necessary by the Company.

5.5. Fringe Benefits . During the Executive’s employment with the Company, the Executive shall be entitled to participate in such group medical, travel and accident, short and long-term disability and term life insurance benefits, if any, as the Company shall make generally available from time to time to executive-level employees. Such benefits shall be subject to change from time to time as deemed appropriate and necessary by the Company.

5.6. Reimbursement .

5.6.1. General . During the Executive’s employment with the Company, the Company shall reimburse the Executive (or, in the Company’s sole discretion, shall pay directly), upon presentation of vouchers and other supporting documentation as the Company may reasonably require, for reasonable out-of-pocket expenses incurred by the Executive relating to the business or affairs of the Company or the performance of the Executive’s duties hereunder, including, without limitation, reasonable expenses with respect to travel, lodging and similar items (other than those expenses addressed by Sections ‎5.6.2 and ‎5.6.3 herein), provided that the incurring of such expenses shall have been approved in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time. The Company’s regular reimbursement procedures and practices and the reasonableness of future travel, lodging and similar items shall be subject to the periodic review and amendment by the Board.

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5.6.2. Travel Stipend; Relocation Reimbursement . The Company shall provide the Executive payments of $75,000 on each o f August 1, 2018, November 1, 2018, February 1, 2019 and May 1, 2019, subject to Executive’s continued service with the Company on such dates.  These payments are intended to cover, through September 1, 2019, the Executive’s personal costs of housing in th e greater Mountain View, California area and commercial air travel by the Executive between his home in Denver, Colorado and the Company’s principal offices in Mountain View, California, or such other location where the Company’s headquarters are establish ed. Notwithstanding the foregoing, if the Executive shall relocate to the Company’s headquarters as established by the Board at any time prior to September 1, 2019, then the Company shall no longer be required to provide the Executive payments described in this Section 5.6.2; provided , that the Executive will be entitled to receive a pro rata portion of the $75,000 payment that would have been payable on the next scheduled payment date, determined based on the number of days that have elapsed since the most recent payment date divided by the total number of days between the most recent and next scheduled payment dates.   By no later than September 1, 2019, Executive shall relocate to the Company’s headquarters as established by the Board.  Notwithstanding any thing in this Section 5.6.2 to the contrary, if the Executive relocates to the Mountain View, California area, the Greater Cleveland, Ohio area or such other location where the Company’s headquarters are established pursuant to a plan presented by the Exec utive to the Board, if approved, in accordance with Section 4 , the Company shall reimburse the Executive for all reasonable and customary expenses commensurate wit h the Executive's position incurred in connection with the Executive’s relocation from his current home in Denver, Colorado subject to the Executive’s submission to the Company of documentation reasonably evidencing such expenses .

5.6.3. Legal Fees .  The Company shall reimburse the Executive for all legal fees in connection with the negotiation and acceptance of the Agreement in an amount not to exceed $25,000.  The reimbursement provided for in this Section ‎5.6.3 shall be contingent on the Executive submitting to the Company any invoices received from legal counsel demonstrating services rendered in connection with the Agreement.  

5.7. Vacation . In addition to statutory holidays, the Executive shall be entitled to four weeks paid vacation each calendar year during the Executive’s employment, subject to and in accordance with the Company’s vacation and paid time off policies as in effect from time to time.

5.8. Withholding . The Company may withhold from the Executive’s compensation all applicable tax amounts required by law.

6. Termination of Employment .

6.1. General . In the event the Executive’s employment with the Company terminates for any reason (including death or disability), the Company shall pay to the

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Executive (i) any Base Salary as well as accrued vacation pay, expense reimbursements, compensation and benefits under any Plan, and any and all benefits and other similar amounts, accrued but unpaid as of the date of termination, and (ii) the awarded but unpaid portion, if any, of the Performance Bonus (or any other bonus program then in effect) for any prior year.

6.2. Without Cause or With Good Reason . If the Company terminates the Executive’s employment without Cause (as defined below), or the Executive resigns for Good Reason (as defined below), then, provided that the Executive executes and delivers, and does not revoke, a general release of claims in a customary form mutually satisfactory to the Company and Executive (i) the Company shall pay an amount equal to one times the sum of (x) Base Salary, and (y) the target Performance Bonus, both as determined and in effect at the date of the Executive’s termination, payable in substantially equal monthly installments during the twelve month period following termination, and (ii) the Company will pay the Executive an amount equal to twelve multiplied by the difference between the monthly COBRA premium cost and the monthly contribution previously paid by the Executive as an active employee for the same coverage prior to such termination or resignation. In addition, the award agreements issued in connection with the Inducement Equity Grant and any award agreements governing any other equity awards issued to the Executive after the date hereof shall provide that, if the Company terminates the Executive’s employment without Cause, or the Executive resigns for Good Reason, then such equity awards that would otherwise (absent the termination) have vested during the twenty-four (24) month period following the Executive’s termination shall accelerate and become fully-vested as of the date of the Executive’s termination. Executive’s equity award agreements will also provide that Executive shall have 12 months from the date of any such termination to exercise any remaining stock options held by Executive. Any other unvested equity awards will be forfeited upon any termination of employment. In no event shall the Executive or the Executive’s estate or beneficiaries be entitled to any of the payments or benefits set forth in this Section ‎6.2 upon termination of the Executive’s employment by reason of his disability or death other than the right to a pro rata Performance Bonus based on the number of months Executive was employed in the calendar year prior to such death or disability.

6.3. Change in Control . In the event that a Change in Control (as defined in  the Equity Incentive Plan) occurs during the Executive’s employment hereunder and the Executive’s employment is terminated by the Company (or its successor) without Cause or by the Executive for Good Reason at any time three months prior to or eighteen months following such Change in Control, in addition to the remuneration outlined in Section ‎6.2, all equity awards issued to and held by the Executive, including those issued in the Equity Inducement Grant and any awards issued under the Equity Incentive Plan or any successor plan, shall accelerate and become vested and exercisable as of the date of such termination.  A “Change in Control” shall have the same meaning given to such term in the Equity Incentive Plan.  

6.4. Section 280G .

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6.4.1. In the event it shall be determined that any payment or distribution to the Executive or for the Executive’s benefit which is in the nature of compensation and is contingent on a change in the ownership or effective contr ol of the Company or the ownership of a substantial portion of the assets of the Company (within the meaning of Section 280G(b)(2) of the Internal Revenue Code (the “ Code ”)), whether paid or payable pursuant to this Agreement or otherwise (a “ Payment ”), wo uld constitute a “parachute payment” under Section 280G(b)(2) of the Code and would be subject to the excise tax imposed by Section 4999 of the Code (together with any interest or penalties imposed with respect to such excise tax, the “ Excise Tax ”), then t he Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of such reduction, the net after-tax benefit received by the Executive shall excee d the net after-tax benefit received by the Executive if no such reduction was made. The specific payments shall be reduced and the order of such reduction shall be determined so as to achieve the most favorable economic impact to the Executive. To the ext ent such determination by the Executive is permitted by Section 409A (as hereafter defined) and other tax requirements, the Executive shall determine the ordering of any reduction. To the extent the ordering of the reduction is required by Section 409A or other tax principles to be done other than by the Executive, the Accounting Firm (as hereinafter defined) shall determine the ordering of any reduction to achieve the most favorable economic benefit to the Executive.   To the extent the ordering of the red uction is required by Section 409A or other tax principles to be done other than by the Executive and to be more specifically set forth in advance then such reduction to achieve the most favorable economic benefit to the Executive shall be determined by th e Accounting Firm. Any reduction in the Payments as determined by the Accounting Firm shall be applied first against the latest scheduled cash payments; then current cash payments; then any equity or equity derivatives that are included under Section 280G of the Code at an accelerated value (and not at full value) shall be reduced with the highest value reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24); finally any other non-cash benefits will be reduced.    Fo r purposes of this Section 6.4.1 , “net after-tax benefit” shall mean (i) the Payments which the Executive receives or are then entitled to receive from the Company that would constitute “parachute payments” within the meaning of Section 280G of the Code, less (ii) the amount of all federal, state and local income taxes payable with respect to the Payments calculated at the maximum marginal income ta x rate for each year in which the Payments shall be paid to the Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Taxes imposed wit h respect to the Payments.

6.4.2. All determinations required to be made under this Section ‎6.4 shall be made by such nationally recognized accounting firm as may be selected by the Company after reasonable consultation with the Executive (the “ Accounting Firm ”), provided , that the Accounting Firm’s determination shall be made based upon “substantial authority” within the meaning of Section 6662 of the Code. The

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Accounting Firm shall provide its determination, together with detailed supporting calculations and documentation, to the Executive and the Company within 15 business days following the date of termination of the Executive’s employment, if applicabl e, or such other time as requested by the Executive ( provided that the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) or the Company. All reasonable fees and expenses of the Accounting Firm in reaching such a deter mination shall be borne solely by the Company.

7. Related Agreement . It shall be a condition precedent to the Executive’s effective employment under this Agreement that the Executive will execute and deliver to the Company the Confidentiality, Inventions and Non-Interference Agreement (as may be amended from time to time, the “ Related Agreement ”) in a customary and mutually acceptable form within ten (10) business days following the execution of this Agreement. The Executive hereby covenants and agrees to abide by the terms of the Related Agreement at all times.

8. Executive’s Representations, Warranties and Covenants . The Executive represents and warrants that the Executive is not a party to any other employment, non-competition, or other agreement or restriction other than the Severance Agreement between the Executive and the Spectranetics Corporation, which could interfere with the Executive’s employment with the Company or the Executive’s or the Company’s rights and obligations hereunder and that the Executive’s acceptance of employment with the Company and the performance of the Executive’s duties hereunder will not breach the provisions of any contract, agreement, or understanding to which the Executive is party or any duty owed by the Executive to any other person. The Executive hereby further covenants and agrees that the Executive shall abide by all Company policies, procedures, rules and regulations, including, without limitation, those policies, procedures, rules and regulations set forth in the Company’s Employee Handbook, as may be amended from time to time.

9. Definitions . Capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning hereby assigned to them as follows:

9.1. Cause ” shall mean the Executive’s: (i) theft or embezzlement of Company funds or assets; (ii) conviction of, or guilty or no contest plea, to a felony charge or any misdemeanor involving moral turpitude; (iii) material violation of any express direction or any rule, regulation or policy established by the Board that is consistent with the terms of this Agreement; (iv) material breach of this Agreement or material breach of the Executive’s fiduciary duties to the Company; (v) fraud, gross incompetence, gross neglect, or gross misconduct in the performance of the Executive’s duties (including a material violation or breach of any Company policy applicable to the Executive); or (vi) repeated and consistent failure to perform the duties under this Agreement during normal business hours except during vacation periods or absences due to temporary illness. If the Board determines in good faith (if the Executive is a member of the Board at such time he shall not be entitled to participate in such determination) that Cause for termination exists, the Executive shall be given written notice by the Board that

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provides the factual basis for the determination and the Executive shall have ten business days to respond and to try and cure the condition(s) giving rise to the determination prior to that determination becoming fin al; provided , however , that this sentence shall not apply to, nor shall the Board be obligated to provide any such cure period for conditions of Cause which by their nature, and as reasonably determined by the Board, are not subject to cure.

9.2. Good Reason ” shall mean, in the context of a resignation by the Executive, a resignation that occurs within thirty days following the Executive’s first having knowledge of any (i) material reduction in the Base Salary, (ii) material breach of this Agreement by the Company, (iii) material diminution of the Executive’s authority, duties or title as Chief Operating Officer or responsibilities as Chief Operating Officer imposed by the Chief Executive Officer or the Board (other than in response to an event constituting Cause), (iv) a material reduction in the Executive’s annual Performance Bonus or equity compensation opportunity or (v) requirement that Executive relocate, without the Executive’s consent, in excess of 25 miles beyond the geographic limits of Mountain View, California, Denver, Colorado or Oakwood Village, Ohio or such other location as has been established by the Company as its headquarters in consultation with the Executive; provided , however , with respect to subclause (i) above, that any reduction of the Base Salary that is consistent with general reductions in the base salaries of other executives of the Company as part of a plan to avoid insolvency of the Company or manage any financial distress or hardship of the Company shall not be deemed to constitute a material reduction in the Base Salary for purposes of this Section ‎9.2; and provided , further , with respect to subclause (ii) above, that in the case of a material breach, Good Reason shall only exist where the Executive has provided the Company with written notice of the breach within 30 days of the occurrence of the events constituting “Good Reason,” the Company has failed to cure such breach within ten business days of such written notice of breach and the Executive actually resigns his employment within 45 days of the occurrence of the events constituting “Good Reason.”

10. Indemnification . During the Executive’s employment with the Company and thereafter, the Company shall indemnify, defend and hold the Executive harmless to the fullest extent permissible under and pursuant to: (i) Articles Seventh and Eighth of the Certificate of Incorporation of the Company, as may be amended or amended and restated from time to time, and (ii) the terms and conditions of a Directors Indemnification Agreement between the Executive and the Company, if any, as the same may be amended or amended and restated from time to time.

11. Waivers and Amendments . The respective rights and obligations of the Company and the Executive under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely) or amended and the terms and conditions of this Agreement may be amended only with the written consent of a duly authorized representative of the Company and the Executive. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

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12. Successors and Assigns . The provisions hereof shall inure to the benefit of, and be binding upon, the Company’s successors and assigns. The Executive may not assign or delegate to any third person the Executive’s obligations under this Agreement. The rights and benefits of the Executive under this Agreement are personal to him and no such right or benefit shall be subject to voluntary or invol untary alienation, assignment or transfer.

13. Entire Agreement . This Agreement, the Related Agreement and the associated award agreements constitute the full and entire understanding and agreement of the parties with regard to the subjects hereof and thereof and supersede in their entirety all other or prior agreements, whether oral or written, with respect thereto.

14. Notices . All demands, notices, requests, consents and other communications required or permitted under this Agreement shall be in writing and shall be personally delivered or sent by electronic mail or facsimile machine (with a confirmation copy sent by one of the other methods authorized in this Section), reputable commercial overnight delivery service (including Federal Express and U.S. Postal Service overnight delivery service) or, deposited with the U.S. Postal Service mailed first class, registered or certified mail, postage prepaid, as set forth below:

If to the Company, addressed to:

ViewRay Inc.
2 Thermo Fisher Way
Oakwood Village, OH 44146
Attn: Board of Directors
Fax: 1-800-417-3459

with a copy, which shall not constitute notice, to:

Davis Polk & Wardwell LLP
1600 El Camino Real

Menlo Park, CA 94025
Attn: Alan Denenberg and David Mollo-Christensen

Email: alan.denenberg@davispolk.com and david.mollo@davispolk.com
Fax: 650.752.2111

 

If to the Executive, to the address set forth on the signature page of this Agreement or at the current address listed in the Company’s records, with a copy, which shall not constitute notice, to:

Perkins Coie LLP

1900 Sixteenth Street

Suite 1400

Denver, CO 80202-5255

Attn: Jason Day

Email: Jday@perkinscoie.com

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Fax: 303.291.2400

 

Notices shall be deemed given upon the earlier to occur of (i) receipt by the party to whom such notice is directed; (ii) if sent by facsimile machine or electronic mail, on the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) such notice is sent if sent (in the case of a facsimile, as evidenced by the facsimile confirmed receipt) prior to 5:00 p.m. Eastern Time and, if sent after 5:00 p.m. Eastern Time, on the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) after which such notice is sent; (iii) on the first business day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following the day the same is deposited with the commercial courier if sent by commercial overnight delivery service; or (iv) the fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following deposit thereof with the U.S. Postal Service as aforesaid. Each party, by notice duly given in accordance therewith, may specify a different address for the giving of any notice hereunder.

15. Governing Law . This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of California (without giving effect to any conflicts or choice of laws provisions thereof that would cause the application of the domestic substantive laws of any other jurisdiction).

16. Consent to Jurisdiction

(a)

EACH OF THE PARTIES HERETO HEREBY CONSENTS TO THE JURISDICTION OF ALL STATE AND FEDERAL COURTS LOCATED IN SAN MATEO COUNTY, CALIFORNIA, AS WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY PROCEEDING RELATING TO ANCILLARY MEASURES IN AID OF ARBITRATION, PROVISIONAL REMEDIES AND INTERIM RELIEF, OR ANY PROCEEDING TO ENFORCE ANY ARBITRAL DECISION OR AWARD. EACH PARTY HEREBY EXPRESSLY WAIVES ANY AND ALL RIGHTS TO BRING ANY SUIT, ACTION OR OTHER PROCEEDING IN OR BEFORE ANY COURT OR TRIBUNAL OTHER THAN THE COURTS DESCRIBED ABOVE AND COVENANTS THAT IT SHALL NOT SEEK IN ANY MANNER TO RESOLVE ANY DISPUTE OTHER THAN AS SET FORTH IN THIS SECTION OR AS PROVIDED IN THE NONDISCLOSURE AND DEVELOPMENTS AGREEMENT, OR TO CHALLENGE OR SET ASIDE ANY DECISION, AWARD OR JUDGMENT OBTAINED IN ACCORDANCE WITH THE PROVISIONS HEREOF.

EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE TO VENUE, INCLUDING,

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WITHOUT L IMITATION, THE INCONVENIENCE OF SUCH FORUM, IN ANY OF SUCH COURTS. IN ADDITION, EACH OF THE PARTIES CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE OR ANY MANNER IN WHICH NOTICES MAY BE DELIVERED HEREUNDER IN ACCORDANCE WITH SECTION 14 OF THIS AGREEMENT.

17. Equitable Remedies . The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement, such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity.

18. Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

19. Section 409A . This section is intended to help ensure that compensation paid or delivered to the Executive pursuant to this Agreement either is paid in compliance with, or is exempt from, Section 409A of the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder (collectively, “ Section 409A ”). However, the Company does not warrant to the Executive that all compensation paid or delivered to the Executive for the Executive’s services will be exempt from, or paid in compliance with, Section 409A. The Executive bears the entire risk of any adverse federal, state or local tax consequences and penalty taxes which may result from payment of compensation for the Executive’s services on a basis contrary to the provisions of Section 409A or comparable provisions of any applicable state or local income tax laws.  

19.1. Amounts Payable On Account of Termination; Short-Term Deferral .  All payments to be made upon a termination of employment under this Agreement that are deferred compensation may only be made upon a “separation from service” under Section 409A.  The Executive shall not be entitled to any payment or benefit under this Agreement to the extent such payment or benefit constitutes deferred compensation subject to Section 409A payable upon a “separation from service” under Section 409A until the earlier of (i) the date which is six (6) months after his separation from service for any reason other than death, or (ii) the date of the Executive’s death. For purposes of Section 409A, each payment made under this Agreement shall be treated as a separate payment.  Any amounts otherwise payable to the Executive upon or in the six (6) month period following the Executive’s separation from service that are not so paid by reason of this Section ‎19.1 shall be paid (without interest) as soon as practicable (and in all events

11

 


within thirty (30) days) after the date that is six (6) months after the Executive’s separation from service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of the Executive’s death).  In no event may the Executive, directly or indirectly, designate the calendar year of payment of deferred compensation.  To the maximum extent permitted under Section 409A, the severance benefits payable under this Agreement are intended  to  comply  with  the  “short-term  deferral  exception”  under  Treas.  Reg.  §1.409A-1(b)(4), and  any  remaining  amount  is  intended  to  comply  wi th  the  “separation  pay exception” under Treas. Reg. §1.409A- 1(b)(9)(iii).   

19.2. Reimbursements . Any taxable reimbursement of business or other expenses, or any provision of taxable in-kind benefits to the Executive, as specified under this Agreement, shall be subject to the following conditions: (1) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Section 105(b) of the Code (and, as a result, if there is a maximum dollar amount of expense reimbursement specified in this Agreement, only expenses in the first taxable year in which the Executive could incur eligible expenses shall be eligible for reimbursement, to the limitation specified); (2) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit. Any reimbursement of taxes, as specified under this Agreement, shall be paid in any event not later than the end of the Executive’s taxable year next following the taxable year in which the Executive remits the applicable taxes to the appropriate taxing authority.

19.3. Releases . The payment of any amounts otherwise payable to the Executive on account of termination of employment under this Agreement which constitute deferred compensation within the meaning of Section 409A and which are subject (among other conditions, if any) to a release of claims in a customary form mutually satisfactory to the Company and Executive may be delayed at the discretion of the Company for up to three (3) days following the Executive’s delivery of release and such release becoming irrevocable (an “ Effective Release ”)) but in no event later than sixty (60) days following the Executive’s termination of employment, subject to Section ‎19.1. Regardless of any payment, however, all such amounts remain conditioned on an Effective Release such that if the Executive fails to deliver (or if the Executive revokes) the Executive’s release the Executive will forfeit and must immediately return such amounts on the Company’s demand.  If the sixty (60)-day period following a separation from service begins in one calendar year and ends in a second calendar year (a “ Crossover 60-Day Period ”) and if there are any payments that are subject to Section 409A that are:  (i) conditioned on the Executive signing and not revoking a release of claims and (ii) otherwise due to be paid during the portion of the Crossover 60-Day Period that falls within the first year, then such payments will be delayed and paid in a lump sum during the portion of the Crossover 60-Day Period that falls within the second year.

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19.4. Interpretative Rules . In applying Section 409A to compensation paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

20. Severability; Titles and Subtitles; Gender: Singular and Plural; Counterparts; Facsimile .

(a) In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

(b) The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

(c) The use of any gender in this Agreement shall be deemed to include the other genders, and the use of the singular in this Agreement shall be deemed to include the plural (and vice versa), wherever appropriate.

(d) This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument.

(e) Counterparts of this Agreement (or applicable signature pages hereof) that are manually signed and delivered by facsimile transmission shall be deemed to constitute signed original counterparts hereof and shall bind the parties signing and delivering in such manner.

[ The Following Page is the Signature Page ]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first writ ten above.

COMPANY:

 

EXECUTIVE:

VIEWRAY INC.

 

 

By:

/s/ Daniel Moore

 

By:

/s/ Shahriar Matin

Name:

Daniel Moore

 

 

 

Title:

Chairman of the Board, ViewRay Inc.

 

 

Print Name: Shahriar Matin

Address:

 

 

[ Signature Page for Shahriar Matin Employment Agreement ]


 

EXHIBIT A
PERMITTED ACTIVITIES

 

Fitzsimons Redevelopment Authority - Board Member (non-profit)

 

Consulting project (less than 25 hrs) in next 6 months

 

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Drake, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ViewRay, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

 

 

Date: August 7, 2018

 

 

 

/s/ Scott Drake

 

 

 

 

Scott Drake

 

 

 

 

Title: Chief Executive Officer and President

(Principal Executive Officer)

 

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ajay Bansal, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ViewRay, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

 

 

 

Date: August 7, 2018

 

 

 

/s/ Ajay Bansal

 

 

 

 

Ajay Bansal

 

 

 

 

Title: Chief Financial Officer

(Principal Financial Officer)

 

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL 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

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of ViewRay, Inc., a Delaware corporation (the “Company”), hereby certify that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the second quarter ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certification (i) is given to such officers’ knowledge, based upon such officers’ investigation as such officers reasonably deem appropriate; and (ii) is being furnished solely pursuant to 18 U.S.C. § 1350 (section 906 of the Sarbanes-Oxley Act of 2002) and is not being filed as part of the Report or as a separate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing. 

 

 

VIEWRAY, INC.

 

 

 

Dated: August 7, 2018

By:

/s/ Scott Drake

 

Name:

Scott Drake

 

 

Title: Chief Executive Officer

(Principal Executive Officer)

 

Dated: August 7, 2018

By:

/s/ Ajay Bansal

 

Name:

Ajay Bansal

 

 

Title: Chief Financial Officer

(Principal Financial Officer)