UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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: 001-36343
 
A10 NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
 
20-1446869
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
3 West Plumeria Drive, San Jose, California 95134
(Address of Principal Executive Offices and Zip Code)
(408) 325-8668
(Registrant’s Telephone Number, Including Area Code)
 
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   x     No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
x
Non-accelerated filer
¨
Smaller reporting company
¨

 
 
Emerging growth company
x
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    ¨    No   x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.00001 par value
 
ATEN
 
New York Stock Exchange


As of April 30, 2019 , the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was 75,634,696 .
 


A10 NETWORKS, INC.
FORM 10-Q

TABLE OF CONTENTS
 
Page No.
 


1

PART I. FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)

 
March 31,
2019
 
December 31,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
33,967

 
$
40,621

Marketable securities
88,784

 
87,754

Accounts receivable, net of allowances of $219 and $319, respectively
44,802

 
53,972

Inventory
20,952

 
17,930

Prepaid expenses and other current assets
17,113

 
14,662

Total current assets
205,618

 
214,939

Property and equipment, net
7,676

 
7,262

Goodwill
1,307

 
1,307

Intangible assets
3,387

 
3,748

Other non-current assets
13,989

 
8,620

Total assets
$
231,977

 
$
235,876

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
8,136

 
$
8,202

Accrued liabilities
25,436

 
25,291

Deferred revenue
62,528

 
63,874

Total current liabilities
96,100

 
97,367

Deferred revenue, non-current
36,041

 
34,092

Other non-current liabilities
3,062

 
534

Total liabilities
135,203

 
131,993

Commitments and contingencies (Note 2 and Note 6)

 

Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 75,183 and 74,301 shares issued and outstanding, respectively
1

 
1

Additional paid-in-capital
381,195

 
376,272

Accumulated other comprehensive income (loss)
96

 
(144
)
Accumulated deficit
(284,518
)
 
(272,246
)
Total stockholders' equity
96,774

 
103,883

Total liabilities and stockholders' equity
$
231,977

 
$
235,876

 
 
 
 

See accompanying notes to the condensed consolidated financial statements.


2

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)

 
Three Months Ended 
 March 31,
 
2019
 
2018
 
 
 

Revenue:
 

 
 

Products
$
28,230

 
$
28,149

Services
22,060

 
21,034

Total revenue
50,290

 
49,183

Cost of revenue:
 

 
 

Products
7,516

 
7,109

Services
4,734

 
4,775

Total cost of revenue
12,250

 
11,884

Gross profit
38,040

 
37,299

Operating expenses:
 

 
 

Sales and marketing
24,483

 
26,904

Research and development
16,166

 
18,797

General and administrative
8,358

 
11,594

Total operating expenses
49,007

 
57,295

Loss from operations
(10,967
)
 
(19,996
)
Non-operating income (expense):
 

 
 

Interest expense
(155
)
 
(33
)
Interest and other income (expense), net
(633
)
 
566

Total non-operating income (expense), net
(788
)
 
533

Loss before income taxes
(11,755
)
 
(19,463
)
Provision for income taxes
517

 
207

Net loss
$
(12,272
)
 
$
(19,670
)
Net loss per share:
 

 
 

Basic and diluted
$
(0.16
)
 
$
(0.27
)
Weighted-average shares used in computing net loss per share:
 

 
 

Basic and diluted
74,809

 
72,232

 
 
 
 


 See accompanying notes to the condensed consolidated financial statements.



3

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited, in thousands)

 
Three Months Ended March 31,
 
2019
 
2018
Net loss
$
(12,272
)
 
$
(19,670
)
Other comprehensive income (loss), net of tax
 
 
 
Unrealized gain (loss) on marketable securities
240

 
(173
)
Comprehensive loss
$
(12,032
)
 
$
(19,843
)
 
 
 
 

See accompanying notes to the condensed consolidated financial statements.


4

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

 
 
 
 Three Months Ended March 31,
 
 
 
2019
 
2018
Shares of common stock issued and outstanding
 
 
 
 
Beginning balance
74,301

 
71,692

 
Common stock issued under employee equity incentive plans
882

 
1,015

 
 
Ending balance
75,183

 
72,707

 
 
 
 
 
 
Stockholders' equity
 
 
 
 
Common stock:
 
 
 
 
 
Beginning balance
$
1

 
$
1

 
 
Common stock issued under employee equity incentive plans
—

 
—

 
 
Ending balance
1

 
1

 
 
 
 
 
 
 
Additional paid-in capital:
 
 
 
 
 
Beginning balance
376,272

 
355,533

 
 
Common stock issued under employee equity incentive plans
1,027

 
1,269

 
 
Stock-based compensation
3,896

 
8,151

 
 
Ending balance
381,195

 
364,953

 
 
 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
 
Beginning balance
(144
)
 
(123
)
 
 
Unrealized gain (loss) on marketable securities, net of tax
240

 
(173
)
 
 
Ending balance
96

 
(296
)
 
 
 
 
 
 
 
Accumulated deficit:
 
 
 
 
 
Beginning balance
(272,246
)
 
(257,025
)
 
 
Cumulative effect adjustment from adoption of ASU 2014-09
—

 
12,397

 
 
Net loss
(12,272
)
 
(19,670
)
 
 
Ending balance
(284,518
)
 
(264,298
)
 
 
 
 
 
 
Total stockholders' equity
$
96,774

 
$
100,360

 
 
 
 
 
 


See accompanying notes to the condensed consolidated financial statements.


5

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

 
Three Months Ended March 31,
 
2019
 
2018
 
 
 

Cash flows from operating activities:
 

 
 

Net loss
$
(12,272
)
 
$
(19,670
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
2,447

 
2,134

Stock-based compensation
3,896

 
8,151

Other non-cash items
(246
)
 
389

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
9,285

 
94

Inventory
(3,325
)
 
827

Prepaid expenses and other assets
(2,409
)
 
(1,687
)
Accounts payable
(492
)
 
(1,202
)
Accrued and other liabilities
(3,616
)
 
3,599

Deferred revenue
603

 
6,995

Other
71

 
18

Net cash used in operating activities
(6,058
)
 
(352
)
Cash flows from investing activities:
 

 
 

Proceeds from sales of marketable securities
8,674

 
10,709

Proceeds from maturities of marketable securities
4,500

 
17,150

Purchases of marketable securities
(13,859
)
 
(27,220
)
Purchases of property and equipment
(936
)
 
(1,133
)
Net cash used in investing activities
(1,621
)
 
(494
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock under employee equity incentive plans
1,027

 
1,269

Other
(2
)
 
(26
)
Net cash provided by financing activities
1,025

 
1,243

Net (decrease)  increase  in cash and cash equivalents
(6,654
)
 
397

Cash and cash equivalents - beginning of period
40,621

 
46,567

Cash and cash equivalents - end of period
$
33,967

 
$
46,964

Non-cash investing and financing activities:
 

 
 

Inventory transfers to property and equipment
$
303

 
$
561

Purchases of property and equipment included in accounts payable
$
485

 
$
87


See accompanying notes to the condensed consolidated financial statements.

6

A10 Networks, Inc.

Notes to Condensed Consolidated Financial Statements
(unaudited)



1. Description of Business and Summary of Significant Accounting Policies
Description of Business

A10 Networks, Inc. (together with our subsidiaries, the “Company”, “we”, “our” or “us”) was incorporated in California in 2004 and reincorporated in Delaware in March 2014. We are headquartered in San Jose, California and have wholly-owned subsidiaries throughout the world including Asia and Europe.

We are a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our product portfolio consists of six secure application solutions: Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”); and two intelligent management and automation tools: Harmony Controller and aGalaxy TPS. Our solutions are available in a variety of form factors, such as optimized hardware appliances, bare metal software, containerized software, virtual appliances and cloud-native software.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of A10 Networks, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions.

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). As permitted under these rules and regulations, we have condensed or omitted certain financial information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated balance sheet as of December 31, 2018 has been derived from our audited financial statements, which are included in our 2018 Annual Report on Form 10-K for the year ended December 31, 2018 on file with the SEC (our “Annual Report”).

These financial statements have been prepared on the same basis as our annual financial statements and, in management’s opinion, reflect all adjustments consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial information. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. 

These financial statements and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto in our Annual Report.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those estimates and assumptions affect revenue recognition and deferred revenue, the allowance for doubtful accounts, the sales return reserve, the valuation of inventory, the fair value of marketable securities, contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018. Other than the accounting policies related to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) discussed below, there have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2019 .

Leases


7

The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and are included within other non-current assets on the condensed consolidated balance sheets, and the lease liabilities represent an obligation to make lease payments arising from the lease and are recorded within accrued liabilities and other non-current liabilities on the condensed consolidated balance sheets. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.

The Company elected the package of practical expedients permitted under the transition guidance, which allowed for the carry-forward of the Company’s historical lease classification and assessment on whether a contract is or contains a lease. The Company elected to not apply the new standard’s recognition requirements to leases with an initial term of 12 months or less and instead elected to recognize lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company accounts for lease components and non-lease components as a single lease component. 

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash, cash equivalents and marketable securities are held and invested in high-credit quality financial instruments by recognized financial institutions and are subject to minimum credit risk.

Our accounts receivable are unsecured and represent amounts due to us based on contractual obligations of our customers. We mitigate credit risk in respect to accounts receivable by performing periodic credit evaluations based on a number of factors, including past transaction experience, evaluation of credit history and review of the invoicing terms of the contract. We generally do not require our customers to provide collateral to support accounts receivable.

Significant customers, including distribution channel partners and direct customers, are those which represent 10% or more of our total revenue for each period presented or our gross accounts receivable balance as of each respective balance sheet date. Revenues from our significant customers as a percentage of our total revenue are as follows:

 
Three Months Ended March 31,
 
2019
 
2018
Customer A (a distribution channel partner)
13%
 
*
 
* represents less than 10% of total revenue

As of March 31, 2019 , two customers accounted for 26% and 10% , respectively, of our total gross accounts receivable. As of December 31, 2018 , two customers accounted for  16% and 12% , respectively, of our total gross accounts receivable.

Recently Adopted Accounting Guidance

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02,  Leases (Topic 842)  in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior generally accepted accounting principles. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet.

8


The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately  $6.0 million and lease liabilities for operating leases of approximately  $6.8 million  on the Company’s condensed consolidated balance sheets, with no material impact to its condensed consolidated statements of operations. See Note 2 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

Recent Accounting Pronouncements Not Yet Effective

There have been no new accounting pronouncements issued by the FASB during the three months ended March 31, 2019, as compared to the recent accounting pronouncements described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, that the Company believes are of significance or potential significance to the Company.  

2. Leases

We lease various operating spaces in the United States, Asia and Europe under non-cancellable operating lease arrangements that expire on various dates through April 2022. These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

The table below presents the Company’s right-of-use assets and lease liabilities as of March 31, 2019:
 
 
March 31, 2019
Operating leases
 
Right-of-use assets:
 
 
Other non-current assets
$
5,450

Total right-of-use assets
$
5,450

 
 
 
Lease liabilities:
 
 
Accrued liabilities
$
3,506

 
Other non-current liabilities
2,609

Total operating lease liabilities
$
6,115


The aggregate future lease payments for operating leases as of March 31, 2019 were as follows:

Remainder of 2019
$
2,866

2020
1,960

2021
1,197

2022
312

Total lease payments
6,335

Less: imputed interest
(220
)
Present value of lease liabilities
$
6,115


The components of operating lease costs were as follows:

 
 
Three Months Ended March 31, 2019
 
 
Operating lease costs
$
893

Short-term lease costs
137

Total lease costs
$
1,030

 
 
 


9

Average lease terms and discount rates for the Company’s operating leases were as follows:

 
March 31, 2019
 
 
Weighted-average remaining term (years)
2.17

Weighted-average discount rate
3.41
%

Supplemental cash flow information for the Company’s operating leases:
 
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
$
989

 
 
 
Right-of-use assets obtained in exchange for new lease liabilities
$
264


3. Marketable Securities and Fair Value Measurements

Marketable Securities

Marketable securities, classified as available-for-sale, consisted of the following (in thousands):
 
 
March 31, 2019
 
December 31, 2018
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Certificates of deposit
 
$
11,998

 
$
24

 
$
—

 
$
12,022

 
$
11,000

 
$
7

 
$
(3
)
 
$
11,004

Corporate securities
 
48,217

 
89

 
(33
)
 
48,273

 
46,442

 
11

 
(116
)
 
46,337

U.S. Treasury and agency securities
 
1,748

 
—

 
(6
)
 
1,742

 
1,748

 
—

 
(12
)
 
1,736

Commercial paper
 
11,410

 
8

 
—

 
11,418

 
12,327

 
1

 
(5
)
 
12,323

Asset-backed securities
 
15,315

 
22

 
(8
)
 
15,329

 
16,381

 
5

 
(32
)
 
16,354

Total
 
$
88,688

 
$
143

 
$
(47
)
 
$
88,784

 
$
87,898

 
$
24

 
$
(168
)
 
$
87,754

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

During the three months ended March 31, 2019 and 2018 , we did not reclassify any amount to earnings from accumulated other comprehensive loss related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of March 31, 2019 (in thousands):
 
Amortized Cost
 
Fair Value
Less than 1 year
$
57,747

 
$
57,746

Mature in 1 - 3 years
30,941

 
31,038

Total
$
88,688

 
$
88,784

 
 
 
 

All available-for-sale securities have been classified as current because they are available for use in current operations.


10

Marketable securities in an unrealized loss position consisted of the following (in thousands):
 
Less Than 12 Months
 
12 Months or More
 
Total
March 31, 2019
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Corporate securities
$
4,247

 
$
(1
)
 
$
10,365

 
$
(32
)
 
$
14,612

 
$
(33
)
U.S. Treasury and agency securities
—

 
—

 
1,742

 
(6
)
 
1,742

 
(6
)
Asset-backed securities
996

 
—

 
3,616

 
(8
)
 
4,612

 
(8
)
Total
$
5,243

 
$
(1
)
 
$
15,723

 
$
(46
)
 
$
20,966

 
$
(47
)
 
 
 
 
 
 
 
 
 
 
 
 

 
Less Than 12 Months
 
12 Months or More
 
Total
December 31, 2018
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Certificates of deposit
$
2,997

 
$
(3
)
 
$
—

 
$
—

 
$
2,997

 
$
(3
)
Corporate securities
29,435

 
(68
)
 
7,601

 
(48
)
 
37,036

 
(116
)
U.S. Treasury and agency securities
992

 
(7
)
 
744

 
(5
)
 
1,736

 
(12
)
Commercial paper
9,888

 
(5
)
 
—

 
—

 
9,888

 
(5
)
Asset-backed securities
8,499

 
(15
)
 
4,758

 
(17
)
 
13,257

 
(32
)
Total
$
51,811

 
$
(98
)
 
$
13,103

 
$
(70
)
 
$
64,914

 
$
(168
)
 
 
 
 
 
 
 
 
 
 
 
 

Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during the three months ended March 31, 2019 and 2018 .

Fair Value Measurements

The following is a summary of our cash, cash equivalents and marketable securities measured at fair value on a recurring basis (in thousands):
 
 
March 31, 2019
 
December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
 
$
32,615

 
$
—

 
$
—

 
$
32,615

 
$
39,113

 
$
—

 
$
—

 
$
39,113

Cash equivalents
 
1,352

 
—

 
—

 
1,352

 
1,508

 
—

 
—

 
1,508

Certificates of deposit
 
—

 
12,022

 
—

 
12,022

 
—

 
11,004

 
—

 
11,004

Corporate securities
 
—

 
48,273

 
—

 
48,273

 
—

 
46,337

 
—

 
46,337

U.S. Treasury and agency securities
 
—

 
1,742

 
—

 
1,742

 
—

 
1,736

 
—

 
1,736

Commercial paper
 
—

 
11,418

 
—

 
11,418

 
—

 
12,323

 
—

 
12,323

Asset-backed securities
 
—

 
15,329

 
—

 
15,329

 
—

 
16,354

 
—

 
16,354

Total
 
$
33,967

 
$
88,784

 
$
—

 
$
122,751

 
$
40,621

 
$
87,754

 
$
—

 
$
128,375

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

There were no transfers between Level 1 and Level 2 fair value measurement categories during the three months ended March 31, 2019 and 2018 .
4. Condensed Consolidated Financial Statement Details

Inventory

Inventory consisted of the following (in thousands):

11

 
March 31,
2019
 
December 31,
2018
Raw materials
$
8,502

 
$
7,979

Finished goods
12,450

 
9,951

Total inventory
$
20,952

 
$
17,930

 
 
 
 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):
 
March 31,
2019
 
December 31,
2018
Prepaid expenses
$
6,675

 
$
6,679

Deferred contract acquisition costs
5,711

 
6,564

Other
4,727

 
1,419

       Total prepaid and other current assets
$
17,113

 
$
14,662

 
 
 
 

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):
 
Useful Life
 
March 31,
2019
 
December 31,
2018
 
(in years)
 

Equipment
1-3
 
$
49,230

 
$
49,804

Software
1-3
 
4,108

 
4,088

Furniture and fixtures
1-3
 
967

 
967

Leasehold improvements
2-8
 
3,834

 
3,832

Construction in progress
 
 
692

 
160

Property and equipment, gross
 
 
58,831

 
58,851

Less: accumulated depreciation
 
 
(51,155
)
 
(51,589
)
Property and equipment, net
 
 
$
7,676

 
$
7,262

 
 
 
 
 
 

Depreciation expense on property and equipment was $1.2 million and $1.7 million for the three months ended March 31, 2019 and 2018 , respectively.

Intangible Assets

Purchased intangible assets, net, consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Cost
 
Accumulated Amortization
 
Net
 
Cost
 
Accumulated Amortization
 
Net
Developed technology
$
5,050

 
$
(2,778
)
 
$
2,272

 
$
5,050

 
$
(2,525
)
 
$
2,525

Patents
2,936

 
(1,821
)
 
1,115

 
2,936

 
(1,713
)
 
1,223

Total
$
7,986

 
$
(4,599
)
 
$
3,387

 
$
7,986

 
$
(4,238
)
 
$
3,748

 
 
 
 
 
 
 
 
 
 
 
 

Amortization expense related to purchased intangible assets was $0.4 million for each of the three months ended March 31, 2019 and 2018 . Purchased intangible assets will be amortized over a remaining weighted average useful life of 2.4 years.

Future amortization expense for purchased intangible assets as of March 31, 2019 is as follows (in thousands):

12

Fiscal Year
 
 
Remainder of 2019
 
$
1,082

2020
 
1,442

2021
 
863

 
 
$
3,387

 
 
 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
 
March 31,
2019
 
December 31,
2018
Accrued compensation and benefits
$
11,605

 
$
15,283

Accrued tax liabilities
5,555

 
4,455

Other
8,276

 
5,553

Total accrued liabilities
$
25,436

 
$
25,291

 
 
 
 

Deferred Revenue

Deferred revenue consisted of the following (in thousands):
 
March 31,
2019
 
December 31,
2018
Deferred revenue:
 
 
 
Products
$
5,529

 
$
5,216

Services
93,040

 
92,750

Total deferred revenue
98,569

 
97,966

Less: current portion
(62,528
)
 
(63,874
)
Non-current portion
$
36,041

 
$
34,092

 
 
 
 


5. Credit Facility

In November 2016, we entered into a loan and security agreement (the “2016 Credit Facility”) with Silicon Valley Bank (“SVB”) as the lender. The 2016 Credit Facility provides a three -year, $25.0 million revolving credit facility, which includes a maximum of $25.0 million letter of credit subfacility. When the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit equals or exceeds  $50.0 million , loans may be advanced under the 2016 Credit Facility up to the full  $25.0 million . When our net cash falls below  $50.0 million , loans may be advanced under the 2016 Credit Facility based on a borrowing base equal to a specified percentage of the value of our eligible accounts receivable. The loans bear interest, at our option, at (i) the prime rate reported in The Wall Street Journal, minus 0.50% or (ii) a LIBOR rate determined in accordance with the 2016 Credit Facility, plus 2.50% . We are required to pay customary closing fees, commitment fees and letter of credit fees for a facility of this size and type.

In September 2018, we entered into an amendment with SVB to reduce the unused revolving credit facility fee on the 2016 Credit Facility from 0.4% to 0.3% .

Our obligations under the 2016 Credit Facility are secured by substantially all of our assets, excluding our intellectual property. The 2016 Credit Facility contains customary affirmative and negative covenants. In addition, the 2016 Credit Facility requires us to maintain compliance with an adjusted quick ratio of not less than 1.50 :1.00, as determined in accordance with the 2016 Credit Facility. As of March 31, 2019 , we had no outstanding balance under the 2016 Credit Facility and were in compliance with all facility covenants.


13

6. Commitments and Contingencies

Legal Proceedings

Litigation
  
From time to time, we may be party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings involve claims that are subject to substantial uncertainties and unascertainable damages. We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

On March 22, 2018, the Company, our Chief Executive Officer, our Chief Financial Officer, and certain former officers, were named as defendants in a putative class action lawsuit filed in the United States District Court for the Northern District of California, captioned Shah v. A10 Networks, Inc. et al., 3:18-cv-01772-VC (the “Securities Action”). On August 31, 2018, the court appointed a lead plaintiff. On October 5, 2018, the lead plaintiff filed an amended complaint. The amended complaint names the same defendants as the initial complaint, in addition to one of the Company’s former executive vice presidents. The amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The amended complaint named the same defendants as the initial complaint, in addition to one of the Company’s former executive vice presidents. The Company and individual defendants filed motions to dismiss the amended complaint. On February 21, 2019, the court granted the motions to dismiss with leave to amend within 21 days. The lead plaintiff did not file an amended complaint by the Court-ordered deadline. Instead, on March 21, 2019, the lead plaintiff filed a notice of appeal in the United States Court of Appeals for the Ninth Circuit. On April 5, 2019, the clerk of court suspended briefing on the appeal and ordered that, by April 26, 2019, appellants shall either move for voluntary dismissal or show cause why the appeal should not be dismissed for lack of jurisdiction. On April 25, 2019, appellants moved to voluntarily dismiss the appeal without prejudice, and that motion was granted on May 1, 2019. Prior to moving to voluntarily dismiss the appeal, the lead plaintiff requested entry of final judgment in the district court. On April 30, 2019, the district court ordered a response to that request by May 14, 2019, with a reply by lead plaintiff due by May 21, 2019.

On May 30, 2018, certain of our current and former directors and officers were named as defendants in a putative shareholder derivative lawsuit filed in the United States District Court for the Northern District of California, captioned Moulton v. Chen et al., 3:18-cv-03223-VC (the “Derivative Action”). We were also named as a nominal defendant. The complaint in the Derivative Action alleges breaches of fiduciary duties and other related claims in connection with purported misrepresentations related to internal controls and revenues and failures to ensure that financial statements were made in accordance with generally accepted accounting principles. Plaintiff seeks unspecified damages allegedly sustained by the Company, restitution, and other relief. On July 11, 2018 the Derivative Action was stayed until a motion to dismiss in the Securities Action is granted with prejudice or denied in whole or in part. Defendants are not required to move or otherwise respond to the current complaint.

On October 24, 2018, the Company was sued in the Federal District Court for the Northern District of California by FireNet Technologies, LLC, which we believe is a non-practicing patent holding company. The complaint alleged infringement of certain patents purportedly owned by the plaintiff. In January 2019, we entered into a settlement agreement whereby we obtained a fully-paid up license, and the case was dismissed with prejudice on February 4, 2019.

Investigations

The U.S. Securities and Exchange Commission (“SEC”) is conducting a private investigation into possible violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), and 13(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13a-15, and 13b2-1 thereunder.  The Company is cooperating with the SEC regarding this investigation. The Company is unable to predict the duration, scope or outcome of the investigation, but an adverse outcome is reasonably possible. In such an event, the Company could be required to pay fines and sanctions and/or implement additional remedial measures.  However, the Company is not able to estimate the likelihood or a reasonable range of possible loss.


14

Lease Commitments

We lease various operating spaces in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through April 2022 . These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

Guarantees and Indemnifications

In the normal course of business, we provide indemnifications to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Other guarantees or indemnification arrangements include guarantees of product and service performance, and standby letters of credit for lease facilities and corporate credit cards. We have not recorded a liability related to these indemnification and guarantee provisions and our guarantees and indemnification arrangements have not had any significant impact on our consolidated financial statements to date.


7. Equity Incentive Plans and Stock-Based Compensation

Equity Incentive Plans

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) provides for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our board of directors. In June 2015, our board of directors adopted and our stockholders approved an amendment and restatement of the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by the number of shares granted under the 2008 Stock Plan (the “2008 Plan”) that were or may in the future be canceled or otherwise forfeited or repurchased after March 20, 2014.

The shares authorized for the 2014 Plan increase annually by the least of (i)  8,000,000 shares, (ii)  5% of the outstanding shares of common stock on the last day of our immediately preceding fiscal year, or (iii) such other amount as determined by our Board of Directors. Accordingly, effective January 1, 2019 , the number of shares in the 2014 Plan increased by 3,715,060 shares, representing 5% of the prior year end’s common stock outstanding. As of March 31, 2019, we had 12,613,705 shares available for future grant under the 2014 Plan.

To date, we have granted stock options, RSUs and PSUs under the 2014 Plan. Stock options expire no more than 10 years from the grant date and generally vest over four years . In the case of an incentive stock option granted to an employee who, at the time of grant, owns stock representing more than 10% of the total combined voting power of all classes of stock, the per share exercise price will be no less than 110% of the fair market value per share on the date of grant, and the incentive stock option will expire no later than five years from the date of grant. For incentive stock options granted to any other employees and nonstatutory stock options granted to employees, consultants, or members of our board of directors, the per share exercise price will be no less than 100% of the fair market value per share on the date of grant. RSUs and PSUs generally vest over one to four years .

2014 Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan (the “2014 Purchase Plan”) was suspended effective March 16, 2018 due to the delay of the Form 10-K filing for the year ended December 31, 2017. In October 2018, the Board approved amending the 2014 Purchase Plan (the “Amended 2014 Purchase Plan”) in order to, among other things, reduce the maximum contribution participants can make under the plan from 15% to 10% of eligible compensation. The Amended 2014 Purchase Plan also reflects revised offering periods, which were changed from 24 months to six months in duration and that begin on or about December 1 and June 1 each year, starting in December 2018. The Amended 2014 Purchase Plan permits eligible employees to purchase shares of our common stock through payroll deductions with up to 10% of their gross eligible earnings subject to certain Internal Revenue Code limitations. The purchase price of the shares is 85% of the lower of the fair market value of our common stock on the first day of a six-month offering period or the relevant purchase date. In addition, no participant may purchase more than 1,500 shares of common stock in each purchase period. As of March 31, 2019, the Company had 3,065,182 shares available for future issuance under the Amended 2014 Purchase Plan.


15

During the three months ended March 31, 2019, there was no stock purchased by employees under the Amended 2014 Purchase Plan.

Stock-Based Compensation

A summary of our stock-based compensation expense is as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Stock-based compensation by type of award:
 
 
 
Stock options
$
184

 
$
329

Stock awards
3,474

 
2,665

Employee stock purchase rights (1)
238

 
5,157

 
$
3,896

 
$
8,151

 
 
 
 
Stock-based compensation by category of expense:
 
 
 
Cost of revenue
$
324

 
$
893

Sales and marketing
1,321

 
2,765

Research and development
1,331

 
3,382

General and administrative
920

 
1,111

 
$
3,896

 
$
8,151

 
 
 
 
 
(1)
Amount for the three months ended March 31, 2018 includes $4.1 million of accelerated stock-based compensation expense. In March 2018, as a result of a suspension of the 2014 Purchase Plan due to our non-timely filing status, all unrecognized stock-based compensation expense related to the 2014 Purchase Plan was accelerated and recognized within the condensed consolidated statement of operations.

As of March 31, 2019 , the Company had $28.7 million of unrecognized stock-based compensation expense related to unvested stock-based awards which will be recognized over a weighted-average period of  2.5 years.

Stock Options

The following tables summarize our stock option activities and related information:
 
Number of Shares
(thousands)
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
(years)
 
Aggregate Intrinsic Value
(thousands)
Outstanding as of December 31, 2018
4,674

 
$
5.19

 
 
 
 
Granted
—

 
$
—

 
 
 
 

Exercised
(305
)
 
$
3.36

 
 
 
 
Canceled
(47
)
 
$
8.10

 
 
 
 

Outstanding as of March 31, 2019
4,322

 
$
5.28

 
4.9
 
$
9,498

Vested and exercisable as of March 31, 2019
3,855

 
$
5.14

 
4.4
 
$
9,061

 
 
 
 
 
 
 
 

As of  March 31, 2019 , the aggregate intrinsic value represents the excess of the closing price of our common stock of  $7.09  over the exercise price of the outstanding in-the-money options.

The intrinsic value of options exercised was $1.1 million during each of the three months ended March 31, 2019 and 2018 .


16

Stock Awards

We have granted RSUs to our employees, consultants and members of our board of directors, and PSUs and market performance-based restricted stock units (“MSUs”) to certain executives.

In 2014 and 2015, we granted  540,000  MSUs and  40,000  MSUs, respectively, to certain executives. These MSUs will vest if the closing price of our common stock remains above certain predetermined target prices for  20  consecutive trading days within a  4 -year period following the grant date, subject to continued service by the award holder. As of March 31, 2019, none of these MSUs were vested and all of the MSUs granted in 2014 were expired.

In February 2016, we granted  547,000  PSUs with certain financial and operational targets. Actual performance, as measured at the time and prior to the restatement of the 2016 financial statements, resulted in participants achieving 80%  of target. Given the PSUs did not contain explicit or implicit claw back rights, there was no change to stock-based compensation expense for the impact of the previously disclosed restatement of the 2016 consolidated financial statements. As of March 31, 2019 , 253,203 shares had vested, 200,297 shares were forfeited, and the remaining shares will vest (as to 80% ) in February 2020 subject to continued service vesting requirements.
 
In October 2016, we granted  60,641  PSUs with certain financial and operational targets. To the extent they become eligible to vest upon achievement of the performance targets, these PSUs additionally are subject to service condition vesting requirements with scheduled vesting dates of March 2017 through June 2018. As of March 31, 2019 , 30,320 shares were vested and 30,321 shares were forfeited.

In October 2018, we granted 464,888 PSUs with certain financial targets. These PSUs will become eligible to vest at 75% upon the achievement of the performance targets by December 31, 2020, and are subject to service condition vesting requirements. The remaining 25% of these PSUs will become eligible to vest on the first anniversary of the initial vesting date. None of these PSUs were vested as of March 31, 2019.


The following table summarizes our stock award activities and related information:
 
Number of Shares
(thousands)
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Remaining Vesting Term
(years)
Nonvested as of December 31, 2018
5,974

 
$
6.51

 
 
Granted
248

 
$
6.87

 
 
Released
(577
)
 
$
6.30

 
 
Canceled
(259
)
 
$
6.72

 
 
Nonvested as of March 31, 2019
5,386

 
$
6.54

 
1.5
 
 
 
 
 
 

The aggregate fair value of stock awards released as of the respective vesting dates was $3.8 million and  $4.3 million  for the three months ended March 31, 2019 and 2018 , respectively.


8. Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive. Since we had net losses in the three months ended March 31, 2019 and 2018 , none of the potential dilutive common shares were included in the computation of diluted shares for these periods, as inclusion of such shares would have been anti-dilutive.


17

The following table presents common shares related to potentially dilutive shares excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Stock options, restricted stock units and employee stock purchase rights
9,997

 
10,431


9. Income Taxes

We recorded income tax expense of $0.5 million and $0.2 million for the three months ended March 31, 2019 and 2018, respectively, which primarily consisted of foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.

We believe it is more likely than not that our federal and state net deferred tax assets will not be fully realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized. Accordingly, we continue to maintain a valuation allowance against all of our U.S. and certain foreign net deferred tax assets as of March 31, 2019. We will continue to maintain a full valuation allowance against our net federal, state and certain foreign deferred tax assets until there is sufficient evidence to support recoverability of our deferred tax assets.

We had $4.2 million of unrecognized tax benefits as of March 31, 2019 and December 31, 2018. We do not anticipate a material change to our unrecognized tax benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

Accrued interest and penalties related to unrecognized tax benefits are recognized as part of our income tax provision in our condensed consolidated statements of operations.

We are subject to taxation in the United States, various states, and several foreign jurisdictions. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period. We are not currently under examination by any taxing authorities.

10. Geographic Information

The following table depicts the disaggregation of revenue by geographic region based on the ship to location of our customers and is consistent with how we evaluate our financial performance (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
United States
$
18,100

 
$
20,678

Japan
13,152

 
13,080

Asia Pacific, excluding Japan
8,776

 
7,438

EMEA
7,229

 
6,499

Other
3,033

 
1,488

 
$
50,290

 
$
49,183

 
 
 
 


18

The following table is a summary of our long-lived assets which include property and equipment, net and operating lease ROU assets based on the physical location of the assets (in thousands):
 
March 31,
2019
 
December 31,
2018
United States
$
7,652

 
$
5,525

Japan
3,488

 
1,108

Other
1,986

 
629

Total
$
13,126

 
$
7,262

 
 
 
 


11 . Revenue

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as subsequently amended, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. This ASU requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the capitalization of incremental customer acquisition costs and amortization of these costs over the contract period or estimated customer life which resulted in the recognition of a deferred commission asset on our consolidated balance sheet.

The Company adopted ASU 2014-09 and its related amendments (collectively “ASC 606”) on January 1, 2018 using the modified retrospective method. The adoption of the new standard resulted in changes to the Company’s accounting policies for revenue recognition, commissions and deferred commissions. As a result of the adoption, the Company recorded a reduction to opening accumulated deficit of  $12.4 million  as of January 1, 2018 due to the cumulative impact of adopting the new standard as follows:

•
A decrease in total deferred revenue of  $4.0 million  primarily due to the removal of the current limitation on contingent revenue that would have accelerated revenue recognition for certain of our historical revenue contracts; and

•
Recognition of a deferred commissions asset of  $8.4 million  due to the requirement under the new standard to recognize incremental customer acquisition costs in our condensed consolidated statement of operations as the related performance obligations are met as compared to the previous recognition to expense as incurred.

For additional information and disclosure of the impact of adopting the new standard, see Note 2 to the Company’s Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Contract Balances
The following table reflects contract balances with customers (in thousands):
 
March 31, 2019
 
December 31, 2018
Accounts receivable, net
$
44,802

 
$
53,972

Deferred revenue, current
62,528

 
63,874

Deferred revenue, non-current
36,041

 
34,092


We receive payments from customers based upon billing cycles. Invoice payment terms are usually ranging from 30 to 90 days.

Accounts receivable are recorded when the right to consideration becomes unconditional.

Contract assets include amounts related to our contractual right to consideration for performance obligations not yet billed and are included in prepaid and other current assets in the condensed consolidated balance sheets. The amount is immaterial as of March 31, 2019 .


19

Deferred revenue primarily consists of amounts that have been invoiced but not yet been recognized as revenue and consists of performance obligations pertaining to support and subscription services. During the three months ended March 31, 2019 and 2018, we recognized revenue of $23.7 million  and $19.5 million , respectively, related to deferred revenues at the beginning of the respective periods.

Deferred Contract Acquisition Costs
In connection with the adoption of ASC 340-40, we capitalize certain contract acquisition costs consisting of incremental sales commissions incurred to obtain customer contracts. Deferred commissions related to product revenues are recognized upon transfer of control to customers. Deferred commissions related to services revenue are recognized as the related performance obligations are met. Deferred commissions that will be recognized during the succeeding 12-month period are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other non-current assets. Amortization of deferred commissions is included in sales and marketing expense.
Deferred contract acquisition costs were $9.0 million as of March 31, 2019 , and the related amortization amount was $2.0 million and $1.7 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

We had  no  impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets.

Remaining Performance Obligations
Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations, which include deferred revenues and amounts that will be invoiced and recognized as revenues in future periods.

We expect to recognize revenue on the remaining performance obligations as follows (in thousands):
 
 
March 31, 2019
Within 1 year
 
$
62,528

Next 2 to 3 years
 
29,469

Thereafter
 
6,572

Total
 
$
98,569

 
 
 


20

12 . Subsequent Event
Lease of 2300 Orchard Parkway

On May 2, 2019 (the “Effective Date”), the Company entered into a sublease agreement (the “Sublease”) with Marvell Semiconductor, Inc. (“Sublandlord”) for corporate office space located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”). The Sublease is conditioned upon receipt of consent to the Sublease from the landlord of the Premises, Han’s Holdings 2300 Orchard (the “Landlord”).

The Company intends to use the premises as a corporate office space and for research and development purposes. The term of the Sublease is seven years and eight months from the earlier of (i) December 1, 2019 or (ii) the date the Company commences business operations at the Premises. The Sublease provides for monthly base rent of approximately $262,000 per month for the first year with annual increases thereafter. The total base rent through the end of the term of the Sublease is approximately $26.4 million . In addition to base rent, the Company will also be responsible for operating and other expenses.

The Company is evaluating the accounting for the new sublease arrangement under ASC 842.


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

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements concerning the following:
•
our ability to provide customers with improved benefits relating to their applications;
•
our ability to maintain an adequate rate of revenue growth and other factors contributing to such growth;
•
our ability to successfully anticipate market needs and opportunities;
•
our business plan and our ability to effectively manage our growth;
•
our ability to timely file financial, periodic and current reports required by the Exchange Act;
•
loss or delay of expected purchases by our largest end-customers;
•
our ability to further penetrate our existing customer base;
•
our ability to displace existing products in established markets;
•
continued growth in markets relating to network security;
•
our ability to timely and effectively scale and adapt our existing technology;
•
our ability to innovate new products and bring them to market in a timely manner;
•
our ability to expand internationally and any related impact on profitability;
•
the effects of increased competition in our market and our ability to compete effectively;
•
the effects of seasonal trends on our results of operations;
•
our expectations concerning relationships with third parties;
•
the attraction, retention and growth of qualified employees and key personnel;
•
our ability to achieve or maintain profitability while continuing to invest in our sales, marketing and research and development teams;
•
our expectations regarding our future expenses;
•
variations in product mix or geographic locations of our sales;
•
fluctuations in currency exchange rates;
•
tariffs affecting us;
•
increased cost requirements of being a public company and future sales of substantial amounts of our common stock in the public markets;

21

•
the cost and potential outcomes of litigation;
•
our ability to maintain, protect, and enhance our brand and intellectual property;
•
future acquisitions of or investments in complementary companies, products, services or technologies;
•
our ability to effectively integrate operations of entities we have acquired or may acquire; and
•
actions relating to the remediation of identified material weaknesses.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

Our investor relations Web site is located at https://investors.a10networks.com. We intend to use our investor relations Web site as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor this portion of our Web site, in addition to following press releases, SEC filings and public conference calls and webcasts. We also make available, free of charge, on our investor relations Web site under “SEC Filings,” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC.

Overview

We are a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our portfolio of software and hardware solutions combines industry-leading performance and scale with advanced intelligent automation, machine learning, data driven analytics, and threat intelligence to ensure security and availability of customer applications across their multi-cloud and mobile infrastructure networks, including on-premise, private and public clouds. As the cyber threat landscape intensifies and network architectures evolve, we are committed to providing customers with greater connected intelligence to improve the security, visibility, automation, availability, flexibility, management and performance of their applications. Our customers include leading cloud providers, web-scale businesses, service providers, government organizations and enterprises.

Our product portfolio seeks to address many of the aforementioned challenges and solution requirements. The portfolio consists of six secure application solutions: Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”); and two intelligent management and automation tools: Harmony Controller and aGalaxy TPS. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

We derive revenue from sales of products and related support services. Products revenue is generated primarily by sales of hardware appliances with perpetual licenses to our embedded software solutions. We also derive revenue from licenses to, or subscription services for, software-only versions of our solutions. We generate services revenue primarily from sales of maintenance and support contracts. Our customers predominantly purchase maintenance and support in conjunction with purchases of our products. In addition, we also derive revenue from the sale of professional services.

22


We sell our products globally to service providers, enterprises and web giants that depend on data center applications and networks to generate revenue and manage operations efficiently. Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly. As of  March 31, 2019 , we had sold products to approximately 6,300 end customers across 116 countries.

We sell substantially all of our solutions through our high-touch sales organization as well as distribution channel partners, including distributors, value-added resellers and system integrators, and fulfill nearly all orders globally through such partners. We believe this sales approach allows us to obtain the benefits of channel distribution, such as expanding our market coverage, while still maintaining face-to-face relationships with our end-customers. We outsource the manufacturing of our hardware products to original design manufacturers. We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

During the first three months of 2019 ,  36%  of our total revenue was generated from the United States,  26%  from Japan and  38%  from other geographical regions. During the first three months of  2018 ,  42%  of our total revenue was generated from the United States,  27%  from Japan and  31% from other geographical regions. Our enterprise customers accounted for 46% and 44% of our total revenue during the first three months of 2019 and 2018 , respectively. Our service provider customers accounted for 47% and 42% of our total revenue during the first three months of 2019 and 2018 , respectively. Our web giant customers accounted for 7% and 14% of our total revenue during the first three months of 2019 and 2018, respectively.

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of large customers, including service providers and web giants, in any period. Purchases from our ten largest end-customers accounted for 33% and 36% of our total revenue for the first three months of 2019 and 2018 , respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.

As of March 31, 2019 , we had $34.0 million of cash and cash equivalents and $88.8 million of marketable securities. Cash used in operating activities was $6.1 million in the first three months of 2019 compared to $0.4 million cash used in operating activities in the same period of last year.

We intend to continue to invest for long-term growth. We have invested and expect to continue to invest in our product development efforts to deliver new products and additional features in our current products to address customer needs. In addition, we may expand our global sales and marketing organizations, expand our distribution channel partner programs and increase awareness of our solutions on a global basis. Our investments in growth in these areas may affect our short-term profitability.



23

Results of Operations

A summary of our condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 is as follows (dollars in thousands):

 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Increase (Decrease)
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent
Revenue:
 

 
 
 
 

 
 
 
 
 
 
Products
$
28,230

 
56.1
 %
 
$
28,149

 
57.2
 %
 
$
81

 
0.3
 %
Services
22,060

 
43.9

 
21,034

 
42.8

 
1,026

 
4.9

Total revenue
50,290

 
100.0

 
49,183

 
100.0

 
1,107

 
2.3

Cost of revenue:
 

 
 
 
 

 
 
 
 
 
 
Products
7,516

 
15.0

 
7,109

 
14.5

 
407

 
5.7

Services
4,734

 
9.4

 
4,775

 
9.7

 
(41
)
 
(0.9
)
Total cost of revenue
12,250

 
24.4

 
11,884

 
24.2

 
366

 
3.1

Gross profit
38,040

 
75.6

 
37,299

 
75.8

 
741

 
2.0

Operating expenses:
 

 
 
 
 

 
 
 
 
 
 
Sales and marketing
24,483

 
48.7

 
26,904

 
54.7

 
(2,421
)
 
(9.0
)
Research and development
16,166

 
32.1

 
18,797

 
38.2

 
(2,631
)
 
(14.0
)
General and administrative
8,358

 
16.6

 
11,594

 
23.6

 
(3,236
)
 
(27.9
)
Total operating expenses
49,007

 
97.4

 
57,295

 
116.5

 
(8,288
)
 
(14.5
)
Loss from operations
(10,967
)
 
(21.8
)
 
(19,996
)
 
(40.7
)
 
9,029

 
45.2

Non-operating income (expense):
 

 
 
 
 

 
 
 
 
 
 
Interest expense
(155
)
 
(0.3
)
 
(33
)
 
(0.1
)
 
(122
)
 
(369.7
)
Interest and other income (expense), net
(633
)
 
(1.3
)
 
566

 
1.2

 
(1,199
)
 
(211.8
)
Total non-operating income (expense), net
(788
)
 
(1.6
)
 
533

 
1.1

 
(1,321
)
 
(247.8
)
Loss before income taxes
(11,755
)
 
(23.4
)
 
(19,463
)
 
(39.6
)
 
7,708

 
39.6

Provision for income taxes
517

 
1.0

 
207

 
0.4

 
310

 
149.8

Net loss
$
(12,272
)
 
(24.4
)%
 
$
(19,670
)
 
(40.0
)%
 
$
7,398

 
37.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
.


Revenue

Our products revenue primarily consists of revenue from sales of our hardware appliances upon which our software is installed. Such software includes our ACOS software platform plus one or more of our ADC, CGN, TPS, SSLi or CFW solutions. Purchase of a hardware appliance includes a perpetual license to the included software. We recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met. As a percentage of revenue, our products revenue may vary from quarter to quarter based on, among other things, the timing of orders and delivery of products, cyclicality and seasonality, changes in currency exchange rates and the impact of significant transactions with unique terms and conditions.

We generate services revenue from sales of post contract support (“PCS”), which is bundled with sales of products and professional services. We offer tiered PCS services under renewable, fee-based PCS contracts, primarily including technical support, hardware repair and replacement parts, and software upgrades on a when-and-if-available basis. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to five years.


24



A summary of our total revenue is as follows (dollars in thousands):
 
Three Months Ended March 31,
 
 
 
2019
 
2018
 
Increase (Decrease)
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent of Total Revenue
 
Amount
 
Percent
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Products
$
28,230

 
56
%
 
$
28,149

 
57
%
 
$
81

 
—
 %
Services
22,060

 
44

 
21,034

 
43

 
1,026

 
5
 %
Total revenue
$
50,290

 
100
%
 
$
49,183

 
100
%
 
$
1,107

 
2
 %
Revenue by geographic region:
 

 
 
 
 

 
 
 
 

 
 
   United States
$
18,100

 
36
%
 
$
20,678

 
42
%
 
$
(2,578
)
 
(12
)%
   Japan
13,152

 
26

 
13,080

 
27

 
72

 
1
 %
   Asia Pacific, excluding Japan
8,776

 
18

 
7,438

 
15

 
1,338

 
18
 %
   EMEA
7,229

 
14

 
6,499

 
13

 
730

 
11
 %
   Other
3,033

 
6

 
1,488

 
3

 
1,545

 
104
 %
   Total revenue
$
50,290

 
100
%
 
$
49,183

 
100
%
 
$
1,107

 
2
 %
 
 
 
 
 
 
 
 
 
 
 
 

Total revenue increased by  $1.1 million , or  2% , during the first quarter of 2019 compared to the same period of 2018 . This increase was due primarily to a $1.0 million  increase in services revenue, which was primarily driven by higher demand from our service provider and enterprise customers. Product revenues were higher in Latin America and Japan, partially offset by lower revenues in United States during the first quarter of 2019 compared to the same period of 2018 .

Products revenue increased $0.1 million , or less than 1%, during the first quarter of 2019 compared to the same period of 2018 primarily driven by growth in EMEA, Asia Pacific and Latin America regions, partially offset by lower demand from our web giant customers in the United States.

Services revenue increased $1.0 million , or 5% , during the first quarter of 2019 compared to the same period of 2018 . The increase was primarily attributable to the increase in PCS sales in connection with our increased installed customer base.

During the first quarter of 2019 ,  $18.1 million , or  36% of total revenue, was generated from the United States, which represents a  12% decrease compared to the same period of 2018 . The decrease in the first quarter of 2019 was primarily due to lower products revenue driven by lower demand from our web giant customers in the United States.

During the first quarter of 2019 ,  $13.2 million , or  26% of total revenue, was generated from Japan, which remained relatively unchanged compared to the same period of 2018.

During the first quarter of 2019 ,  $8.8 million , or  18% of total revenue, was generated from Asia Pacific regions excluding Japan, which represents an  18% increase compared to the same period of 2018 . The increase in the first quarter of 2019 was driven primarily by higher products revenue and higher services revenue from service provider and enterprise customers.

During the first quarter of 2019 ,  $7.2 million , or  14% of total revenue, was generated from EMEA, which represents an  11% increase compared to the same period of 2018 . The increase in the first quarter of 2019 was driven primarily by higher products revenue and higher services revenue from service provider and enterprise customers.

During the first quarter of 2019 ,  $3.0 million , or  6% of total revenue, was generated from Latin American regions, which represents a  104% increase compared to the same period of 2018 . The increase in the first quarter of 2019 was driven by higher products revenue and higher services revenue from service provider and enterprise customers.



25

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue

Cost of products revenue is primarily comprised of cost of third-party manufacturing services and cost of inventory for the hardware component of our products. Cost of products revenue also includes warehouse personnel costs, shipping costs, inventory write-downs, certain allocated facilities and information technology infrastructure costs, and expenses associated with logistics and quality control.

Cost of services revenue is primarily comprised of personnel costs for our technical support, training and professional service teams. Cost of services revenue also includes the costs of inventory used to provide hardware replacements to end- customers under PCS contracts and certain allocated facilities and information technology infrastructure costs.

A summary of our cost of revenue is as follows (dollars in thousands):
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
Amount
 
Percent
Cost of revenue:
 
 
 
 
 
 
 
Products
$
7,516

 
$
7,109

 
$
407

 
6
 %
Services
4,734

 
4,775

 
(41
)
 
(1
)%
Total cost of revenue
$
12,250

 
$
11,884

 
$
366

 
3
 %
 
 
 
 
 
 
 
 

Gross Margin

Gross margin may vary and be unpredictable from period to period due to a variety of factors. These may include the mix of revenue from each of our regions, the mix of our products sold within a period, discounts provided to customers, inventory write-downs and foreign currency exchange rates.

Our sales are generally denominated in U.S. dollars; however, in Japan, our sales are denominated in Japanese yen.

Any of the factors noted above can generate either a favorable or unfavorable impact on gross margin.

A summary of our gross profit and gross margin is as follows (dollars in thousands):

 
Three Months Ended March 31,
 
 
 
2019
 
2018
 
Increase (Decrease)
 
Amount
 
Gross Margin
 
Amount
 
Gross Margin
 
Amount
 
Gross Margin
Gross profit:
 

 
 

 
 

 
 

 
 

 
 

Products
$
20,714

 
73.4
%
 
$
21,040

 
74.7
%
 
$
(326
)
 
(1.3
)%
Services
17,326

 
78.5
%
 
16,259

 
77.3
%
 
1,067

 
1.2
 %
Total gross profit
$
38,040

 
75.6
%
 
$
37,299

 
75.8
%
 
$
741

 
(0.2
)%
 
 
 
 
 
 
 
 
 
 
 
 

Products gross margin decreased 1.3 % points during the first quarter of 2019 compared to the same period of 2018 , primarily driven by pricing incentives on select strategic opportunities.

Services gross margin increased 1.2% points during the first quarter of 2019 compared to the same period of 2018 primarily driven by higher services revenue while costs related to support and professional services remained relatively constant.


26

Operating Expenses

Our operating expenses consist of sales and marketing, research and development, general and administrative and litigation and settlement expenses. The largest component of our operating expenses is personnel costs which consist of wages, benefits, bonuses, and, with respect to sales and marketing expenses, sales commissions. Personnel costs also include stock-based compensation.

A summary of our operating expenses is as follows (dollars in thousands):
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2019
 
2018
 
Amount
 
Percent
Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
$
24,483

 
$
26,904

 
$
(2,421
)
 
(9
)%
Research and development
16,166

 
18,797

 
(2,631
)
 
(14
)%
General and administrative
8,358

 
11,594

 
(3,236
)
 
(28
)%
Total operating expenses
$
49,007

 
$
57,295

 
$
(8,288
)
 
(14
)%
 
 
 
 
 
 
 
 

Sales and Marketing

Sales and marketing expenses are our largest functional category of operating expenses and primarily consist of personnel costs. Sales and marketing expenses also include the cost of marketing programs, trade shows, consulting services, promotional materials, demonstration equipment, depreciation and certain allocated facilities and information technology infrastructure costs.     

The decrease in sales and marketing expense for the first quarter of 2019 compared to the same period of 2018 was primarily attributable to a decrease in employee headcount resulting in a decrease of $1.2 million in compensation and benefits. In addition, stock-based compensation expense decreased $1.4 million primarily because of the suspension of our equity plans during the first quarter of 2018 which resulted in the recognition of accelerated unrecognized stock-based compensation expense related to our ESPP during the first quarter of 2018. Our equity plan related activities were suspended from March 2018 to early October 2018 due to our non-timely filing status.

We expect sales and marketing expenses to be relatively consistent quarter over quarter for the remainder of 2019.

Research and Development

Research and development efforts are focused on new product development and on developing additional functionality for our existing products. These expenses primarily consist of personnel costs, and, to a lesser extent, prototype materials, depreciation and certain allocated facilities and information technology infrastructure costs. We expense research and development costs as incurred.

The decrease in research and development expense for the first quarter of 2019 compared to the same period of 2018 was primarily driven by a $2.0 million decrease in stock-based compensation expense resulting from the suspension of our equity plans during the first quarter of 2018, which resulted in the recognition of accelerated unrecognized stock-based compensation expense related to our ESPP during the first quarter of 2018, and also a decrease in employee headcount. Our equity plan related activities were suspended from March 2018 to early October 2018 due to our non-timely filing status.

We expect research and development expenses to be relatively consistent quarter over quarter for the remainder of 2019.

General and Administrative

General and administrative expenses primarily consist of personnel costs, professional services and office expenses. General and administrative personnel costs include executive, finance, human resources, information technology, facility and legal (excluding litigation) related expenses. Professional services primarily consist of fees for outside accounting, tax, legal, recruiting and other administrative services.


27

The decrease in general and administrative expenses for the first quarter of 2019 compared to the same period of 2018 was primarily driven by a decrease in internal investigation related fees.

We expect general and administrative expenses to be relatively consistent quarter over quarter for the remainder of 2019.

Interest Expense

Interest expense consists primarily of interest expense and amortization of debt issuance costs. At March 31, 2019 , we had no outstanding balances on our credit facility. We expect to continue to incur commitment fees associated with the undrawn balance of our credit facility. If we choose to draw down on the credit facility, at such time, we would reduce the commitment fees accrued and increase the interest on outstanding balances.

Interest expense was immaterial and remained relatively consistent for the first quarter of 2019 compared to the same period of 2018 .

Interest and Other Income (Expense), Net

Interest income consists primarily of interest income earned on our cash and cash equivalents and marketable securities. Other income (expense) consists primarily of foreign currency exchange gains and losses.

Interest and other income (expense), net, had an unfavorable change of $1.2 million, or 212%, for the first quarter of 2019 compared to the same period of 2018 primarily driven by a $1.2 million foreign exchange loss in the first quarter of 2019 compared to a $0.2 million foreign exchange gain in the same period of 2018, offset in part by a $0.2 million increase in interest income.




Provision for Income Taxes

We recorded an income tax provision of $0.5 million and $0.2 million for the three months ended March 31, 2019 and 2018 , respectively, which primarily consisted of foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.

We currently maintain a valuation allowance on federal and state deferred tax assets, and we will continue to maintain a valuation allowance against all of our U.S. and certain foreign deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

Liquidity and Capital Resources

As of March 31, 2019 , we had cash and cash equivalents of $34.0 million , including $8.4 million held outside the United States in our foreign subsidiaries, and $88.8 million of marketable securities. We currently do not have any plans to repatriate our earnings from our foreign operations. As of March 31, 2019 , we had working capital of $109.5 million , accumulated deficit of $284.5 million and total stockholders’ equity of $96.8 million .

We plan to continue to invest for long-term growth, and our investment may increase. We believe that our existing cash and cash equivalents, marketable securities and other available financial resources will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced product and service offerings and the continuing market acceptance of our products. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition could be adversely affected.


28

As described in Note 6 in the Notes to the Condensed Consolidated Financial Statements in in Part I, Item 1 of this report, we are currently, or from time to time, involved in ongoing litigation. Any adverse settlements or judgments in any litigation could have a material adverse impact on our results of operations, cash balances and cash flows in the period in which such events occur.

Credit Agreements

In November 2016, we entered into the 2016 Credit Facility with Silicon Valley Bank (“SVB”) as the lender. The 2016 Credit Facility provides a three -year, $25.0 million revolving credit facility, which includes a maximum of $25.0 million letter of credit subfacility. When the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit equals or exceeds $50.0 million, loans may be advanced under the 2016 Credit Facility up to the full $25.0 million. When the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit falls below $50.0 million, loans may be advanced under the 2016 Credit Facility based on a borrowing base equal to a specified percentage of the value of our eligible accounts receivable. The loans bear interest, at our option, at (i) the prime rate reported in The Wall Street Journal, minus 0.50% or (ii) a LIBOR rate determined in accordance with the 2016 Credit Facility, plus 2.50%.

In September 2018, we entered into an amendment with SVB to reduce the unused revolving line facility fee on the 2016 Credit Facility from 0.4% to 0.3%.

Our obligations under the 2016 Credit Facility are secured by substantially all of our assets, excluding our intellectual property. The 2016 Credit Facility contains customary affirmative and negative covenants, in each case subject to customary exceptions, and customary events of default. In addition, the 2016 Credit Facility requires us to maintain compliance with an adjusted quick ratio of not less than 1.50:1.00, as determined in accordance with the 2016 Credit Facility. As of  March 31, 2019 , we had no outstanding balance under the 2016 Credit Facility and were in compliance with all facility covenants.

Statements of Cash Flows

The following table summarizes our cash flow related activities (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Cash (used in) provided by:
 
 
 
Operating activities
$
(6,058
)
 
$
(352
)
Investing activities
(1,621
)
 
(494
)
Financing activities
1,025

 
1,243

Net (decrease)  increase  in cash and cash equivalents
$
(6,654
)
 
$
397


Cash Flows from Operating Activities

Our cash provided by operating activities is driven primarily by sales of our products and management of working capital investments. Our primary uses of cash from operating activities have been for personnel-related expenditures, manufacturing costs, marketing and promotional expenses and costs related to our facilities. Our cash flows from operating activities will continue to be affected principally by the extent to which we increase spending on our business and our working capital requirements.

During the three months ended March 31, 2019 , cash used in operating activities was $6.1 million , consisting of a net loss of $12.3 million which includes non-cash charges of $6.1 million and a cash increase resulting from the net change in operating assets and liabilities of $0.1 million . Our non-cash charges consisted primarily of depreciation and amortization expenses of $2.4 million and stock-based compensation expense of $3.9 million . The net change in our operating assets and liabilities primarily reflects an inflow from the changes in accounts receivable of $9.3 million , partially offset by outflows from the changes in accrued and other liabilities of $3.6 million , inventory of $3.3 million and prepaid and other assets of $2.4 million .
 
The favorable change in accounts receivable was attributed to timing of cash collections. The unfavorable change in accrued and other liabilities was primarily due to the overall decrease in our accrued compensation. The unfavorable change in inventory was due to the timing of shipments. The unfavorable change in prepaid and other assets was mainly driven by the increase in deferred cost of goods sold.

29


During the three months ended March 31, 2018 , cash used in operating activities was  $0.4 million , consisting of a net loss of  $19.7 million , non-cash charges of  $10.7 million  and a cash increase resulting from the net change in operating assets and liabilities of $ 8.6 million . Our non-cash charges consisted primarily of stock-based compensation expense of  $8.2 million and depreciation and amortization expenses of  $2.1 million . The net change in our operating assets and liabilities primarily reflects an inflow from the changes in accrued liabilities of  $3.6 million and deferred revenue of  $7.0 million , offset primarily by an outflow from the unfavorable changes in prepaid expenses and other assets of  $1.7 million and accounts payable of  $1.2 million .

The favorable change in accrued liabilities was primarily due to higher legal fees accrual primarily driven by our internal investigation as we previously disclosed, offset in part by lower accrued cash based personnel-related cost driven mainly by decreased headcount. The favorable change in deferred revenue was primarily driven by the increased sales in product subscriptions. The unfavorable change in prepaid expenses and other assets was primarily driven by higher prepaid insurance and higher deferred product costs. The unfavorable change in accounts payable was primarily due to the timing of vendor invoice payments.

Cash Flows from Investing Activities

During the three months ended March 31, 2019 , cash used in investing activities was $1.6 million , consisting of purchases of marketable securities of $13.9 million and purchases of property and equipment of $0.9 million , partially offset by proceeds from sales and maturities of marketable securities of $13.2 million .

During the three months ended March 31, 2018, cash used in investing activities was $0.5 million, consisting of purchases of property and equipment of $1.1 million and marketable securities $27.2 million, partially offset by proceeds from sales and maturities of marketable securities of $27.9 million.

Cash Flows from Financing Activities

During the three months ended March 31, 2019 and 2018 , cash provided by financing activities was $1.0 million and $1.2 million, primarily consisting of proceeds from common stock issuances under our equity incentive plans.

Contractual Obligations

Our contractual obligations consist of capital leases, operating leases, purchase commitments and other contractual obligations. There have been no material changes to these obligations outside the ordinary course of business during the three months ended March 31, 2019 as compared to the contractual obligations disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018 .


Off-Balance Sheet Arrange ments

As of March 31, 2019 , we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.


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.

Except for the accounting policies for leases that were updated as a result of adopting ASC Topic 842, there have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2019 compared to the critical accounting policies and estimates disclosed in MD&A of our Annual Report on Form 10-K for the year

30

ended December 31, 2018 . See Note 1 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for the summary of the new accounting policies under ASC Topic 842.


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk

Our consolidated results of operations, financial position and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Historically, the majority of our revenue contracts are denominated in U.S. dollars, with the most significant exception being Japan where we invoice primarily in Japanese yen. Our costs and expenses are generally denominated in the currencies where our operations are located, which is primarily in North America, Japan and, to a lesser extent, EMEA and the Asia Pacific region. In 2016, we initiated a hedging program with respect to foreign currency risk. Revenue resulting from selling in local currencies and costs and expenses incurred in local currencies are exposed to foreign currency exchange rate fluctuations, which can affect our revenue and operating income. As exchange rates vary, operating income may differ from expectations.

The functional currency of our foreign subsidiaries is the U.S. dollar. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses related to remeasurement are recorded in interest and other income (expense), net in the condensed consolidated statements of operations. A significant fluctuation in the exchange rates between our subsidiaries’ local currencies, especially the Japanese yen, British Pound and Euro, and the U.S. dollar could have an adverse impact on our consolidated financial position and results of operations.

We recorded $1.2 million foreign exchange loss during the three months ended March 31, 2019 . The effect of a hypothetical 10% change in the exchange rate would not have a significant impact on our consolidated results of operations.

Interest Rate Sensitivity

Our exposure to interest rates risk relates to our 2016 Credit Facility with variable interest rates, where an increase in interest rates may result in higher borrowing costs. Since we have no outstanding borrowings under our 2016 Credit Facility as of  March 31, 2019 , the effect of a hypothetical 10% change in interest rates would not have any impact on our interest expense.

Our exposure to market risk for changes in interest rates relates primarily to our marketable securities. Our marketable securities are comprised of certificates of deposit, corporate securities, U.S. Treasury and agency securities, commercial paper and asset-backed securities . We do not enter into investments for trading or speculative purposes. At  March 31, 2019 , our investment portfolio included marketable securities with an aggregate fair market value and amortized cost basis of  $88.8 million and $88.7 million , respectively.

The following table presents the hypothetical fair values of our marketable securities assuming immediate parallel shifts in the yield curve of 50 basis points (“BPS”), 100 BPS and 150 BPS as of  March 31, 2019  (in thousands):
 
 
 
 
 
 
 
Fair Value as of
 
 
 
 
 
 
 
(150 BPS)
 
(100 BPS)
 
(50 BPS)
 
3/31/2019
 
50 BPS
 
100 BPS
 
150 BPS
Marketable securities
$
89,493

 
$
89,257

 
$
89,020

 
$
88,784

 
$
88,547

 
$
88,310

 
$
88,074


 
ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019 , as required by Rule 13a-15(b) under the Securities Exchange Act of 1934, or the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits to the SEC, under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

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Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and financial officers, as appropriate to enable timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, our management recognizes that any disclosure 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 our management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, as our principal executive officer and principal financial officer, respectively, concluded that our disclosure controls and procedures were not effective as of March 31, 2019 , due to the material weaknesses in our internal controls over financial reporting described below. Notwithstanding the material weaknesses as of March 31, 2019 , management has concluded that the condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, and in conformity with U.S. GAAP our financial position, results of operations and cash flows for the periods presented.

Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting consists of policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•
Are designed and operated to provide reasonable assurance regarding the reliability of our financial reporting and our process for the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Our internal control over financial reporting is designed by, and under the supervision of our principal executive officer and principal financial officer and effected by our Board of Directors, management, and others. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with internal control policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2019 , using the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with management’s assessment of our internal control over financial reporting described above, and as previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, management identified deficiencies that constituted individually, or in the aggregate, material weaknesses in our internal control over financial reporting as of March 31, 2019 and December 31, 2018 .

Material Weaknesses Identified

The Company previously disclosed material weaknesses in internal control over financial reporting as of December 31, 2017 in our Annual Report on Form 10-K for the year ended December 31, 2017. The material weaknesses relate to our control environment and monitoring activities and revenue recognition. The material weaknesses led to the restatement of our annual consolidated financial statements for the years ended December 31, 2016 and 2015. As described below, management has developed and implemented remediation actions to address the material weaknesses and further actions are ongoing as of

32

March 31, 2019. Management has reported to the Audit Committee the status of these remediation actions. Further, the Company has not had sufficient time to test the effectiveness of the remediation actions. As a result, the material weaknesses continue to be present as of March 31, 2019. These control deficiencies could have resulted in other misstatements in financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that might not have been prevented or detected.

Changes to Internal Control over Financial Reporting
Beginning January 1, 2019, we adopted ASC Topic 842, the new lease accounting standard. We implemented changes to our lease recognition policies, process and control activities to support the adoption of ASC Topic 842. Except in relation to our adoption of ASC Topic 842, no other change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2019 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation Actions Relating to Material Weaknesses in Internal Control over Financial Reporting
Management has implemented or is in the process of implementing various initiatives intended to address the identified material weaknesses and strengthen our overall internal control environment. Management has reported to the Audit Committee regarding its development and implementation of these remediation actions. In this regard, some of our key remedial initiatives include:

•
Executive Management Communications to Reinforce Compliance - Our Chief Executive Officer and Chief Financial Officer, at the direction of our Board of Directors, have in communications to personnel continued to reinforce the importance of adherence to our policies and procedures regarding ethics and compliance and the importance of identifying misconduct and raising and communicating concerns.

•
Changes to Our Executive Management and Sales Personnel - We have hired new personnel, who have enabled improved lines of communication across business functions to address areas of identified gaps in expertise.

•
Training Practices - We initiated development of a comprehensive training program relating to revenue recognition and contract review and have begun to deploy elements of the training to our sales personnel.

•
Credit Policies and Procedures - We evaluated our practices regarding extension of credit to customers and evaluation of customer creditworthiness. The improved practices have been implemented and we are in the process of testing the effectiveness of those practices.

•
Revenue Recognition Policies and Procedures - We have evaluated our revenue recognition policies and procedures and are implementing improvements.

•
Implementation and Enhancement of Entity Level Controls - We are implementing additional controls in our quarterly/annual financial reporting process, including enhanced sub-certifications by all sales personnel, as well as other key personnel in our finance, human resources, and legal functions. The enhanced sub-certifications include specific documentation related to the identification of non-standard revenue arrangements. We have also enhanced our insider trading policy and related communications to employees.

Our management has worked, and continues to work, to strengthen our internal control over financial reporting. We are committed to ensuring that such controls are designed and operating effectively. The identified material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management concludes, through testing, that these controls are operating effectively. As we continue to evaluate and improve our internal control over financial reporting, we may take additional measures to address control deficiencies or modify or change the proposed remediation measures described above.
Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously and believe that the steps taken, and to be taken, to remediate the identified material weaknesses were and are essential steps to maintaining strong and effective internal control over financial reporting and a strong internal control environment.


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Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 6 in the Notes to the Condensed Consolidated Financial Statements regarding our legal proceedings.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this report, and in our other public filings. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, financial condition, operating results, and prospects could be materially harmed. In that event, the trading price of our common stock could decline, perhaps significantly.

We have identified deficiencies in our internal control over financial reporting that resulted in material weaknesses in our internal control over financial reporting and have concluded that our internal control over financial reporting was not effective as of December 31, 2018 and December 31, 2017. If we fail to properly remediate these or any future material weaknesses or deficiencies or to maintain proper and effective internal controls, material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements and could adversely affect investor confidence in our financial reports, which could negatively affect our business.

We were not able to assert in our Annual Reports on Form 10-K for the years ended December 31, 2018 and December 31, 2017, that our internal control over financial reporting was effective as of December 31, 2018 and December 31, 2017, due to the existence of material weaknesses in such controls, which continue to exist as of March 31, 2019, and we have also concluded that our disclosure controls and procedures were not effective as of March 31, 2019, December 31, 2018 and December 31, 2017, due to material weaknesses in our internal control over financial reporting. As described in Part I, Item 4, “Controls and Procedures” of this report, we have initiated remediation efforts to address the identified weaknesses. However, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and generally improve our internal controls. In doing so, we will continue to incur expenses and expend management time on compliance-related issues.

If our remediation measures are insufficient to address the identified deficiencies, or if additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and materially adversely impact our business and financial condition.

The Audit Committee’s investigation of certain accounting and internal control matters relating to our previously issued financial statements and the audit of our consolidated financial statements as of and for the year ended December 31, 2017 were time-consuming and expensive, and may result in additional expense.

We have incurred significant expenses, including audit, legal, consulting and other professional fees, in connection with the Audit Committee’s internal investigation, the review of our accounting, the audit of our 2017 financial statements and the ongoing remediation of deficiencies in our internal control over financial reporting. As described in Part I, Item 4, “Controls and Procedures,” of this report, we have taken a number of steps in order to strengthen our accounting function and attempt to reduce the risk of future recurrence and errors in accounting determinations. The validation of the efficacy of these remedial steps will result in us incurring near term expenses, and to the extent these steps are not successful, we could be required to incur significant additional time and expense. The incurrence of significant additional expense, or the requirement that

35

management devote significant time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, results of operations and financial condition.

Our failure to timely file periodic reports we are required to file under the Securities Exchange Act of 1934 could adversely affect the market for our common stock and make it more difficult for us to access the public markets to raise debt or equity capital.

We filed our Annual Report on Form 10-K for the year ended December 31, 2017 approximately five months after it was due. Because of the time required to complete and file that report, we also were unable to timely file our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018.

As a result of our inability to timely file our periodic reports under the Securities Exchange Act of 1934, we will not be eligible to use a registration statement on Form S-3 to conduct public offerings of our securities until we have timely filed all periodic reports with the SEC for a period of twelve months. Our inability to use Form S-3 during this time period may have a negative impact on our ability to access the public capital markets in a timely fashion because we would be required to file a long-form registration statement on Form S-1 and have it reviewed and declared effective by the SEC. This may limit our ability to access the public markets to raise debt or equity.

If we do not successfully anticipate market needs and opportunities or if the market does not continue to adopt our application networking products, our business, financial condition and results of operations could be significantly harmed.

The application networking market is rapidly evolving and difficult to predict. Technologies, customer requirements, security threats and industry standards are constantly changing. As a result, we must anticipate future market needs and opportunities and then develop new products or enhancements to our current products that are designed to address those needs and opportunities, and we may not be successful in doing so.

Even if we are able to anticipate, develop and commercially introduce new products and enhancements that address the market’s needs and opportunities, there can be no assurance that new products or enhancements will achieve widespread market acceptance. For example, organizations that use other conventional or first-generation application networking products for their needs may believe that these products are sufficient. In addition, as we launch new product offerings, organizations may not believe that such new product offerings offer any additional benefits as compared to the existing application networking products that they currently use. Accordingly, organizations may continue allocating their IT budgets for existing application networking products and may not adopt our products, regardless of whether our products can offer superior performance or security.

If we fail to anticipate market needs and opportunities or if the market does not continue to adopt our application networking products, then market acceptance and sales of our current and future application networking products could be substantially decreased or delayed, we could lose customers, and our revenue may not grow or may decline. Any of such events would significantly harm our business, financial condition and results of operations.

Our success depends on our timely development of new products and features to address rapid technological changes and evolving customer requirements. If we are unable to timely develop and successfully introduce new products and features that adequately address these changes and requirements, our business and operating results could be adversely affected.

Changes in application software technologies, data center and communications hardware, networking software and operating systems, and industry standards, as well as our end-customers’ continuing business growth, result in evolving application networking needs and requirements. Our continued success depends on our ability to identify, develop and introduce in a timely and successful manner, new products and new features for our existing products that meet these needs and requirements.

Our future plans include significant investments in research and development and related product opportunities. Developing our products and related enhancements is time-consuming and expensive. We have made significant investments in our research and development team in order to address these product development needs. Our investments in research and development may not result in significant design and performance improvements or marketable products or features, or may result in products that are more expensive than anticipated. We may take longer to generate revenue, or generate less revenue, than we anticipate from our new products and product enhancements. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position.


36

If we are unable to develop new products and features to address technological changes and new customer requirements in the application networking or security markets or if our investments in research and development do not yield the expected benefits in a timely manner, our business and operating results could be adversely affected. For example, when the 5G standards are published, we may not be able to produce a satisfactory return on investment if our strategic vision and the resources that we are spending on developing our presence in the 5G technology industry turn out to be misaligned with such standards.

We have experienced net losses in recent periods, anticipate increasing our operating expenses in the future and may not achieve or maintain profitability in the future. If we cannot achieve or maintain profitability, our financial performance will be harmed and our business may suffer.

We experienced net losses for the three months ended March 31, 2019 and for the years ended December 31, 2018 and 2017. We may not be able to increase our revenue growth or achieve profitability in the future or on a consistent basis. During the three months ended March 31, 2019 and the years ended December 31, 2018 and 2017, we have invested in our sales, marketing and research and development teams in order to develop, market and sell our products. We may continue to invest in these areas in the future. As a result of these expenditures, we may have to generate and sustain increased revenue, manage our cost structure and avoid significant liabilities to achieve future profitability.

Revenue growth may slow or decline, and we may incur significant losses in the future for a number of possible reasons, including our inability to develop products that achieve market acceptance, general economic conditions, increasing competition, decreased growth in the markets in which we operate, or our failure for any reason to capitalize on growth opportunities. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.

Our operating results have varied and are likely to continue to vary significantly from period to period and may be unpredictable, which could cause the trading price of our common stock to decline.

Our operating results, in particular, revenue, margins and operating expenses, have fluctuated in the past, and we expect this will continue, which makes it difficult for us to predict our future operating results. The timing and size of sales of our products are highly variable and difficult to predict and can result in significant fluctuations in our revenue from period to period. This is particularly true of sales to our largest end-customers, such as service providers, web giants and governmental organizations, who typically make large and concentrated purchases and for whom close or sales cycles can be long, as a result of their complex networks and data centers, as well as requests that may be made for customized features. Our quarterly results may vary significantly based on when these large end-customers place orders with us and the content of their orders.

 Our operating results may also fluctuate due to a number of other factors, many of which are outside of our control and may be difficult to predict. In addition to other risks listed in this “Risk Factors” section, factors that may affect our operating results include:
•
fluctuations in and timing of purchases from, or loss of, large customers;

•
the budgeting cycles and purchasing practices of end-customers;

•
our ability to attract and retain new end-customers;

•
changes in demand for our products and services, including seasonal variations in customer spending patterns or cyclical fluctuations in our markets;

•
our reliance on shipments at the end of our quarters;

•
variations in product mix or geographic locations of our sales, which can affect the revenue we realize for those sales;

•
the timing and success of new product and service introductions by us or our competitors;

•
our ability to increase the size of our distribution channel and to maintain relationships with important distribution channel partners;

•
our ability to improve our overall sales productivity and successfully execute our marketing strategies;

37


•
the effect of currency exchange rates on our revenue and expenses;

•
the cost and potential outcomes of existing and future litigation;

•
expenses related to our facilities;

•
the effect of discounts negotiated by our largest end-customers for sales or pricing pressure from our competitors;

•
changes in the growth rate of the application networking or security markets or changes in market needs;

•
inventory write downs, which may be necessary for our older products when our new products are launched and adopted by our end-customers; and

•
our third-party manufacturers’ and component suppliers’ capacity to meet our product demand forecasts on a timely basis, or at all.

Any one of the factors above or the cumulative effect of some of these factors may result in significant fluctuations in our financial and other operating results. This variability and unpredictability could result in our failure to meet our or our investors’ or securities analysts’ revenue, margin or other operating results expectations for a particular period, resulting in a decline in the trading price of our common stock.

Reliance on shipments at the end of the quarter could cause our revenue for the applicable period to fall below expected levels.

As a result of end-customer buying patterns and the efforts of our sales force and distribution channel partners to meet or exceed their sales objectives, we have historically received a substantial portion of purchase orders and generated a substantial portion of revenue during the last few weeks of each quarter. We may be able to recognize such revenue in the quarter received, however, only if all of the requirements of revenue recognition are met by the end of the quarter. Any significant interruption in our information technology systems, which manage critical functions such as order processing, revenue recognition, financial forecasts, inventory and supply chain management, could result in delayed order fulfillment and thus decreased revenue for that quarter. If expected revenue at the end of any quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize (including delays by our customers or potential customers in consummating such purchase orders), our third-party manufacturers’ inability to manufacture and ship products prior to quarter-end to fulfill purchase orders received near the end of the quarter, our failure to manage inventory to meet demand, our inability to release new products on schedule, any failure of our systems related to order review and processing, or any delays in shipments or achieving specified acceptance criteria, our revenue for that quarter could fall below our, or our investors’ or securities analysts’ expectations, resulting in a decline in the trading price of our common stock.

We face intense competition in our market, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The application networking and security markets are intensely competitive, and we expect competition to increase in the future. To the extent that we sell our solutions in adjacent markets, we expect to face intense competition in those markets as well. We believe that our main competitors fall into the following categories:

•
Companies that sell products in the traditional ADC market, such as F5 Networks, Inc. (“F5 Networks”) and Citrix Systems, Inc. (“Citrix Systems”);

•
Companies that sell open source, software-only, cloud-based ADC services, such as Avi Networks Inc. (“Avi Networks”), NGINX Inc. (“NGiNX”), and HAProxy Technologies, Inc. (“HAProxy”) as well as many startups;

•
Companies that sell CGN products, which were originally designed for other networking purposes, such as edge routers and security appliances from vendors like Cisco Systems, Inc. (“Cisco Systems”), Juniper Networks, Inc. (“Juniper Networks”) and Fortinet, Inc. (“Fortinet”);

•
Companies that sell traditional DDoS protection products, such as Arbor Networks, Inc., a subsidiary of NetScout Systems, (“Arbor Networks”) and Radware, Ltd. (“Radware”);


38

•
Companies that sell SSL decryption and inspection products, such as Symantec Corporation (through its acquisition of Blue Coat Systems Inc. in 2016) and F5 Networks; and

•
Companies that sell certain network security products, including Secure Web Gateways, SSL Insight/SSL Intercept, data center firewalls and Office 365 proxy solutions.

Many of our competitors are substantially larger and have greater financial, technical, research and development, sales and marketing, manufacturing, distribution and other resources and greater name recognition. In addition, some of our larger competitors have broader products offerings and could leverage their customer relationships based on their other products. Potential customers who have purchased products from our competitors in the past may also prefer to continue to purchase from these competitors rather than change to a new supplier regardless of the performance, price or features of the respective products. We could also face competition from new market entrants, which may include our current technology partners. As we continue to expand globally, we may also see new competitors in different geographic regions. Such current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources.

Many of our existing and potential competitors enjoy substantial competitive advantages, such as:

•
longer operating histories;

•
the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services at a greater range of prices including through selling at zero or negative margins;

•
the ability to incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products, including through product bundling or closed technology platforms;

•
broader distribution and established relationships with distribution channel partners in a greater number of worldwide locations;

•
access to larger end-customer bases;

•
the ability to use their greater financial resources to attract our research and development engineers as well as other employees of ours;

•
larger intellectual property portfolios; and

•
the ability to bundle competitive offerings with other products and services.

Our ability to compete will depend upon our ability to provide a better solution than our competitors at a competitive price. We may be required to make substantial additional investments in research and development, marketing and sales in order to respond to competition, and there is no assurance that these investments will achieve any returns for us or that we will be able to compete successfully in the future. We also expect increased competition if our market continues to expand. Moreover, conditions in our market could change rapidly and significantly as a result of technological advancements or other factors.

In addition, current or potential competitors may be acquired by third parties that have greater resources available. As a result of these acquisitions, our current or potential competitors might take advantage of the greater resources of the larger organization to compete more vigorously or broadly with us. In addition, continued industry consolidation might adversely impact end-customers’ perceptions of the viability of smaller and even medium-sized networking companies and, consequently, end-customers’ willingness to purchase from companies like us.

As a result, increased competition could lead to fewer end-customer orders, price reductions, reduced margins and loss of market share.

Cloud-based computing trends present competitive and execution risks.

We are experiencing an industry-wide trend of customers considering transitioning from purely on-premise network architectures to a computing environment that may utilize a mixture of existing solutions and various new cloud-based solutions. Concurrently with this transition, pricing and delivery models are also evolving. Many companies in our industry,

39

including some of our competitors, are developing and deploying cloud-based solutions for their customers. In addition, the emergence of new cloud infrastructures may enable new companies to compete with our business. These new competitors may include large cloud providers who can provide their own ADC functionality as well as smaller companies targeting applications that are developed exclusively for delivery in the cloud. We are dedicating significant resources to develop and offer our customers new cloud-based solutions. Also, some of our largest customers are cloud providers that utilize our existing solutions, and we believe that as cloud infrastructures continue to grow our existing solutions may provide benefits to other cloud providers. While we believe our expertise and dedication of resources to developing new cloud-based solutions, together with the benefits that our existing solutions offer cloud providers, represent advantages that provide us with a strong foundation to compete, it is uncertain whether our efforts to develop new cloud-based solutions or our efforts to market and sell our existing solutions to cloud providers will attract the customers or generate the revenue necessary to successfully compete in this new business model.  Nor is it clear when or in what manner this new business model will evolve, and this uncertainty may delay purchasing decisions by our customers or prospective customers. Whether we are able to successfully compete depends on our execution in a number of areas, including maintaining the utility, compatibility and performance of our software on the growing assortment of cloud computing platforms and the enhanced interoperability requirements associated with orchestration of cloud computing environments. Any failure to adapt to these evolving trends may reduce our revenues or operating margins and could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to attract new end-customers, sell additional products to our existing end-customers or achieve the anticipated benefits from our investment in additional sales personnel and resources, our revenue may decline, and our gross margin will be adversely affected.

To maintain and increase our revenue, we must continually add new end-customers and sell additional products to existing end-customers. The rate at which new and existing end-customers purchase solutions depends on a number of factors, including some outside of our control, such as general economic conditions. If our efforts to sell our solutions to new end-customers and additional solutions to our existing end-customers are not successful, our business and operating results will suffer.

In certain recent periods, we have added personnel and other resources to our sales and marketing functions, as we focused on growing our business, entering new markets and increasing our market share. We may incur additional expenses by hiring additional sales and marketing personnel and expanding our international operations in order to seek revenue growth. The return on these and future investments may be lower, or may be realized more slowly, than we expect, if realized at all. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our growth rates will decline, and our gross margin would likely be adversely affected.

If we are not able to maintain and enhance our brand and reputation, our business and operating results may be harmed in tangible or intangible ways.

We believe that maintaining and enhancing our brand and reputation are critical to our relationships with, and our ability to attract, new end-customers, technology partners and employees. The successful promotion of our brand will depend largely upon our ability to continue to develop, offer and maintain high-quality products and services, our marketing and public relations efforts, and our ability to differentiate our products and services successfully from those of our competitors. Our brand promotion activities may not be successful and may not yield increased revenue. In addition, extension of our brand to products and uses different from our traditional products and services may dilute our brand, particularly if we fail to maintain the quality of products and services in these new areas. We have in the past, and may in the future, become involved in litigation that could negatively affect our brand. If we do not successfully maintain and enhance our brand and reputation, our growth rate may decline, we may have reduced pricing power relative to competitors with stronger brands or reputations, and we could lose end-customers or technology partners, all of which would harm our business, operating results and financial condition.

A limited number of our end-customers, including service providers, make large and concentrated purchases that comprise a significant portion of our revenue. Any loss or delay of expected purchases by our largest end-customers could adversely affect our operating results.

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue in any period comes from a limited number of large end-customers, including service providers. During the three months ended March 31, 2019 and the years ended December 31, 2018 and 2017, purchases from our ten largest end-customers accounted for approximately 33%, 37% and 35% of our total revenue, respectively. The composition of the group of these ten largest end-customers changes from period to period, but often includes service providers and web giants. During the three months ended March 31, 2019 and the years ended December 31, 2018 and 2017, service providers accounted for

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approximately 47%, 43% and 47% of our total revenue, respectively, and web giants accounted for approximately 7%, 18% and 14% of our total revenue, respectively.

Sales to these large end-customers have typically been characterized by large but irregular purchases with long initial sales cycles. After initial deployment, subsequent purchases of our products typically have a more compressed sales cycle. The timing of these purchases and of the requested delivery of the purchased product is difficult to predict. As a consequence, any acceleration or delay in anticipated product purchases by or requested deliveries to our largest end-customers could materially affect our revenue and operating results in any quarter and cause our quarterly revenue and operating results to fluctuate from quarter to quarter.

We cannot provide any assurance that we will be able to sustain or increase our revenue from our largest end-customers nor that we will be able to offset any absence of significant purchases by our largest end-customers in any particular period with purchases by new or existing end-customers in that or a subsequent period. We expect that sales of our products to a limited number of end-customers will continue to contribute materially to our revenue for the foreseeable future. The loss of, or a significant delay or reduction in purchases by, a small number of end-customers could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Our business could be adversely impacted by changes demanded by our customers in the deployment and payment models for our products.

Our customers have traditionally demanded products deployed in physical, appliance-based on-premise data centers that are paid in full at the time of purchase and include perpetual licenses for our software products. While these products remain central to our business, new deployment and payment models are emerging in our industry that may provide some of our customers with additional technical, business agility and flexibility options. These new models include cloud-based applications provided as SaaS and software subscription licenses where license and service fees are ratable and correlate to the type of service used, the quantity of services consumed or the length of time of the subscription. These models have accounting treatments that may require us to recognize revenue ratably over an extended period of time. If a substantial portion of our customers transition from on-premise-based products to such cloud-based, consumption and subscription-based models, this could adversely affect our operating results and could make it more difficult to compare our operating results during such transition period with our historical operating results.

Some of our large end-customers demand favorable terms and conditions from their vendors and may request price or other concessions from us. As we seek to sell more products to these end-customers, we may agree to terms and conditions that may have an adverse effect on our business.

Some of our large end-customers have significant purchasing power and, accordingly, may request from us and receive more favorable terms and conditions, including lower prices than we typically provide. As we seek to sell products to this class of end-customer, we may agree to these terms and conditions, which may include terms that reduce our gross margin and have an adverse effect on our business.

Our gross margin may fluctuate from period to period based on the mix of products sold, the geographic location of our customers, price discounts offered, required inventory write downs and exchange rate fluctuations.

Our gross margin may fluctuate from period to period in response to a number of factors, such as the mix of our products sold and the geographic locations of our sales. Our products tend to have varying gross margins in different geographic regions. We also may offer pricing discounts from time to time as part of a targeted sales campaign or as a result of pricing pressure from our competitors. In addition, our larger end-customers may negotiate pricing discounts in connection with large orders they place with us. The sale of our products at discounted prices could have a negative impact on our gross margin. We also must manage our inventory of existing products when we introduce new products.

If we are unable to sell the remaining inventory of our older products prior to or following the launch of such new product offerings, we may be forced to write down inventory for such older products, which could also negatively affect our gross margin. Our gross margin may also vary based on international currency exchange rates. In general, our sales are denominated in U.S. dollars; however, in Japan they are denominated in Japanese yen. Changes in the exchange rate between the U.S. dollar and the Japanese yen may therefore affect our actual revenue and gross margin.

We have been, may presently be, or in the future may be, a party to litigation and claims regarding intellectual property rights, resolution of which has been and may in the future be time-consuming, expensive and adverse to us, as well as require a significant amount of resources to prosecute, defend, or make our products non-infringing.

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Our industry is characterized by the existence of a large number of patents and by increasingly frequent claims and related litigation based on allegations of infringement or other violations of patent and other intellectual property rights. In the ordinary course of our business, we have been and may presently be in disputes and licensing discussions with others regarding their patents and other claimed intellectual property and proprietary rights. Intellectual property infringement and misappropriation lawsuits and other claims are subject to inherent uncertainties due to the complexity of the technical and legal issues involved, and we cannot be certain that we will be successful in defending ourselves against such claims or in concluding licenses on reasonable terms or at all.

We may have fewer issued patents than some of our major competitors, and therefore may not be able to utilize our patent portfolio effectively to assert defenses or counterclaims in response to patent infringement claims or litigation brought against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners that have no relevant products revenue and against which our potential patents may provide little or no deterrence. In addition, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them. We expect that infringement claims may increase as the number of product types and the number of competitors in our market increases. Also, to the extent we gain greater visibility, market exposure and competitive success, we face a higher risk of being the subject of intellectual property infringement claims.

If we are found in the future to infringe the proprietary rights of others, or if we otherwise settle such claims, we could be compelled to pay damages or royalties and either obtain a license to those intellectual property rights or alter our products such that they no longer infringe. Any license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly, time-consuming or impractical. Alternatively, we could also become subject to an injunction or other court order that could prevent us from offering our products. Any of these claims, regardless of their merit, may be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to cease using infringing technology, develop non-infringing technology or enter into royalty or licensing agreements.

Many of our commercial agreements require us to indemnify our end-customers, distributors and resellers for certain third-party intellectual property infringement actions related to our technology, which may require us to defend or otherwise become involved in such infringement claims, and we could incur liabilities in excess of the amounts we have received for the relevant products and/or services from our end-customers, distributors or resellers. These types of claims could harm our relationships with our end-customers, distributors and resellers, may deter future end-customers from purchasing our products or could expose us to litigation for these claims. Even if we are not a party to any litigation between an end-customer, distributor or reseller, on the one hand, and a third party, on the other hand, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property rights in any subsequent litigation in which we are a named party.

We may not be able to adequately protect our intellectual property, and if we are unable to do so, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights.

We rely on a combination of patent, copyright, trademark and trade secret laws, and contractual restrictions on disclosure of confidential and proprietary information, to protect our intellectual property. Despite the efforts we take to protect our intellectual property and other proprietary rights, these efforts may not be sufficient or effective at preventing their unauthorized use. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which we have rights. There may be instances where we are not able to protect intellectual property or other proprietary rights in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our business.

We also rely in part on confidentiality and/or assignment agreements with our technology partners, employees, consultants, advisors and others. These protections and agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure. In addition, others may independently discover our trade secrets and intellectual property information we thought to be proprietary, and in these cases we would not be able to assert any trade secret rights against those parties. Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property or technology. Monitoring unauthorized use of our intellectual property is difficult and expensive. We have not made such monitoring a priority to date and will not likely make this a priority in the future. We cannot be certain that the steps we have taken or will

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take will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

If we fail to protect our intellectual property adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, even if we protect our intellectual property, we may need to license it to competitors, which could also be harmful. For example, as a result of the settlement of an intellectual property matter, we have already licensed all of our issued patents, pending applications, and future patents and patent applications that we may acquire, obtain, apply for or have a right to license to Brocade Communications Systems, Inc. until May 2025, for the life of each such patent. In addition, we might incur significant expenses in defending our intellectual property rights. Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation.

We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not resolved in our favor, could result in significant expense to us and divert the efforts of our management and technical personnel, as well as cause other claims to be made against us, which might adversely affect our business, operating results and financial condition.

We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks that could adversely affect these international sources of our revenue.

A significant portion of our revenue is generated in international markets, including Japan, Western Europe, China, Taiwan and South Korea. During the three months ended March 31, 2019 and the years ended December 31, 2018 and 2017, approximately 64%, 55% and 51% of our total revenue, respectively, was generated from customers located outside of the United States. If we are unable to maintain or continue to grow our revenue in these markets, our financial results may suffer.

As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining an international staff, and specifically sales management and sales personnel, we may experience difficulties in sales productivity in foreign markets. We also seek to enter into distributor and reseller relationships with companies in certain international markets where we do not have a local presence. If we are not able to maintain successful distributor relationships internationally or recruit additional companies to enter into distributor relationships, our future success in these international markets could be limited. Business practices in the international markets that we serve may differ from those in the United States and may require us in the future to include terms in customer contracts other than our standard terms. To the extent that we may enter into customer contracts in the future that include non-standard terms, our operating results may be adversely impacted.

We have a significant presence in international markets and plan to continue to expand our international operations, which exposes us to a number of risks that could affect our future growth.

Our sales team is comprised of field sales and inside sales personnel who are organized by geography and maintain sales presence in 29 countries as of March 31, 2019, including in the following countries and regions: United States, Western Europe, the Middle East, Japan, China, Taiwan, South Korea, Southeast Asia and Latin America. We expect to continue to increase our sales headcount in all markets, particularly in markets where we currently do not have a sales presence. As we continue to expand our international sales and operations, we are subject to a number of risks, including the following:
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greater difficulty in enforcing contracts and accounts receivable collection and possible longer collection periods;

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increased expenses incurred in establishing and maintaining office space and equipment for our international operations;

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greater difficulty in recruiting local experienced personnel, and the costs and expenses associated with such activities;

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general economic and political conditions in these foreign markets;

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economic uncertainty around the world, including continued economic uncertainty as a result of sovereign debt issues in Europe and the United Kingdom’s decision to exit the European Union (commonly referred to as “Brexit”);

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management communication and integration problems resulting from cultural and geographic dispersion;


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risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our products required in foreign countries;

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greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;

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the uncertainty of protection for intellectual property rights in some countries;

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greater risk of a failure of foreign employees to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act (“FCPA”), and any trade regulations ensuring fair trade practices; and

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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements.

Because of our worldwide operations, we are also subject to risks associated with compliance with applicable anticorruption laws. One such applicable anticorruption law is the FCPA, which generally prohibits U.S. companies and their employees and intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage, or directing business to another, and requires public companies to maintain accurate books and records and a system of internal accounting controls. Under the FCPA, U.S. companies may be held liable for actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives. As such, if we or our intermediaries, such as channel partners and distributors, fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the United States and elsewhere could seek to impose civil and/or criminal fines and penalties which could have a material adverse effect on our business, operating results and financial condition.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations.

Our consolidated results of operations, financial position and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Historically, the majority of our revenue contracts are denominated in U.S. dollars, with the most significant exception being Japan, where we invoice primarily in the Japanese yen. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in North America and EMEA Revenue resulting from selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations that can affect our operating income. The currency exchange impact of the foreign exchange rates on our net loss was $1.2 million for the three months ended March 31, 2019 and $0.7 million and $0.4 million unfavorable for the years ended December 31, 2018 and 2017, respectively. As exchange rates vary, our operating income may differ from expectations. We deploy normal and customary hedging practices that are designed to proactively mitigate such exposure. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in currency exchange rates over the limited time the hedges are in place and would not protect us from long term shifts in currency exchange rates.

Our success depends on our key personnel and our ability to hire, retain and motivate qualified product development, sales, marketing and finance personnel.

Our success depends to a significant degree upon the continued contributions of our key management, product development, sales, marketing and finance personnel, many of whom may be difficult to replace. The complexity of our products, their integration into existing networks and ongoing support of our products requires us to retain highly trained professional services, customer support and sales personnel with specific expertise related to our business. Competition for qualified professional services, customer support, engineering and sales personnel in our industry is intense, because of the limited number of people available with the necessary technical skills and understanding of our products. Our ability to recruit and hire these personnel is harmed by tightening labor markets, particularly in the engineering field, in several of our key geographic hiring areas. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs, nor may we be successful in keeping the qualified personnel we currently have. Our ability to hire and retain these personnel may be adversely affected by volatility or reductions in the price of our common stock, since these employees are generally granted equity-based awards.

Our future performance also depends on the continued services and continuing contributions of certain employees and members of senior management to execute on our business plan and to identify and pursue new opportunities and product innovations. Our senior management team, significant employees with technical expertise, and product and sales managers, among others, are critical to the development of our technology and the future vision and strategic direction of our company.

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The loss of their services could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and operating results.

Adverse general economic conditions or reduced information technology spending may adversely impact our business.

A substantial portion of our business depends on the demand for information technology by large enterprises and service providers, the overall economic health of our current and prospective end-customers and the continued growth and evolution of the Internet. The timing of the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources. Volatility in the global economic market or other effects of global or regional economic weakness, including limited availability of credit, a reduction in business confidence and activity, deficit-driven austerity measures that continue to affect governments and educational institutions, and other difficulties may affect one or more of the industries to which we sell our products and services. If economic conditions in the United States, Europe and other key markets for our products continue to be volatile or do not improve or those markets experience another downturn, many end-customers may delay or reduce their IT spending. This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events would likely harm our business, operating results and financial condition. In addition, there can be no assurance that IT spending levels will increase following any recovery.

Exposure to UK political developments, including the outcome of the UK referendum on membership in the European Union, could have a material adverse effect on us.

On June 23, 2016, the electorate in the United Kingdom, or UK, voted in favor of leaving the European Union, or EU, (commonly referred to as the “Brexit”). Thereafter, on March 29, 2017, the country formally notified the EU of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Although the withdrawal of the UK from the EU was scheduled to take effect on March 29, 2019, the withdrawal date was extended until April 12, 2019 and further extended until October 31, 2019, although it could occur earlier if the UK so determines.

The effects of Brexit will depend on agreements the UK makes to retain access to EU markets either during a transitional period or more permanently. Brexit creates an uncertain political and economic environment in the UK and potentially across other EU member states for the foreseeable future, including during any period while the terms of Brexit are being negotiated and such uncertainties could impair or limit our ability to transact business in the member EU states.

The political and economic uncertainty created by the Brexit vote has caused and may continue to cause significant volatility in global financial markets and in the value of the Pound Sterling currency or other currencies, including the Euro. Depending on the terms reached regarding any exit from the European Union, it is possible that there may be adverse practical and/or operational implications on our business.

Consequently, no assurance can be given as to the overall impact of the Brexit and, in particular, no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.

Enhanced United States tariffs import/export restrictions, Chinese regulations or other trade barriers may have a negative effect on global economic conditions, financial markets and our business.

There is currently significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs and taxes. The current U.S. presidential administration has called for substantial changes to U.S. foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the United States. In 2018, the Office of the U.S. Trade Representative (the “USTR”) enacted tariffs on imports into the U.S. from China, including communications equipment products and components manufactured and imported from China, and the countries continue to negotiate a trade deal. An increase in tariffs will cause our costs to increase, which could narrow the profits we earn from sales of products requiring such materials. Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, the prices for our products may increase, which may result in the loss of customers and harm to our business, financial condition and results of operations. There can be no assurance that we will not experience a disruption in business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time consuming and costly.

Furthermore, the U.S. tariffs may cause customers to delay orders as they evaluate where to take delivery of our products in connection with their efforts to mitigate their own tariff exposure. Such delays create forecasting difficulties for us and increase the risk that orders might be canceled or might never be placed. Current or future tariffs imposed by the U.S. may

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also negatively impact our customers’ sales, thereby causing an indirect negative impact on our own sales. Any reduction in customers’ sales, and/or any apprehension among distributors and customers of a possible reduction in such sales, would likely cause an indirect negative impact on our own sales.

Additionally, the current uncertainty about the future relationship between the United States and other countries with respect to the trade policies, treaties, taxes, government regulations and tariffs makes it difficult to plan for the future. New developments in these areas, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United States. Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in China and elsewhere around the world. Given the uncertainty of further developments related to tariffs, international trade agreements and policies we can give no assurance that our business, financial condition and operating results would not be adversely affected.

We are dependent on third-party manufacturers, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could harm our business.

We outsource the manufacturing of our hardware components to third-party original design manufacturers who assemble these hardware components to our specifications. Our primary manufacturers are Lanner and AEWIN, each of which is located in Taiwan. Our reliance on these third-party manufacturers reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, and product supply and timing. Any manufacturing disruption at these manufacturers could severely impair our ability to fulfill orders. Our reliance on outsourced manufacturers also may create the potential for infringement or misappropriation of our intellectual property rights or confidential information. If we are unable to manage our relationships with these manufacturers effectively, or if these manufacturers suffer delays or disruptions for any reason, experience increased manufacturing lead-times, experience capacity constraints or quality control problems in their manufacturing operations, or fail to meet our future requirements for timely delivery, our ability to ship products to our end-customers would be severely impaired, and our business and operating results would be seriously harmed.

These manufacturers typically fulfill our supply requirements on the basis of individual orders. We do not have long-term contracts with our manufacturers that guarantee capacity, the continuation of particular pricing terms, or the extension of credit limits. Accordingly, they are not obligated to continue to fulfill our supply requirements, which could result in supply shortages, and the prices we are charged for manufacturing services could be increased on short notice. In addition, our orders may represent a relatively small percentage of the overall orders received by our manufacturers from their customers. As a result, fulfilling our orders may not be considered a priority by one or more of our manufacturers in the event the manufacturer is constrained in its ability to fulfill all of its customer obligations in a timely manner.

Although the services required to manufacture our hardware components may be readily available from a number of established manufacturers, it is time-consuming and costly to qualify and implement such relationships. If we are required to change manufacturers, whether due to an interruption in one of our manufacturers’ businesses, quality control problems or otherwise, or if we are required to engage additional manufacturers, our ability to meet our scheduled product deliveries to our customers could be adversely affected, which could cause the loss of sales to existing or potential customers, delayed revenue or an increase in our costs that could adversely affect our gross margin.

Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our end-customers and may result in the loss of sales and end-customers.

Our products incorporate key components, including certain integrated circuits that we and our third-party manufacturers purchase on our behalf from a limited number of suppliers, including some sole-source providers. In addition, the lead times associated with these and other components of our products can be lengthy and preclude rapid changes in quantities and delivery schedules. Moreover, long-term supply and maintenance obligations to our end-customers increase the duration for which specific components are required, which may further increase the risk we may incur component shortages or the cost of carrying inventory. If we are unable to obtain a sufficient quantity of these components in a timely manner for any reason, sales and/or shipments of our products could be delayed or halted, which would seriously affect present and future sales and cause damage to end-customer relationships, which would, in turn, adversely affect our business, financial condition and results of operations.


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In addition, our component suppliers change their selling prices frequently in response to market trends, including industry-wide increases in demand, and because we do not necessarily have contracts with these suppliers, we are susceptible to price fluctuations related to raw materials and components. If we are unable to pass component price increases along to our end-customers or maintain stable pricing, our gross margin and operating results could be negatively impacted. Furthermore, poor quality in sole-sourced components or certain other components in our products could also result in lost sales or lost sales opportunities. If the quality of such components does not meet our standards or our end-customers’ requirements, if we are unable to obtain components from our existing suppliers on commercially reasonable terms, or if any of our sole source providers cease to continue to manufacture such components or to remain in business, we could be forced to redesign our products and qualify new components from alternate suppliers. The development of alternate sources for those components can be time-consuming, difficult and costly, and we may not be able to develop alternate or second sources in a timely manner. Even if we are able to locate alternate sources of supply, we could be forced to pay for expedited shipments of such components or our products at dramatically increased costs.

Real or perceived defects, errors, or vulnerabilities in our products or services or the failure of our products or services to block a threat or prevent a security breach could harm our reputation and adversely impact our results of operations.

Because our products and services are complex, they have contained and may contain design or manufacturing defects or errors that are not detected until after their commercial release and deployment by our customers. Even if we discover those weaknesses, we may not be able to correct them promptly, if at all. Defects may cause our products to be vulnerable to security attacks, cause them to fail to help secure networks, or temporarily interrupt end-customers’ networking traffic. Furthermore, our products may fail to detect or prevent malware, viruses, worms or similar threats for any number of reasons, including our failure to enhance and expand our platform to reflect industry trends, new technologies and new operating environments, the complexity of the environment of our end-customers and the sophistication of malware, viruses and other threats. Data thieves and hackers are increasingly sophisticated, often affiliated with organized crime or state-sponsored groups, and may operate large-scale and complex automated attacks. The techniques used to obtain unauthorized access or to sabotage networks change frequently and may not be recognized until launched against a target. Additionally, as a well-known provider of enterprise security solutions, our networks, products, and services could be targeted by attacks specifically designed to disrupt our business and harm our reputation. As our products are adopted by an increasing number of enterprises and governments, it is possible that the individuals and organizations behind advanced attacks will focus on finding ways to defeat our products. In addition, defects or errors in our updates to our products could result in a failure of our services to effectively update end-customers’ products and thereby leave our end-customers vulnerable to attacks. Our data centers and networks may experience technical failures and downtime, may fail to distribute appropriate updates, or may fail to meet the increased requirements of a growing installed end-customer base, any of which could temporarily or permanently expose our end-customers’ networks, leaving their networks unprotected against security threats. Our end-customers may also misuse or wrongly configure our products or otherwise fall prey to attacks that our products cannot protect against, which may result in loss or a breach of business data, data being inaccessible due to a “ransomware” attack, or other security incidents. For all of these reasons, we may be unable to anticipate all data security threats or provide a solution in time to protect our end-customers’ networks. If we fail to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such threats in time to protect our end-customers’ critical business data, our business, operating results and reputation could suffer.

If any companies or governments that are publicly known to use our platform are the subject of a cyberattack that becomes publicized, our other current or potential channel partners or end-customers may look to our competitors for alternatives to our products. Real or perceived security breaches of our end-customers’ networks could cause disruption or damage to their networks or other negative consequences and could result in negative publicity to us, damage to our reputation, declining sales, increased expenses and end-customer relations issues. To the extent potential end-customers or industry analysts believe that the occurrence of any actual or perceived failure of our products to detect or prevent malware, viruses, worms or similar threats is a flaw or indicates that our products do not provide significant value, our reputation and business could be harmed.

Any real or perceived defects, errors, or vulnerabilities in our products, or any failure of our products to detect a threat, could result in:

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a loss of existing or potential end-customers or channel partners;

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delayed or lost revenue;

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a delay in attaining, or the failure to attain, market acceptance;


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the expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate, or work around errors or defects, to address and eliminate vulnerabilities, to remediate harms potentially caused by those vulnerabilities, or to identify and ramp up production with third-party providers;

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an increase in warranty claims, or an increase in the cost of servicing warranty claims, either of which would adversely affect our gross margins;

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harm to our reputation or brand; and

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litigation, regulatory inquiries, or investigations that may be costly and further harm our reputation.

Although we maintain cyber liability coverage that may cover certain liabilities in connection with a security breach, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to use on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operation and reputation.

Our business is subject to the risks of warranty claims, product returns, product liability, and product defects.

Real or perceived errors, failures or bugs in our products could result in claims by end-customers for losses that they sustain. If end-customers make these types of claims, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. Historically, the amount of warranty claims has not been significant, but there are no assurances that the amount of such claims will not be material in the future. Liability provisions in our standard terms and conditions of sale, and those of our resellers and distributors, may not be enforceable under some circumstances or may not fully or effectively protect us from customer claims and related liabilities and costs, including indemnification obligations under our agreements with resellers, distributors or end-customers. The sale and support of our products also entail the risk of product liability claims. We maintain insurance to protect against certain types of claims associated with the use of our products, but our insurance coverage may not adequately cover any such claims. In addition, even claims that ultimately are unsuccessful could result in expenditures of funds in connection with litigation and divert management’s time and other resources.

Failure to protect and ensure the confidentiality and security of data could lead to legal liability, adversely affect our reputation and have a material adverse effect on our operating results, business and reputation.

We may collect, store and use certain confidential information in the course of providing our services, and we have invested in preserving the security of this data. We may also outsource operations to third-party service providers to whom we transmit certain confidential data. There are no assurances that any security measures we have in place, or any additional security measures that our subcontractors may have in place, will be sufficient to protect this confidential information from unauthorized security breaches.

We cannot assure you that, despite the implementation of these security measures, we will not be subject to a security incident or other data breach or that this data will not be compromised. We may be required to expend significant capital and other resources to protect against security breaches or to alleviate problems caused by security breaches, or to pay penalties as a result of such breaches. Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until launched against a target. As a result, we may be unable to anticipate these techniques or implement adequate preventative measures to protect this data. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or service providers or by other persons or entities with whom we have commercial relationships. Any compromise or perceived compromise of our security could damage our reputation with our end-customers, and could subject us to significant liability, as well as regulatory action, including financial penalties, which would materially adversely affect our brand, results of operations, financial condition, business and prospects.

We have incurred, and expect to continue to incur, significant costs to protect against security breaches. We may incur significant additional costs in the future to address problems caused by any actual or perceived security breaches.

Breaches of our security measures or those of our third-party service providers, or other security incidents, could result in: unauthorized access to our sites, networks and systems; unauthorized access to, misuse or misappropriation of information,

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including personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to notification of individuals, or other forms of breach remediation; deployment of additional personnel and protection technologies; response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory investigations, prosecutions, and other actions; and other potential liabilities. If any of these events occurs, or is believed to occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business, including our ability to provide maintenance and support services to our channel partners and end-customers, may be impaired. If current or prospective channel partners and end-customers believe that our systems and solutions do not provide adequate security for their businesses’ needs, our business and our financial results could be harmed. Additionally, actual, potential or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. Any actual or perceived compromise or breach of our security measures, or those of our third-party service providers, or any unauthorized access to, misuse or misappropriation of personally identifiable information, channel partners’ or end-customers information, or other information, could violate applicable laws and regulations, contractual obligations or other legal obligations and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, any of which could have an material adverse effect on our business, financial condition and operating results.

Our failure to adequately protect personal data could have a material adverse effect on our business.

A wide variety of provincial, state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, the European Union has adopted a General Data Protection Regulation, or GDPR, which superseded the Data Protection Directive. This regulation, which took full effect on May 25, 2018, has caused EU data protection requirements to be more stringent and provide for greater penalties. Noncompliance with the GDPR can trigger fines of up to €20 million or 4% of global annual revenues, whichever is higher. The United Kingdom also recently enacted legislation that substantially implements the GDPR. Additionally, California recently enacted the California Consumer Privacy Act, or CCPA, that will, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, when it goes into effect on January 1, 2020. The CCPA recently was amended, and it is possible that it will be amended again before it goes into effect. We cannot yet predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against us, including significant fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected persons and entities, damage to our reputation and loss of goodwill (both in relation to existing and prospective channel partners and end-customers), and other forms of injunctive or operations-limiting relief, any of which could have a material adverse effect on our operations, financial performance, and business. Evolving and changing definitions of personal data and personal information, within the European Union, the United States, and elsewhere, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, location data, biometric data and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. We may be required to expend significant resources to modify our solutions and otherwise adapt to these changes, which we may be unable to do on commercially reasonable terms or at all, and our ability to develop new solutions and features could be limited. These developments could harm our business, financial condition and results of operations. Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products by current and prospective end-customers.

If the general level of advanced cyberattacks declines, or is perceived by our current or potential customers to have declined, our business could be harmed.

Our security business may be dependent on enterprises and governments recognizing that advanced cyberattacks are pervasive and are not effectively prevented by legacy security solutions. High visibility attacks on prominent companies and governments have increased market awareness of advanced cyberattacks and help to provide an impetus for enterprises and

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governments to devote resources to protecting against advanced cyberattacks, which may include testing, purchasing and deploying our products. If advanced cyberattacks were to decline, or enterprises or governments perceived a decline in the general level of advanced cyberattacks, our ability to attract new channel partners and end-customers and expand our offerings within existing channel partners and end-customers could be materially and adversely affected. An actual or perceived reduction in the threat landscape could increase our sales cycles and harm our business, results of operations and financial condition.

Undetected software or hardware errors may harm our business and results of operations.

Our products may contain undetected errors or defects when first introduced or as new versions are released. We have experienced these errors or defects in the past in connection with new products and product upgrades. We expect that these errors or defects will be found from time to time in new or enhanced products after commencement of commercial distribution. These problems have in the past and may in the future cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. We may also be subject to liability claims for damages related to product errors or defects. While we carry insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted. A material product liability claim may harm our business and results of operations.

Any errors, defects or vulnerabilities in our products could result in:

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expenditures of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors and defects or to address and eliminate vulnerabilities;

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loss of existing or potential end-customers or distribution channel partners;

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delayed or lost revenue;

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delay or failure to attain market acceptance;

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indemnification obligations under our agreements with resellers, distributors and/or end-customers;

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an increase in warranty claims compared with our historical experience or an increased cost of servicing warranty claims, either of which would adversely affect our gross margin; and

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litigation, regulatory inquiries, or investigations that may be costly and harm our reputation.

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

We incorporate open source software such as the Linux operating system kernel into our products. We have implemented a formal open source use policy, including written guidelines for use of open source software and business processes for approval of that use. We have developed and implemented our open source policies according to industry practice; however, best practices in this area are subject to change, because there is little reported case law on the interpretation of material terms of many open source licenses. We are in the process of reviewing our open source use and our compliance with open source licenses and implementing remediation and changes necessary to comply with the open source licenses related thereto. We cannot guarantee that our use of open source software has been, and will be, managed effectively for our intended business purposes and/or compliant with applicable open source licenses. We may face legal action by third parties seeking to enforce their intellectual property rights related to our use of such open source software. Failure to adequately manage open source license compliance and our use of open source software may result in unanticipated obligations regarding our products and services, such as a requirement that we license proprietary portions of our products or services on unfavorable terms, that we make available source code for modifications or derivative works we created based upon, incorporating or using open source software, that we license such modifications or derivative works under the terms of the particular open source license and/or that we redesign the affected products or services, which could result, for example, in a loss of intellectual property rights, or delay in providing our products and services. From time to time, there have been claims against companies that distribute or use third-party open source software in their products and services, asserting that the open source software or its combination with the products or services infringes third parties’ patents or copyrights, or that the companies’ distribution or use of the open source software does not comply with the terms of the applicable open source licenses. Use of certain open source software can lead to greater risks than use of warranted third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of such open source software. From time to time, there have been

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claims against companies that use open source software in their products, challenging the ownership of rights in such open source software. As a result, we could also be subject to suits by parties claiming ownership of rights in what we believe to be open source software and so challenging our right to use such software in our products. If any such claims were asserted against us, we could be required to incur significant legal expenses defending against such a claim. Further, if our defenses to such a claim were not successful, we could be, for example, subject to significant damages, be required to seek licenses from third parties in order to continue offering our products and services without infringing such third party’s intellectual property rights, be required to re-engineer such products and services, or be required to discontinue making available such products and services if re-engineering cannot be accomplished on a timely or successful basis. The need to engage in these or other remedies could increase our costs or otherwise adversely affect our business, operating results and financial condition.

Our products must interoperate with operating systems, software applications and hardware that are developed by others and if we are unable to devote the necessary resources to ensure that our products interoperate with such software and hardware, we may fail to increase, or we may lose market share and we may experience a weakening demand for our products.

Our products must interoperate with our end-customers’ existing infrastructure, specifically their networks, servers, software and operating systems, which may be manufactured by a wide variety of vendors and original equipment manufacturers. As a result, when problems occur in a network, it may be difficult to identify the source of the problem. The occurrence of software or hardware problems, whether caused by our products or another vendor’s products, may result in the delay or loss of market acceptance of our products. In addition, when new or updated versions of our end-customers’ software operating systems or applications are introduced, we must sometimes develop updated versions of our software so that our products will interoperate properly. We may not accomplish these development efforts quickly, cost-effectively or at all. These development efforts require capital investment and the devotion of engineering resources. If we fail to maintain compatibility with these applications, our end-customers may not be able to adequately utilize our products, and we may, among other consequences, fail to increase, or we may lose market share and experience a weakening in demand for our products, which would adversely affect our business, operating results and financial condition.

We license technology from third parties, and our inability to maintain those licenses could harm our business.

Many of our products include proprietary technologies licensed from third parties. In the future, it may be necessary to renew licenses for third party technology or obtain new licenses for other technology. These third-party licenses may not be available to us on acceptable terms, if at all. As a result, we could also face delays or be unable to make changes to our products until equivalent technology can be identified, licensed or developed and integrated with our products. Such delays or an inability to make changes to our products, if it were to occur, could adversely affect our business, operating results and financial condition. The inability to obtain certain licenses to third-party technology, or litigation regarding the interpretation or enforcement of license agreements and related intellectual property issues, could have a material adverse effect on our business, operating results and financial condition.

Failure to prevent excess inventories or inventory shortages could result in decreased revenue and gross margin and harm our business.

We purchase products from our manufacturers outside of, and in advance of, reseller or end-customer orders, which we hold in inventory and sell. We place orders with our manufacturers based on our forecasts of our end-customers’ requirements and forecasts provided by our distribution channel partners. These forecasts are based on multiple assumptions, each of which might cause our estimates to be inaccurate, affecting our ability to provide products to our customers. There is a risk we may be unable to sell excess products ordered from our manufacturers. Inventory levels in excess of customer demand may result in obsolete inventory and inventory write-downs. The sale of excess inventory at discounted prices could impair our brand image and have an adverse effect on our financial condition and results of operations. Conversely, if we underestimate demand for our products or if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to resellers, distributors and customers and cause us to lose sales. These shortages may diminish the loyalty of our distribution channel partners or customers.

The difficulty in forecasting demand also makes it difficult to estimate our future financial condition and results of operations from period to period. A failure to accurately predict the level of demand for our products could adversely affect our total revenue and net income, and we are unlikely to forecast such effects with any certainty in advance.

Our sales cycles can be long and unpredictable, primarily due to the complexity of our end-customers’ networks and data centers and the length of their budget cycles. As a result, our sales and revenue are difficult to predict and may vary substantially from period to period, which may cause our operating results to fluctuate significantly.

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The timing of our sales is difficult to predict because of the length and unpredictability of our products’ sales cycles. A sales cycle is the period between initial contact with a prospective end-customer and any sale of our products. Our sales cycle, in particular to our large end-customers, may be lengthy due to the complexity of their networks and data centers. Because of this complexity, prospective end-customers generally consider a number of factors over an extended period of time before committing to purchase our products. End-customers often view the purchase of our products as a significant and strategic decision that can have important implications on their existing networks and data centers and, as a result, require considerable time to evaluate, test and qualify our products prior to making a purchase decision and placing an order to ensure that our products will successfully interoperate with our end-customers’ complex network and data centers. Additionally, the budgetary decisions at these entities can be lengthy and require multiple organization reviews. The length of time that end-customers devote to their evaluation of our products and decision-making process varies significantly. The length of our products’ sales cycles typically ranges from three to 12 months but can be longer for our large end-customers. In addition, the length of our close or sales cycle can be affected by the extent to which customized features are requested, in particular in our large deals.

For all of these reasons, it is difficult to predict whether a sale will be completed or the particular fiscal period in which a sale will be completed, both of which contribute to the uncertainty of our future operating results. If our close or sales cycles lengthen, our revenue could be lower than expected, which would have an adverse impact on our operating results and could cause our stock price to decline.

Our ability to sell our products is highly dependent on the quality of our support and services offerings, and our failure to offer high-quality support could have a material adverse effect on our business, revenue and results of operations.

We believe that our ability to provide consistent, high quality customer service and technical support is a key factor in attracting and retaining end-customers of all sizes and is critical to the deployment of our products. When support is purchased our end-customers depend on our support organization to provide a broad range of support services, including on-site technical support, 24-hour support and shipment of replacement parts on an expedited basis. If our support organization or our distribution channel partners do not assist our end-customers in deploying our products effectively, succeed in helping our end-customers resolve post-deployment issues quickly, or provide ongoing support, it could adversely affect our ability to sell our products to existing end-customers and could harm our reputation with potential end-customers. We currently have technical support centers in the United States, Japan, China, India and the Netherlands. As we continue to expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English.

We typically sell our products with maintenance and support as part of the initial purchase, and a substantial portion of our support revenue comes from renewals of maintenance and support contracts. Our end-customers have no obligation to renew their maintenance and support contracts after the expiration of the initial period. If we are unable to provide high quality support, our end-customers may elect not to renew their maintenance and support contracts or to reduce the product quantity under their maintenance and support contracts, thereby reducing our future revenue from maintenance and support contracts.

Our failure or the failure of our distribution channel partners to maintain high-quality support and services could have a material and adverse effect on our business, revenue and operating results.

We depend on growth in markets relating to network security, management and analysis, and lack of growth or contraction in one or more of these markets could have a material adverse effect on our results of operations and financial condition.

Demand for our products is linked to, among other things, growth in the size and complexity of network infrastructures and the demand for networking technologies addressing the security, management and analysis of such infrastructures. These markets are dynamic and evolving. Our future financial performance will depend in large part on continued growth in the number of organizations investing in their network infrastructure and the amount they commit to such investments. If this demand declines, our results of operations and financial condition would be materially and adversely affected. Segments of the network infrastructure industry have in the past experienced significant economic downturns. Furthermore, the market for network infrastructure may not continue to grow at historic rates, or at all. The occurrence of any of these factors in the markets relating to network security, management and analysis could materially and adversely affect our results of operations and financial condition.

Because we recognize subscription revenue from our customers over the term of their agreements, downturns or upturns in sales of our subscription-based offerings will not be immediately reflected in our operating results and may adversely affect revenues in the future.


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We recognize subscription revenue over the term of our customer agreements. As a result, most of our subscription revenue arises from agreements entered into during previous periods. A shortfall in orders for our subscription-based solutions in any one period would most likely not significantly reduce our subscription revenue for that period, but could adversely affect the revenue contribution in future periods. In addition, we may be unable to quickly reduce our cost structure in response to a decrease in these orders. Accordingly, the effect of downturns in sales of our subscription-based solutions will not be fully reflected in our operating results until future periods. A subscription revenue model also makes it difficult for us to rapidly increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over a longer period.

Our business and operations have experienced growth in certain prior periods and may experience rapid growth at certain times in the future, and if we do not effectively manage any future growth or are unable to improve our controls, systems and processes, our operating results will be adversely affected.

In certain prior periods, we have significantly increased the number of our employees and independent contractors. As we hire new employees and independent contractors and expand into new locations outside the United States, we are required to comply with varying local laws for each of these new locations. We anticipate that further expansion of our infrastructure and headcount will be required. Our growth has placed, and will continue to place, a significant strain on our administrative and operational infrastructure and financial resources. Our ability to manage our operations and growth across multiple countries will require us to continue to refine our operational, financial and management controls, human resource policies, and reporting systems and processes.

We need to continue to improve our internal systems, processes, and controls to effectively manage our operations and growth. We may not be able to successfully implement improvements to these systems, processes and controls in an efficient or timely manner. In addition, our systems and processes may not prevent or detect all errors, omissions or fraud. For example, as described in Part I, Item 4, “Controls and Procedures,” of this report, we identified material weaknesses in our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of December 31, 2018 and December 31, 2017 and that our disclosure controls and procedures were not effective as of March 31, 2019, December 31, 2018 and December 31, 2017. We may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could impair our ability to provide products or services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our products, increase our technical support costs, or damage our reputation and brand. Furthermore, given our growth and size, our management team may lack oversight on certain side agreements between sales personnel and customers. Our failure to improve our systems and processes, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to accurately forecast our revenue, expenses, and earnings, or to prevent certain losses, any of which may harm our business and results of operations.

We may not be able to sustain or develop new distributor and reseller relationships, and a reduction or delay in sales to significant distribution channel partners could hurt our business.

We sell our products and services through multiple distribution channels in the United States and internationally. We may not be able to increase our number of distributor or reseller relationships or maintain our existing relationships. Recruiting and retaining qualified distribution channel partners and training them on our technologies requires significant time and resources. These distribution channel partners may also market, sell and support products and services that are competitive with ours and may devote more resources to the marketing, sales and support of such competitive products. Our sales channel structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our distribution channel partners misrepresent the functionality of our products or services to end-customers or violate laws or our corporate policies. If we are unable to establish or maintain our sales channels or if our distribution channel partners are unable to adapt to our future sales focus and needs, our business and results of operations will be harmed.

The terms of the 2016 Credit Facility and changes in the rate at which we can obtain indebtedness could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.

In November 2016, we entered into a loan and security agreement (the “2016 Credit Facility”) with Silicon Valley Bank (“SVB”), as the lender. The 2016 Credit Facility contains a number of restrictive covenants that impose operating and financial restrictions on us, including restrictions on our ability to take actions that may be in our best interests. The 2016 Credit Facility requires us to satisfy specified covenants. As of the date of this filing, we had no outstanding balance under the 2016 Credit Facility and were in compliance with all facility covenants. However, we have experienced noncompliance with the covenants under the 2016 Credit Facility in connection with our late submission of quarterly financial statements and annual audited financial statements. While we view this as a one-time event, and while we were able to successfully negotiate a

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forbearance for such default and ultimately deliver the required financial statements, we may in the future fail to comply with the terms of the 2016 Credit Facility and be unable to negotiate a waiver or forbearance of any such defaults with our lender. If we fail to comply with these covenants in the future, SVB could elect to declare all amounts outstanding under the 2016 Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. If SVB accelerates the repayment, if any, we may not have sufficient funds to repay our existing debt. If we were unable to repay those amounts, SVB could proceed against the collateral granted to it to secure such indebtedness. We have pledged substantially all of our assets, excluding our intellectual property, as collateral under the 2016 Credit Facility. The 2016 Credit Facility uses LIBOR as a reference rate for our revolving loans, such that the interest rate applicable to such loans may, at our option, be calculated based on LIBOR. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. The consequences of these developments cannot be entirely predicted, but if LIBOR is no longer available or if our lender has increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our revolving loans, which could adversely impact our interest expense, results of operations and cash flows.

Our sales to governmental organizations are subject to a number of challenges and risks.

We sell to governmental organization end-customers. Sales to governmental organizations are subject to a number of challenges and risks. Selling to governmental organizations can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. We have not yet received security clearance from the United States government, which prevents us from being able to sell directly for certain governmental uses. There can be no assurance that such clearance will be obtained, and failure to do so may adversely affect our operating results. Governmental organization demand and payment for our products may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products. Governmental organizations may have statutory, contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future operating results.

Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental entities, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws, and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

Our products are subject to U.S. export controls and may be exported outside the United States only with the required level of export license or through an export license exception because we incorporate encryption technology into our products. In addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our end-customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, operating results and financial condition.

We discovered that trial software was inadvertently available for download by any international user and, on limited occasions, was downloaded by individuals located in a U.S. sanctioned country. We implemented corrective actions and filed a Voluntary Self Disclosure in February 2017 with the U.S. Department of Commerce and U.S. Department of Treasury regarding these technical violations. Both agencies closed their review without any fines or penalties.

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We are subject to various environmental laws and regulations that could impose substantial costs upon us.

Our company must comply with local, state, federal, and international environmental laws and regulations in the countries in which we do business. We are also subject to laws, which restrict certain hazardous substances, including lead, used in the construction of our products, such as the European Union Restriction on the Use of Hazardous Substances in electrical and electronic equipment directive. We are also subject to the European Union Directive, known as the Waste Electrical and Electronic Equipment Directive (“WEEE Directive”), which requires producers of certain electrical and electronic equipment to properly label products, register as a WEEE producer, and provide for the collection, disposal and recycling of waste electronic products. Failure to comply with these environmental directives and other environmental laws could result in the imposition of fines and penalties, inability to sell covered products in certain countries, the loss of revenue, or subject us to third-party property damage or personal injury claims, or require us to incur investigation, remediation or engineering costs. Our operations and products will be affected by future environmental laws and regulations, but we cannot predict the ultimate impact of any such future laws and regulations at this time.

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

Generally, our products comprise only a part of a data center. The servers, network, software and other components and systems of a data center must comply with established industry standards in order to interoperate and function efficiently together. We depend on companies that provide other components of the servers and systems in a data center to support prevailing industry standards. Often, these companies are significantly larger and more influential in driving industry standards than we are. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our end-customers. If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected and we may need to incur substantial costs to conform our products to such standards, which could harm our business, operating results and financial condition.

We are dependent on various information technology systems, and failures of or interruptions to those systems could harm our business.

Many of our business processes depend upon our information technology systems, the systems and processes of third parties, and on interfaces with the systems of third parties. If those systems fail or are interrupted, or if our ability to connect to or interact with one or more networks is interrupted, our processes may function at a diminished level or not at all. This could harm our ability to ship or support our products, and our financial results may be harmed.

In addition, reconfiguring or upgrading our information technology systems or other business processes in response to changing business needs may be time-consuming and costly and is subject to risks of delay or failed deployment. To the extent this impacts our ability to react timely to specific market or business opportunities, our financial results may be harmed.

Future acquisitions we may undertake may not result in the financial and strategic goals that are contemplated at the time of the transaction.

We completed the acquisition of substantially all of the assets of Appcito in June 2016 and may make future acquisitions of complementary companies, products or technologies. With respect to the Appcito acquisition or any other future acquisitions we may undertake, we may find that the acquired businesses, products or technologies do not further our business strategy as expected, that we paid more than what the assets are later worth or that economic conditions change, all of which may generate future impairment charges. The Appcito acquisition or any future acquisitions may be viewed negatively by customers, financial markets or investors. There may be difficulty integrating the operations and personnel of an acquired business, and we may have difficulty retaining the key personnel of an acquired business. We may have difficulty in integrating acquired technologies or products with our existing product lines. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations. We may have difficulty maintaining uniform standards, controls, procedures and policies across locations. We may experience significant problems or liabilities associated with product quality, technology and other matters.

Our inability to successfully operate and integrate future acquisitions appropriately, effectively and in a timely manner, or to retain key personnel of any acquired business, could have a material adverse effect on our revenue, gross margin and expenses.


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Our ability to use our net operating loss carryforwards may be subject to limitation and may result in increased future tax liability to us.

Generally, a change of more than 50% in the ownership of a corporation’s stock, by value, over a three-year period constitutes an ownership change for U.S. federal income tax purposes. An ownership change may limit a company’s ability to use its net operating loss carryforwards attributable to the period prior to such change. In the event we have undergone an ownership change under Section 382 of the Internal Revenue Code, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability to us.

Changes in tax laws or regulations or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are subject to income taxes in the United States and various foreign jurisdictions, and our domestic and international tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

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

•
expected timing and amount of the release of tax valuation allowances;

•
expiration of, or detrimental changes in, research and development tax credit laws;

•
tax effects of stock-based compensation;

•
costs related to intercompany restructurings;

•
changes in tax laws, regulations, accounting principles or interpretations thereof;

•
future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates; or

•
examinations by US federal, state or foreign jurisdictions that disagree with interpretations of tax rules and regulations in regard to positions taken on tax filings.

As our business grows, we are required to comply with increasingly complex taxation rules and practices. We are subject to tax in multiple U.S. tax jurisdictions and in foreign tax jurisdictions as we expand internationally. The development of our tax strategies requires additional expertise and may impact how we conduct our business. Our future effective tax rates could be unfavorably affected by changes in, or interpretations of, tax rules and regulations in the jurisdictions in which we do business or changes in the valuation of our deferred tax assets and liabilities. Furthermore, we provide for certain tax liabilities that involve significant judgment. We are subject to the examination of our tax returns by federal, state and foreign tax authorities, which could focus on our intercompany transfer pricing methodology as well as other matters. If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results and cash flows could be adversely affected.

In addition, from time to time the United States, foreign and state governments make substantive changes to tax rules and the application of rules to companies. For example, the 2017 Tax Cut and Jobs Act (the “Tax Act”) creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income, or GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Additionally, the Ninth Circuit Court of Appeals, or the Court, issued an opinion in Altera Corp. v. Commissioner addressing cost-sharing regulations governing stock-based compensation. On August 7, 2018, a newly constituted panel issued an order withdrawing the July 24, 2018 opinion to allow the reconstituted panel to confer on the appeal, and the case was reargued on October 16, 2018. The Court is expected to issue a final opinion. We are monitoring this case and any impact the final opinion could have on our financial and effective tax rate. Furthermore, due to shifting economic and political conditions, tax policies or rates in various jurisdictions may be subject to significant change.

We are exposed to the credit risk of our distribution channel partners and end-customers, which could result in material losses and negatively impact our operating results.


56

Most of our sales are on an open credit basis, with typical payment terms ranging from 30 to 90 days depending on local customs or conditions that exist in the sale location. If any of the distribution channel partners or end-customers responsible for a significant portion of our revenue becomes insolvent or suffers a deterioration in its financial or business condition and is unable to pay for our products, our results of operations could be harmed.
The sales price of our products and subscriptions may decrease, which may reduce our gross profits and adversely impact our financial results.
The sales prices for our products and subscriptions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and subscriptions, anticipation of the introduction of new products or subscriptions, or promotional programs. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions. Additionally, although we price our products and subscriptions worldwide in U.S. dollars (except in Japan), currency fluctuations in certain countries and regions may negatively impact actual prices that channel partners and end-customers are willing to pay in those countries and regions. Furthermore, we anticipate that the sales prices and gross profits for our products will decrease over product life cycles. We cannot guarantee that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and subscription offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles (“GAAP”) in the United States are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. For example, in May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. We adopted Topic 606 effective January 1, 2018, applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. This or other changes in accounting principles could adversely affect our financial results, including the comparability of our results. See Note 1 of our Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report regarding the effect of new accounting pronouncements on our financial statements. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

Concentration of ownership among our existing executive officers, a small number of stockholders, directors and their affiliates may prevent new investors from influencing significant corporate decisions.

Our executive officers and directors, together with affiliated entities, own 27% of our outstanding common stock (44% if other holders of 5% or more of our outstanding common stock are also included) as of March 31, 2019. Accordingly, these stockholders, acting together, have significant influence over the election of our directors, over whether matters requiring stockholder approval are approved or disapproved and over our affairs in general. The interests of these stockholders could conflict with your interests. These stockholders may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their investments, even though such transactions might involve risks to you. In addition, this concentration of ownership could have the effect of delaying or preventing a liquidity event such as a merger or liquidation of our company.

Certain stockholders could attempt to influence changes at the Company, which could adversely affect our operations, financial condition and the value of our common stock.

Our stockholders may from time-to-time seek to acquire a controlling stake in us, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt our operations and divert the attention of our board of directors and senior management from the pursuit of our business strategies. These actions could adversely affect our operations, financial condition and the value of our common stock.

57


We may need to raise additional funds in future private or public offerings, and such funds may not be available on acceptable terms, if at all. If we do raise additional funds, existing stockholders will suffer dilution.

We may need to raise additional funds in private or public offerings, and these funds may not be available to us when we need them or on acceptable terms, if at all. If we raise additional funds through further issuances of equity or convertible debt securities, you could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of our then-existing capital stock. The 2016 Credit Facility, as well as any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, that may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we cannot raise additional funds when we need them, our business and prospects could fail or be materially and adversely affected.

The price of our common stock has been and may continue to be volatile, and the value of your investment could decline.

Technology stocks have historically experienced high levels of volatility. The trading price of our common stock has been and is likely to continue to be volatile and subject to fluctuations in response to many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:

•
announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;

•
price and volume fluctuations in the overall stock market from time to time;

•
significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;

•
fluctuations in the trading volume of our shares or the size of our public float;

•
actual or anticipated changes or fluctuations in our results of operations;

•
whether our results of operations meet the expectations of securities analysts or investors;

•
actual or anticipated changes in the expectations of investors or securities analysts;

•
litigation or investigations involving us, our industry, or both;

•
regulatory developments in the United States, foreign countries or both;

•
general economic conditions and trends;

•
major catastrophic events;

•
sales of large blocks of our common stock; or

•
departures of key personnel.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. The price of our common stock has been highly volatile since our initial public offering (“IPO”) in March 2014. In January 2015, several substantially identical putative class action lawsuits alleging violations of securities laws were filed against us, our directors and certain of our executive officers and in June 2015, a related shareholder derivative action was filed. The consolidated securities class actions and the derivative action were settled in 2016 and dismissed in the first quarter of 2017. In March 2018, a putative class action lawsuit alleging violations of securities laws was filed against us and certain of our current and former executive officers, and in May 2018, a related shareholder derivative action was filed. In March 2018, the United States Securities and Exchange

58

Commission began a private investigation into any securities laws violations by us or persons currently or formerly affiliated with us. Current or future securities litigation, including any related shareholder derivative litigation or investigation, could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. As of March 31, 2019, there were approximately 3.9 million vested and exercisable options to purchase our common stock, in addition to the 75.2 million common shares outstanding as of such date. All outstanding shares and all shares issuable upon exercise of outstanding and vested options are freely tradable, subject in some cases to volume and other restrictions of Rules 144 and 701 under the Securities Act, as well as our insider trading policy. In addition, holders of certain shares of our outstanding common stock, including an aggregate of 9.5 million shares held by funds affiliated with Summit Partners, L.P. as of March 31, 2019 are entitled to rights with respect to registration of these shares under the Securities Act pursuant to an investors’ rights agreement.

If these holders of our common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our common stock. If we file a registration statement for the purposes of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registration rights, our ability to raise capital may be impaired. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.

We are an emerging growth company, and any decision on our part to comply only with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the completion of our initial public offering. We will remain an emerging growth company until the earliest of: (a) the last day of the year (i) following the fifth anniversary of the completion of the initial public offering, (ii) in which we have total annual gross revenue of at least $1.07 billion, or (iii) in which we qualify as a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Effective December 31, 2019, we will no longer be an “emerging growth company,” and the reduced disclosure requirements applicable to “emerging growth companies” will no longer apply, which will increase our costs as a result of compliance requirements with Section 404 of the Sarbanes-Oxley Act and increased demands on management.
Effective December 31, 2019, we will lose our status as an “emerging growth company” as defined in the JOBS Act. As such, we will incur significant additional expenses that we did not previously incur in complying with the Sarbanes-Oxley Act and rules implemented by the SEC. Once we are no longer an “emerging growth company,” the cost of compliance with Section 404 will require us to incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if

59

we or our independent registered public accounting firm deems current or future deficiencies in our internal control over financial reporting to be material weaknesses, we may be required to make prospective or retroactive changes to our financial statements, consider other areas for further attention or improvement, or be unable to obtain the required attestation in a timely manner, if at all. In addition, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.


We are obligated to implement and maintain effective internal control over financial reporting. As of December 31, 2018 and December 31, 2017, we concluded that our internal control over financial reporting was not effective. In the future, we may again not complete our analysis of our internal control over financial reporting in a timely manner, or our internal control over financial reporting may not be determined to be effective, or we may discover significant deficiencies or material weaknesses in our internal control over financial reporting, all of which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to the Exchange Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for each fiscal year. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

We have, in the past, experienced and are currently experiencing issues with our internal control over financial reporting. We have discovered and it is possible that we may discover in the future significant deficiencies or material weaknesses in our internal control over financial reporting. Current significant deficiencies and material weaknesses have resulted in a restatement of certain of our financial reports, as disclosed in Part I, Item 4, “Controls and Procedures,” of this report. If, in any future reporting periods, we are unable to conclude that our internal control over financial reporting is effective, or if we are required to restate our financial statements as a result of ineffective internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.

We are required to disclose material changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until December 31, 2019, when we will no longer be an emerging growth company as defined in the JOBS Act, if we take advantage of the exemptions contained in the JOBS Act. To comply with these requirements, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.

The market for our common stock, to some extent, depends on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts should cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which would cause our share price or trading volume to decline.

Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.

Our restated certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

•
a classified board of directors with three-year staggered terms, with declassification phasing in over a period of three years, beginning with our 2018 annual meeting of stockholders, which could delay the ability of stockholders to change the membership of a majority of our board of directors until our board of directors is completely declassified;

•
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preference and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;


60

•
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

•
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

•
the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our Chief Executive Officer, our secretary, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

•
the requirement for the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;

•
the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and

•
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or not to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made problems such as acts of war and terrorism.

A significant natural disaster, such as an earthquake, fire, a flood, or significant power outage could have a material adverse impact on our business, operating results, and financial condition. Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. In addition, our two primary manufacturers are located in Taiwan, which is near major earthquake fault lines and subject to typhoons during certain times of the year. In the event of a major earthquake or typhoon, or other natural or man-made disaster, our manufacturers in Taiwan may face business interruptions, which may impact quality assurance, product costs, and product supply and timing. In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, and our operations could be disrupted, for the affected quarter or quarters. In addition, cyber security attacks, acts of war or terrorism, or other geo-political unrest could cause disruptions in our business or the business of our supply chain, manufacturers, logistics providers, partners, or end-customers or the economy as a whole. Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales at the end of a quarter could have a significant adverse impact on our quarterly results. All of the aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, or the delay in the manufacture, deployment or shipment of our products, our business, financial condition and operating results would be adversely affected.

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

We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. In addition, the 2016 Credit Facility currently restricts our ability to pay cash dividends while this facility remains outstanding. As a result, you may only receive a return on your investment in our common stock if the value of our common stock increases.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


61


ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
 
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION

Lease of 2300 Orchard Parkway

On May 2, 2019 (the “Effective Date”), we entered into a sublease agreement with Marvell Semiconductor, Inc. (“Sublandlord”) for the premises located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”). The Sublease is conditioned upon receipt of consent to the Sublease from the landlord of the Premises, Han’s Holdings 2300 Orchard (the “Landlord”).

We intend to use the premises as an office space and for research and development purposes. The term of the Sublease is seven (7) years and eight (8) months from the earlier of (i) December 1, 2019 or (ii) the date the we commence business operations at the Premises. The Sublease provides for monthly base rent of approximately $262,000 per month for the first year, with annual increases thereafter. The total base rent through the end of the term of the Sublease is approximately $26.4 million. In addition to base rent, we will also be responsible for operating and other expenses.

The Sublease is subject to the lease agreement by and between the Landlord and Sublandlord dated January 31, 2017 (the “Master Lease”) and all of the terms, covenants, and conditions of the Master Lease shall be applicable to the Sublease.




62

ITEM 6. EXHIBITS

Incorporated herein by reference is a list of the exhibits contained in the Exhibit Index below.

EXHIBIT INDEX

Exhibit
Number
 
Description
3.2
 
10.1
 
31.1
 
31.2
 
32.1*
 
32.2*
 
101.INS
 
XBRL Instant Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Extension Calculation Linkbase Document
101.DEF
 
XBRL Extension Definition Linkbase Document
101.LAB
 
XBRL Extension Labels Linkbase Document
101.PRE
 
XBRL Extension Presentation Linkbase Document
 
*
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10‑Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of A10 Networks, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10‑Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES
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 thereunto duly authorized.
    
 
 
A10 NETWORKS, INC.

Date: May 8, 2019
 
 
By: /s/ Lee Chen
 
Lee Chen
 
Chief Executive Officer and President
(Principal Executive Officer)

Date: May 8, 2019

 
By: /s/ Tom Constantino
 
Tom Constantino
 
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)


64
SUBLEASE a ~ /~G~~C___---- 1. Parties. This Sublease ("Sublease") is entered into as of~T"~, 2019 ("Effective Date") by and between MARVELL SEMICONDUCTOR, INC., a California corporation ("Sublaudlord"), and A10 NETWORKS, 1NC., a Delaware corporation ("Subteaxant"), as a sublease under that certain Standard Lease (Single Tenant}, dated as of January 31, 2017, by and between HAWS HOLDINGS 2300 ORCHARD PARKWAY, a Delaware limited liability company (as successor-in- interest to The Realty Associates Fund IX, L.P., a Delaware limited partnership), as landlord ("Landlord"), and Sublandlord (as successor-in-inferest to Cavium, Lic., a Delaware corporation), as tenant ("Lease"). A copy of the Lease is attached hereto as Exhibit A and made a part hereof. Subordinatia~; Default; Provisions Constituting Sublease. 2.1 Subordination. This Sublease is subject and subordinate to all of the terms and conditions of the Lease, and to the matters to which the Lease is subject and subordinate in accordance with its terms. Except to the extent otherwise expressly provided in this Sublease, Subtenant shall observe and perform all of the obligations of Sublandlord as "Tenant" under the Lease to the extent the same are incorporated by reference herein pursuant to Section 23 below. 2.2 Default Under Lease. Subtenant covenants and agrees to refrain from doing or causing to be done, or permitting any act to be done by its employees, agents, affiliates, contractors, consultants, sub-sublessees, licensees or invitees, which would constitute a default under the Lease or might cause the Lease or the rights of Sublandlord as tenant under the Lease to be terminated or surrendered. Subtenant shall indemnify, defend and hold Sublandlord harmless from and against any and all liabilities, damages, claims, losses, actions, causes of action, demands, judgments, liens, injuries, costs and expenses, including, without limitation, attorneys' fees and costs, to the extent incurred in connection with or arising from Subtenant's failure to comply with or to perform Subtenant's obligations hereunde►•. Except as otherwise expressly provided in in Section 2.3 (a) o:f this Sublease, Subtenant agrees that Sublandlord shall have no liability to Subtenant as a consequence of Landlord's failure or delay in performing its obligations under the Lease. Under no circumstances shall Subtenant have tl~e right to require performance by Sublandlord of Landlord's obligations. In the event Sublaudlord's interest as tenant under the Lease terminates for any reason, then this Sublease shall terminate concurrently therewith, and, unless such termination of tl~e Lease was caused by the default of Sublandlord under the Lease (and such default under the Lease by Sublandlord was not caused by the default of Subtenant under this Sublease) or Sublandlord's default under• this Sublease, such termination shall be without any liability of Sublandlord to Subtenant. 2.3 Provisions Constituting Sublease. ihiless otherwise specified herein, references to specific paragraphs or sections of the Lease in this Section 2.3 shall mean and refer to paragraphs or sections of the Lease. All of the terms and conditions contained in the Lease are hereby incorporated into this Sublease by reference and made a part of this Sublease as thou~l~ set forth in full herein, except for: (A) Sections 1.1, 1.2, 13, 1.7, 1.8, 1.9, 1.10, 1.11, 1.12, 1..i3 (solely as to Exhibits, B, D, and E (po~•tions of Exhibit E as noted in this pa~~agraph below), and 1.14 of the Basic Lease Provisions included in Section 1 of the Lease; (B) Sections 2.2 (except that the definition of "Building Systems" included in Section 2.2 shall be incorporated by reference into this Sublease), 3.1, 3.2, 4.2 (twelfth sentence only; it being understood and agreed that Sublandlord's actual knowledge concerning CASp inspections shall mean and be Jimited to the actual knowledge of the Vice-President of Facilities of Sublandlord as of the date of this Sublease, 4823.Ofi52-5588v4 SLF118332013

 
without any duty of inquiry or investigation, ai d such Vice-President of Facilities shall have no personal liability if such CASp representation or warranty is untrue), 5.1 (first two sentences only), 6, , 18 (second sentence and part of third sentence referencing Landlord's agreement to indemnify and hold Tenant harmless), 20 (second through sixth sentences only), 22, 25.8, 25.9, 26.1 (fourth sentence), 28.3, 29.2, 37 (first sentence only), and 39 of the Lease; (C) Exhibits B, D, E (paragraphs I, 4, 6, 7, 8 and 9 only) attached to the Lease and Exhibits 1 and 2 attached to Exhibit E to the Lease. In the event of a direct conflict between the Lease and this Sublease, this Sublease shall govern as between Sublandlord and Subtenant. For purposes of this Sublease, with respect to those sections of the Lease incorporated into this Sublease by reference, all references to "Landlord" and "Tenant" shall be deemed to be references to "Sublandlord" and "Subtenant," respectively, and all references to the "Lease" shall be deemed to be references to this Sublease. The foregoing notwithstanding: (a) With respect to work, services, restoration of services, maintenance, repairs, replacements, restoration, insurance, capital improvements or the performance of any other obligation of "Landlord" under the Lease, the sole obligation of Sublandlord shall be to promptly request the same in writing from Landlord when reasonably requested to do so by Subtenant in writing (provided that Subtenant shall set forth Landlard's default in reasonable detail), and to use Sublandlord's commercially reasonable efforts (at no cost to Sublandlord) to obtain the Landlord's performance (provided, however, that "cotmnercially reasonable efforts" shall not include legal action against Landlord for its failure to so perform). Any reference to "Landlord" in those sections of the Lease dealing with the work, services, restoration of services, maintenance, repairs, replacements, restoration, insurance, capital improvements or the performance of any other similar obligations of "Landlord" under the Lease shall be deemed to refer to Landlord only. Without limiting the generality of the foregoing, Sublandlord shall have no liability to Subtenant with respect to (a) any representations and warranties made by Landlord under the Lease; (b) any indemnification obligations of Landlord under the Lease or other obligations or liabilities of Landlord under the Lease with respect to compliance with laws, the condition of the Premises oi• Building (both as defined in the Lease) or hazardous materials, and (c) Landlord's repair, maintenance, replacement, restoration, upkeep, insurance or any other obligations of Landlord under the Lease, regardless of whether the incorporation of one or more provisions of tl~e Lease into this Sublease might otherwise operate to make Sublaudlord liable therefor. Without limiting the generality of the foregoing, all references to the obligations of "Landlord" in Sections 4.2 (with respect to any Capital Alterations) as defined in Section 4.2 of the Lease), 5 (except that the Statement referred to in Section 5 of the Lease shall be prepared by Landlord and may be delivered by Sublandlord to Subtenant), 8, 9.2, 10.1, 10.2, 10.3, 11.2, 11.3, 13 (concerning Landlord's repair or restoration obligations), 14 (concerning Landlord's repair or restoration obligations) and 16.6 of the Lease shall mean and refer to Landlord hereunder. All references to the rights of "Landlord" in Section 28 and Section 32 of the Lease shall mean and refer to Landlord hereunder. In addition, the term "Tenant Coi7dition" as used in Section 4.2 of the Lease shall include any alteration to the Premises, or applicable part thereof, that is required to comply with a Legal Requirement due to or triggered by the construction or installation of any of the Initial Improvements as described in the Work Letter attached as Exhibit C to this Sublease. If, after Sublandlord's commercially reasonable efforts to cause Landlord's performance (as described in this Section 2.3(a) above) after Sublandlord's receipt of written notice from Subtenant (as required pursuant to Section 23(a) above), Landlord shall remain in material default under the Lease in any of its obligations to Sublandlord (beyond any applicable notice and cure period), Sublandlord may, but shall not be obligated to, subject to the provisions of the Subordination, Non-Distw•bance and Attormllent Agreement referred to in Section 16 below, elect to (i) take action for the enfot•cemeut of 4823-0652-5588v4 SLF118332013

 
Sublandlord's rights against Landlord with respect to such default, or (ii) cure any such default to tl~e extent permitted pursuant to the provisions of the Lease (provided that any and all such steps, actions, or proceedings so instituted by Sublandlord shall be at the sole cost and expense of Subtenant (and paid by Subtenant in advance)). If Sublandlord does not elect to do either of the foregoing within te~1 (10) business days after Sublandlord's receipt of Subtenant's written notice, Subtenant shall lave the right to take enforcement action against Landlord in its own name and, solely for that purpose, and only to such extent, all of the rights of Sublandlord to enforce any such obligations of Landlord under the Lease are hereby conferred upon and are conditionally assigi7ed to Subtenant and Subtenant is hereby subrogated to such rights to enforce such obligations (including the benefit of any recovery or relief j. Notwithstanding the provisions of tl~e immediately preceding sentence, in no event shall Subtenant be entitled to take such action in its own name if such action would constitute a breach or default under the Lease. Subtenant shall indemnify, defend and hold Sublandlord harmless from and against all loss, cost, liability, claims, damages, actions, causes of action; demands, liens, injuries, judgments and expenses (including, without limitation, reasonable attorneys' fees and costs), penalties and fines incurred in connection with or arising from the taking of any such action. The obligations of Subtenant under the immediately preceding sentence shall survive the expiration or earlier termination of this Sublease. (b) Any references in the Lease to "Landlord" in those provisions of the Lease incorporated herein dealing with (i) notice to, or the consent of, the "Landlord" and (ii) the right of "Landlord" to undertake inspections or investigations of the Premises, or applicable part thereof, or access the Premises shall be deemed to refer to Landlord and Sublandlard and their respective designated agents, contractors and employees. In addition, any references in the Lease to "Landlord" in those provisions of the Lease dealing with the Tenant's obligation to name the "Landlord" as an additional insured shall be deemed to refer to Sublandlord and Landlord and, to the extent required under the Master Lease, Landlord's property manager and lender(s). (c) The provisions of the Lease incorporated herein concerning any waivers) of claims by, and/or indemnification obligations of, "Tenant" under the Lease and any exculpatory provisions in the Lease incorporated herein releasing Landlord from liability for certain acts, events or occurrences (including, without limitation, those obligations of Tenant and/or exculpatory provisions set forth in Section 18 and/or Section 19 of the Lease, but excluding the second, third, fourth, fifth and sixth sentences of Section 20 of tl~e Lease) shall benefit Landlord as well as Sublandlord. (d) With respect to any non-monetary obligation of Subtenant to be performed under this Sublease, whenever the Lease grants to Sublandlord a specified number of days to perform its corresponding obligations under the Lease, except as otherwise provided herein, Subtenant shall have three (3) fewer days (but not less than 1 business day) to perform the obligation, including, without limitation, caring airy defaults. (e) Notwithstanding any other provision of this Sublease to tl~e contrary, in the event of a breach of this Sublease by Subtenant that inay cause a default under the Lease, Sublandlord may, in addition to all other remedies and rights available to Sublandlord at law or in equity or under this Sublease, at Subtenant's expense and after three (3) business days' prior- written notice to Subtenant, take such action as may reasonably be required to prevent such matter from maturing into a default under the Lease, and Subtenant shall pay such expenses so incurred by Sublandlord within ten (10) days after written demand from Sublandlord; provided, however, Sublandlord shall not exercise its rights under this subsection (e) if Subtenant has commenced curing its breach of this Sublease and is diligently prosecuting such cure to completion. 4823-0652-5588v4 SLF118332013

 
(~ The last sentence of Section 16.2(b) of tl~e Lease to the contrary notwithstanding, Sublandlord does not waive its rights to recover consequential damages from Subtenant that arise from Subtenant holding over in the Premises, or any part thereof, following the expi~•ation or earlier termination of this Sublease. (g) Subtenant shall have »o right under this Sublease to offset against or deduct from Base Rent or Operating Expenses pursuant to Section 16.6(x) and/or Section 16.6(b) unless Sublandloi•d, as Tenant, also has the right under the Lease to similarly offset against or deduct from Base Rent and Operating Expenses the amounts that Subtenant is offsetting or deducting under this Sublease pursuant to Section 16.6(x) and/or Section 16.6(b) of the Lease. (h) For purposes of this Sublease, Section 16.1(x) of the Lease that is incorporated herein by reference is deemed amended, in part, to delete the words "five (5) business days" and to substitute in place thereof "three (3) business days". (i) The parties acknowledge that the Prior Lease referenced i~~ the Lease has been terminated. Those provisions incorporated into this Sublease from the Lease, together with the provisions set forth in this Sublease, shall be the complete terms and conditions of this Sublease. Unless otherwise defined herein, capitalized terms used in this Sublease shall have the meanings ascribed to them in the Lease. 2.4 No Amendmeirt of Lease. Sublandlord hereby agrees and acknowledges that it shall in no event modify or amend the Lease in a manner fliat affects Subtenant's rights under this Sublease without first obtaining Subtenant's prior written consent thereto (which consent may be withheld in Subtenant's sole discretion). 2.5 Sublandlord Representations and Covenants. Sublandlord represents and warrants that, to the current, actual knowledge of Sublandlord, (i) the Lease is in full force and effect and has not been modified, amended or terminated and there exists under the Lease no default by Sublandlord or Landlord, nor has there occurred any event which, with tl~e giving of notice or passage of time or both, could constitute such a default by Sublandlord or Landlord and (ii) the copy of the Lease attached hereto is a complete and accurate copy of the Lease. Sublandlord covenants that (w) it will maintain the Lease rn good standing through tl~e term of this Sublease, unless (1) Landlord terminates the Lease pursuant to its right to do so under the Lease, or (2) the Lease terminates as a result of any breach or default by Subtenant under this Sublease or any act by Subtenant or any of its agents, employees, affiliates, officers, directors, representatives, conttactoi~s, consultants, licensees, invitees or sublessees that causes the Lease to terminate, (x) Sublandlord shall fully perform all of its obligations under the Lease to the extent Subtenant has not expressly agreed to perform such obligations under this Sublease, (y) Sublandlord shall not terminate or take any actions giving rise to a termination right under the Lease, and (z) Sublaudlord shall not make auy elections, exercise any right oi- i-einedy or give any consent or approval under the Lease without, in each instance, Subtenant's prior written consent, which consent shall not be Linreasonably withheld, conditioned or delayed (however, in no event shall Sublandlord elect to terminate the Lease). Without limiting any other right or remedy of Subtenant under this Sublease, if Landlord seeks to terminate the Lease because of an event of default by Sublandlord under the Lease (which default is not caused by a breach or default by Subtenant under this Sublease), Sublandlord shall use its reasonable good faith efforts to maintain the Lease in full fot-ce and effect for the benefit of Subtenant, and Sublandlord shall take all action required to try to reinstate the Lease and/or to claim and pursue any right of redemption or relief from forfeiture of the Lease (and as a consequence thereof any forfeiture of 4823-0652-5588v4 SLF118332013

 
this Sublease) to which Sublandlord may be entitled at law or in equity. 2.6 Lease Default. In the event that Sublandlord actually defaults in its obligation to pay Base Rent and/or Operating Expenses due under the Lease (beyond any applicable notice and/or cure period), the Subtenant may remedy such default in the payment of Base Rent and/or Operating Expenses for and on behalf of the Sublandlord. In the event Subtenant cures such default in the payment of Base Rent and/or Operating Expenses, Sublandlord shall, within thirty (30) days after Sublandlord's receipt of Subtenant's reaso»ably detailed invoice therefor, reimburse Subtenant for all actual, reasonable, necessary and documented costs incurred by Subtenant in effecting such cure which exceed the amounts due under this Sublease. 3. Premises. 3.1 Premises. Pursuant to the Lease, Landlord leases to Sublandlord, and Sublandlord leases from Landlord, the Premises (as defined and more particularly described in Section 2.1 of the Lease and depicted on Exhibit A attached to the Lease, consisting of the Building (as defined in the Lease), the approximate leasable area of which is one hundred sixteen thousand three htmdred eighty-one (116,381) square feet (which square footage shall be conclusive and binding upon Sublandlord and Subtenant for all purposes of this Sublease) and tl~e other areas depicted on Exhibit A attached to the Lease. Subject to the terms, covenants and conditions of this Sublease, Sublandloi•d hereby leases to Subtenant and Subtenant hereby leases from Sublandlord the Premises as described in the Lease and depicted on Exhibit A attached to the Lease. Sublandlord and Subtenant shall comply with all of the teens and conditions of this Sublease subject to timely satisfaction of the condition set forth in Section 13 below. 32 Existing Furniture. During the Sublease Term (as defined in Section 4.1 below), Subtenant may use the cubicles, office and conference room furniture, soft seating, racking equipment and other items of furniture, fixtures and equipment owned by Sublandlord, currently located within the Building (the "Existing Furniture"). The parties shall use reasonable efforts to prepare and confirm an inventory of the Existing Furniture within ninety (90) days after the date of this Sublease. Subtenant hereby agrees and acknowledges that Subtenant shall accept and use such Existing Furniture in its "AS IS" condition, "with all faults" and without any express or implied warranty from Sublandlord (or any of Sublandlord's agents, employees and/or representatives) of any kind. Without limiting tl~e generality of the preceding sentence, Subtenant acknowledges that Subtenant is not relying on any representations or warranties of any kind whatsoever, express or implied, from Sublandlord, or its agents, employees or other representatives as to any matters concerning such Existing Furniture, including, without limitation, any implied warraizty of fitness for a particular purpose. The Existing Furniture shall remain the property of Sublandlord during the Sublease Term. Notwithstanding the preceding sentence, during the Sublease Term, Subtenant shall, at Subtenant's sole cost and expense, be responsible for cleaning, insuring, repairing, maintaining and replaci»g the Existing Furniture, and paying any and all taxes levied thereon and/or in connection therewith. Sublandlord shall have no duty to repair, maintain or replace such Existing Furniture; nor shall Sublandlord be obligated to pay any taxes relating to, and/or maintain insurance coverage for•, such Existing Furniture. Subtenant hereby assumes all risk of damage to property or injury to persons in co~7nection with tl~e use of the Existing Furniture and Subtenant hereby waives al] claims in respect thereof against Sublandlord. Subtenant shall, at Subtenant's sole cost and expense, maintain the Existing Furniture in good condition and repair during the Sublease Term. For purposes of this Section 3.2, "good condition and repair" shall mean the condition of such Existing Furniture as of the Commencement Date of this Sublease, reasonable wear and tear excepted. Upon tl~e expiration (or earlier terminatio») of tl~e Sublease Term, Sublandlord shall transfer title to the Existing Furniture to Subtenant pursuant to a Bill of Sale in the form attached hereto as Exhibit B ai7d made a part hereof. 4823-0652-5588v4 SLF118332013

 
Upo» the expiration or earlier• termination of this Sublease, Subtenant shall pay to Sublandlord a~~ amount equal to One Dollar ($1.00) in consideration for Subte»ant's purchase of the Existing Furniture from Sublandlord. Upon the expiration or earlier ter•ulination of this Sublease, Subtenant shall, at Subtenant's sole cost and expense, remove tl~e Existi»g Furniture from the Premises and Building aid restore a~iy damage to the Building caused by such removal of the Existing Furniture. 3.3 Parkin. During the Sublease Tei•ni, Subtenant shall have the exclusive right to use all of the parking stalls located on the Premises at no additional cost or expense. 3.4 Condition of the Premises. Subtenant agrees and warrants that it has inspected the Premises and the suitability of the same for Subtenant's pw•poses and, subject to Sublandlord's obligations under the Work Letter attached hereto as Exhibit C ("Work Letter") and without waiver of any breach of Sublandlord's express representations, warranties and covenants set forth in this Sublease, Subtenant hereby accepts the Premises in its present condition, with all faults. The Work Letter is incorporated in this Sublease and made a part hereof and Sublandlord and Subtenant each agree to timely perform its obligations under the Work Letter. Except as otherwise expressly provided in the Work Letter, Sublandlord makes no representations or warranties as to the condition of the Premises and/or Building, or as to the suitability of the same for the Subtenant's intended use or occupancy. Subtenant hereby agrees and warrants that Subtenant has reviewed the terms and conditions of the Lease. Subtenant does hereby waive and disclaim any objection to, cause of action based upon, or claim that its obligations hereunder should be reduced or limited because of the existing condition of the Premises and/or Building (except that nothing herein shall constitute a waiver of any claims) by Subtenant with respect to any repair, maintenance or replacement obligations by Landlord under the Lease), or the suitability of the Premises for Subtenant's use or occupancy. Subtenant acknowledges that, except as otherwise expressly provided in this Sublease or the Work Letter' attached hereto as Exhibit C, neither Sublandlord nor any agent nor any employee of Sublandlord has made any representations or warranties with respect to the Premises and/or Building, or with respect to the suitability of the same for the conduct of Subtenant's business. The taking of possession of the Premises by Subtenant shall conclusively establish that the Premises and Building were at such trine in satisfactory condition, subject to satisfaction of the performance of Sublandlord's obligations under the Work Letter. Subtenant hereby agrees and acktlowledges that Sublandlord shall have no obligation whatsoever to perform any work in, or construct oi• make any alterations or improvements to, the Premises (other than as expressly provided in the Work Letter attached hereto as Exhibit C or in this Sublease) or to provide Subtenant any allowance or contribution toward the cost of any such work, alterations or improvements that Subtenant desires to perform within the Premises. On or before the expiration or earlier termination of this Sublease, Subtena~7t shall (A) remove all of its furniture, trade fixtures and other personal property and the Existing Furniture from the Premises and (B) surrender the Premises to Sublandlord in the condition required under the Lease as a result of Subtenant's use and occupancy of the Premises, it being tl~e intent of Sublaudlord and Subtenant that Sublaudlord shall in i10 event be liable for any repair and/or restoration obligations of "Tenant" arising under the Lease upon the expiration or earlier termination thereof as a result of Subtenant's use and occupancy of the Premises, and that Subtenant shall assume any and all such repair and/or restoration obligations. Withotiit ]imitii~g the generality of the preceding sentence, on or before the expiration or sooner termination of this Sublease, Subtenant shall perform, at Subtenant's sole cost and expense, any and all work relating to the removal of any alterations, additions or improvements installed in the Premises by or on behalf of Subtenant, to tl~e extent any such work is required by the Lease, the Landlord and/or Sublandlord. If the Premises are not so surrendered, then Subtenant shall be liable to S~iblandlord for, and shall indemnify Sublandloi-d in connection with, any and all costs incurred by Sublandlord to return the Premises to the required condition. The provisions of this Section 3.4 shall survive the expiration or earlier termination of this Sublease. If Sublandlord is required to perform surrender obligations under the Lease, Sublandlord shall have the right to terminate 4823-0652-5588v4 SLF118332013

 
this Sublease up to forty-five (45) days prior to tl~e Expiration Date of this Sublease upon den (10) months prior written notice to Sublessee. 3.5 Use. Subtenant shall use the Premises solely for general office and research and development and any other use reasonably related thereto, and otherwise subject to the terms and conditions of the Lease. Notwithstanding anything to the contrary contained in the Lease (including, without limitation, Section 25.2 of the Lease) and/or this Sublease, Subtenant shall not generate, use, treat, store, handle, release or dispose of, or permit the ge»eration, use, treatment, storage, handling, release or disposal of Hazardous Material on or in tl~e Premises or Building, or transport or permit the transportation of Hazardous Material to or from the Premises or Building without, in each instance, obtaining Sublandlord's prior written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed. 4. Sublease Term. 4.1 Commencement Date. Subject to Section 13 hereof, the term of this Sublease shall be for a period of approximately seven (7) years and eight (8) months ("Sublease Term") commencing on the earlier of (i) December 1, 2019 or (ii) the date Subtenant commences business operations in the Building, or any part thereof ("Commencement Date") and ending, unless sooner terminated, on July 31, 2027 ("Expiration Date"). If Sublandlord is unable to deliver possession of the Premises to Subtenant on the scheduled Commencement Date (i.e., December 1, 2019), or any other date, for any reason, Sublandlord shall not be subject to any liability for its failure to do so, and such failure shall not affect the validity of this Sublease nor the obligations of Subtenant hereunder (subject to Section 13 hereof, but, in such event, tl~e Commencement Date shall be such date that Sublandlord gives Subtenant written notice that (A) Landlord has conserrted to this Sublease in accordance with Section 13 hereof and (B) possession of the Premises is delivered to Subtenant. Tl~e parties hereto acknowledge and agree that completion or substantial completion of the Ii7itial Improvements referred to in Exhibit C attached hereto is not a condition to the Commencement Date occurring. Notwithstanding Sublandlord's delivery of possession of the Premises to Subtenant on the Commencement Date, Subtenant shall not be permitted to occupy the Premises unless and untrl Subtenant has provided Sublandlord the certificates of insurance required by Section 4.4 hereof Notwithstanding any provision in the Lease granting Sublandlord, as "Tenant," an option to extend the term thereof, Subtenant shall have no option to extend the term of this Sublease. Within ten (10) days after Sublandlord's request, Subtenant shall execute and deliver to Sublandlot~d a written confirmation of the Cominenceinent Date. Such confirmation shall be conclusive and binding upon Sublandlol~d and Subtenant; provided, however, Sublandlord's failure to deliver any such written confirmation to Subtenant shall not affect Sublandlord's determination of the Commencement Date. 4.2 Delay in Commencement Date. The parties hereto desire that the Commencement Date occur on or before December 1, 2019. Notwithstanding the foregoing, in the event that Sublandlord is unable to deliver possession of the Premises on or• before December 1, 2019, or any other date, for any reason (including, without limitation, Landlord's failure to consent to this Sublease on or- before such date), Sublandlord shall not be liable for any damages caused thereby, i7or shall this Sublease be void or voidable (subject to Section 13 hereofl. Subject to the foregoing, if Sublandlord is unable to deliver possession of the Premises on or before December 1, 2019, Subtenant shall not be liable for Rerrts until the Commencement Date, as extended pursuant to Section 4.1 above; provided, however, the expiration date of the Sublease Term hereof (i.e., July 31, 2027) shall not be extel7ded by any such delay. 4.3 Holdin~Over. Subtenant hereby agrees and acknowledges that Subtenant shall 4823-0652-5588v4 SLF118332013

 
Dave no right to hold over in the Premises after tl~e Expit•ation Date (or earlier termination of this Sublease). If Subtenant remains in possession of the Premises after the Expiration Date (or earlier termination of this Sublease), Subtenant shall be atenant-at-sufferance only. Subtenant hereby agrees and acknowledges that, if Subtenant holds over in the Premises, Sublandlord may be regtiiired to pay holdover damages and other amounts under the Lease. If Subtenant fails to surrender the Premises to Subla»dlord on or before the Expiration Date (or earlier termination of this Sublease), Subtenant shall indemnify, defe»d and hold Sublandlord harmless from and against any and all claims, losses, damages, liabilities, actions, causes of action, demands, judgments, injuries, costs and expenses (including, without limitation, attorney's fees aild costs of suit) resulting from Subtenant's failure to so surrender (including, without limitation, any amounts due to Landlord under Section 29 of the Lease). 4.4 Insurance• Waiver of Subrogation; Exculpation; Indemnity. Subtenant shall carry at all times during the term of this Sublease, at Subtenant's sole cost and expense, any and all insurance coverage that "Tenant" is obligated to maintain pursuant to the Lease. Concurrently with Subtenant's execution of this Sublease, Subtenant shall furnish to Sublandlord certificates of coverage with respect to any and all insurance coverage required under the Lease and this Sublease. Notwithstanding anything herein to the contrary, Subtenant and Sublandlord hereby release each other, and their respective agents, employees and contractors, from any and all claims for injury to any property that are caused by or result from risks insured against under any insurance policies carried by the parties (or required to be insured against pursuant to the Lease as incorporated by reference into this Sublease) , without regard to the negligence of the person or entity so released. The applicable insurance policies shall contain a clause to the effect that this t•elease shall not affect the right of the insured to recover under such policies. Any policy or policies of fire, extended or similar casualty insurance which either party obtains in comlection with the Premises shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent any rights lave been waived by the insured prior to the occurrence of injury of loss. Notwithstanding anything to the contrary contained in the Lease and/or this Sublease, (A) Subtenant hereby assumes all risk of damage to property in or about the Premises from any cause, and Subtenant hereby waives all claims in respect thereof against Sublandlord (provided, however, that the foregoing shall not constitute a waiver of claims for liability to the extent resulting from the negligence, willful misconduct of Sublandlord or breach of this Sublease) and (B) in no event shall Sublandlord have any liability to Subtenant for any lost profits, loss of business or any other consequential damages. Subtenant shall indemnify, hold harmless, and defend Sublandlord against all claims, losses or liabilities for injury or death to any person or for damage to or loss of use of any property arising out of any occurrence in, upon or at the Premises, or any part thereof, or• arising out of Subtenant's or any of its agents', employees', affiliates', officers', directors', partners', members', managers', contractors', consultants', licensees', sub-sublessees' or other representatives' use, possession, or occupancy of the Premises and/or the Building, or any work, activity ar thing done, allowed or suffered by Subtenant oz- any of its agents, employees, affiliates, officers, directors, partners, members, managers, contractors, consultants, licensees, sub-sublessees or other representatives (collectively, "Subtenant Parties") in, on or about the Premises, or any part thereof, from any cause whatsoever; provided, however, that the foregoing indemnity shall not apply to liability to the extent resulting from the negligence, willful misconduct of Sublandlord or breach of this Sublease. Such indemnification shall include and apply to attorneys' fees, investigation costs, and other costs actually i»curred by Sublandlord. The provisions of this Section 4.4 shall survive the expiration or earlier termination of this Sublease with respect to any claim, damage, loss, liability, injury, death, breach or default occurring or accruing, or based on facts or• events occurring or accruing, prior to such expiration or earlier termination of this Sublease. 5. Rent; Security Deposit. 4823-0652-5588v4 SLF118332013

 
5.1 Rents Tl~e teen "Rents" as used in this Sublease shall mean (A) Base Reut (as defined in Section 5.2 below) and (B) any and all items of (1) "Operating Expenses" described in Section 5.2 of the Lease (subject to Section 5.3 below) and "Real Property Taxes" described in Section 8.2 of the Lease (subject to Section 5.3 below) and (2) other Sublease Additional Rent (as defined in Section 5.3 below) which Subtenant is required to pay under this Sublease. Unless otherwise expressly provided in this Sublease, Rents shall be payable by Subtenant in advance on the first (1 s`) day of each month during tl~e teen hereof, and in the event this Sublease commences or the date of expiration of this Sublease occurs other than on the first day or last day of a calendar month, the rent for such month shall be prorated. Rents shall be payable by Subtenant to Sublandlord without prior notice, demand, offset or deduction, at the address set forth in Section 11, or at such other place or places as Sublandlord may from time to time direct. 5.2 Base Rent. From and after the Commencement Date, Subtenant shall pay to Sublandlord as "Base Rent" for the Premises tl~e following amounts: Sublease Month Monthly Base Rent (NNN) O1 * $0.00* 02 -12 $261,857.25 13 -24 $269,712.97 25 -36 $277,804.36 37 — 48 $286,138.49 49 — 60 $294,722.64 61 - 72 $303,564.32 73 -84 $312,671.25 85 —July 31, 2027 $322,051.39 "Subject to this Section 5.2 below. Base Rent shall be paid to Sublandlord in advance on the first (1St) day of each calendar month of the Sublease Term in lawful money of the United States, without deduction, offset, prior notice or demand. Notwithstanding the foregoing, concurrently with Subtenant's execution of this Sublease, Sl~btenai~t shall pay to Sublal~dlord in cash or iimnediately available finds tl~e monthly installment of Base Rent due for the second (2nd) month of the Sublease Term (i.e., the amount of Two Hundred Sixty- one Thousand Eight Hundred Fifty-Seven and 25/100 Dollars ($261,857.25)) plus an amount equal to Eighty Thousand Three Hundred Two and 89/100 Dollars ($80,302.89) (which $80,302.89 is one month of estimated Operating Expenses and Real Property Taxes). Subtenant's obligation to pay Base Rent shall be abated with respect to the first (1 s`) month of the Sublease Term. During the first (l s`) moirtl~ of the Sublease Term, Subtenant's obligatioiz to pay 4823-0652-5588v4 SLF118332013

 
Operating Expenses and Real PropeiTy Taxes and other miscellaneous occupancy costs per the terms of this Sublease shall not be abated. Notwithstanding the foregoing, Subtenant hef•eby agrees and acknowledges that, if a default by Subtenant results in the termination of this Sublease, in addition to any and all of its rights, powers and remedies as may be permitted at law, in equity and/or tinder this Sublease, Sublandlord shall be entitled to recover the abated Base Rent that would have been due during such first (1st) month of the Sublease Term. 5.3 Operating Expenses; Real Property Taxes; Sublease Additional Rent; Late Charles. (a) Sublandlord and Subtenant hereby agree and acknowledge that Subtenant shall pay during the Sublease Term one hundred percent (100%) of the "Operating Expenses" due under Sections 5.2 and 5.4 of the Lease and the "Real Property Taxes" due under Sections 8.1 and 8.2 of the Lease, and such amounts required to be paid by Subtenant shall be part of Sublease Additional Rent (as defined in Section 5.3(b) below Sublandlord shall provide Subtenant with a copy of all Statements received by Sublandlord from Landlord pursuant to Section 5.4 and 5.5 of the Lease. Sublandlord shall be entitled to rely conclusively on Landlord's determination of estimated and actual "Operating Expenses" and Subtenant agrees that the obligations of Landlord under tihe last sentence of Section 5.5 of the Lease shall apply solely fo Landlord and i~ot to Sublandlord. For purposes of this Sublease, the first sentence of Section 5.2 of the Lease shall be deemed amended, in part, to delete the date of "February 1, 2018" and substihite in place thereof, the words "the Commencement Date of this Sublease". (b) In addition to the Base Rent due pursuant to Section 5.2 above, Subtenant shall pay to Sublandlord (collectively, the "Sublease Additional Rent"): (x) the amounts described in Section 6 below; (y) any and all other charges, costs and expenses and other sums which Subtenant is required to pay under this Sublease other than Base Rent (together with all interest and charges that may accrue thereon in the event of Subtenant's failure to timely pay the same); and (z) all damages, costs and expenses which Sublandlord may incur by reason of any default hereunder by Subtenant. Sublease Additional Rent shall accrue hereunder as of the Commencement Date of this Sublease and shall be due at the same time, upon the same terms and conditions, and in the same manner as required under the applicable terms of the Lease or this Sublease. Notwithstanding anything to the contrary contained in this Sublease, Subtenant shall in no event be liable for late fees or penalties levied by Landlord as a result of Sublatldlord's default u~Ider the Lease (so long as such default by Sublandlord under the Lease was not caused by Subtenant's default under this Sublease). 4823-0652-5588v4 SLF118332013

 
(c) Subtenant acknowledges that late payment by Subte»ant to Sublaudlord of Rents or any other payment due Sublandlord may cause Sublandlord to incur late charges under the Lease or other costs not contemplated by this Sublease, the exact amount of such costs being extremely difficult aid impracticable to fix. Therefore, if any installment of Base Rent or Sublease Additional Rent due from Subtenant is not received by Sublandlord within seven (7) days after the date it is due and payable, then, without any requirement for notice or demand to Subtenant, Subtenant shall pay to Sublandlord an additional sw~~ of five percent (5%) of the overdue amount as a late charge; provided, however, that Sublandlord shall waive flee late charge one (1) time during each calendar year of the term of this Sublease if Subtenant pays all overdue sums within three (3) days after receipt of written notice by Sublandlord to Subtenant advising Subtenant that such payment is overdue. The parties hereto agree that this late charge represents a fair and reasonable estimate of the costs that Sublandlord will incur by reason of late payment by Subtenant. Acceptance of any late charge shall not constitute a waiver of Subtenant's default with respect to the overdue amount, nor prevent Sublandlord from exercising any of the other rights and remedies available to Sublandlord. 5.4 Security Deposit. Concurrently with the execution of this Sublease, Subtenant shall deposit with Sublandlord the sum of Four Hundred Two Thousand Three Hundred Fifty-four and 28/100 Dollars ($402,35428) (which equates to the sum of the last months' Base Rent in the amount of $322,05139 plus one month of estimated Operating Expenses and Real Property Taxes in the amount of $80,302.89) as security for the frill and faithful performance of every provision of this Sublease to be performed by Subtenant. Sublandlord shall not be required to keep such security deposit separate from its general accounts. Subtenant acknowledges that the security deposit is not an advance payment of any kind or a measure of Sublandlord's damages in the event of a Subtenant default. If Subtenant breaches, beyond any applicable notice and cure periods, any provision, covenant or condition of this Sublease, including, but not limited to, tl~e payment of Base Rent or Sublease Additional Rent, Sublandlord may (but shall not be required to) use all or any part of such security deposit for the payment of any sums in default, or to compensate Sublandlord for any other loss or damage which Sublandlord may suffer by reason of Subtenant's default. If any portion of such security deposit is so used or applied, Subtenant shall, within five (5) days after written demand therefor, deposit cash with Sublandlord in an amoiu~t sufficient to restore the security deposit to its original amount and Subtenant's failure to do so shall be a material breach of this Sublease. Sublandlord shall not be required to keep the security deposit separate from its general funds and Subtenant shall not be entitled to interest o» such deposit. Within thirty (30) days after the expiration of the Sublease Term and Subtenant's vacating of the Premises, the Security Deposit or any balance thereof shall be returned to Subtenant (or, at Sublandlord's option, to Subtenant's assignee), provided that subsequent to the expiration (or earlier termination) of this Sublease, Sublandlord may retain from said Security Deposit (a) any and all amounts necessary to cure any default in the payment of Base Rent and/or Sublease Additional Rent, to repair any damage to the Premises caused by the Subtenal~t, and to clean tl~e Premises upon termination of this Sublease, (b) any amounts that Sublandlord may incur or be obligated to incur in exercising Sublandlord's rights or remedies for default under this Sublease, (c) any amount that Sublandlord may become obligated to pay because of Subtenant's default, or to compensate Sublandlord for any loss or damage which Sublandlord may suffer in connection with such default (including, without limitation, as applicable, delinquent rentals accruing prior to termination of this Sublease and future rent damages under California Civil Code Section 1951.2) and (d) any expense, loss or damage that Sublaudlord reasonably estimates it may suffer because of Subtenant's default (including, without limitation, any and all amounts of Base Rent and/or Sublease Additional Rent that would lave been due under this Sublease had the Sublease remained in effect for the entire term). Should Sublandlord transfer its interest in this Sublease during the term hereof, and, upon such transferee's writte~~ assumption of this Sublease, Sublandlord shall deposit with the assignee the then unappropriated funds deposited by Subtenant as aforesaid, Sublandlord shall be discharged from airy liability with respect to such Security Deposit. Subtenant hereby waives the provisions of any and 4823-0652-5588u4 SLF118332013

 
all provisions of law now or hereafter in force, that provide that Sublandlord may claim from a secul•ity deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Subtenant, or to clean the Premises. 1n addition, Subtenant hereby waives the provisions of any law which is inconsiste»t with this section including, but not limited to, Section 1950.7 of the California Civil Code. 6. Services, Maintenance and Repair of the Premises; Utilities. In accordance with Section 2.3 of this Sublease, but without limiting the generality thereof, Subtenant hereby agrees and acknowledges that Sublandlord shall not be responsible to Subtenant for furnishing any service, maintenance, repau•s and/or replacements which are the obligation of Landlord, it being understood that such obligations are solely those of Landlord. Subtenant I~ereby agrees and acknowledges that Subtenant shall be responsible for, and hereby assumes, any and al] maintenance, repair and/or replacement obligations on the part of "Tenant" to be performed pursuant to the Lease, as incorporated herein, during the Sublease Term, including, without limitation, the obligations of the "Tenant" set forth in Section 11 of the Lease, as incorporated herein. To tl~e extent any such charges do not constitute "Operating Expenses" under the Lease (and thus payable by Subtenant in accordance with, and subject to, Section 53(a) above) and to the extent provided in the Lease, as incorporated herein, with respect to Sublandlord, as Tenant under the Lease, Subtenant shall pay prior to delinquency all charges for water, gas, light, heat, power, electricity, telephone, trash pickup, landscaping, sewer charges, janitorial and all other services (including, without limitation, sprinkler services), supplied to or consumed on the Premises (collectively, "Services") and all taxes, levies, fees or surcharges therefor. Without limiting the generality of the foregoing, Subtenant shall be responsible for any and all charges due pursuant to Section 7.l of the Lease, as incorporated herein. To the extent not provided to the Premises by Landlord, Subtenant shall arrange for Services to be supplied to tl~e Premises aid shall contract for all of the Services in Subtena»t's name on or prior to the Commencement Date of this Sublease. The Commencement Date shall not be delayed by reason of any failure by Subtenant to so contract for Services. 7. Damage or Destruction. Sublandlord shall have no obligation to rebuild, restore or repair the Premises in the event of any damage or destruction thereto, Subtenant acknowledging that such obligation is Landlord's pursuant to Section 13 of the Lease. If Landlord elects to terminate the Lease pursuant to Section 13 of the Lease, this Sublease shall terminate concurrently therewith without any liability of S~iblandlord to Subtenant. If Sublandlord is entitled to terminate the Lease pursuant to Section 13 of the Lease and/or applicable ]aw, Sublandlord may elect to terminate the Lease in accordance therewith, and in that event this Sublease shall terminate concurrently with the Lease without any liability of Sublandlord to Subtenant. In addition, Sublandlord and Subtenant hereby agree and acknowledge that, so long as Sublandlord is entitled to terrninate the Lease pursuant to Section 13 of the Lease, subject to Subtenant's sh~ict compliance with the following sentence, Subtenant shall be entitled to terminate this Sublease in accordance with the terms and conditions of Section 13 of the Lease. Subtenant's right to terminate this Sublease in accordance with the preceding sentence is hereby expressly conditioned upon tl~e satisfaction of the following conditions precedent: (A) Following a damage or destruction, Subtenant shall have given Sublandlord written notice of its election to terminate this Sublease within five (5) business days after the commencement of airy time period during which Sublandloi•d is entitled to give Landlord written notice of Sliblandlord's electiotl to terminate the Lease pw•suant to Section 13 of the Lease (with the result that any notice period applicable to Sublandlord, as Tenant under the Lease, pursuant to such Sectio» 13 shall be shortened by no more than five (5) business days) and (B) Landlord shall have recognized Sublandlord's right to terminate the Lease pursuant to Section 13 of the Lease. Except as expressly set forth in this Section 7 above, Subtenant shall have no right to terminate this Sublease in the event of damage or destruction to all or any portion of the Premises 4823-0652-5588v4 SLF118332013

 
and Subtenant expressly waives auy rights to ter-minafe Phis Sublease, including, without limitation, any rights pursuant to any applicable law now or hereafter enacted, which provisions relate to the termination of the firing of a thing upon its substantial daulage or desti-uctioi~. If, following any damage or destruction of the Premises, or any portion thereof, Sublandlord actually receives from Landlord any abatement of rent that is in respect of the Premises and attributable to any portion of the Sublease Term, then Sublandlord shall allocate such abatement to Subtenant. Except as otherwise expressly provided in the preceding sentence, Subtenant shall not be entitled to, and hereby waives, any and all claims against Sublandlord for any compensation or damage for loss of use of the whole or any part of the Premises and/or for any inconvenience or annoyance occasioned by and such damage, destruction, repair or restoration. 8. Condemnation. Sublandlord shall have no obligation to restore the Premises in tl~e event of auy partial taking thereof, Subtenant acknowledging that such obligation is Landlord's pursuant to Section 14 of the Lease. If Landlord elects to terminate the Lease pursuant to Section 14 of the Lease, this Sublease shall terminate concurrently therewith without any liability of Sublandlord to Subtenant. In addition, Sublandlord and Subtenant hereby agree and acknowledge that, so long as Sublandlord is entitled to terminate the Lease pursuant to Section 14 of the Lease, subject to Subtenant's strict compliance with the following sentence, Subtenai7t shall be entitled to terminate this Sublease in accordance with the terms and conditions of Section 14 of the Lease. Subtenant's right to terminate this Sublease in accordance with the preceding sentence is hereby expressly conditioned upon the satisfaction of the following conditions precedent: Following any condemnation, Subtenant shall have given Sublandlord written notice of its election to terminate this Sublease within five (5) business days after the commencement of any time period dw•ing which Sublaudlord is entitled to give Landlord written notice of Sublandlord's election to terminate the Lease pursuant to Section 14 of the Lease (with tt~e result that any notice period applicable to Sublandlord, as Tenant under the Lease, pursuant to such Section 18 shall be shortened by no more than five (5) business days). Except as expressly set forth in this Section 8 above, Subtenant shall have no right to terminate this Sublease in the event of condemnation of all or a portion of the Premises or the Building. Subtenant hereby agrees and acknowledges that, notwithstanding anything to the contrary contained in this Sublease, any and all proceeds or condemnation awards received by Sublandlord under the Lease s11all be and remain the property of Sublandlord. Notwithstanding tl~e foregoing, Subtenant shall be entitled to seek, at its own cost at~d expense, an award from the condemning authority for loss of its business, loss of goodwill, the value of any alterations, equipment, trade fixtures or other personal property of Subtenant installed by or on behalf of Subtenant in the Building at Subtenant's sole cost and expense, moving expenses, or any other damages suffered or incurred by Subtenant arising out of such condemnation; provided, however, that any such award to Subtenant shall in no event take into account the value of the unexpired term of this sublease or Subtenant's leasehold estate. 9. Brokers. In connection with this Sublease, Sublandlord shall pay a brokerage commission per the terms of a separate sublisting agreement between Sublandlord and CBRE. Subtenant represents and warrants to Sublandlord that Subtenant's sole contact with Sublandlord or with the Premises in connection with this transaction leas been directly with Sublandlord and CBRE, and that no other broker or finder can properly claim a right to a commission or a finder's fee based upon contacts between the claimant and Subtenant. Subject to the foregoing, Subtenant agrees to indemnify, defend and hold Sublandlord harmless from any claims or liability, including reasonable attorneys' fees, in connection with a claim by any person for a real estate broker's commission, finder's fee, consulting fee or other compensation based upon any statement, representation or agreement of Subtenant, and Sublandlord agrees to indemnify, defend and hold Subtenant harmless from any such claims or liability, including reasonable attorneys' fees, in connection with a claim by any person for a real estate broker's commission, finder's fee, consulting fee or other compensation based upon any statement, representation 4823-0652-5588v4 SLF118332013

 
or agreeu~ent of Sublandlord. Tl~e obligations of Sublandlord and Subte»ant pursuant to tl~e preceding sentence shall survive the expiration or earlier tet-mination of this Sublease. 10. Landlord's Consent; Lease Limitations. 10.1 Landlord's Consent. With respect to any approval or consent required to be obtained from the Landlord under the Lease, such approval or consent must be obtained from both Landlord and Sublandlord, and the approval or consent of Sublandlord may be withheld (and such withholding of consent by Sublandlord shall be deemed reasonable) if Landlord's approval or consent is not obtained. In no event shall Sublandlord lave any liability to Subtenant by reason of Landlord's failure or refusal to grant consent to any matter requested by Subtenant. Any references in the Lease to "Landlord" in those provisions of the Lease dealing with notice to, or the consent of, the "Landlord" shall be deemed to refer to both Landlord and Sublandlord. In the event Subtenant requests consent to any matter which requires Landlord's approval or consent, Subtenant shall be responsible for payment of all costs and expenses Sublandlord may incur and/or be required to pay to Landlord in connection therewith. 10.2 Intentionally Omitted. 11. Notices. 11.1 General. Any notice required or desired to be given ui7der this Sublease shall be in writing and may be delivered (a) in person (by hand, by messenger or by courier service) or (b) by Federal Express or other overnight courier, and shall be deemed sufficiently given if service in a manner specified in this Section 11.1. Notices may not be given by U.S. Postal Service regular mail, by U.S. Postal Service certified mail, or by email, and any notices sent by U.S. Postal Service regular mail, by U.S. Postal Service certified mail, oi~ by email shall not be binding on Sublandlord or Subtenant for any purpose. Any notice permitted or required hereunder, and any notice to pay rent or quit or similar notice, shall be deemed personally delivered to Subtenant on the date the notice is personally delivered to any employee of Subtenant at the Premises. The addresses set forth in this Section 11.1 below shall be the address of each party for notice purposes; however, Landlord or Tenant may by written notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Sublandlord hereunder shall be concurrently transmitted to such party or- parties at such addresses as Landlord nay from time to time hereinafter designate by written notice to Subtenant. To Sublandlord: Marvell Semiconductor, Inc. 5488 Marvell Lane Santa Clara, CA 95054 Attention: Legal Department Erin Williams, Esq. With a copy to: Marvell Semiconductor, Inc. 5488 Marvell Lane Santa Clara, Ca 95054 Attention: LEGAL 4823-0652-5588v4 SLF118332013

 
To Subtenant: Prior to the Commencement Date: A 10 Networks, Inc. 3 West Plumeria Drive San Jose, CA 95134 Attention: Lee Chen, President and CEO Following the Commencement Date: At the Premises Attention: Lee Chen, President and CEO Notices delivered by Federal Express or other courier shall be deemed given on the date delivered by the carrier to the appt•opriate party's address for notice purposes. If notice is received on Saturday, Sunday or a legal holiday, it shall be deemed received on the next business day. Nothing contained herein shall be construed to limit Sublandlord's right to serve any notice to pay rent ore quit or similar notice by any method permitted by applicable law, and any such notice shall be effective if served its accordance with any method permitted by applicable law whether or not the requirements of this Section have been met. l l.2 Notices from Landlord. Subtenant shall send to Sublandlord, and Sublandlord shall send to Subtenant, a copy of all notices and other communications received from Landlord within forty-eight (48) hours of receipt, and Sublandlord and Subtenant shall send to the other a copy of all notices and other communications transmitted to Landlord, concurrently with such transmittal. 12. General. 12.1. Counterparts. This Sublease may be executed in counterparts, each of which shall be deemed an original for all purposes and together shall constitute one instrument. 12.2 Construction of Sublease Provisions. This Sublease shall not be construed either for or against Subtenant or Sublandlord, but shall be construed in accordance with the general tenor of the language to reach a fair and equitable result. 123 Entire Agreement. This Sublease, together with all exhibits attached hereto, and the provisions of the Lease, including exhibits attached thereto, incorporated herein by reference, constitute the entire agreement between the parties with respect to the Premises, and there are no binding agreements or representations between the parties except as expressed herein. Any agreements, warranties or representations not expressly contained herein shall in no way bind either Subla~ldlord or Subtenant, and Sublandlord and Subtenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Sublease. This Stiiblease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, whether written or oral, between Sublandlord and Subtenant with respect to the Premises and appurtenances thereto. No addition to, or modification of, any term or provision of this Sublease shall be effective until and unless set forth in a written instrument signed by both Sublandlord and Subtenant. All indemnities of Subtenant set forth in this Sublease shall survive the expiration or earlier termination of this Sublease. 12.4 Exhibits. All exhibits attached to this Sublease shall be deemed to be incorporated I~erein by the individual reference to each such exhibit, and all such exhibits shall be 4823-0652-5588v4 SLF118332013

 
deemed a part of this Sublease as though set forth in full in tl~e body of this Sublease. 12.5 Attorneys' Fees. Any reference to "attorneys' fees" contained in this Sublease or the Lease shall include, without limitation, the properly allocable portion of the internal legal costs of Sublandlord and/or Subtenant, respectively. 12.6 Corporate Authority. Each of Subtenant and Sublandlord represent and warrant that the individual executing this Sublease on behalf of the corporation constituting Subtenant and Sublandlord, respectively, is duly authorized to execute and deliver this Sublease on behalf of such corporation in accordance with a duly adopted t~esolution of the board of directors of said corparation or in accordance with the by-laws of said corporation, and that this Sublease is binding upon such corporation in accordance with its terms. Concurrently with the execution of this Sublease, Subtenant shall provide to Sublandlord either (i) a copy of such resolution of the board of directors of Subtenant authorizing the execution of this Sublease on behalf of Subtenant, which resolution shall be duly certified by the secretary or an assistant secretary of Subtenant to be a true copy of a resolution duly adopted by the board of directors of Subtenant, or (ii) other written evidence satisfactory to Sublandlord showing the authority of the individuals executing this Sublease on behalf of Subtenant to execute this Sublease and bind Subtenant 13. Condition Precedent to Sublease. Tl~e submission of this Sublease for examination does not constitute an option or offer to sublease the Premises. The effectiveness of this Sublease is expressly conditioned upon Lai7dlord's consent hereto in a form reasonably satisfactory to Subtenant. Unless waived by Subtenant, such consent shall provide that Landlord approves Subtenant's right to use the signage allocated to Tenant (as defined in the Lease) in the Lease for the purposes of identifying Subtenant. Accordingly, the subletting contemplated under this Sublease shall not be effective unless and until Landlord has consented to this Sublease in writing. Sublandlord shall use commercially reasonable efforts to obtain such consent as soon as reasonably possible following the execution of this Sublease by Sublandlord and Subtenant. Subtenant consents to Sublandlord providing Landlord with an original or copy of this Sublease. Notwithstanding the foregoing, Sublandlord shall have no liability whatsoever to Subtenant if Sublandlord is Linable to obtain such consent from Landlord. In the event that Landlord's consent is not obtained within forty-five (45) days following the submittal of this Sublease by Sublandlord to Landlord for consent, either Sublandlord or Subtenant shall have the right to terminate this Sublease by providing written notice thereof to the other ai7d Sublaudlord shall return to Subtenant any sums paid hereunder unless Landlord's consent is obtained prior to the giving of any such notice, in which event such notice shall be of no force or effect. In the event such written termination notice is given following the lapse of such forty-five (45) day period and prior to Landlord's consent being obtained, this Sublease shall be deemed null and void and neither• Sublandlord nor Subtenant shall have any liability or obligations to the other hereunder (excepting those provisions of this Sublease that are deemed to survive the expiration or earlier termination hereof . For purposes of this Section 13, "Landlord's consent" shall mean the date upon which Landlord's unconditional consent to this Sublease has been obtained in the form required hereunder. 14. Si na e. Notwithstanding anything to tl~e contrary contained in this Sublease and/or the Lease (including, without limitation, Paragraphs 2 and 3 of Exhibit E attached to tl~e Lease), Subtenant hereby agrees and acknowledges that neither Sublandlord nor any of Sublandlord's agents or representatives have made any representations, warranties oi• agreements with respect to Landlord's amenability to Subtenant's installation of signage. If Landlord fails or refuses to consent to any signage proposed by Subtenant, Sublandlord shall in no event be liable to Subtenant and Subtenant hereby waives any and all claims with respect thereto. Any and all signage installed by or on behalf of Subtenant shall be at Subtenant's sole cost and expense, including, without limitation, costs related to permits, if 4823-0652-5588v4 SLF118332013

 
required. 15. Assignment a»d Sub-Subletting. Subtenant shall have no right without the prior written consent of Landlord and Sublandlord (wl~icl~ consent by Sublandlord shall not be unreasonably withheld (subject to Section 10.1 above)), and otherwise subject to the terms and conditions of Section 15 of the Lease, to (i) assign this Sublease, (ii) sub-sublease all or any portion of tl~e Premises, ai7d/oi• (iii) permit the Prernises (or any portion thereo fl to be occupied by anyone other than Subtenant,. Subtenant shall have no right to encumber, pledge or hypothecate its interest in this Sublease and/or tl~e Premises. Subtenant may, without Sublandlord's prior written consent (and without Landlord's prior written consent so long as such consent is not required by the terms of the Lease), but subject to tl~e provisions and requirements of Section 15.8 of the Lease, sub-sublet the Premises or assign this Sublease to an "Affiliate" (as that term is defined Section 15.8 of the Lease) of Subtenant. 16. SNDA. Sublandlord hereby discloses to Subtenant that Sublandlord's predecessor-in- interest under• the Lease, Cavium, Inc., and Landlord and Citibank, N.A. executed a Subordination, Non- Disturbance and Attornment Agreement dated as of August 1, 2017, a copy of which is attached hereto as Exhibit D and made a part hereof. The parties hereto acknowledge and agree that this Sublease is subject and subordination to such Subordination, Non-Disturbance and Attornment Agreement. 17. Approvals. Except where this Sublease expressly provides for sole discretion, whenever this Sublease requires an approval, consent, designation, determination, selection or judgment by either Sublandlord or Subtenant, such approval, consent, designation, determination, selection or judgment and any conditions imposed thereby shall be reasonable and shall not be unreasonably withheld or delayed and, in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith. [balance of page is intentionally blank; signature page follows on next page] 4823-0652-5588v4 SLF118332013

 
IN WITNESS WH~R~OP, the pasties have executed this Sublease effective as of the date first set forth aUove. SURLANDLORD: MARV~LL S~MTCONDUCTOR,INC., a California corporation By: Name: Its: By: Name: Tts: SUBTENANT: A10 NETWORKS, I C., a Delaware v • ti r By: Name: $ ~' Its: t~~1'j'~ Name: Its: 4823-0652-5588v4 SLF118332013

 
IN WITNESS WHEREOF, the parties have executed this Sublease effective as of the date first set forth above. SUBLANDLORD: MARVELL SEMICONDUCTOR, INC., a California corporation By: Name: ~ , L¢, t I G-~'~. ✓ Its: t L..~ —' rn ~., ~~- 'b,, p;,~ a~vP ~~~~ ~ By: Narue: ~epa~~~ex~.t Its: ~~~,e~.'i,e~a~ SUBTENANT: A10 NETWORKS, INC., a Delaware corporation By: Name: Its: By: Name: zts: is 4823.0652-5588v4 Sl.F1i8332013

 
IN WITNESS WHEREOF, the parties have executed this Sublease effective as of the date first set forth above. SUBLANDLORD: MARVELL SEMICONDUCTOR, INC., a California corporation By: Name: Its: By: Name: Its: SUBTENANT: A10 NETWORKS, iNC., a Delaware corporation By: Name: Its: By: Name: Its: 4823-0652-5588v4 SLF118332013

 
EXHIBIT A LEASE [to be attached] 4823-0652-5588v4 SLF118332013

 
STANDARD LEASE (Single Tenant) 1. BASIC LEASE PROVlSlONS. 'I . "I DATE FOR REFERENCE PURPOSES: January 31, 2017 1.2 LANDLORD: The Realty Associates Fund IX, L.P., a Delaware limited partnership 'I.3 TENANT. Cavium, Inc., a Delaware corporation 1.4 PREMISES ADDRESS: 2300 Orchard Parkway, San Jose, California ') .5 APPROXIMATE LEASABLE AREA OF BUILDING. ~'~6,38~ (in square feet) 1.6 Use: General office and research and development and any other use reasonably related thereto 1.7 TERn~: Commencement Date through July 31, 2027 'I.8 COMMENCEMENT DATE: AUgUS1 "I, ZO'I~ 1.9 MONTIfLY BASE RENT. Period Base Rent Due Each Month Au ust 1, 2017 — Janua 31, 2018: $0 Februa 1,.2018 —October 31, 2018: $130,928.63 i November 1 2018-October 31;.,2019: $293,687.45 November 1, 2019 —October 31, 2420: $3D2,498.08 November 1, 2020 —October 31,'2021: $311,573.02 November 1, 2021 —October 31, 2022: $320,920.21 November 1„2022 —October 31, 2023: $330,547.81 November 1, 2023 —October 31, 2024: $340,464.25 November 1, 2024 —October 31, 2025: $350,678.17 November 1, 2025 —October 31, 2026: $361,198.52 November 1, 2026 —Jul 31, 2027: $372,034.48 1.1 O BASE RENT AND ESTIMATED OPERATING EXPENSES PAID UPON EXECUTfON: BASE RENT: $ T 3O, 928.63 APPue~ To: February 2018 (insert month(s)) OPERATING EXPENSES: ~3J,662.00 APPcreo To: February 2018 (insert month(s)) 1.11 SECURITY DEPOSIT. $409,237.93 1.12 REAL ESTATE BROKER: LaN~~oRo: Cushman &Wakefield TENANT. Newmark Cornish &Carey (Jeff Hoffman and Tracey Solari) 1.13 ExHrairs ArracHeo ro Lease: Exhibit A — "Premises;" Exhibit B — "Verification Letter;" Exhibit C — "Form of HazMat Certificate"; Exhibit D — "Work Letter Agreement"; Exhibit E — "Addendum to Lease

 
1.14 ADDRESSES FOR NOTICES: Larvo~orto: The Realty Associates Fund IX, L.P. c/o TA Realty 1301 Dove Street, Suite 860 Newport Beach, CA 92664 Attention: Asset Manager/2300 Orchard Parkway and The Realty Associates Fund IX, L.P. c/o TA Realty 28 State Street, Tenth Floor Boston, MA 02109 Attention: Asset Manager/2300 Orchard Parkway Wiry a Corr ro: Davis Partners LLC 20370 Town Center Lane, Suite 245 Cupertino, CA 95014 TeNatvr. Cavium, Inc. 2315 N. First Street San Jose, CA 95131 Attention: Vince Pangrazio, SVP and General Counsel Wirth a CoPr ro: Cavium, Inc. 2315 N. First Street San Jose, CA 95131 Attention: Scott Doubek 1.75 PaRx~NG. Tenant shall have the exclusive right to use all parking at the Premises 2. PREMISES 2.1 AccePraNce. Landlord leases to Tenant, and Tenant leases from Landlord, the Premises, to have and to hold for the term of this Lease, subject to the terms, covenants and conditions of this Lease. The Premises is depicted on Exhibit "A" attached hereto and contains one or more buildings (collectively, the "Building") and the other areas depicted on Exhibit "A" as being part of the Premises. Tenant accepts the Premises in its condition as of the Commencement Date, subject to the terms of the Lease and all applicable laws, ordinances, regulations, covenants, conditions, restrictions and easements, and except as may be otherwise expressly provided herein, Landlord shall not be obligated to make any repairs or alterations to the Premises. Tenant acknowledges that Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenants business, and Tenant waives any implied warranty that the Premises are suitable for Tenants intended purposes. 2.2 Conrorr~oN. Landlord represents and warrants to Tenant that on the Delivery Date the following parts of the Premises shall be in good working order and condition: (a) plumbing systems, (b) electrical systems, (c) HVAC units, (d) elevator, (e) the roof and (fl the structural elements of the foundation, walls and floors (collectively, the "Building Systems"). In the event that it is determined that Phis warranty is untrue, Landlord shall not be in default under the Lease, and the Delivery Date shall not be delayed, if after Landlord receives written notice of the representation or warranty that is un#rue, Landlord promptly takes the actions, at Landlord's sole expense, necessary to put the applicable Building System in good operating order, and such costs shall not be deducted from the Improvement Allowance (as defined in the Work Letter Agreement). The foregoing representation and warranty shall apply only to the condition of the Building Systems between the Delivery Date and the date that is one hundred eighty {180) days after the Delivery Date (the "Warranty Period"), and shall not apply to any paint in time after the last day of the Warranty Period. Tenant may notify Landlord in writing (the "Warranty Notice") at any time during the Warranty Period, time being of the essence, (the "Notice Date") of each way, if any, that the forgoing representation and warranty is untrue during the Warranty Period (an "Untrue Warranty"). The Warranty Notice shall state the specific way in which one or more Building System was not in good operating order during the Warranty Period. Landlord shall have no responsibility to repair any Building System pursuant to this Section unless Tenant notifies Landlord on or before the last day of the Warranty Period in a Warranty Notice of the Untrue Warranty, and if Tenant notifies Landlord that a Building System was not in good operating order after the last day of the Warranty Period, Landlord shall have no obligation pursuant to this Section to repair the Building System that is not in good operating order. Notwithstanding the forgoing, Landlord shall have no obligation pursuant to this Section to repair a Building System if the repair is necessitated by the negligence or misuse of Tenant or by the construction by Tenant, its agents and contractors of the Improvements (as defined in the Work Letter Agreement). 3. TERM

 
3.1 TeRM allo CoMMeNceMFrvr. This Lease shall be effective and enforceable as of the Delivery Date (as defined in Section 3.2), and Tenant shall comply with ail of the terms and conditions of the Lease from and after the Delivery Date. The term of this Lease is specified in Section 1.7. Provided that the letter attached hereto as Exhibit 6 is accurately completed by Landlord, Tenant shall, within ten (10) days after Landlord's request, complete and execute the letter and deliver it to Landlord. Tenants failure to execute the letter attached hereto as Exhibit B within said ten (10) day period shall constitute Tenant's acknowledgment of the truth of the facts contained in the letter delivered by Landlord to Tenant. 3.2 TeN~eR of Possessiorv. Landlord delivered possession of the Premises to Tenant in its "as is" condition on January 31, 2017 (the "Delivery Date"). Concurrently with the execution of this Lease by Landlord and Tenant, Tenant shall deliver to Landlord the insurance certificates required by Section 9.3 and a check far the monies described in Section 1.10. Tenant shall have no obligation to pay Base Rent for the period commencing on the Delivery Date and ending on the Commencement Date. 4. Use 4.1 Perzm~rreo Use. The Premises shall be used only for the purpose described in Sec#ion 1.6 and for no other purpose. In no event shall any portion of the Premises be used for retail sales. Tenant shall not initiate, submit an application for, or otherwise request, any land use approvals or entitlements with respect to the Premises, without limitation, any variance, conditional use permit or rezoning, without first obtaining Landlord's prior written consent, which may be given or withheld in Landlord's reasonable discretion. Tenant shall riot (a) permit any animals or pets to be brought to or kept in the Premises other than service animals, {b) except as provided in the Addendum to this Lease, install any antenna, dish or other device on the roof of the Building or outside of the Premises, (c) make any penetrations into the roof of the Building except as permitted by the Work Letter Agreement attached hereto, (d) place loads upon floors, wails or ceilings in excess of the load such items were designed to carry, (e) place or store, nor permit any other person or entity to place or store, any property, equipment, materials, supplies or other items outside of the Building or (~ change the exterior of the Premises or the Building without Landlord's consent which shall may be given or withheld in Landlord's sole discretion. In no event shall Tenant use all or any part of the Premises for the production, processing, sale or distribution of marijuana. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises is suitable for its intended use and that its use is permitted by applicable laws and regulations, and that neither Landlord nor Landlord's agents have made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. 4.2 CoMPuaNce Wirth Laws. Tenant shall, at Tenant's sole expense, promptly comply with all applicable laws, ordinances, rules, regulations, orders, certificates of occupancy, conditional use or other permits, variances, covenants, conditions, restrictions, easements, the recommendations of Landlord's engineers or other consultants, and requirements of any fire insurance underwriters, rating bureaus or government agencies, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the terrn or any part of the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Premises ("Legal Requirements"). Tenant sha11, at Tenants sole expense, comply with all accessibility requirements of State and Federal law that apply to the Premises, and all federal, state and local laws and regulations governing occupational safety and health. Tenant acknowledges that it will be responsible for complying with current and future laws and regulations even though such compliance requires Tenant to make substantial repairs or modifications (including structural modifications) to the Premises and even though the application of the law or regulation is unrelated to Tenant's specific use of the Premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance, create a dangerous situation, or would unreasonably disturb or interfere with or endanger Landlord or users of adjoining property. Tenant shall obtain, at its sole expense, any permit or other governmental authorization required to operate its business from the Premises. Landlord shall not be liable for the failure of any other tenant or person to abide by the requirements of this section or to otherwise comply with applicable laws and regulations, and Tenant shall not be excused from the performance of its obligations under this Lease due to such a failure. To Landlord's actual knowledge, the Premises has not undergone an inspection by a certified access specialist. In addition, to Landlord's actual knowledge, a disability access inspection certificate for the Premises has not been issued. Pursuant to Section 1938 of the California Civil Code, Landlord hereby provides the following notification to Tenant: "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 proper#y 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." Landlord's actual knowledge shall mean and be limited to the actual knowledge of the person who is the Building owner's asset manager (not the Building's property manager) on the date set forth in Section 1.1, without any duty of inquiry or investigation, and such asset manager shall have no personal liability if such representation or warranty is untrue. Notwithstanding the foregoing, if Tenant is obligated to comply with a Legal Requirement and due to the Legal Requirement a Capital Alteration (as defined below) must be made to the Premises, and such Capital Alteration is not required due to a Tenant Condition (as defined below), Landlord shall make the Capital Alteration and Tenant shall reimburse Landlord for the cost of the Capital Alteration as provided below. If Landlord makes a Capital Alteration, the cost of the Capital Alteration shall be amortized over its useful life, as reasonably determined by landlord, and from and after the date that Landlord substantially completes the

 
Capital Alteration Tenant shall reimburse Landlord on the first day of each calendar month during the remainder of the term of this Lease an amount equal to the product of multiplying the cost of the Capital Alteration by a fraction, the numerator of which is one (1), and the denominator of which is the number of months in the useful life of the Capital Alteration. A "Capital Alteration" shall mean any single alteration to the Premises (a) the cost of which is not fully deductible in the year incurred in accordance with generally accepted accounting principles and (b) which exceeds $50,000.00 in cost. A Capital Alteration shall be deemed to have been made due to a "Tenant Condition" if the alteration is triggered by or is the result of Tenant's alteration of the Premises or the Capital Alteration relates to any equipment or improvement installed by Tenant in the Premises; subject to Landlord's obligations under Section 3.5 of the Work Letter Agreement with respect to the Improvements. Any alteration to the Premises that is required to comply with a Legal Requirement due to a Tenant Condition or that does not constitute a Capital Alteration shall, subject to Section 13.1, be made by Tenant, at Tenant's sole cost and expense. 5. Rehr. 5.1 Base Rehr. Tenant shall pay Base Rent in the amount set forth on the first page of this Lease. At the time Tenant executes this Lease it shall pay to Landlord the amounts set forth in Sections 1.10 and 1.11. Except as may be otherwise specifically set forth herein, Tenant promises to pay to Landlord in advance, without demand, deduction or set-off, monthly installments of Base Rent and Operating Expenses on or before the first day of each calendar month. Payments of Base Rent and Operating Expenses for any fractional calendar month shall be prorated. All payments required to be made by Tenant to Landlord hereunder shall be payable at such address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant shall have no right at any time to abate, reduce, or set off any rent due hereunder except where expressly provided in this Lease. 5.2 OPe~ariNc ExPeNses. From and after February 1, 2018, Tenant shall pay ail expenses and disbursements of every kind which Landlord incurs, pays or becomes obligated to pay in connection with the ownership, operation, and maintenance of the Premises, including, but not limited to, the following (collectively, "operating Expenses"): (a) the cost of all accounting fees, management fees, legal fees and consulting fees attributable to the operation, ownership, management, maintenance or repair of the Premises; (b) payments made by Landlord under any easement, license, operating agreement, declaration, restrictive covenant or other agreement relating to the sharing of costs among property owners; (c) the cost of al( business licenses, permits or similar fees relating to the operation, ownership, repair or maintenance of the Premises Landlord is obligated to obtain; (d) the cost of all Real Property Taxes; and (e) the cost of all insurance purchased by Landlord; provided, however, that insurance deductibles shall not exceed $100,000 per year with respect to Landlord's insurance other than earthquake insurance and shall not exceed more than $300,000 per year with respect to earthquake insurance. Nothing set forth above shall be interpreted to obligate Landlord to perform any repair or to provide any maintenance to the Premises, and Landlord shall have the right to require Tenant to perform all repairs and maintenance to the Premises in accordance with the terms and conditions of this Lease. 5.3 OPerzarrNc ExPeNse Exc~usroNs. Notwithstanding anything to the contrary contained herein, for purposes of this Lease, the term "Operating Expenses" shall not include the following: (i) legal and auditing fees (other than those fees reasonably incurred in connection with the maintenance and operation of all or any portion of the Premises), leasing commissions, advertising expenses and similar costs incurred in connection with the leasing of the Premises; (ii) depreciation of the Building or any other improvements situated within the Premises; (iii) costs of repairs or other work necessitated by fire, windstorm or other casualty (exc►uding any deductibles} and/or costs of repair or other work necessitated by the exercise of the right of eminent domain to the extent insurance proceeds or a condemnation award, as applicable, is actually received by Landlord for such purposes; provided, such costs of repairs or other work shall be paid by the parties in accordance with the provisions of Sections 10 and 11, below; and provided further that Landlord shall use good faith diligent efforts to recover insurance proceeds to which it is legally entitled; (vi) any interest or payments on any financing for the Premises and interest and penalties incurred as a result of Landlord's late payment of any invoice; (v) costs associated with the investigation and/or remediation of Hazardous Materials (hereafter defined) present in, on or about any portion of the Premises, unless such costs and expenses are the responsibility of Tenant as provided in Section 25 hereof, in which event such costs and expenses shall be paid solely by Tenant in accordance with the provisions of Section 25 hereof; (vi) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Premises to the extent the same exceeds the costs of such by unaffiliated third parties on a competitive basis; (vii) all costs associated with the operation of the business of the entity which constitutes "Landlord" (as distinguished from the costs of the operations of the Premises) including, but not limited to, Landlord's general corporate overhead and general administrative expenses; (viii) wages, salaries, fees, fringe benefts, and any other form of compensation paid to any executive employee of Landlord andlor Landlord's managing agent above the grade of building manager as such term is commonly understood in the property management industry, provided, however, all wages, salaries and other compensation otherwise allowed to be included in Operating Expenses shall also

 
exclude any portion of such costs related to any person's time devoted to other efforts unrelated to the maintenance and operation of the Premises; (ix) special assessments or special taxes initiated as a means of financing improvements to the Premises; (x) costs, other than those incurred in ordinary maintenance and repair, for sculptures, paintings, fountains or other objects of art or the display of such items; (xi) the cost of any insurance coverage, whether or not required by the holder of any mortgage on the Premises which is related, in whole or in part, to (a) property or casualty insurance coverage in amounts greater than the replacement cost of the Premises, or (b) lease enhancement insurance or other credit enhancement-related insurance (credit enhancement insurance shall not include rental interruption insurance); or to the extent Landlord incurs any losses covered by the insurance Landlord is required to carry pursuant to the terms of this Lease, Operating Expenses may only include those deductibles permitted under this Lease; (xii) any reserves of any kind; (xiii) any cost incurred prior to the Delivery Date including, but not limited to, amortization of capital expense, taxes incurred for prior years but billed and paid after the Delivery Date; provided, however, the forgoing limitation shall not apply to taxes, insurance and similar items that are customarily billed and paid in advance; (xiv) Operating Expenses and Real Property Taxes shall be "neY' only and shall therefore be reduced by all cash discounts, trade discounts, quantity discounts, rebates, refunds, credits, or other amounts received by Landlord or Landlord's managing agent for its purchase of or provision of any goods, utilities, or services and {xv) Landlord shall not collect Operating Expenses and/or Real Property Taxes from Tenant in an amount in excess of what Landlord actually incurred for the items included in Operating Expenses. 5.4 ParMetvr. Operating Expenses shall be payable by Tenant within thirty (30) days after a reasonably detailed statement of actual expenses is presented to Tenant by Landlord. At landlord's option, however, Landlord may, from time to time, estimate what one or more category of Operating Expenses will be, and the same shall be payable by Tenant monthly during each calendar year of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Tenanf pays Landlord's estimate of one or more Operating Expenses, Landlord shall deliver to Tenant within one hundred eighty (180) days after the expiration of each calendar year a reasonably detailed statement (the "Statement') showing the actual Operating Expenses incurred during such year. Landlord's failure to deliver the Statement to Tenant within said period shall not constitute Landlord's waiver of its right to collect said amounts or otherwise prejudice Landlord's rights hereunder; provided, however, Landlord shall not have the right to collect from Tenant any Operating Expense that was known by Landlord and which was not billed to Tenant within twelve (12) months after the expiration of the calendar year in which the Operating Expense was incurred. If Tenant's payments under this section during said calendar year exceed the Operating Expenses as indicated on the Statement, Tenant shall be entitled to credit the amount of such overpayment against the Operating Expenses next falling due. If Tenants payments under this section during said calendar year were less than the Operating Expenses indicated on the Statement, Tenant shall pay to Landlord the amount of the deficiency within thirty (30) days after delivery by Landlord to Tenant of the Statement. Landlord and Tenant shall forthwith adjust between them by cash payment any balance determined to exist with respect to that portion of the last calendar year for which Tenant is responsible for Operating Expenses, notwithstanding that the Lease term may have terminated before the end of such calendar year; and this provision shall survive the expiration or earlier termination of the Lease. 5.5 Au~irs. Any bill sent by Landlord to Tenant requesting payment for one or more Operating Expenses, is hereinafter referred to as a "Statement." If Tenant d+sputes the amount set forth in the Statement, Tenant shall have the right, at Tenant's sole expense, not later than three hundred sixty (360) days following receipt of such Statement, to cause Landlord's books and records with respect to the calendar year which is the subject of the Statement to be audited by a certified public accountant mutually acceptable to Landlord and Tenant. The audit shall take place at the offices of Landlord where its books and records are located at a mutually convenient time during Landlord's regular business hours. Operating Expenses shall be appropriately adjusted based upon the resulEs of such audit, and the results of such audit shall be final and binding upon Landlord and Tenant. Tenant shall have no right to conduct an audit or to give Landlord notice that it desires to conduct an audit at any time Tenant is in monetary default under the Lease. The accountant conducting the audit shall be compensated an an hourly basis and shall not be compensated based upon a percentage of overcharges it discovers. No subtenant shall have any right to conduct an audit, and no assignee shall conduct an audit for any period during which such assignee was not in possession of the Premises. Tenant's right to undertake an audit shall expire three hundred sixty (360) days after ~enanYs receipt of the Statement, and such Statement shall be final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct, at the end of such three hundred sixty (360) day period, unless prior thereto Tenant shall have given Landlord written notice of its intention to audit the Operating Expenses which are the subject of the Statement. If Tenant gives Landlord notice of its intention to audit a Statemen#, it must commence such audit within sixty (60) days after such notice is delivered to Landlord, and the audit must be completed within one hundred twenty (.120) days after such notice is delivered to Landlord. If Tenant does not commence and comp►ete the audit within such periods, the Statement which Tenant elected to audit shall be deemed final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct. Tenant agrees that the results of any audit shall be kept strictly confidential by Tenant and shall not be disclosed to any other person or entity. If as a result of an audit, it is determined that Landlord has overstated the Operating Expenses owed by Tenant on a Statement by more than five percent {5%) of the actual Operating Expenses owed by Tenant, Landlord shall reimburse Tenant for the reasonable out-of-pocket costs Tenant paid to unrelated third parties for the performance of the audit; provided, however, Landlord shall not be obligated to reimburse Tenant for more than $5,000 of expenses with respect to any one audit. 6. SecuR~rroePosrr. Tenant shall deliver to Landlord at the time it executes this Lease the security deposit set forth in Section 1.11 as security for Tenant's faithful performance of Tenants obligations hereunder. If Tenant fails to pay Base Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Landlord may use all or any portion of said deposit for the payment of any Base Rent or other charge due hereunder, to pay any other sum to which Landlord may become obligated by reason of Tenants default, or to compensate Landlord for any loss or damage which

 
Landlord may suffer thereby. If Landlord so uses or applies ail or any portion of said deposit, Tenant shall within ten (10) business days after written demand therefor deposit cash with Landlord in an amount sufficient to restore said deposit to its full amount. Landlord shat! not be required to keep said security deposit separate from its general accounts. Said deposit, or so much thereof as has not heretofore been applied by Landlord, shall be returned, without payment of interest or other amount for its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest hereunder) at the expiration of the term hereof, and after Tenant has vacated the Premises. No trust relationship is created herein between Landlord and Tenant with respect to said security deposit. Tenant acknowledges that the security deposit is not an advance payment of any kind or a measure of Landlord's damages in the event of Tenants default. Tenant hereby waives the provisions of any law which is inconsistent with this section including, but not limited to, Section 1950.7 of the California Civil Code. ~. UTILITIES 7.1 pavn~entr. Tenanf shall pay for all water, gas, electricity, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services used at the Premises (collectively "Services"), together with any taxes, penalties, surcharges or the like pertaining thereto. Tenant shall contract directly with the applicable public utility for such services. Tenant agrees to limit use of water and sewer for normal restroom use and nothing herein contained shall impose upon Landlord any duty to provide sewer or water usage for other than normal restroom usage. 7.2 /NreaauPnoNs. Tenant shall be solely responsible far obtaining all Services, and Landlord shall have no liability to Tenant if Tenant is unable to obtain Services for any reason including, but not limited to, repairs, replacements or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, telephone service or other utility at fhe Premises, by any accident, casualty or event arising from any cause whatsoever, including the negligence of Landlord, its employees, agents and contractors, by act, negligence or default of Tenant or any other person or entity, or by any other cause, and such failures shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from the obligation of paying rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for loss of property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to Tenant's inability to obtain Services. Landlord may reasonably comply after consultation and reasonable agreement with Tenant with voluntary controls or guidelines promulgated by any governmental entity relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease. 7.3 Aa,areMeNrof Rehr. In the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, for five (5) consecutive business days or ten (10) days in any twelve (12) month period (the "Eligibility Period") as a result of any repair, maintenance or alteration performed by Landlord to the Premises after the Commencement Date and required by the Lease, which substantially interferes with Tenants use of the Premises, or any failure to provide services or access to the Premises due to Landlord's default, then Tenants rent shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises. However, in the event that Tenant is prevented from conducting, and does not conduct, its business in any portion of the Premises for a period of time in excess of the Eligibility Period, and the remaining portion of the Premises is not su~cient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the rent for the entire Premises shall be abated; provided, however, if Tenant reoccupies and conducts its business from any portion of the Premises during such period, the rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date such business operations commence. To the extent Tenant shall be entitled to abatement of rent because of damage or destruction pursuant to Section 13 or a taking pursuant to Section 14, then the terms of this Section 7.3 shall not be applicable. 7.4 ErveR~v Use. Landlord shall have the right to require Tenant to provide Landlord with copies of bills from electricity, natural gas or similar energy providers (collectively, "Energy Providers") Tenant receives from Energy Providers relating to Tenant's energy use at the Premises ("Energy 8ilis") within ten (10) business days after Landlord's written request. In addition, Tenant hereby authorizes Landlord to obtain copies of the Energy Bills directly from the Energy Provider(s), and Tenant hereby authorizes each Energy Provider to provide Energy Bills and related usage information directly to Landlord without Tenants consent. From time to time within ten (10) business days after Landlord's request, Tenant shall execute and deliver to Landlord an agreement provided by Landlord authorizing the Energy Providers) to provide to Landlord Energy Bills and other information relating to Tenant's energy usage at the Premises. S. REAL AND PERSONAL PROPERTY TAXES 8.1 PaYMeNr of Taxes. Tenant shall pay to landlord during the term of this tease, in addition to Base Rent, all "Real Property Taxes" (as defined below). 8.2 DEF(NlTfON OF REAL PROPERTY TAX. AS US@d I1G'1"2111, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, improvement bond or bonds imposed on the Premises

 
or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Premises or in any portion thereof, Notwithstanding any provision of this Section 8.2 expressed or implied to the contrary, Real Property Taxes shall not include: {i) any income, capital levy, transfer, capital stock, gift, estate, inheritance, excess profits or franchise tax; (ii) taxes applicable to Landlord's general or net income; (iii) taxes applicable to rents, receipts or income attributable to operations at the Building or (iv) any fine, penalty, cost or interest for any tax or assessment, or part thereof, which Landlord or its lender failed to timely pay, unless such late payment was attributable to late payment by Tenant of Real Property Taxes. 8.3 PensoHa~ PrtoPeRrvTaxes. Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or related to Tenant's use of the Premises. If any of Tenants personal property shall be assessed with Landlord's real or personal property, Tenant shall pay to Landlord the taxes attributable to Tenant within thirty (30) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property. INSURANCE. 9. 'I INSURANCE-TENANT. (a) Tenant shall obtain and keep in force during the term of this Lease a commercial general liability policy of insurance which, by way of example and not limitation, protects Tenant and landlord (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing coverage in an amount not less than $2,000,000 per occurrence and not less than $3,000,000 in the aggregate with an "Additional Insured-Managers and Landlords of Premises Endorsement' and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shaft not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Tenant's indemnity obligations under this Lease. (b) Tenant shall obtain and keep in force during the term of this Lease "Causes of Loss —Special Form" extended coverage property insurance {previously known as "all risk" property insurance). Said insurance shall be written on a one hundred percent (100%) replacement cost basis on Tenants personal property, all tenant improvements installed at the Premises by Tenant, Tenant's trade fixtures and other property. By way of example, and not limitation, such policies shall provide protection against any peril included within the classification "fire and extended coverage," against vandalism and malicious mischief, theft and sprinkler leakage. Tenants policy shall include endorsements to insure Tenant against losses to valuable papers, records and computer equipment and to compensate Tenant for the cost of recovering lost data. To the extent that Tenants policy covers tenant improvements to the Premises, Landlord shall be a loss payee on such policy. Tenant shall also obtain earthquake insurance if the Premises is located in an earthquake zone, and if the Premises is in Flood Zone A or V, Tenant shall obtain flood insurance, and the terms of such insurance policies shall be reasonably acceptable to Landlord. (c) Tenant shall, at all times during the term hereof, maintain the following insurance with coverages: (i) workers' compensation insurance as required by applicable law, {ii) emplaysrs liability insurance with limits of at least $1,000,OOd per occurrence, (iii) automobile liability insurance for owned, non-owned and hired vehicles with limits of at least $1,000,Q00 per occurrence and (iv) business interruption and extra expense insurance. In addition to the insurance required in (i), (ii), (iii) and (iv) above, Landlord shall have the right to require Tenant to increase the limits of its insurance and/or obtain such additional insurance as is customarily required by Eandlords owning similar real property in the geographical area of the Premises but in no event shall Landlord require any such adjustments more than one (1) time during any five (5) year period. J.2 INS URANCE-LANDLORD. (a) Landlord shall obtain and keep in force a policy of general liability insurance with coverage against such risks and in such amounts as Landlord deems advisable insuring Landlord against liability arising out of the ownership, operation and management of the Premises; provided, however, that such coverage shall be in an amount of not less than $2,000,000 per occurrence and not less than $3,000,000 in the aggregate. (b) Landlord shall also obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises in the amount of the replacement cost thereof (excluding foundations and similar items), as determined by Landlord from time to Yime, and in accordance with the standards and scope of insurance coverage generally obtained by Landlord and its affiliates for properties similar to the Premises or as required by any lender. The terms and conditions of said policies, their deductibles and the perils and risks covered thereby shall be determined by Landlord, from time to time, in Landlord's sole discretion; provided that such policy shall, at a minimum, provide protection against any peril included within the classification "fire and extended coverage," vandalism and malicious mischief, theft and sprinkler leakage. By way of example, and not limitation, Landlord may purchase flood and/or earthquake insurance. In addition, at Landlord's option, Landlord shall obtain and keep in force, during the term of this Lease, a policy of rental interruption insurance, with loss payable to Landlord, which insurance shall, at Landlord's option, also cover all Real Property

 
Taxes. Tenant will not be named as an additional insured in any insurance policies carried by Landlord and shall have no right to any proceeds therefrom. The policies purchased by Landlord shall contain such deductibles as Landlord may determine. 9.3 lNsuRarvice Poucies. Tenant shall deliver to Landlord certificates of the insurance policies required under Section 9.1 concurrently with Tenant's execution of this Lease using an ACORD 27 form or a similar form approved by Landlord. To the extent commercially available, Tenant's insurance policies shall not be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Landlord, provided that only ten (10) days prior written notice shall be required in connection with a failure to pay policy premiums. Tenant shall, at least five (5) days prior to the expiration of such policies, furnish Landlord with renewals thereof. Tenant's insurance policies shall be issued by insurance companies authorized to do business in the state in which the Premises is located, and said companies sha11 maintain during the policy term a "General Policyholder's Rating" of at least A and a financial rating of at least "Class VII" (or such other rating as may be reasonably required by any lender having a lien on the Premises) as set forth in the most recent edition of "Best Insurance Reports." All insurance obtained by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. Landlord, Landlord's property manager and lenders) shall be included as additional insureds under Tenants commercial general liability policy, the pollution liability policy and under the Tenant's excess or umbrella policy, if any, using ISO additional insured endorsement CG 20 11 or a substitute providing equivalent coverage. Tenant's insurance policies shall not include deductibles in excess of $25,000. 9.4 WAIVER OF SUBROGATION. L211C1I01'd waives any and ail rights of recovery against Tenant and Tenants employees and agents for or arising out of damage to, or destruction of, the Premises to the extent that Landlord's insurance policies then in force insure against such damage or destruction (or to the extent of what would have been covered had Landlord maintained the insurance required to be carried under this Lease) and permit such waiver. Tenant waives any and all rights of recovery against Landlord and Landlord's employees and agents for or arising out of damage to, or destruction of, the Premises to the extent that Tenant's insurance policies then in force insure against such damage or destruction (or to the extent of what would have been covered had Tenant maintained the insurance required to be carried under this Lease) and permit such waiver. Tenant shall cause the insurance policies it obtains in accordance with Section 9.1 relating to property damage to provide that the insurance company waives all right of recovery by subrogation against Landlord in connection with any liability or damage covered by Tenants insurance policies. Landlord shall cause the insurance policies it obtains in accordance with Section 9.2(b) relating to property damage to provide that the insurance company waives all right of recovery by subrogation against Tenant in connection with any damage covered by such property insurance policies. 9.5 CoveRace. landlord makes no representation to Tenant that the limits or forms of coverage specified above or approved by Landlord are adequate to insure Tenant's property or Tenant's obligations under this Lease. The limits of any insurance carried by Tenant or Landlord shall not limit such parties obligations or liability under any indemnity provision included in this Lease or under any other provision of this Lease. ') O. LANDLORD S REPAIRS 10.9 GENERALLY. L2ndI0~d shall maintain, at Landlord's expense, only the structural elements of the roof of the Building (excluding the roof membrane), the structural soundness of the foundation of the Building and the structural elements of the exterior walls of the Building. Subject to Sectjon 9.4, Tenant shall reimburse Landlord for the cost of any maintenance, repair or replacement of the foregoing necessitated by Tenant's negligence and alterations to the Premises or any breach of its obligations under this Lease. By way of example, and not limitation, the term "exterior walls" as used in this section shall not include windows, glass or plate glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or once entries. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this section, after which Landlord shall have a reasonable time in which to complete the repair. Nothing contained in this section shall be construed to obligate Landlord to seal or otherwise maintain the surface of any foundation, floor or slab unless such maintenance is required in order to maintain 4he structural soundness of such foundation, floor or slab. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. 102 Base But~DiNc Srsrems. Landlord shall maintain, repair and if necessary replace the existing roof membrane of the Building, the existing base building HVAC units servicing the Premises and the existing landscaping and associated irrigation systems (collectively, the "Base Building Systems"), and the cost of the maintenance, repair and replacement of Base Building Systems shall be included in Operating Expenses. If Tenant Parties {as defined below) damage any Base Building Systems ("Tenant Damage"), at Landlord's option, Tenant shall reimburse Landlord for the entire cost of the repair of the Tenant Damage and the cost of repairing the Tenant Damage shall not be included in Operating Expenses. Landlord shall have no obligation to maintain, repair or replace any HVAC unit installed in the Premises by Tenant, and Tenant shall be solely responsible for the maintenance, repair and replacement of such items at Tenant's sole cost and expense. 10.3 REPLACEMENT OF HVAC UNITS AND ROOF. PUfSU3tlf f0 SeCti011 10.2 Of thlS Lease, Landlord has the right to require Tenant to pay for certain casts related to the replacement of HVAC units at the Building (the "HVAC Units") and the replacement of the roof membrane of the Building (the "Roof'). Notwithstanding anything to the contrary contained in Section 10.2, if Landlord replaces an HVAC Unit or the Roof, Landlord shall amortize the cost of the replacement of an HVAC unit over fifteen (15) years and the cost of replacement of the Roof over twenty (20) years, and Tenant shall only be obligated to pay each month during the remainder of the term of this Lease, on the date upon which Base Rent is due, in the case of an HVAC Unit, an

 
amount equal to the product of mulfiplying the cost of the HVAC Unit by a #raction, the numerator of which is one (1), and the denamir~ator of which is one hundred eighty (180) (i.e., 1/1&0`"' of the cost per month), and in the case of the Roof, an amount ayual to the product of multiplying the cost of the t2oof by a fraction, the numerator of which is one {1), and the denominator of whic#~ is two hundred forty (240) (i.e., 1/240`h of the cast per month). Landlord shall have no obligation to amortize repairs or main#enance items (as opposed to replacement costs) relating to HVAC Units or the Roof, and all repair and maintenance items shall be payable by Tenant to Landlord as Operating Expenses in the year incurred; provided, however, if the cost of any single roof repair or HVAC repair will exceed fifty percent (50%) of the cost of replacing the entire roof or the applicable HVAC unit, as determined by Landlord in Landlord's reasonable discretion, Landlord shall replace the roof or the applicable HVAC unit. Landlord shall have no obligation to replace any HVAC unit installed by Tenant in the Premises, and any HVAC unit installed by Tenant shall be maintained, repaired and replaced at Tenants sole cost and expense. 11, TENANTS REPAIRS 11.1 OaucAnoNs of TeNnNr. Tenant shall, at its sole cost and expense, keep and maintain all parts of the Premises (except those listed as Landlord's responsibility in Section 10 above) in good and sanitary condition, promptly making all necessary repairs and replacements, including but not lim+ted to, windows, glass and plate glass, doors, skylights, any special store front or office entry, walls and finish work, floors and floor coverings, dock boards, bumpers, plates, seals, levelers and lights, plumbing work and fixtures (including periodic backflow testing), electrical systems, lighting facilities and bulbs, sprinkler systems, alarm systems, fire detection systems, termite and pest extermination, parking lots, asphalt, curbs, gutters, fencing, light standards, gates, tenant signage, parking lot sweeping and regular removal of trash and debris. Tenant shall notify Landlord in writing prior to making any repair or performing any maintenance pursuant to this section, and Landlord shall have the right to reasonably approve the contractor Tenant shall use to make any repair or to perform any maintenance on the plumbing systems, electrical systems, sprinkler systems, fire alarm systems or fire detection systems located at the Premises. Tenant shall not paint or otherwise change the exterior appearance of the Premises without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion. If Tenant fails to keep the Premises in good condition and repair, Landlord may, but shall not be obligated to, make any necessary repairs. If Landlord makes such repairs, Landlord may bill Tenant for the cost of the repairs as additional rent, and said additional rent shall be payable by Tenant within thirty {30) days after demand by Landlord. 11.2 MAINTENANCE CONTRACTS. LBIIdIOt'd shall enter into regularly scheduled preventative maintenance/service contracts for some or all of the following: the HVAC units servicing the Premises, the sprinkler, fire alarm and fire detection systems servicing the Premises, backflow testing for the plumbing servicing the Premises and for the roof membrane of the Premises (the "Maintenance Contracts"). The Maintenance Contracts shall include maintenance services satisfactory to Landlord, in Landlord's reasonable discretion. Tenant shall reimburse Landlord for the cost of the Maintenance Contracts within thirty (30) days after written demand by Landlord; provided, however, Landlord shall have the right, but not the obligation, to include the cost of Maintenance Contracts in Operating Expenses. Landlord shall have the right at any time, and from time to time, to elect upon written notice to Tenant to have Tenant enter into some or a!I of the Maintenance Contracts, in which event Tenant shall enter into such contracts with persons reasonably approved by Landlord and shall pay for such Maintenance Contracts at Tenant's sole cost and expense. 11.3 Capital E~evaroR RePa~Rs. The Premises contains one elevator (the "Elevator"). Notwithstanding anything to the contrary contained in Section 11.1, if any single repair to the Elevator will cost in excess of $5,000 (a "Capital Elevator Repair"), Landlord shall amortize the cost of the Capital Elevator Repair over the useful life of the Capital Elevator Repair, and from and after the date that Landlord substantially completes the Capital Elevator Repair Tenant shall reimburse Landlord on the first day of each calendar month during the remainder of the term of this Lease an amount equal to the product of multiplying the cost of the Capital Elevator Repair by a fraction, the numerator of which is one (1), and the denominator of which is the number of months in the useful life of the Capital Elevator Repair. Subject to Section 9.4, Capital Elevator Repairs necessitated by the negligence of Tenant or the misuse of the Elevator by Tenant shall be paid by Tenant at Tenant's sole cost and expense upon written request by Landlord, and shall not be amortized. 'I2. ALTERATIONS AND SURRENDER 12.1 CoNseNroFLalloeoRo. Tenant shall have the right, subject to Landlord's reasonable requirements relating to construction at the Premises, upon ten (10) days prior written notice to Landlord, to make alterations ("Permitted Alterations") to the inside of the Premises (e.g., paint and carpet, communication systems, telephone and computer sys#em wiring) that do not (i) involve the expenditure of more than $100,000, (ii) affect the exterior appearance of the Building or the roof or (iii) materially affect the Building's electrical, plumbing, HVAC, life, fire safety or similar Bui►ding systems or the structural elements of the Building. Except with respect to Permitted Alterations, Tenant shall not, without Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed, make any alterations, improvements, additions, utility installations or repairs (hereinafter collectively referred to as "Non-Permitted Alterations") in, on or about the Premises. References in this Lease to "Alterations" shall mean both Permitted Alterations and Non-Permitted Alterations. At the expiration of the term, Landlord may require the removal of any Alterations installed by Tenant and the restoration of the Premises to its prior condition, at Tenants expense if, at the time of Landlord's consent, Landlord did not agree in writing that Tenant would not be obligated to remove the Alterations. Should Landlord permit Tenant to make its own Alterations, Tenant shall use only such architect and contractor as has been reasonably approved by Landlord, and Landlord may require Tenant to provide to Landlord, at TenanPs sole cost and expense, a lien and completion bond in an amount equal to one and one-half

 
times the estimated cost of such Alterations if the estimated cost of the Alterations exceeds $500,000, to insure Landlord against any liability far mechanic's and materialmen's liens and to insure completion of the work. In addition, Tenant shall pay to Landlord a fee equal to one percent (1%) of the cost of the Alterations to compensate Landlord for the overhead and other costs it incurs in reviewing the plans for the Alterations and in monitoring the construction of the Alterations (the "Landlord Fee"). If Landlord incurs architectural, engineering or other consultants fees in evaluating such Alterations, Tenant shall reimburse Landlord for these actual out-of-pocket fees in addition to the Landlord Fee. If Tenant proposes Alterations to Landlord but subsequently elects not to construct the Alterations, and Landlord has incurred costs in reviewing Tenants proposed Alterations (e.g., architect's, engineer's or property management fees), Tenant shall reimburse Landlord for the actual out-of-pocket costs incurred by Landlord within thirty (30) days after written demand. Should Tenant make any Non-Permitted Alterations without the prior approval of Landlord, or usa a contractor not approved by Landlord, Landlord may, at any time during the term of this Lease, require that Tenant remove ali or part of the Alterations and return the Premises to the condition it was in prior to the making of the Alternations. In the event Tenant makes any Non-Permitted Alterations, Tenant agrees to ob#ain or cause its contractor to obtain, prior to the commencement of any work, "builders ail risk" insurance in an amount reasonably approved by Landlord, workers compensation insurance and any other insurance requested by Landlord, in Landlord's reasonable discretion. 12.2 PeaMirs. Any Alterations in or about the Premises that Tenant shall desire to make and that shall require a building permit shall be presented to Landlord in written form, with plans and specifications which are sufficiently detailed to obtain a building permit. If an Alteration requires a building permit, Tenant shall provide Landlord with a copy of the building permit prior to the commencement of the work. Tenant shall provide Landlord with as-built plans and specifications for any Non- Permitted Alterations made to the Premises that require a building permit. 12.3 MecHanr~cs LreNs. Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, o[ any interest therein. If Tenant shall, in good faith, contest the validity of any such lien, Tenant shall furnish to landlord a surety bond satisfactory to Landlord in an amount equal to not less than one and one-half times the amount of such contested lien claim indemnifying Landlord against liability arising out of such lien or claim. Such bond shall be sufficient in form and amount to free the Premises from the effect of such lien. In addition, Landlord may require Tenant to pay Landlord's reasonable attorneys' fees and costs incurred as a result of any such lien. 12.4 Nonce. Tenant shall give Landlord not less than ten (10) days' advance written notice prior to the commencement of any work in khe Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises. 12.5 SURRENDER. SUbJBCt t0 L8t1CJIOfd's right to require removal or to elect ownership as hereinafter provided, all Alterations made by Tenant to the Premises shall be the property of Tenant, but shall be considered to be a part of the Premises. Unless Landlord gives Tenant written notice of its election not to become the owner of the Alterations at the end of the term of this Lease, the Alterations shall become the property of Landlord at the end of the term of this Lease. Except as provided in Section 12.1, Land{ord may require, on notice to Tenant, that some or all Alterations be removed prior to the end of the term of this Lease and that any damages caused by such removal be repaired at Tenants sole expense. On the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises (including, but not limited to, all doors, windows, floors and floor coverings, skylights, heating and air conditioning systems, dock boards, truck doors, dock bumpers, plumbing work and fixtures, electrical systems, lighting facilities, sprinkler systems, fire detection systems and nonstructural elements of the exterior walls, foundation and roof (collectively the "Elements of the Premises")) to Landlord in good condition, ordinary wear and tear, casualty damage and repairs required to be made by Landlord excepted, clean and free of debris and Tenant's personal property, removable trade fixtures and equipment. Tenant's personal property shall include ail computer wiring and cabling installed by Tenant. Provided, however, if Landlord has not elected to have Tenant remove the Alterations, Tenant shall leave the Alterations at the Premises in good condition and repair, ordinary wear and tear excepted. Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenants trade fixtures, furnishings and equipment. Damage to or deterioration of any Element of the Premises or any other item Tenant is required to repair or maintain at the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all damages, expenses, costs, losses or liabilities arising from any delay by Tenant in so surrendering the Premises including, without limitation, any damages, expenses, costs, losses or liabilities arising from any claim against Landlord made by any succeeding tenant or prospective tenant founded on or resulting from such delay and losses and damages suffered by Landlord due to lost opportunities to lease any portion of the Premises to any such succeeding tenant or prospective tenant, together with, in each case, actual attorneys' fees and costs. 12.6 FAILURE OF TENANT TO REMOVE PROPERTY, IF tI11S Lease is terminated due to the expiration of its term or otherwise, and Tenant fails to remove its property, in addition to any other remedies available to Landlord under this Lease, and subject to any other right or remedy Landlord may have under applicable law, Landlord may remove any property of Tenant from the Premises and store the same elsewhere at the expense and risk of Tenant. 13. DAMAGE AND DESTRUCTION. 13.1 EFFECT OF DAMAGE OR DESTRUCTION. If 8II or part of the Premises is damaged by fire, earthquake, flood, explosion, the elements, riot, the release or existence of Hazardous Materials (as defined below) or by any other cause m

 
whatsoever (hereinafter collectively referred to as "Casualty Damages"), but the Casualty Damages are not material (as defined in Section 13.2 below), Landlord shall repair fhe Casualty Damages to the Premises as soon as is reasonably possible, and this Lease shall remain in full force and effect. If all or part of the Premises is destroyed or materially damaged (as defined in Section 13.2 below), Landlord shall have the right, in its sole and complete discretion, to repair or to rebuild the Premises or to terminate this Lease. Landlord shall within sixty (60) days after the discovery of such material damage or destruction notify Tenant in writing of Landlord's intention to repair or to rebuild or to terminate this Lease. Tenant shall in no event be entitled to compensation or damages on account of annoyance or inconvenience in making any repairs, or on account of construction, or on account of Landlord's election to terminate this Lease. Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the Premises after material damage or destruction, but in good faith determines that the Premises cannot be substantially repaired within two hundred seventy (270) days after the date of the discovery of the material damage or destruction, without payment of overtime or other premiums, and the damage to the Premises will render so much of the Premises unusable that Tenant is unable to use the entire Premises during said two hundred seventy (270) day period, Landlord shall notify Tenant thereof in writing at the time of Landlord's election to rebuild or repair, and Tenant shall thereafter have a period of thirty (30) days within which Tenant may elect to terminate this Lease, upon thirty (30) days' advance written notice to Landlord. Tenants termination right described in the preceding sentence shall not apply if the damage was caused by the negligent or intentional acts of Tenant or its employees, agents, contractors or invitees. Failure of Tenant to exercise said election within said thirty (30) day period shall constitute Tenant's agreement to accept delivery of the Premises under this Lease whenever tendered by Landlord, provided Landlord thereafter pursues reconstruction or restoration diligently to completion, subject to delays caused by Force Majeure Events. Tenant shall also have the right to terminate this Lease in the event that, notwithstanding Landlord's good faith estimate that the Premises can be substantially repaired within two hundred seventy (270) days after the date of damage or destruction, the Premises are not in fact substantially repaired within such two hundred seventy (270) day period (as extended by Force Majeure Events). Tenant shall provide Landlord with written notice of its election to terminate this Lease becaus2 the repairs are not complefetl in two hundred seventy (270) days within ten (10) bays after the two hundred seventieth `(27Q"')slay: Failure 4f Tenant to exercise said elecEion within said ten (10) day period shat! constitute Tenants agreement to accept delivery of the Premises under this Lease whenever tendered by Landlord, provided Landlord thereafter pursues reconstruction or restoration diligently to completion, subject to delays caused by Force Majeure Events. If Landlord is unable to repair the damage to the Premises during such two hundred seventy (270) day period due to Force Majeure Events, the two hundred seventy (274) day period shall be extended by the period of delay caused by the Force Majeure Events. A "Force Majeure Event' shall mean fire, earthquake, weather delays or other acts of God, strikes, boycotts, war, riot, insurrection, embargoes, shortages of equipment, labor or materials, delays in issuance of governmental permits or approvals, or any other cause beyond the reasonable control of Landlord. Subject to rental abatement in accordance with Section 13.3 below, if Landlord or Tenant terminates this Lease in accordance with this Section 13.1, Tenant shall continue to pay all Base Rent and other amounts due hereunder which arise prior to the date of termination. 13.2 DEFINITION OF MATERIAL DAMAGE. D8t71298 to the Premises shall be deemed material if, in Landlord's reasonable judgment, the uninsured cost of repairing the damage will exceed $250,040. If insurance proceeds are available to Landlord in an amount which is sufficient to pay the entire cost of repairing all of the damage to the Premises the damage shall be deemed material if the cost of repairing the damage exceeds $750,000. Damage to the Premises shall also be deemed material if (a) the Premises cannot be rebuilt or repaired to substantially the same condition it was in prior to the damage due to laws or regulations in effect at the time the repairs will be made, (b) the holder of any mortgage or deed of trust encumbering the Premises requires that insurance proceeds available to repair the damage in excess of $250,000 be applied to the repayment of the indebtedness secured by the mortgage or the deed of trust, or (c) the damage occurs during the last twelve (12) months of the Lease terrn. 13.3 AaareMENr of Rehr. If Landlord elects or is required to repair damage to the Premises and all or part of the Premises wiU be unusable or inaccessible to Tenant in the ordinary conduct of its business until the damage is repaired, and the damage was not caused by the gross negligence or intentional acts of Tenant or its employees, agents, contractors or invitees, Tenants Base Rent shall be abated until the repairs are completed in proportion to the amount of the Premises which is unusable or inaccessible to Tenant in the ordinary conduct of its business. Notwithstanding the foregoing, there shall be no abatement of Base Rent by reason of any portion of the Premises being unusable or inaccessible for a period equal to five (5) consecutive business days or less. 13.4 Intentionally omitted. 13.5 TeroaNr's PROPeRrr. Landlord shall not be liable to Tenant or its employees, agents, contractors, invitees or customers for loss or damage to merchandise, tenant improvements, fixtures, automobiles, furniture, equipment, computers, files or other property (hereinafter collectively "Tenant's property") located at the Premises. Tenant shall repair or replace all of Tenant's property at Tenants sole cost and expense. Tenant acknowledges that it is Tenant's sole responsibility to obtain adequate insurance coverage to compensate Tenant for damage to Tenant's property. 13.6 W,atveR. Landlord and Tenant hereby waive the provisions of any present or future statutes which relate to the termination of leases when leased property is damaged or destroyed and agree that such event shall be governed by the terms of this Lease. 14. CoNo~narvar~oN. If any portion of the Premises is taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as

 
of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises is taken by such condemnation as would substantially and adversely affect the operation and profitability of Tenants business conducted from the Premises, and said taking lasts for ninety (90) days or more, Tenant shall have the option, to be exercised only in writing within thirty (30) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. If a taking lasts for less than ninety {90) days, Tenant's rent shall be abated during said period but Tenant shall not have the right to terminate this Lease. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the proportion that the usable floor area of the Premises taken bears to the total usable floor area of the Premises. Landlord shall have the option in its sole discretion to terminate this Lease as of the taking of possession by the condemning authority of any material portion of the Premises, by giving written notice to Tenant of such election within thirty {30) days after receipt of notice of a taking by condemnation of any material part of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold, for good will, for the taking of the fee, as severance damages, or as damages for tenant improvements; provided, however, that Tenant shall be entitled to any separate award for loss of or damage to Tenanf's removable personal property, for moving expenses and far any improvements or Alterations made to the Premises by Tenant at Tenants sole expense. In the event that this Lease is not terminated by reason of such condemnation, and subject to the requirements of any lender that has made a loan to Landlord encumbering the Premises, Landlord shall to the extent of severance damages received by Landlord in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority. This section, not general principles of law or California Code of Civil Procedure Sections 1230.010 et sec., shall govern the rights and obligations of Landlord and Tenant with respect to the condemnation of all or any portion of the Premises. 'I 5. ASSIGNMENT AND SUBLETTING. 15.1 LRNDLORD's CoNseNr REQUIRED. T2tlaftt shall not voluntarily or by operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenants interest in this Lease or in the Premises (hereinafter collectively a "Transfer"), without Landlord's prior written consent, which shall not be unreasonably withheld or conditioned. Landlord shall respond to Tenant's written request for consent hereunder within twenty (20) days after Landlord's receipt of the written request from Tenant which includes all of the information required by this section (a "Tenant Request'). If Landlord fails to respond to a Tenants Request within twenty (20) days after Landlord receives a Tenant Request, Tenant may give Landlord a second written notice (a "Second Notice") again requesting Landlord's approval or disapproval of the Transfer. The Second Notice shall expressly state that Landlord's failure to respond to the Second Notice within five {5) business days will be deemed Landlord's election pursuant to this Section 15.1 of the Lease to approve the Transfer. If Landlord fails to respond to Tenants Second Notice within such five (5) business day period, Landlord shall be deemed to have approved the requested Transfer. Any attempted Transfer without such consent shall be void and shall constitute a material default and breach of this Lease. Tenants written request for Landlord's consent shall include, and Landlord's twenty {20) day response period referred to above shall not commence, unless and until Landlord has received from Tenant, all of the following information: (a) financial statements for the proposed assignee or subtenant which shall be prepared using consistent and reasonable accounting standards and shall be certified by an authorized officer of the assignee or subtenant as being true and correct in all material respects for the lesser of (i) the past two (2) years or (ii) the time period the assignee or subtenant has been in existence, (b) federal tax returns for the proposed assignee or subtenant for the lesser of (i) the past two (2) years or (ii) the time period the assignee or subtenant has been in existence, (c} (intentionally omitted), (d) a description of the business the assignee or subtenant intends to operate at the Premises, (e) the proposed effective date of the assignment or sublease, (~ a copy of the proposed sublease or assignment agreement which includes all of the terms and conditions of the proposed assignment or sublease, (g) a description of any ownership or commercial relationship between Tenant and the proposed assignee or subtenant, (h) a detailed description of any Alterations the proposed assignee or subtenant desires to make to the Premises, and (i) if the subtenant or assignee intends to use Hazardous Materials in the Premises, a Hazardous Materials Disclosure Certificate substantially in the form of Exhibit C attached hereto (the "Transferee HazMat Certificate"}. If the obligations of the proposed assignee or subtenant will be guaranteed by any person or entity, Tenant's written request shall not be considered complete until the information described in (a), (b) and (c) of the previous sentence has been provided with respect to each proposed guarantor. "Transfer" shall also include the transfer (a) if Tenant is a corporation, and Tenant's stock is not publicly traded over a recognized securities exchange, of more than fifty percent (50%) of the voting stock of such corporation during the term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the corporation, or (b) if Tenant is a partnership, limited liability company, limited liability partnership or other entity, of more than fifty percent (50°/o) of the profit and loss participation in such partnership or entity during the term of this Lease (whether or not in one or more transfers) or the dissolution, merger or liquidation of the partnership, limited liability company, limited liability partnership or other entity. If Tenant is a limited or general partnership (or is comprised of two or more persons, individually or as co-partners), Tenant shall not be entitled to change or convert to (i) a limited liability company, (ii) a limited liability partnership or (iii) any other entity which possesses the characteristics of limited liability without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. 15.2 SralloaRo FoR APPRova~. Landlord shall not unreasonably withhold its consent to a Transfer provided that Tenant has complied with this Section 15. Tenant acknowledges and agrees that each requirement, term and condition in this Section 15 is a reasonable requirement, term or condition. It shall be deemed reasonable for Landlord to withhold its consent to 12

 
a Transfer if any requirement, term or condition of this Section 15 is not complied with or: (a) the Transfer would cause Landlord to be in violation of its obligations under another lease or agreement to which Landlord is a party; (b) in Landlord's reasonable judgment, a proposed assignee or subtenant is not able financially to pay the rents due under this Lease as and when they are due and payable; (c) a proposed assignee's or subtenants business will impose a burden on the Premises' parking facilities or utilities that is materially greater than the burden imposed by Tenant, in Landlord's reasonable judgment; (d) (intentionally omitted); (e) a proposed assignee or subtenant refuses to enter into a written assignment agreement or sublease, reasonably satisfactory to Landlord, which provides that it will abide by and assume all of the terms and conditions of this Lease for the term of any assignment or sublease (to the extent applicable in the case of a sublease) and containing such other terms and conditions as Landlord reasonably deems necessary; (fl the use of the Premises by the proposed assignee or subtenant will be a use not permitted by this Lease; (g) Tenant is in default beyond applicable notice and cure periods as defined in Section 16 at the time of the request; (h) if requested by Landlord, the assignee or subtenant refuses to sign a commercially reasonable non- disturbance and attornment agreement in favor of Landlord's lender; (i) Landlord has sued or been sued by the proposed assignee or subtenant or has otherwise been involved in a legal dispute with the proposed assignee or subtenant; Q) the assignee or subtenant is a governmental or quasi-governmental entity or an agency, department or instrumentality of a governmental or quasi-governmental agency; or (m) the assignee or subtenant will use, store or handle Hazardous Materials in or about the Premises of a type, nature, quantity not acceptable to Landlord, in Landlord's sole discretion; provided, however, that Landlord shall not disapprove a sublease or assignment based on a subtenants or assignees' use of Hazardous Materials of the same type and in the same quantity as Landlord has previously approved for use by Tenant. 15.3 AoninoNAc. TeRms aN~ CoroDrTtoNs. The following terms and conditions shall be applicable to any Transfer: (a) Regardless of Landlord's consent, no Transfer shall release Tenant from Tenants obligations hereunder or alter the primary liability of Tenant to pay the rent and other sums due Landlord hereunder and to perform all other obligations to be performed by Tenant hereunder or release any guarantor from its obligations under its guaranty. (b) Landlord may accept rent from any person other than Tenant pending approval or disapproval of an assignment or subletting. (c) The acceptance of rent, shall not constitute a waiver or estoppel of Landlord's right to exercise its rights and remedies for the breach of any of the terms or conditions of this Section 15. (d) The consent by Landlord to any Transfer shall not constitute a consent to any subsequent Transfer by Tenant or to any subsequent or successive Transfer by an assignee or subtenant. However, Landlord may consent to subsequent Transfers or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease. (e) In the event of any default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including any subtenant or assignee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord. (fl Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgment that no default then exists under this Lease nor shall such consent be deemed a waiver of any then-existing default. (g) The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to an assignment or subletting was materially false shall, at Landlord's election, render Landlord's consent null and void. (h) Landlord shall not be liable under this Lease or under any sublease to any subtenant unless expressly agreed to by Landlord in any sublease. (i) No assignment or sublease may be materially modified or amended without Landlord's prior written consent which consent shall not be unreasonably withheld, conditioned or delayed. (j) Any assignee of, or subtenant under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Landlord, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Tenant during the term of said assignment or sublease, other than such obligations as are contrary or inconsistent with provisions of an assignment or sublease to which Landlord has specifically consented in writing.. (k) At Landlord's request, Tenant shall deliver to Landlord, Landlord's standard commercially reasonable consent to assignment or consent to sublease agreement, as applicable, executed by Tenant, the assignee or the subtenant, as applicable. 15.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Th2 fOIIOWICi9 t61'tllS BtICJ COtIdItlOtlS SflBI) apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: 13

 
(a) Tenant hereby absolutely and unconditionally assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease entered into by Tenant, and Landlord may collect such rent and income and apply same toward Tenants obligations under this Lease; provided, however, that until a default, after applicable notice and cure periods, shall exist in the performance of Tenant's obligations under this Lease, Tenant may receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such rents to Landlord nor by reason of the collection of the rents from a subtenant, be deemed to have assumed or recognized any sublease or to be liable to the subtenant for any failure of Tenant to perform and comply with any of Tenants obligations to such subtenant under such sublease, including, but not limited to, Tenants obligation to return any security deposit. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written notice from Landlord stating that a default, after applicable notice and cure periods, exists in the performance of Tenant's obligations under this Lease, to pay to Landlord the rents due as they become due under the sublease. Tenant agrees that such subtenant shall have the right to rely upon any such statement and request from Landlord, and that such subtenant shall pay such rents to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice or claim from Tenant #o the contrary. (b) In the event Tenant shall default in the performance of its obligations under this Lease after applicable notice and cure periods, Landlord, at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to Tenant or for any other prior defaults of Tenant under such sublease. 15.5 TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. L811C1I01'd ShBII b8 @l1tlfl8d f0 CECeIVe ffOtll Tenatlt (aS and when received by Tenant) as an item of additional rent one-half of all amounts received by Tenant from the subtenant or assignee in excess of the amounts payable by Tenant to Landlord hereunder (the "Transfer Premium"). The Transfer Premium shall be reduced by the reasonable brokerage commissions, marketing costs, tenant improvement costs and legal fees actually paid by Tenant in order to assign the Lease or to sublet all or a portion of the Premises. "Transfer Premium" shall mean all Base Rent, additional rent or other consideration of any type whatsoever payable by the assignee or subtenant in excess of the Base Rent and additional rent payable by Tenant under this Lease, specifically, excluding, however, any consideration paid for the business of Tenant unrelated to the value of Tenants leasehold interest in the Premises. If less than all of the Premises is subleased, for purposes of calculating the Transfer Premium, the Base Rent and the additional rent due under this Lease shall be allocated to the subleased premises on aper-leasable-square-foot basis (e.g., if one-half of the Premises is subleased, for purposes of determining the amount of the Transfer Premium, one-half of the Base Rent and additional rent due under this Lease would be allocated to the subleased premises, and this amount would be subtracted from the base rent, additional rent and other monies payable to Tenant under the sublease). "Transfer Premium" shall also include, but not be limited to, key money and bonus money paid by the assignee or subtenant to Tenant in connection with such Transfer, and any payment in excess of fair-market value for services rendered by Tenant to the assignee or subtenant or for permanently affixed fixtures transferred by Tenant to the assignee or subtenant in connection with such Transfer. Landlord and Tenant agree that the foregoing Transfer Premium is reasonable. 15.6 LANOLORD's OPTION ro RECAPTURE Space. Notwithstanding anything to the contrary contained in this Section 15, Landlord shall have the option, by giving written notice to Tenant within twenty (20) days after receipt of any request by Tenant to assign this Lease or to sublease substantially all of the space in the Premises for substantially all of the remainder of the term of the Lease, to terminate this Lease with respect to said space as of the date thirty (30) days after Landlord's election. Landlord may, at its option, lease any recaptured portion of the Premises to the proposed subtenant or assignee or to any other person or entity without liability to Tenant. Tenant shall not be entitled to any portion of the profit, if any, Landlord may realize on account of such termination and reletting. Tenant acknowledges that the purpose of this section is to enable Landlord to receive profit in the form of higher rent or other consideration to be received from an assignee or subtenant and to permit Landlord to control the leasing of space in the Premises. Tenant acknowledges and agrees that the requirements of this section are commercially reasonable and are consistent with the intentions of Landlord and Tenant. If Landlord recaptures the Premises, (i) all rent payable under this Lease shall be paid through and apportioned as of the date LanBlord receives possession of the Premises from the Tenant (the "Termination Date"); (ii) neither party shall have any rights, liabilities, or obligations under this Lease for the period accruing after the Termination Date, except those which, by the provisions of this Lease, expressly survive the expiration or termination of the term of this Lease; (iii) Tenant shall surrender and vacate the Premises and deliver possession thereof to Landlord on or before the Termination Date in the condition required under this Lease for surrender of the Premises; and (iv) at Landlord's option, Tenant shall enter into a written agreement reflecting the termination of this Lease upon the terms provided for herein, which agreement shall be executed within thirty (30) days after Tenant exercises the Termination Option. 15.7 Lar~ocoRo's ExPeroses. In the event Tenant shall assign this Lease or sublet the Premises or request the consent of Landlord to any Transfer, then Tenant shall pay (a) X500 to Landlord to compensate Landlord for its internal administrative costs in processing the request plus (b) Landlord's reasonable out-of-pocket costs and expenses incurred in connection therewith, including, but not limited to, attorneys', architects', accountants', engineers' or other consultants' fees; provided, however, Landlord shall not be entitled to recover more than $1,500.00 of attorneys' fees with respect to any one Transfer. 14

 
15.8 AssicrvMervranro SusceasiNc — AFFiuAreo ENnrv. Notwithstanding anything to the contrary contained in this Section 15, an assignment of the Lease or sublease of all or any portion of the Premises to any entity which controls or is controlled by or is under common control with Tenant or which acquires all or substantially all of the assets of Tenant or which is the surviving entity resulting from a merger or consolidation of Tenant (in each such case, an "Affiliate"), shall not require Landlord's consent under Section 15.1, provided that at least fifteen (15) days prior to the date an assignment or sublease will take effect or, if applicable law or contractual requirements prevent Tenant from doing so, as soon as reasonably possible and in any event not more than five (5) business days after the assignment or sublease will take affect: (i) Tenant provides Landlord with reasonable evidence that the successor to Tenant has a tangible net worth computed in accordance with generally accepted accounting principles consistently applied (and excluding goodwill and other intangible assets) that is sufficient to meet the obligations of Tenant under the Lease, and that is at least equal to the tangible net worth of Tenant (A) immediately prior to such merger, consolidation or sale or (B) on the Commencement Date, whichever is greater; (ii) Tenant notifies Landlord in writing of any such assignment or sublease and provides Landlord with evidence that such assignment or sublease is a Transfer permitted by this section; (iii) prior to the date an assignment or sublease will take effect, the assignee or sublessee and Tenant shall enter into Landlord's standard commercially reasonable consent to sublease agreement or consent to assignment agreement (the "Transfer Agreements") and (iv) subject to the limitation set forth in Section 15.7 of the Lease, Tenant shall pay the reasonable costs and expenses (including legal fees) incurred by Landlord in confirming that the assignment or sublease meets the requirements of this section and in preparing any Transfer Agreement. Whether or not an assignment or sublease to an Affiliate is made pursuant to the terms of this section, Tenant shall not be relieved of its obligations under this Lease. Sections 15.5 and 15.6 of the Lease shall not apply to assignments or subleases to Affiliates. 16. DeFauLr, REMEDIES. 16.1 DEFau~r er TeNaNr. Landlord and Tenant hereby agree that the occurrence of any one or more of the following events is a material default by Tenant under this Lease and that said default shall give Landlord the rights described in Section 16.2. Landlord or Landlord's authorized agent shall have the right to execute and to deliver any notice of default, notice to pay rent or quit or any other notice Landlord gives Tenant. (a) Tenant's failure to make any payment of Base Rent, Real Property Taxes or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant. In the event that Landlord serves Tenant with a notice to pay rent or quit pursuant to applicable unlawful detainer statutes, such notice shall also constitute the notice required by this Section 16.1(a). (b) The abandonment of the Premises by Tenant, coupled with the nonpayment of rent, in which event Landlord shat! not be obligated to give any notice of default to Tenant. (c) The failure of Tenant to comply with any of its obligations under Sections 23, 24 and 26 where Tenant fails to comply with its obligations or fails to cure any earlier breach of such obligation within ten (10) days following written notice from Landlord to Tenant. In the event Landlord serves Tenant with a notice to quit or any other notice pursuant to applicable unlawful detainer statutes, said notice shall also constitute the notice required by this Section 16.1(c). (d) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant (other than those referenced in Sections 16.1(a), (b) and {c), above), where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenants nonperformance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently pursues such cure to completion. In the event that Landlord serves Tenant with a notice to quit or any other notice pursuant to applicable unlawful detainer statutes, said notice shall also constitute the notice required by this Section 16.1(d). (e) (i) The making by Tenant or any guarantor of Tenants obligations hereunder of any general arrangement or general assignment for the benefit of creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant or guarantor, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of subs#antially all of Tenants assets located at the Premises or of Tenants interest in this Lease, where possession is not restored to Tenant within sixty (60) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days. In the event that any provision of this Section 16.1(e) is unenforceable under applicable law, such provision shall be of no force or effect. (fl The discovery by Landlord that any financial statement, representation or warranty given to Landlord by Tenant, or by any guarantor of Tenants obligations hereunder, was materially false at the time given. Tenant acknowledges that Landlord has entered into this Lease in material reliance on such information. (g) If Tenant is a corporation, partnership, limited liability company or similar entity, the dissolution or liquidation of Tenant. 15

 
16.2 f~EMEDtES (a) In the event of any material default or breach of this Lease by Tenant, Landlord may, at any time thereafter, with or without notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default: (i) terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. If Landlord terminates this Lease, Landlord may recover from Tenant (A) the worth at the time of award of the unpaid rent which had been earned at the time of termination; {B) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (C) 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 that Tenant proves could have been reasonably avoided; and (D) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at time of award" of the amounts referred to in Section 16.2(a)(i)(A) and (B) shall be computed by allowing interest at the lesser of ten percent (10%) per annum or the maximum interest rate permitted by applicable law. The worth at the time of award of the amount referred to in Section 1&.2(a)(i)(C) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For purposes of this Section 16.2(a)(i), "rent' shall be deemed to be all monetary obligations required to be paid by Tenant pursuant to the terms of this Lease. (ii) maintain Tenant's right of possession, in which event Landlord shall have the remedy described in California Civil Code Section 1951.4 which permits Landlord to continue this Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due. In the event Landlord elects to continue this Lease in effect, Tenant shall have the right to sublet the Premises or assign Tenants interest in the Lease subject to the reasonable requirements contained in Section 15 of this Lease and provided further that Landlord shall not require compliance with any standard or condition contained in Section 15 that has become unreasonable at the time Tenant seeks to sublet or assign the Premises pursuant to this Section 16.2(a)(ii). (iii) collect sublease rents (or appoint a receiver to collect such rent) and otherwise perform Tenant's obligations at the Premises, i# being agreed, however, that the appointment of a receiver for Tenant shall not constitute an election by Landlord to terminate this Lease. (iv) pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises are located. (b) No remedy or election hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies at law or in equity. The expiration or termination of this Lease and/or the termination of Tenant's right to possession of the Premises shall not relieve Tenant of liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term of the Lease or by reason of Tenants occupancy of the Premises. Landlord hereby waives its right to recover consequential or punitive damages from Tenant; provided, however, this waiver shall not in any way limit or apply to Landlord's right to recover damages from Tenant (including consequential damages) under Sections 1951.2 and 1951.4 of the California Civi( Code or under Section 29. (c) If Tenant abandons the Premises, Landlord may re-enter the Premises, and such re-entry shall not be deemed to constitute Landlord's election to accept a surrender of the Premises or to otherwise relieve Tenant from liability for its breach of this Lease. No surrender of the Premises shall be effective against Landlord unless Landlord has entered into a written agreement with Tenant in which Landlord expressly agrees to (i) accept a surrender of the Premises and (ii) relieve Tenant of liability under the Lease. The delivery by Tenant to Landlord of possession of the Premises shall not constitute the termination of the Lease or the surrender of the Premises. 16.3 DEFAULT BY LANDLORD. Laf1CII0fd shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust encumbering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (34) days are required for its cure, then Landlord shall not be in default if Landlord commences performance within such thirty (30} day period and thereafter diligently pursues the same to completion. In no event shall Tenant have the right to terminate this Lease as a result of Landlord's default, and Tenants remedies shall be limited to damages and/or an injunction. Tenant hereby waives its right to recover consequential damages (including, but not limited to, lost profits) or punitive damages arising out of a Landlord default. This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of a Force Majeure Event, and the time for Landlord's performance shall be extended for the period of any such delay. 16.4 Lare CHaRGes. Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be 16

 
extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed encumbering the Premises. Accordingly, if any installment of Base Rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, then, without any requirement far notice or demand to Tenant, Tenant shall immediately pay to Landlord a late charge equal to five percent (5%) of such overdue amount; provided, however, that Landlord shall waive the late charge one (1) time during each calendar year of the term of this Lease if Tenant pays all overdue sums within fve (5) days after receipt of written notice by Landlord to Tenant advising Tenant that such payment is overdue. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder, including the assessment of interest under Section 16.5. 16.5 IrurerzesrvN Pasr-Due Oaucartotvs. Except as expressly herein provided, any amount due to landlord that is not paid when due shall bear interest at the lesser of ten percent (10%) per annum or the maximum rate permitted by applicable law. Payment of such interest shall not excuse or cure any default by Tenant under this Lease; provided, however, that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant. 16.6 FAILURE OF LANDLORD TO MAKE REPAlR. (a) Notwithstanding anything to the contrary contained in the Lease, if Tenant provides written notice to Landlord that an event or circumstance has occurred which requires Landlord to complete a repair at the Premises, and Landlord fails to begin taking the actions necessary to complete such repair within thirty (30) days after the receipt of such notice and to thereafter diligently proceed to complete such repair, then, Tenant shall have the right to give to Landlord a second written notice (the "Second Notice"). The Second Notice shall (a) describe the repair Landlord is obligated to complete and (b) state that Landlord's failure to begin taking the actions necessary fo complete such repair within ten (10) days after Landlord's receipt of the Second Notice shall entitle Tenant to make the repair pursuant to this section of the Lease. If Landlord does not begin taking the actions necessary to complete such repair within ten (10) days after the receipt of the Second Notice, subject to the terms and conditions set forth below, Tenant may proceed to make the repair, and if such repair was required under the terms of the Lease to be made by Landlord, then Tenant shall be entitled to reimbursement by Landlord of Tenants reasonable costs and expenses in making such repair. Notv✓ithstanding the forgoing, in the event an Emergency Repair (as defined below) is needed, Tenant shall have the right to make the Emergency Repair to the extent necessary to prevent immediate damage to a Material Amount (as defined below) of Tenants personal property at the Premises after giving Landlord not less than one (1) business days advance written notice (an "Emergency Notice"). An "Emergency Repair" shall mean a repair that is needed in order to prevent immediate damage to personal property of Tenant that wilt exceed $1,000.00 in cost or to prevent imminent injury to persons. The Emergency Notice shad describe the repairs Landlord is obligated to complete. If Landlord was obligated to perform a required repair, Landlord shall reimburse Tenant for the reasonable cost of the repair (the "Repair Cost") within thirty (30) days after receiving reasonable evidence of the repair made, its cost and mechanics lien releases from all contractors making the repair (a "Tenant Reimbursement Request"). If Landlord does not provide Tenant with written notice stating that it does not believe it is obligated to reimburse Tenant for all or part of the monies requested by Tenant in a Tenant Reimbursement Request, Tenant may deduct from the next Base Rent and Operating Expenses due under the Lease the Repair Cost. If Tenant makes a repair, and such repair will affect the Building's life/safety system, HVAC system, elevator system, electrical system, plumbing system, or the structural integrity of the Building, Tenant shall utilize the services of the contractors used by Landlord to provide such services or, if Tenan# is unable to determine which contractors Landlord uses to provide such services after diligent inquiry, a qualified, experienced and solvent contractor that regularly performs similar work in similar buildings in the area in which the Building is located. Nothing contained herein shall be deemed to give Tenant the right to modify the structure, layout or design of the Building. In addition, Tenant shall not have the right to make any repair pursuant to this section, unless such repair is necessary to remedy a problem which substantially and adversely effects Tenant's use of the Premises. All repairs made by Tenant shall be made in accordance with all applicable laws, and Landlord shall not be responsible for any defective work performed by Tenant or contractors hired by Tenant. Tenant shall pay all costs incurred with respect to any actions or repairs made by Tenant and shall pay all claims for labor and materials furnished to Tenant as and when due. (b) In the event Landlord disputes whether Tenant is entitled to reimbursement under Section 16.6(a), Landlord and/or Tenant shall have the right to commence a judicial reference proceeding as provided below. if it is determined pursuant to such proceeding that Tenant is entitled #o reimbursement under Section 16.6(a), then Landlord shall within ten (10) days following such determination, reimburse Tenant for the reasonable cost of such repair as determined pursuant to such action, plus interest thereon at ten percent (10%) per annum from the date of Tenant's expenditure until Landlord's reimbursement (the "Judgment Amount'). If Landlord fails to pay the Judgment Amount to Tenant within such ten (10) day period, Tenant may offset the Judgment Amount against the next Base Rent and Operating Expenses due under the Lease. The reference shall take place before a referee pursuant to the provisions of California Code of Civil Procedure Section 638 et seq., except as modified by this Section 16.6(b), and the determination to be made shall be binding upon the parties as if tried before a court. The parties agree specifically to the following: (s) Within eve (5) business days after service of a demand by a party hereto, the parties shall agree upon a single referee who shall determine if Tenant is entitled to reimbursement under Section 16.6(a) for a repair, and who shall ultimately report a finding thereon in a statement of decision. The referee shall be a retired judge who shall have 17

 
served on the Superior Court of the State of California with substantial experience in commercial lease disputes and without any relationship to any of the parties, unless the parties agree otherwise. If the parties are unable to agree upon a referee either party may seek to have one appointed, pursuant to California Code of Civii Procedure Section 640, by the Santa Clara County Superior Court. (ii) The compensation of the referee shalt be such charge as is customarily charged by the referee for like services. The cost of such proceedings shall initially be borne equally by the parties. However, the prevailing party in such proceedings shall be entitled, in addition to all other costs and reasonable attorneys' fees, to recover its contribution for the cost of the reference as an item of damages and/or recoverable costs. (iii) The referee shall have the power to hear and dispose of motions, including motions relating to discovery, provisional remedies, demurrers, motions to dismiss, motions for judgment on the pleadings and summary judgment and/or adjudication motions, in the same manner as a trial court judge. The referee shall also have the power to adjudicate summarily issues of fact or law including the availability of remedies whether or not the issue adjudicated could dispose of an entire cause of action or defense. (iv) The referee shall apply all California Rules of Procedure and Evidence and shall apply the substantive law of California in deciding the issues to be heard. Notice of any motions before the referee shall be given, and all matters shall be set at the convenience of the referee. The parties shall be entitled to conduct discovery in the same manner as if the matter was tried in court. (v) A stenographic record of the reference hearing shall be made which shall remain confidential except as may be necessary for post-hearing motions and any appeals. (vi) The referee's statement of decision shall contain an explanation of the factual and legal basis for the decision pursuant to California Code of Civil Procedure Section 632. The decision of the referee shall stand as the decision of the court, and upon filing of the statement of decision with the clerk of the court, judgment may be entered thereon in the same manner as if the dispute had been tried by the court. The referee may rule on ail post-hearing motions in the same manner as a trial judge, and the decision of the referee shall be subject to appeal in the same manner as if the dispute had been tried by the court. (vii) The parties agree that they shall in good faith endeavor to cause any such dispute to be decided within four (4) months. The date and place of hearing for any proceeding shall be determined by agreement of the parties and the referee, or if the parties cannot agree, then by the referee. (viii) This Section 16.6(b) shall only apply to the resolution of a dispute concerning Tenants right to reimbursement under Section 16.6(a), and shalt not apply to any other dispute between Landlord and Tenant. "I7. LANDLORDS RlGNT TO CURE DEFAULT; ParMeNrs Br TeMaNr. Ali covenants and agreements to be kept or pertormed by Tenant under this Lease shall be performed by Tenant at TenanPs sole cost and expense and, except as may be otherwise provided herein, without any reduction of rent. If Tenant shall fail to perform any of its obligations under this Lease, Landlord may, but shall not be obligated to, after ten (10) days' prior written notice to Tenant, make any such payment or perform any such act on Tenant's behalf without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Tenant shall pay to Landlord, within thirty (30) days after delivery by Landlord to Tenant of statements therefore, an amount equal to the expenditures reasonably made by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of this section. 18. /NOEMrotrv. Tenant shall indemnify, defend, protect, and hold harmless Landlord, its partners, subpartners, parent organization, affiliates, subsidiaries, and their respective officers, directors, legal representatives, successors, assigns, agents, servants, employees and independent contractors and each of them (collectively, "Landlord Parties") from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) (collectively, "Claims") incurred in connection with or arising from (a) any cause in or on the Premises or (b) any acts, omissions or negligence of Tenant or its agents, employees, invitees, licensees or subtenants and each of them (collectively, "Tenant Parties") at the Premises; provided, however, that Tenant shall not be required to indemnify and hold Landlord harmless from any Claims for death or personal injury by any person, company or entity resulting from the negligence or willful misconduct of the Landlord Parties. Landlord shall indemnify, defend, protect, and hold harmless Tenant, its officers and employees from any Claim resulting from injuries to persons caused by the negligence of willful misconduct of Landlord or its agents; provided, however, that Landlord shall not be required to indemnify and hold Tenant harmless from any Claims for death or personal injury by any person, company or entity resulting from the negligence or willful misconduct of the Tenant Parties. Tenant's agreement to indemnify and hold Landlord harmless, and Landlord's agreement to indemnify and hold Tenant harmless are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Landlord or Tenant, respectively, pursuant to this Lease to the extent such policies cover the results of such acts, omissions or willful misconduct. The provisions of this section shall survive the expiration or sooner termination of this Lease. The Indemnified Parties need not first pay any Damages to be indemnified hereunder. This indemnity is intended to apply to the fullest extent permitted by applicable law. Notwithstanding the foregoing, Landlord shall have no obligation to compensate Tenant for consequential damages (including lost profts). 18

 
19. ExeMPnoN of Lanro~oRo FROM LiAaicirr. Tenant hereby agrees that Landlord Parties shall not be liable for injury to Tenant's business or any loss of income therefrom or for loss of or damage to the merchandise, tenant improvements, fixtures, furniture, equipment, computers, files, automobiles, or other property of Tenant, Tenant's employees, agents, contractors or invitees, or any other person in or about the Premises, nor shall Landlord Parties be liable for injury to the person of Tenant, Tenant's employees, agents, contractors or invitees, whether such damage or injury is caused by or results from any cause whatsoever including, but not limited to, theft, criminal activity at the Premises, negligent security measures, bombings or bomb scares, acts of terrorism, Hazardous Materials, fire, steam, electricity, gas, water or rain, flooding, breakage of pipes, sprinklers, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises, or from other sources or places, or from new construction or the repair, alteration or improvement of any part of the Premises. Landlord shall not be liable for any damages arising from any act or neglect of any employees, agents, contractors or invitees of any other tenant, occupant or user of the Premises. Tenant, as a material part of the consideration to Landlord hereunder, hereby assumes all risk of damage to Tenant's property or business or injury to persons in, upon or about the Premises arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord Parties. Except to the extent covered by Tenants insurance and waiver of subrogation provided in the Lease, the limitations on Landlord's liability contained in this Section 19 shall not apply to injury or damage which results from the negligence or willful misconduct of Landlord, its agents, employees, contractors, subcontractors or assigns; provided, however, in no event shall Landlord be liable to Tenant for consequential damages (including, but not limited to, lost profits). 2O. LANDLORDS LIABILITY. Tenant acknowledges that Landlord shall have the right to transfer ail or any portion of its interest in the Premises and to assign this Lease to the transferee. Tenant agrees that in the event of such a transfer Landlord shall automatically be released from all liability under this Lease to the extent the same is assumed by the transferee or arises after the date of such transfer; and Tenant hereby agrees to look solely to Landlord's transferee for the performance of Landlord's obligations hereunder after the date of the transfer. Upon such a transfer, Landlord shall, at its option, return Tenant's security deposit to Tenant or transfer Tenant's security deposit to Landlord's transferee and, in either event, Landlord shall have no further liability to Tenant for the return of its security deposit. Subject to the rights of any lender holding a mortgage or deed of trust encumbering all or part of the Premises, Tenant agrees to look solely to Landlord's interest in the Premises (including any rents or sale, insurance or condemnation proceeds thereofl for the collection of any judgment requiring the payment of money by Landlord arising out of {a) Landlord's failure to perform its obligations under this Lease or (b} the negligence or willful misconduct of Landlord, its partners, employees and agents. No other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of any judgment or writ obtained by Tenant against Landlord. The foregoing provisions of this Section 20 are not intended to relieve Landlord from the performance of any of its covenants and obligations hereunder, but rather to limit Landlord's liability as aforesaid; provided, however, that nothing contained in this Section 20 shall be deemed to limit or impair in any manner any rights or remedies (including, without limitation, equitable remedies) of Tenant which do not involve the personal liability of Landlord. No partner, employee or agent of Landlord or Tenant shall be personally liable for the performance of Landlord's or Tenants obligations hereunder or be named as a party in any lawsuit arising out of or related to, directly or indirectly, this Lease and the obligations of Landlord or Tenant hereunder. The obligations under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord and Tenant, if any, and each party shalt not seek recourse against the individual partners, directors, officers or shareholders of Landlord or Tenant or their respective assets. 21. SicNs. Except as otherwise provided in the Addendum to this Lease, Tenant shall not make any changes to the exterior of the Premises install any signs or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion. 22. BRoxeR's Fee. Tenant and Landlord each represent and warrant to the other that neither has had any dealings or entered into any agreements with any person, entity, broker or finder other than the persons, if any, listed in Section 1.12, in connection with the negotiation of this Lease, and no other broker, person, or entity is entitled to any commission or finder's fee in connection with the negotiation of this Lease, and Tenant and Landlord each agree to indemnify, defend and hold the other harmless from and against any claims, damages, costs, expenses, attorneys' fees or liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings, actions or agreements of the indemnifying party. The commission payable to Landlord's broker and Tenant's broker with respect to this Lease shall be pursuant to the terms of the separate commission agreement in effect between Landlord and Landlord's broker and Landlord and Tenants broker. 19

 
Z3. ESTOPPEL CERT/FlCATE 23.1 DeuveRv of CeRnFicAre. Tenant and Landlord sha11 each from time to time, upon not less than ten (10) business days' prior written notice from the other party, execute, acknowledge and deliver to the requesting party a statement in writing certifying such information as such party may reasonably request including, but not limited to, the following: (a) 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), (b) the date to which the Base Rent and other charges are paid in advance and the amounts so payable, (c) that there are not, to the certifying party's actual knowledge, any uncured defaults or unf~ifilled obligations on the part of the other party, or specifying such defaults or unfulfilled obligations, if any are claimed, (d) that all tenant improvements to be constructed by Landlord, if any, have been completed in accordance with Landlord's obligations, and {e) that Tenant has taken possession of the Premises. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. 23.2 FAILURE TO DELIVER CERTIFICATE. TIlO f81IUf2 of Tenant to deliver such statement within such time shall constitute a material default of Tenant under Section 16.1(c) of the Lease (subject to the additional cure period provided by Section 16.1(c)) and the failure of Landlord to deliver such statement within such time shall constitute a material default of Landlord under Section 16.3 of the Lease (subject to the additional cure period provided by Section 16.3). 23.3 LimvranoN oro Lan~o~oRo OeLicanoN. Notwithstanding anything to the contrary contained in this Section 23, Landlord shall have no obligation to provide an estoppel certificate more often than once in any twelve (12) month period. 24. FINANCIAL INFORMATfON. SO IOtlg 8S T@IIaIIYs stock is publicly traded over a recognized securities exchange Tenant shall have no obligation to provide landlord with financial information pursuant to this section. Once Tenants stock is no longer publicly traded over a recognized securities exchange or if Tenant assigns this Lease to a person or entity whose stock is not publicly traded on a recognized public securities exchange, this section shall apply to Tenant and/or the assignee. From time to time, at Landlord's request, Tenant shall cause the following financial information to be delivered to Landlord, at Tenants sole cost and expense, upon not less than ten (10) business days' advance written notice from Landlord: (a) a current financial statement for Tenant and Tenants f+nanciaf statements for the previous two accounting years, (b) a current financial statement for any guarantors) of this Lease and the guarantor'(s) financial statements for the previous two accounting years and (c) such other financial information pertaining to Tenant or any guarantor as Landlord or any lender or purchaser of Landlord may reasonably request. All financial statements shall be prepared in accordance with generally accepted accounting principles or other sound accounting principles consistently applied. Tenant hereby authorizes Landlord, from time to time, without notice to Tenant, to obtain a credit report or credit history on Tenant from any credit reporting company. 25. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS 25.1 HAZARDOUS MRTER/ALS DISCLOSURE CERTfFICATE. P(IOt' t0 executing this Lease, Tenant has delivered to Landlord Tenant's executed initial Hazardous Materials Disclosure Certificate (the "Initial HazMat Certificate"), a copy of which is attached hereto as Exhibit C. Tenant covenants, represents and warrants to Landlord that the information in the Initial HazMat Certificate is true and correct and accurately describes the uses) of Hazardous Materials which will be made and/or used on the Premises by Tenant. Tenant shall, commencing with the date which is one year from the Commencement Date and continuing every year thereafter, upon Landlord's written request, deliver to Landlord an executed Hazardous Materials Disclosure Certificate (the "IiazMat Certificate") describing Tenants then-present use of Hazardous Materials on the Premises, and any other reasonably necessary documents and information as requested by Landlord. The HazMat Certificates required hereunder shall be in substantially the form attached hereto as Exhibit C. 25.2 DEFINITION OF HAZARDOUS MATERIALS. AS US2d ICt 1hIS L@8S2, the term "Hazardous Materials" shall mean and include (a) any hazardous or toxic wastes, materials or substances, and other pollutants or contaminants, which are or become regulated by any Environmental Laws (defined below); (b) petroleum, petroleum by-products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos and asbestos-containing material, in any form, whether friable or non-friable; (d) polychlorinated biphenyls; (e) radioactive materials; (~ lead and lead-containing materials; (g) any other material, waste or substance displaying toxic, reactive, ignitable or corrosive characteristics, as all such terms are used in their broadest sense, and are defined or become defined by any Environmental Law; or (h) poses or threatens to pose a hazard to the health and safety of persons on the Premises, any other surrounding property. For purposes of this Lease, the term "Hazardous Materials" shall not include small amounts of ordinary household or office cleaners, copying fluids, office supplies and janitorial supplies which are not actionable under any Environmental Laws. 25.3 PROHIBITION; ENviRONMeNra~ Laws. Tenant shall not be entitled to use or store any Hazardous Materials on, in, or about any portion of the Premises without, in each instance, obtaining Landlord's prior written consent thereto. If Landlord, in its sole discretion, consents to any such usage or storage, then Tenant shall be permitted to use and/or store only those Hazardous Materials that are necessary for Tenant's business and to the extent disclosed in the HazMat Certifcate and as expressly approved by Landlord in writing. If Landlord fails to respond to a Tenant's written request for a change in the Hazardous Materials used in the Premises (a "Tenant Hazardous Materials Request") within ten (10) days after Landlord receives a Tenant Hazardous Materials Request, Tenant may give Landlord a second written notice (a "Second Hazardous Materials Notice") again requesting Landlord's approval or disapproval of the new Hazardous Material. The Second Hazardous Materials Notice shall expressly state that Landlord's failure to respond to the Second Hazardous Materials Notice within five (5) 20

 
business days will be deemed Landlord's election to approve the new Hazardous Material. If Landlord fails to respond to Tenants Second Hazardous Materials Notice within such five (5) business day period, Landlord shall be deemed to have approved the new Hazardous Material. Any such usage and storage may only be to the extent of the quantities of Hazardous Materials as specified in the then-applicable HazMat Certificate as expressly approved by Landlord. In all events such usage and storage must at all times be in full compliance with any and all local, state and federal environmental, health and/or safety- related laws, statutes, orders, standards, courts' decisions, ordinances, rules and regulations (as interpreted by judicial and administrative decisions), decrees, directives, guidelines, permits or permit conditions, currently existing and as amended, enacted, issued or adopted in the future which are or become applicable to Tenant or all or any portion of the Premises (collectively, the "Environmental Laws") and in compliance with the reasonable recommendations of landlord's consultants. Tenant agrees that any changes to the type and/or quantities of Hazardous Materials specified in the most recent HazMat Certifeate may be implemented only with the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. Tenant shall not be entitled nor permitted to install any tanks under, on or about the Premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlord's sole discretion. Landlord shall have the right, in Landlord's sole discretion, at all times during the Term of this Lease upon not less than twenty-four (24) hours advance written notice to Tenant to (i) inspect the Premises, (ii) conduct tests and investigations to determine whether Tenant is in compliance with the provisions of this Section 25 or to determine if Hazardous Materials are present in, on or about the Premises and (iii) to complete a survey of Tenant's use, storage and handling of Hazardous Materials in the Premises (the "Survey"). Tenant shall answer questions, provide information and take any other reasonable actions requested by Landlord to assist Landlord in the completion of the Survey. Landlord shall use commercially reasonable efforts to minimize disruption to Tenant's business operations caused by any inspections and testing. if the Survey discloses that Tenant is not in compliance with any term or condition of this Lease or is violating any law or regulation, Tenant shall reimburse Landlord for the cost of all such inspections, tests and investigations, and all costs associated with any Survey. If as a result of an inspection, test or Survey Landlord determines, in Landlord's commercially reasonable discretion, that Tenant should implement or perform safety, security or compliance measures, Tenant shall within thirty (30) days after written request by Landlord pertorm such measures, at Tenant's sole cost and expense. The aforementioned rights granted herein to Landlord and its representatives shall not create (a) a duty on Landlord's part to inspect, test, investigate, monitor or otherwise observe the Premises or the activities of Tenant and Tenant Parties with respect to Hazardous Materials, including without limitation, Tenant's operation, use and any remediation relating thereto, or (b) liability on the part of Landlord and its representatives for Tenants use, storage, disposal or remediation of Hazardous Materials, it being understood that Tenant shall be solely responsible for all liability in connection therewith. 25.4 TENANT'S ENVIRONMENTAL OBLJGATIONS. T811211t SIl2II 91V2 t0 L211CJIOfd It711T1@dlat2 V81'b2I atld f0II0W-Up Wflttell notice of any spills, releases, discharges, disposals, emissions, migrations, removals or transportation of Hazardous Materials on, under or about any portion of the Premises in violation of the Lease; provided that Tenant has actual knowledge of such event(s). Tenant, at its sole cost and expense, covenants and warrants to promptly investigate, clean up, remove, restore and otherwise remediate {including, without limitation, preparation of any feasibility studies or reports and the performance of any and all closures) any spill, release, discharge, disposal, emission, migration or transportation of Hazardous Materials arising from or related to the intentional or negligent acts or omissions of Tenant or Tenant Parties such that the affected portions of the Premises and any adjacent property are returned to the condition existing prior to the appearance of such Hazardous Materials. Any such investigation, clean up, removal, restoration and other remediation shall only be performed after Tenant has obtained Landlord's prior written consent, which consent shall not be unreasonably withheld so long as such actions would not potentially have a material adverse long-term or short-term effect on any portion of the Premises. Notwithstanding the foregoing, Tenant shall be entitled to respond immediately to an emergency without frst obtaining Landlord's prior written consent. Tenant, at its sole cost and expense, shall conduct and perform, or cause to be conducted and performed, all closures as required by any Environmental Laws or any agencies or other governmental authori#ies having jurisdiction thereof. If Tenant fails to so promptly investigate, clean up, remove, restore, provide closure or otherwise so remediate, Landlord may, but without obligation to do so, take any and ail steps necessary to rectify the same, and Tenant shall promptly reimburse Landlord, upon demand, for all costs and expenses to Landlord of performing investigation, cleanup, removal, restoration, closure and remediation work. All such work undertaken by Tenant, as required herein, shall be performed in such a manner so as to enable Landlord to make full economic use of the Premises after the satisfactory completion of such work. 25.5 ENVIRONMENTAL INDEMNITY. In addition to Tenant's other indemnity obligations under this Lease, Tenant agrees to, and shall, protect, indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord and the other Landlord Parties harmless from and against any and all loss, cost, damage, liability or expense (including, without limitation, diminution in value of any portion of the Premises, damages for the loss of or restriction on the use of leasab►e or usable space, and from any adverse impact of Landlord's marketing of any space within the Premises) arising at any time during or after the term of this Lease in connection with or related to, directly or indirectly, the use, presence, transportation, storage, disposal, migration, removal, spill, release or discharge of Hazardous Materials on, in or about any portion of the Premises as a result (directly or indirectly) of the intentional or negligent acts or omissions of Tenant or Tenant Parties. Neither the written consent of Landlord to the presence, use or storage of Hazardous Materials in, on, under or about any portion of the Premises nor the strict compliance by Tenant with all Environmental Laws shall excuse Tenant from its obligations of indemnification pursuant hereto. Tenant shall not be relieved of its indemnification obligations under the provisions of this Section 25.5 due to Landlord's status as either an "owner" or "operator" under any Environmental Laws. 25.6 SuRwvne. Landlord's and Tenants obligations and liabilities pursuant to the provisions of this Section 25 shall survive the expiration or earlier termination of this Lease. If it is determined by Landlord that the condition of all or any portion of 21

 
the Premises is not in compliance with the provisions of this Lease with respect to Hazardous Materials, including without limitation, ail Environmental Laws at the expiration or earlier #ermination of this Lease, then Landlord may require Tenant to hold over possession of the Premises until Tenant can surrender the Premises to Landlord in the condition in which the Premises existed as of the Commencement Date and prior to the appearance of such Hazardous Materials except for reasonable wear and tear, casualty damages, condemnation damages and repairs required to be made by Landlord under this Lease, including without limitation, the conduct or performance of any closures as required by any Environmental Laws. The burden of proof hereunder shall be upon Tenant. For purposes hereof, the term "reasonable wear and tear" shall not include any deterioration in the condition or diminution of the value of any portion of the Premises in any manner whatsoever related to, directly or indirectly, such Hazardous Materials. Any such holdover by Tenant will be with Landlord's consent, will not be terminable by Tenant in any event or circumstance except upon satisfaction of its obligations under this Section 25.6 and will otherwise be subject to the provisions of Section 29 of this Lease. 25.7 No L~aeiurr FOR Acrs of OryeRs. Notwithstanding anything to the contrary contained in this Lease, Tenant shall only be liable pursuant to this Section 25 for the acts of Tenant and Tenant Parties, and Tenant shall not be liable for the acts of persons or entities other than Tenant and Tenant Parties nor shall Tenant be responsible or liable far contamination that existed at the Premises on the Commencement Date or for contamination emanating from neighboring land. 25.8 REPRESENTATION BY LANDLORD. AS Of tll2 d8t@ SEt f01'tIl It1 S8CtI0tl 1.1, Landlord represents and warrants to Tenant that to Landlord's actual knowledge it does not know of the existence at the Premises of any Hazardous Material that (a) exists in violation of any law or regulation and (b) poses a material and present danger to the health, life or safety of tenants. For purposes of this section, Landlord's actual knowledge shall mean the actual knowledge of John Powell without duty of investigation. AS of the date set forth in Section 1.1, Mr. Powell is the asset manager primarily responsible for the Premises. In the event it is determined that this representation or warranty is untrue, Landlord shall not be in breach of this Lease if Landlord promptly takes the actions necessary to remedy the violation of the law or regulation and/or the danger to health, life or safety. The foregoing representation and warranty shall apply only as of the date set forth in Section 1.1, and shall not apply to any point in time thereafter, 25.9 Larvocorty /rvoeMN~rr. Landlord agrees to indemnify, defend and hold Tenant harmless from any monetary damages incurred by Tenant and arising directly out of Hazardous Material brought to the Premises or Premises by Landlord in violation of applicable laws. 26. SUBORDINATION 26.1 EFFECT OF SUBORDINAT/OIJ. ThIS LeflSB, and any Option (as defined below) granted hereby, upon Landlord's written election, shall be subject and subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Premises and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenants right to quiet possession of the Premises shall not be disturbed if Tenant is not in default beyond applicable notice and cure periods and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. At the request of any mortgagee, trustee or ground lessor, Tenant shall attorn to such person or entity. Notwithstanding anything to the contrary contained in the Lease, Tenant shall not be obligated to subordinate its interest in the Lease to a future mortgage or deed of trust obtained by Landlord unless the lender provides Tenant with a commercially reasonable nondisturbance agreement. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. In the event of the foreclosure of a security device, the new owner shall not (a) be liable for any act or omission of any prior landlord or for the breach of the Lease by the prior landlord or with respect to events occurring prior to its acquisition of title, except that the new owner shall cure any default of Landlord that is continuing as of the date of the foreclosure within thirty (30) days from the date Tenant delivers written notice to the new owner of such continuing default, unless such default is of such a nature to reasonably require more than thirty (30) days to cure and then the new owner shall be permitted such additional time as is reasonably necessary to effect such cure, provided such new owner diligently and continuously proceeds to cure such default, (b) be subject to any ofFsets or defenses which Tenant may have against the prior landlord; provided, however, that this limitation shall not apply to offsets or defenses arising out of defaults of the new owner based on the actions or inactions of the new owner or (c) be liable to Tenant for the return of its securify deposit unless the new owner actually received the security deposit. 26.2 Execur~oN of DocuMeNrs. Tenant agrees to execute and acknowledge any documents Landlord reasonably requests that Tenant execute to effectuate an attornment, a subordination, or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Tenants failure to execute such documents within ten (1D) business days after written demand shall constitute a material default by Tenant hereunder {subject to the additional cure period provided by Section 16.1(c)). 28.3 SUBORDINATION BY TENANT. AS Of tllE d8t8 SBt fOtfh in Section 1.1 above, no mortgages or deeds of trust encumber Landlord's interest in the Premises. 22

 
27. OPrroNs 27.1 DEFINITION. AS USG'd in this Lease, the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease, (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises and (3) the right or option to terminate this Lease prior to its expiration date or to reduce the size of the Premises. Any Option granted to Tenant by Landlord must be evidenced by a written option agreement attached to this Lease as a rider or addendum or said option shall be of no force or effect. For purposes of this section, an Option shall also include any Option contained in any subsequent amendment to this Lease. 27.2 OanoNs PeRsot~ac. Each Option granted to Tenant in this Lease, if any, is personal to the original Tenant and any Affiliate (as defined above) to whom Tenant assigns its interest in this Lease (an "Assuming Affiliate") and may be exercised only by the original Tenant or an Assuming Affiliate while occupying not less than fifty percent (50%) of the leasable area of the Premises and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Tenant or an Assuming A~liate, including, without limitation, any transferee approved by Landlord in Section 15. The Options, if any, herein granted to Tenant are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. If at any time an Option is exercisable by Tenant or an Assuming Affiliate, the Lease has been assigned to a person or entity other than an A~liate or Tenant has subleased more than fifty percent (50%) of the leasable area of the Premises to a person or entity other than an A~liate, the Option shall be deemed null and void and neither Tenant nor any assignee or subtenant shall have the right to exercise the Option. 27.3 Mur.npLE OPrioNs. In the event that Tenant has multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Option to extend or renew this Lease has been so exercised. 27.4 EFFec7' of DeFavcr orr OPrrorvs. Tenant shall have no right to exercise an Option if Tenant is in default of any of the terms, covenants or conditions of this Lease after applicable notice and cure periods. The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise an Option because of the provisions of this section. 27.5 LtM~ranoNs oN OPnorvs. Notwithstanding anything to the contrary contained in any rider or addendum to this Lase, any options, rights of first refusal or rights of first offer granted hereunder shall be subject and secondary to Landlord's right to first offer and lease any such space to any tenant who is then occupying or leasing such space at the time the space becomes available for leasing and shall be subject and subordinated to any other options, rights of first refusal or rights of first offer previously given to any other person or entity. 27.6 GuaRaNrees. Notwithstanding anything to the contrary contained in any rider or addendum to this Lease, Tenant's right to exercise and the effectiveness of an Option is conditioned upon Landlord's receipt from any prior tenant that has not been expressly released from liability under this Lease, and any guarantor of any obligation of Tenant under this Lease, of a written agreement satisfactory to Landlord, in Landlord's reasonable discretion, reaffirming such person's obligations under this Lease or the guaranty, as modified by Tenants exercise of the Option. 28. LaND~.oao ReseRVAnoNs. Landlord shall have the right to change the name and address of the Building upon not less than ninety (90) days prior written notice. Landlord reserves the right to use the exterior wails of the Premises, and the area beneath, adjacent to and above the Premises together with the right to install, use, maintain and replace equipment, machinery, pipes, conduits and wiring through the Premises, which serve other real property provided that ~andiord`s use does not unreasonably interfere with Tenant's use of the Premises, Tenants access to or parking at the Premises. 29. FIOLDING OVER. 29.1 Gen►eRa~~r. If Tenant remains in possession of the Premises or any part thereof after the expiration or earlier termination of the term hereof with Landlord's consent, such occupancy shall be a tenancy from month to month upon all the terms and conditions of this Lease pertaining to the obliga#ions of Tenant, except that the Base Rent payable shall be one hundred fifty percent {150%) of the Base Rent payable immediately preceding the termination date of this Lease, and all Options, if any, shall be deemed terminated and be of no further effect. If Tenant remains in possession of the Premises or any part thereof, after the expiration of the term hereof without Landlord's consent, Tenant shall, at Landlord's option, be treated as a tenant at sufferance, and the Base Rent shat{ be increased to one hundred fifty percent (150%) of the Base Rent payable immediately preceding the termination date of this Lease. Nothing contained herein shall be construed to constitute Landlord's consent to Tenant holding over at the expiration or earlier termination of the Lease term or to give Tenant the right to hold over after the expiration or earlier termination of the Lease term. Tenant hereby agrees to indemnify, hold harmless and defend landlord from any cost, loss, claim or liability (including attorneys' fees) Landlord may incur as a result of Tenant's failure to surrender possession of the Premises to Landlord upon the termination of this Lease. 29.2 HotooveR Nonce. Provided that Tenant has previously waived its right to exercise the Extension Option (as defined in the Addendum to this Lease), Landlord hereby grants to Tenant the one time right to extend the term of the Lease for thirty (30) days, for sixty (60) days or for ninety (90) days (the "Holdover Period") commencing when the initial lease term expires upon the following terms and conditions (the "Holdover Option"): 23

 
(a) On a date which is at least one hundred eighty (180) days prior to the date the initial lease term expires, Landlord shall have received from Tenant an irrevocable written notice of the exercise of the Holdover Option (the "Exercise Notice"), time being of the essence. If the Exercise Notice is not so given and received, the Holdover Option shall automatically expire, Tenant shall no longer have the right to give an Exercise Notice and this Section 29.2 shall be of no further force or effect. Tenant shall give the Exercise Notice using certified mail return receipt requested or some other method where the person delivering the package containing the Exercise Notice obtains a signature of the person accepting the package containing the Exercise Notice (e.g., by FedEx with the requirement that the Fed Ex delivery person obtain a signature from the person accepting the package). It shall be the obligation of Tenant to prove that Landlord received the Exercise Notice in a timely manner. (b) In the Exercise Notice Tenant shall elect to holdover for either thirty (30) days, sixty (60) days or ninety (90) days. Tenants election of a Holdover Period shall be irrevocable. (c) During the Holdover Period, Tenant shall pay Base Rent equal to one hundred twenty-five percent (125%) of the Base Rent payable during the last month of the initial term of the Lease. (d) All of the terms and conditions of the Lease except where specifically modified by this Section 29.2 shall apply during the Holdover Period. 3O. LANDLORD~SACCESS. 30.1 Access. Landlord and Landlord's agents, contractors and employees shall have the right to enter the Premises at reasonable times upon twenty-four (24) hours advance written or telephonic notice to Tenant (except in the case of any emergency, where no advance notice shall be required) for the purpose of inspecting the Premises, performing any services required of Landlord, showing the Premises to prospective purchasers, lenders or tenants, undertaking safety measures and making alterations, repairs, improvements or additions to the Premises; provided, however, that Landlord shall only have the right to show the Premises to prospective tenants during the last one hundred eighty (180) days of the term of this Lease. in the event of an emergency, Landlord may gain access to the Premises by any reasonable means, and Landlord shall not be liable to Tenant for damage to the Premises or to Tenant's property resulting from such access. Landlord may at any time place on or about the Building for sale or for lease signs. Landlord shall use commercially reasonable efforts to minimize disruption to Tenant's business operations caused by actions taken by Landlord pursuant to this Section. Landlord shall use reasonable efforts to schedule entries into the Premises under this Section 30 with Tenant so that Tenant, at Tenant's option, may provide a representative to accompany the persons entering the Premises. If Tenant desires to have a representative accompany the persons entering the Premises, Tenant shall make a representative available within a reasonable time. Between the hours of 8:00 a.m. and 5:00 p.m. Monday through Friday, holidays excluded, a reasonable time shall be within one {1) hour of Landlord's request. Notwithstanding the forgoing, Landlord shall have no obligation to schedule with Tenant access in the event of an emergency. 31. SecuRiry MeasuRes. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises, and Landlord shall have no liability to Tenant due to its failure to provide such services. Tenant assumes all responsibility for the protection of Tenant, its agents, employees, contractors and invitees and the property of Tenant and of Tenant's agents, employees, contractors and invitees from acts of third parties. 32. EaseMeNrs. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps and/or restrictions, so long as such easements, rights, dedications, maps and restrictions do not materially interfere with or disturb the access to the Premises or the use of the Premises by Tenant. The easements referred to above may include, but are not limited to, utility easements, drainage easements, access easements, easements relating to common walls and related covenants, conditions and restrictions. Tenant shat( sign ,and if requested acknowledge, any of the aforementioned documents within ten (10) business days after Landlord's request. The obstruction of Tenant's view, air or light by any structure erected in the vicinity of the Premises shall in noway affect this Lease or impose any liability upon Landlord. 33. TRANSPORTATION MANAGEMENT. TetlBtlt SF1aII fUIIy comply at its sole expense with all present or future programs implemented or required by any governmental or quasi-governmental entity to manage parking, transportation, air pollution or traffic in and around the Premises or the metropolitan area in which the Premises is located. 34. SeveRaelurv. 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. 35. TiMe of EsseNce. Time is of the essence with respect to each of the obligations to be perforrned by Tenant and Landlord under this Lease. 36. DeFiNmoN oFAo~~noN.a~ Rehr. All monetary obligations of Tenant to Landlord under the terms of this Lease, including, but not limited to, Base Rent, Operating Expenses, Real Property Taxes and late charges shall be deemed to be rent. 24

 
37. irvcoRaoR,arioNOFPRioRAcReeMenrrs. This Lease and the attachments listed in Section 9.13 contain all agreements of the parties with respect to the lease of the Premises and any other matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. Except as otherwise stated in this Lease, Tenant hereby acknowledges that no real estate broker nor Landlord nor any employee or agents of any of said persons has made any oral or written warranties or representations to Tenant concerning the condition or use by Tenant of the Premises or concerning any other matter addressed by this Lease. 38. AMENDMENTS. ThIS Lease may be modified in writing only, signed by the parties in interest at the time of the modification. One or more emails signed by one or more parties shall never constitute a writing signed by the parties that is capable of amending or modifying the Lease. 39. NorrcEs. Ail notices required or permitted by this Lease shall be in writing and may be delivered (a) in person (by hand, by messenger or by courier service), (b) by U.S. Postal Service regular mail, (c) by U.S. Postal Service certified mail, return receipt requested or (d) by U.S. Postal Service Express Mail, Federal Express or other overnight courier, and shall be deemed sufficiently given if served in a manner specified in this section. Notices may not be given by email, and email notices shall not be binding on Landlord or Tenant for any purpose. Any notice permitted or required hereunder, and any notice to pay rent or quit or similar notice, shall be deemed personally delivered to Tenant on the date the notice is personally delivered to any employee of Tenant at the Premises. The addresses set forth in Section 1.14 of this Lease shall be the address of each party for notice purposes. Landlord or Tenant may by written notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereinafter designate by written notice to Tenant. Any notice sent by regular mail or by certified mail, return receipt requested, shall be deemed given three (3) days after deposited with the U.S. Postal Service. Notices delivered by U.S. Express Mail, Federal Express or other courier shall be deemed given on the date delivered by the carrier to the appropriate party's address for notice purposes. If notice is received on Saturday, Sunday or a legal holiday, it shall be deemed received on the next business day. Nothing contained herein shall be construed to limit Landlord's right to serve any notice to pay rent or quit or similar notice by any method permitted by applicable law, and any such notice shall be effective if served in accordance with any method permitted by applicable law whether or not the requirements of this section have been met. 40. WarveRs. No waiver by Landlord or Tenant of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Landlord or Tenant of the same or any other provision. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of partial payment of any sum due from Tenant shall be deemed a waiver by Landlord of its right to receive the full amount due, nor shall any endorsement or statement on any check or accompanying letter from Tenant be deemed an accord and satisfaction. Tenant hereby waives California Code of Civil Procedure Section 1179 and Civil Code section 3275 which allow tenants to obtain relief from the forfeiture of a lease, and Tenant hereby waives any claim it may have against landlord based on Landlord's failure to comply with Section 1938 of the California Civil Code. Tenant hereby waives for Tenant and all those claiming under Tenant all rights now or hereafter existing to redeem by order or judgment of any court or by legal process or writ Tenants right of occupancy of the Premises after any termination of this Lease. 41. CoveNaNrs. This Lease shall be construed as though Landlord's covenants contained herein are independent and not dependent and Tenant hereby waives the benefit of any statute to the contrary. All provisions of this Lease to be observed or performed by Tenant are both covenants and conditions. ~Z. BINDlN(i EFFECT; CHace of Law. Subject to any provision hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their heirs, personal representatives, successors and assigns. This Lease shall be governed by the laws of the state in which the Premises is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Premises is located. 43, ATTORNEYS' Fees. If Landlord or Tenant brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys' fees and court costs to be paid by the losing party as fixed by the court in the same or separate suit, and whether or not such action is pursued to decision or judgment. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees and court costs reasonably incurred in good faith. Landlord shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. Landlord and Tenant agree that attorneys' fees incurred with respect to defaults and bankruptcy are actual pecuniary losses within the meaning of Section 365(b)(1)(B) of the Bankruptcy Code or any successor statute. 44. Aucnonrs. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction or going-out-of-business sale upon the Premises. 25

 
45. Me~tcerz. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not result in the merger of Landlord's and Tenants estates and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 46. Qurer PossessioN. Subject to the other terms and conditions of this Lease and provided Tenant is not in default hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 47. AuryoR~rr. If Tenant or Landlord is a corporation, trust, limited liability company, limited liability partnership or general or limited partnership, Tenant and Landlord represent and warrant that it is duly authorized to execute and deliver this Lease, and that this Lease is enforceable against said entity in accordance with its terms. If Tenant or Landlord is a corporation, trust, limited liability company, limited liability partnership or other partnership, Tenant and Landlord shall deliver to the other party upon demand evidence of such authority. 48. CoNFucr. Except as otherwise provided herein to the contrary, any conflict between the printed provisions, exhibits, addenda or riders of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 49. Mu~r~P~e PaRries. ff more than one person or entity is named as Tenant herein, the obligations of Tenant shall be the joint and several responsibility of all persons or entities named herein as Tenant. Service of a notice in accordance with Section 39 on one Tenant shall be deemed service of notice on all Tenants. 50. /NTERPRETAT/ON. ThIS Lease shall be interpreted as if it was prepared by both parties, and ambiguities shall not be resolved in favor of Tenant because all or a portion of this Lease was prepared by landlord. The captions contained in this Lease are for convenience only and shall not be deemed to limit or alter the meaning of this Lease. As used in this Lease, the words tenant and landlord include the plural as well as the singular. Words used in the neuter gender include the masculine and feminine gender. 51. PROHIBITtOfJ AGAINST RECORDING. NeItI121' tI11S Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant. Landlord shall have the right to record a memorandum of this Lease, and Tenant shall execute, acknowledge and deliver to Landlord for recording any memorandum prepared by Landlord. 52. Rei,arioNSHiP of PnRnes. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant. 53. ParRror Acr. Tenant represents to Landlord that, (i) neither Tenant nor any person or entity that directly owns a 10% or greater private equity interest (i.e., not publically traded) in it nor any of its o~cers, directors or managing members is a person or entity (each, a "Prohibited Person") with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control ("OFAC") of the Department of the Treasury (including those named on OFAC's Specially Designated and Blocked Persons List) or under Executive Order 13224 (the "Executive Order") signed on September 24, 2001, and entitled "Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Suppork Terrorism," or other governmental action, (ii) Tenants activities do not violate the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the regulations or orders promulgated thereunder (as amended from time to time, the "Money Laundering AcY') and (iii) throughout the term of this Lease, Tenant shall comply with the Executive Order and with the Money Laundering Act. Landlord represents to Tenant that, (i) neither Landlord nor any person or entity that directly owns a 10% or greater private equity interest (i.e., not publically traded) in it nor any of its officers, directors or managing members is a person or entity (each, a "Prohibited Person") with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control ("OFAC") of the Department of the Treasury (including those named on OFAC's Specially Designated and Blocked Persons List) or under Executive order 13224 (the "Executive Order") signed on September 24, 2001, and entitled "Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism," or other governmental action, (ii) Landlord's activities do not violate the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the regulations or orders promulgated thereunder (as amended from time to time, the "Money Laundering Act") and (iii) throughout the term of this Lease, Landlord shall comply with the Executive Order and with the Money Laundering Act. 54. CONFIDENT/AL17Y. Teil811t acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases. Tenant agrees that it and its partners, officers, directors, employees, brokers, and attorneys, if any, shall not disclose the terms and conditions of this Lease to any other person or entity without the prior written consent of Landlord, which may be given or withheld by Landlord, in Landlord's sole discretion, except to the extent required to comply with Applicable Laws, including, but not limited, disclosure requirements under federal and state securities laws. It is understood and agreed that damages alone would be an inadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to seek injunctive relief to prevent its breach or continued breach. 26

 
55. Wa~veR of JuRv TRiaL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/0R HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT. 56: ExFcurionr. 56.1 CourorERPaRrs. This Lease and any documents or addenda attached hereto (collectively, the "Documents") may be executed in two or more counterpart copies, each of which shall be deemed to be an original and aN of which together shall have the same force and effect as if the parties had executed a single copy of the Document. 56.2 ELECTRON/C SIGNATURES. LBtIdIOfd SF18II haVA tI1B CIgh1, in Landlord's sole discretion, to insert the name of the person executing a Document on behalf of Landlord in Landlord's signature block using an electronic signature (an "Electronic Signature"), and in this event the bocument delivered to Tenant will not include an original ink signature and landlord shall have no obligation to provide a copy of such Document to Tenant with Landlord's origins! ink signature. A Document delivered to Tenant by Landlord with an Electronic Signature shall be binding on Landlord as if the Document had been originally executed by Landlord with an ink signature. Without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion, Tenant shall not have the right to insert the name of the person executing the Document on behalf of Tenant using an Electronic Signature and all Documents shall be originally executed by Tenant using an ink signature. 56.3 ELECTRON/C FORMAT. A Document executed by Landlord or Tenant and delivered to the other party in PDF, facsimile or similar electronic format (collectively, "Electronic FormaY') shall be binding on the party delivering the executed Document with the same force and effect as the delivery of a printed copy of the Document with an original ink signature. 56.4 GENERALLY. This Section describes the only ways in which Documents may be executed and delivered by the parties. An email from Landlord, its agents, brokers, attorneys, employees or other representatives shall never constitute Landlord's Electronic Signature or be otherwise binding on Landlord. Subject to the limitations set forth above, the parties agree that a Document executed using an Electronic Signature and/or delivered in Electronic Format may be introduced into evidence in a proceeding arising out of or related to the Document as if it was a printed copy of the Document executed by the parties with original ink signatures. Landlord shall have no obligation to retain copies of Documents with original ink signatures, and Landlord shall have the right, in its sole discretion, to elect to discard originals and to retain only copies of Documents in Electronic Format. 57. ReAsoNaece CorvseNr. Whenever this Lease requires the consent of either party, such consent, unless specifically stated otherwise in this Lease, shall not be unreasonably withheld, conditioned or delayed. If either party withholds its consent or approval, such party shall, upon request, promptly deliver to the other party a written statement specifying in detail the reason or reasons why such consent or approval was withheld or refused; provided, however, if a party may withhold its approval in its sole discretion such party shall have no obligation to provide a statement to the other party. LANDLORD AND TENANT ACKNOWLEDGE THAT THEY 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 LANDLORD AND TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN THE aPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD'S AGENT AND SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD AND TENANT ONLY WHEN FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED COPY OF THIS LEASE TO TENANT IN THE MANNEF2 SET FORTH IN THIS LEASE. THE DELIVERY OF A DRAFT OF THIS LEASE TO TENANT SHALL NOT CONSTITUTE AN AGREEMENT BY LANDLORQ TO NEGOTIATE IN GOOD FAITH, AND LANDLORD EXPRESSLY DISCLAIMS ANY LEGAL OBLIGATION TO NEGOTIATE IN GOOD FAITH. [Remainder of this page left intentionally blank.)

 
LANDLORD: The Realty Associates Fund IX, L.P., a Delaware limited partnership By: Realty Associates Fund IX LAC, a Massachusetts limited liability company, its general partner By: TA Realty, LLC, a Massachusetts linti lability company, its manager By: Realty AssociateFur~~~T~as Corporation, REIT General Pa ner .r s~ By: Officer TENANT: '~.,J Cavium, Inc., a Delaware cor ration By: ^~ ~ Its: (print title) (print name) lts: /~~~`~ (print title) 28

 
EXHIBIT A PREMISES The following diagram is intended only to show the general layout of the Premises, and shall not be interpreted to increase or decrease the size of the Premises. Exhibit A is not to be scaled and any measurements or distances shown on Exhibit A are approximates only. W 'd ~C

 
EXHIBIT B VERIFICATION LETTER Cavium, Inc., a Delaware corporation ("Tenant"), hereby certifies that it has entered into a lease with The Realty Associates Fund IX, L.P., a Delaware limited partnership ("Landlord"), and verifies the foilowing inforrnation as of the _day of _ 20_ Address of Premises: Leasable Area of Premises: Commencement Date: Lease Termination Date: initial Base Rent: Billing Address for Tenant: Attention: Telephone Number: Federal Tax ID No.: Tenant acknowledges and agrees that all tenant improvements Landlord is obligated to make to the Premises, if any, have been completed to Tenants satisfaction, that Tenant has accepted possession of the Premises, and that to Tenant's actual knowledge as of the date hereof there exist no offsets or defenses to the obligations of Tenant under the Lease. TENANT: Cavium, Inc., a Delaware corporation By: {print name) Its: (print title) By: (print name) Its: (print title) 30

 
EXH181T C Form of HazMat Certificate General Information Name of Responding Company: Mailing Address: Signature: Title: Phon Date: Age of Facility: Length of Occupancy: Major products manufactured and/or activities conducted on the property: Tvta~ of Business Activity(ies): Hazardous Materials Activities: (check all that apply) (check all that apply) machine shop degreasing light assembly chemical/etching/milling research and development wastewater treatment product service or repair painting photo processing striping automotive service and repair cleaning manufacturing printing warehouse analytical lab integrated/printed circuit plating chemical/pharmaceutical product chemical/missing/synthesis silkscreen lathe/mill machining deionizer water product photo masking wave solder metal finishing HAZARDOUS MATERIALS/WASTE HANDLING AND STORAGE A. Are hazardous materials handled on any of your shipping and receiving docks in container quantities greater than one gallon? Yes No B. if Hazardous materials or waste are stored on the premises, please check off the nature of the storage and types) of materials below: TvUes of Storage Container Tune of Hazarcib~,s Materials and/or Waste Stared' {list above-ground storage only) 1 gallon or 3 liter bottleslcans acid 31

 
5 to 30 gallon carboys phenol 55 gallon drums caustic/alkaline cleaner tanks cyanide photo resist stripper paint flammable solvent gasoline/diesel fuel nonflammable/chlorinated solvent oiUcutting fluid C. Do you accumulate hazardous waste onsite? Yes No If yes, how is it being handled? on-site treatment or recovery discharged to sewer hauled offsite If hauled offsite, by whom incineration D. Indicate your hazardous waste storage status with Department of Health Services: generator interim status facility permitted TSDF none of the above I WASTEWATER TREATMENT/DISCHARGE A: Do you discharge industrial wastewater to: ..sewer ...storm drain .surface water no industrial discharge B. Is your industrial wastewater treated before discharge? Yes If yes, what type of treatment is being conducted? neutralization metal hydroxide formation closed-loop treatment cyanide destruct HF treatment other SUBSURFACE CONTAINMENT OF HAZARDOUS MATERIALS/WASTES R. Are buried tanks/sumps being used for any of the following:. hazardous waste storage chemical storage gasoline/diesel fuel storage waste treatment .wastewater neutralization industrial wastewater treatment none of the above 32

 
B. If buried tanks are located onsite, indicate their construction` steel fiberglass concrete inside open vault double walled C. Are hazardous materials or untreated industrial wastewater transported via buried piping to tanks, process areas or treatment areas? Yes No D. Do you have wet floors in your process areas? Yes No If yes, name processes: E. Are abandoned underground tanks or sumps located on the property? _Yes No HAZARDaUS MATERIALS SPILLS. A. Have hazardous, materials ever spilled to: the sewer the storm drain onto the property no spills have occurred B. Have you experienced any leaking underground tanks or sumps? Yes No C. If spills have occurred, were they reported? Yes No Check which the government agencies that you contacted regarding the spill(s): Department of Heaith Services Department of Fish and Game Environmental Protection Agency Regional Water Quality Control Board Fire Departrrient 33

 
D. Have you been contacted by a government agency regarding soil or groundwater contamination on your site? Yes No Do you have exploratory wells onsite? Yes No If yes, indicate the following: Number of wells: Approximate depth o#wells: Well diameters: PLEASE ATTACH ENVIRONMENTAL REGULATORY PERMITS, AGENCY REPORTS THAT APPLY TO YOUR OPERATION AND HAZARDOUS WASTE MANIFESTS. Check off those enclosed: Hazardous Materials Inventory Statement, HMIS Hazardous Materials Management P{an, HMMP Department of Health Services, Generatory Inspection Report Underground Tank Registrations Industrial Wastewater Discharge Permit Hazardous Waste Manifest 34

 
Exhibit D WORK LETTER AGREEMENT This Work Letter Agreement ("Work Letter Agreement") is attached to a Standard Lease (the "Lease") entered into between The Realty Associates Fund IX, L.P., a Delaware limited partnership ("Landlord"), and Cavium, Inc., a Delaware corporation ("Tenant"), covering certain premises (the "Premises") more particularly described in the Lease, and is incorporated into the Lease by this reference. 1. Tenant lniprovements. For purposes of this Work Letter Agreement, the "Improvements" shall mean the improvements to the Premises described on the Final Construction Drawings (as defined below). All Improvements made to the Premises shall be performed by Tenant. Subject to the reimbursement limitations set forth in Section 2.2 below, the Improvements shall be paid for from the Improvement Allowance (as defined below) or shall be paid for by Tenant, at Tenant's sale cost and expense. The Improvements to be constructed by Tenant shall include, but shall not be limited to, demolition, concrete work, iron work, rough and finish carpentry, insulation, sheet metal, glass and glazing, doors, door frames and hardware, dry wall, acoustical ceiling, flooring, painting and wall coverings, accessories and partitions, kitchen equipment, fire extinguishers and cabinets, window coverings, plumbing, HVAC equipment, relocation of existing and installation of new fire sprinkler heads, electrical, prefabricated partitions, telephone systems, cabling systems, final clean-up and labor, miscellaneous specialties, planning, engineering, plan checking, permitting, architectural and other design costs, general contractor and subcontractor general conditions, overhead and profit, moving and insurance costs. 2. Tenant°tn~provement Allowance: 2.1 Tenant Smpa~ovement A1lowane~: (a) improwenten#s. Tenant shall be entitled to a tenant improvement allowance (the "Improvement Allowance") in a total amount equal to $7,273,813.00. The Improvement Allowance shall be used, subject to the limitations set forth in Section 2.2 below, to reimburse Tenant for the costs it incurs relating to the initial design and construction of the Improvements. In no event shall Landlord be obligated to make disbursements pursuant to this Work Letter Agreement in a total amount which exceeds the Improvement Allowance. Any portion of the Improvement Allowance not disbursed in accordance with this Work Letter Agreement shall be retained by Landlord and shall no longer be available to Tenant for any purpose. (b) FF&E. Tenant may use up to $581,905.00 of the Improvement Allowance (the "FF&E Allowance") that is not used on the construction of the Improvements to reimburse Tenant for the actual out-of-pocket costs it pays to unrelated third parties for the purchase and installation of furniture, fixtures and equipment in the Premises (the "FF&E Expenses"). 7f Tenant desires to use the FF&E Allowance to reimburse itself for the cost of FF&E Expenses, Tenant shall provide to Landlord bills, invoices and other information reasonably acceptable to Landlord to document the FF&E Expenses paid by Tenant, and provided monies remain in the Improvement Allowance, Landlord shall reimburse Tenant for such amounts up to the FF&E Allowance within thirty (30) days after receiving such information. Tenant shall only have the right to make one request for the reimbursement of FF&E Expenses (the "Reimbursement Request') and the Reimbursement Request shall include all FF&E Expenses for which Tenant requests reimbursement. Landlord shall have no obligation to reimburse Tenant for any FF&E Expense that is not included an the Reimbursement Request. 2.2 Disbursement of the 7enat~t tm~rt~vetner~t Allowance.. (a) Tenant Irnt~rflvement`Allowance lte~ns. The Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively the "Improvement Allowance Items"): {i) Payment of the fees of the "Architect' and the "Engineers," as those terms are defined in Section 3 of this Work Letter Agreement; (ii) The payment of plan check, permit and license fees relating to construction of the Improvements; (iii) The cost of the construction of the Improvements, including, without limitation, testing and inspection costs, trash removal costs, and contractors' fees and general conditions; provided, however, in no event shall the Improvement Allowance be used to pay the cost of computer or telephone wiring or any cost associated with the design, purchasing or installation of furniture, fixtures or equipment (collectively, "FF8.E"), and all such costs shall be paid by Tenant, at Tenant's sole expense; K~.7

 
(iv) The cost of any changes to the Final Construction Drawings (as that term is defined in Section 3.3 of this Work Letter Agreement) or Improvements required by any governmental agency; and (v) Sales and use taxes and Title 24 fees. (b) Disbursement. During the construction of the Improvements, Landlord shall make disbursements of the Improvement Allowance for Improvement Allowance Items and shall release monies as follows: (i) ~isbursemenis. Not more often than once in any thirty (30) day period, Landlord shall disburse to Tenant monies from the Improvement Allowance. Prior to Landlord making a disbursement, Tenant shall deliver to Landlord: (A) a request for payment, approved by Tenant, in a form which is reasonably acceptable to Landlord which shows the percentage of completion by trade of the Improvements; (B) invoices from all of Tenant's Agents (as defined below), for labor rendered and materials delivered with respect to such payment request in an amount not less than the amount of the Improvement Allowance Tenant has requested be reimbursed; (C) copies of executed mechanic's lien releases from ali of Tenant's Agents for work completed which shall comply with the appropriate provisions of California Civil Code Section 8134 {or, in the alternative, a mechanics lien release complying with California Civil Code Section 8132 accompanied by a copy of a check in the amount of the applicable payment that has been negotiated by the applicable contractor and that was delivered to the contractor in connection with the applicable 8132 release) and (D) proof that Tenant has previously paid to Tenants Agents the monies described in the payment request using checks from Tenants bank account. Within fifteen (15) days after Landlord has received all of this information, Landlord shall deliver a check to Tenant in an amount equal to the actual monies paid by Tenant to Tenant's Agents with respect to such payment request. Notwithstanding the foregoing, Landlord shall not be obligated to disburse to Tenant the last five percent (5%) of the Improvement Allowance until the requirements of Section 2.2(b)(ii) have been satisfied and Tenant has received a certificate of occupancy for the Premises. (ii) Final Completion. Within thirty (30) days after the Improvements have been completed, Tenant shall deliver to Landlord (A) properly executed mechanics lien releases in compliance with California Civil Code Section 8138 (or, in the alternative, a mechanics lien release complying with California Civil Code Section 8136 accompanied by a copy of a check in the amount of the applicable payment that has been negotiated by the applicable contractor and that was delivered to the contractor in connection with the applicable 8136 release); and {B) a certificate from the Architect, in a form reasonably acceptable to Landlord, certifying that the construction of the Improvements in the Premises has been substantially completed. Within ffteen (15) days after receiving the foregoing information, Landlord shall reimburse to Tenant any additional costs of constructing the Improvements to the extent not previously paid for in accordance with (i) above. {c) If Landlord fails to make a disbursement of the Improvement Allowance it is obligated to make pursuant to this Work Letter Agreement, Tenant may give to Landlord a written notice requesting payment of the disbursement (a "Disbursement Request'), and if Landlord is obligated to make the disbursement requested by Tenant Landlord shall make the disbursement to Tenant within thirty (30) days after its receipt of the disbursement Request. The Disbursement Request shall state the amount of the disbursement Tenant believes it is entitled to then receive (the "Disbursement Amount') and the reasons it believes such amount is then due. If Landlord does not provide to Tenant within thirty (34) days after receiving a Disbursement Request a written notice stating that it does not believe it is obligated to disburse all or part of the monies requested by Tenant in the Disbursement Request (a "Landlord Notice"), Tenant may deduct from the next Base Rent and Operating Expenses due under the Lease the Disbursement Amount. If Landlord gives a Landlord Notice, Tenant may not deduct the Disbursement Amount form the next Base Rent and Operating Expenses due under the Lease, but Landlord or Tenant shall then have the right to commence a reference proceeding as provided below. If it is determined pursuant to such proceeding that Tenant is entitled to a disbursement under Section 2.2(b), then Landlord shaft within ten (10) days following such determination, pay such amount to Tenant, plus interest thereon at ten percent {10%) per annum from the date such disbursement was due Tenant until the date of landlord's disbursement. If Landlord fails to pay such amount to Tenant within such ten (10) day period, Tenant may offset such amount against the next Base Rent and Operating Expenses due under the Lease. The reference shall take place before a referee pursuant to the provisions of California Code of Civil Procedure Section 638 et seq., and the determination to be made shall be binding upon the parties as if tried before a court or jury. The parties agree specifically as to the following: (i) Within five (5) business days after service of a demand by a party hereto, the parties shall agree upon a single referee who shall determine if Tenant is entitled to a disbursement under Section 2.2(b), and then report a finding or judgment thereon. If the parties are unable to agree upon a referee either party may seek to have one appointed, pursuant to California Code of Civil Procedure Section 640, by the presiding judge of the Santa Clara County Superior Court. (ii) The compensation of the referee shall be such charge as is customarily charged by the referee for like services. The cost of such proceedings shall initially be borne equally by the parties. However, the prevailing party in such proceedings shall be entitled, in addition to all other costs, to recover its contribution for the cost of the reference as an item of damages andlor recoverable costs. 36

 
(iii) If a reporter is requested by either party, then a reporter shall be present at all proceedings, and the fees of such reporter shall be borne by the party requesting such reporter. Such fees shall be an item of recoverable costs. Only a party shall be authorized to request a reporter. (iv) The referee shall apply all California Rules of Procedure and Evidence and shall apply the substantive law of California in deciding the issues to be heard. Notice of any motions before the referee shall be given, and all matters shall be set at the convenience of the referee. (v) The referee's decision under California Code of Civil Procedure Section 644, shall stand as the judgment of the court, subject to appellate review as provided by the laws of the State of California. (vi) The parties agree that they shall in good faith endeavor to cause any such dispute to be decided within sixty (60) days. The date of hearing for any proceeding shall be determined by agreement of the parties and the referee, or if the parties cannot agree, then by the referee. (vii) This Section 2.2(c) shall only apply to the resolution of a dispute concerning Tenants right to a disbursement under Section 2.2(b), and shall not apply to any other dispute between Landlord and Tenant. 3. Space Plan and Gonstruefian Orawinas 3.1 Sgace Pian. Within twenty (20) days after the execution of the Lease, Tenant shall submit to Landlord for approval a detailed space plan ("Space Plan") for the Premises which shall include, without ►imitation, the location of doors, partitions, electrical and telephone outlets, plumbing fixtures, heavy floor loads and other special requirements. Tenant shall use an architect selected by Tenant and reasonably approved by Landlord to prepare the Space Plan (the "Architect"). Landlord agrees to cooperate with Tenant and its design representatives in connection with the preparation of the Space Plan. Within five (5) business days after receipt by Landlord of the Space Plan, Landlord (I) shall give its written approval with respect thereto, which approval shall not be unreasonably withheld or conditioned, or (ii) shall notify Tenant in writing of its disapproval and state with specificity the grounds for such disapproval and the revisions or modifications necessary in order for Landlord to give its approval. Landlord's failure to respond within such five (5) business day period shall be deemed to be Landlord's approval of the Space Plan. Within five (5) business days following Tenants receipt of Landlord's disapproval, Tenant shall submit to Landlord for approval the requested revisions or modifications. Within five (5) business days following receipt by Landlord of such revisions or modifications, Landlord shall give its written approval with respect thereto or shall request other revisions or modifications therein (but relating only to the extent Tenant has failed to comply with Landlord's earlier requests). The preceding sentence shall be implemented repeatedly until landlord gives its approval to Tenant's Space Plan. 3.2 Construction Drawincts., Tenant shall retain engineering consultants (the "Engineers") that are reasonably acceptable to Landlord to prepare all plans and engineering drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the Premises. The plans and specifications to be prepared by Architect and the Engineers hereunder shall reflect only the improvements described on the final Space Plan and shall be known collectively as the "Construction Drawings." Tenant and Architect shall verify, in the field, the dimensions of the Premises and the conditions at the Premises, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord shall have the right to approve the Construction Drawings in Landlord's reasonable discretion, within five (5) business days after receipt by Landlord of the Construction Drawings, and the Construction Drawings shall not materially deviate from the Space Plan, which approval shall be provided as long as the Construction Drawings do not materially deviate from the Space Plan. Landlord's failure to respond within such five (5) business day period shall be deemed to be Landlord's approval of the Construction Drawings. Landlord's review of the Construction Drawings are for its sole benefit and Landlord shall have no liability to Tenant or Tenants Agents arising out of or based on Landlord's review. 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 or Tenant's Agents 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 arising therefrom. 3.3 Preparatinr~ of Fina! Cnnstruc#con Orawings. Tenant shall promptly cause the Architect and the Engineers to complete the Construction Drawings which shall be comprised of a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which will allow Tenant to obtain all applicable permits (collectively, the "Final Construction Drawings") and shall submit three (3) copies of the Final Construction Drawings to Landlord for Landlord's approval, which shall not be unreasonably withheld, conditioned or delayed and which approval shall not be withheld as long as the Final Construction Drawings do not materially deviate from the Construction Drawings. Landlord shall advise Tenant within five (5) business days after Landlord's receipt of the Final Construction Drawings for the Premises if the same are unsatisfactory or incomplete in any respect. Landlord's failure to respond within such five (5) business day period shall be deemed to be Landlord's approval of the Final Construction Drawings. If Tenant is so advised, Tenant shall promptly revise the Final Construction Drawings to reflect Landlord's comments. 37

 
3.4 Permits and ~Y~anpes. The Final Construction Drawings shall be approved by Landlord prior to the commencement of construction of the Improvements. After approval by Landlord of the Final Construction Drawings, Tenant shall submit the same to the appropriate governmental agencies in order to obtain all applicable building permits. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permits or a certificate of occupancy for the Premises and that obtaining the same shall be Tenants sole 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 permits or certificate of occupancy. No changes, modifications or alterations in the Final Construction Drawings may be made without the prior written consent of landlord, which consent shall not be unreasonably withheld, conditioned or delayed. 3.5 Gompiiance w.+ith Laws. Tenant shall be solely responsible for constructing the Improvements in compliance with all laws. Tenant acknowledges and agrees that it may be obligated to modify, alter or upgrade the Premises and the systems therein in order to complete the construction of the Improvements, and Landlord shall have no liability or responsibility for modifying, altering or upgrading the Premises or its existing systems. If, as a result of Improvements constructed in accordance with this Work Letter Agreement, Landlord is obligated to comply with the Americans With Disabilities Act and such compliance requires Landlord to make any improvements or alterations to any portion of the Premises outside the Building (an "Exterior Alteration"), Landlord shag pay the cost of such Exterior Alteration at Landlord's sole cost and expense, and such cost shall not be deducted from the Improvement Allowance. 3.6 Restorations. Upon the termination of the Lease, Landlord shall have the right to require Tenant to remove some or all of the Improvements and to return the Premises to the condition it was in prior to the installation of the Improvements (hereinafter "Restorations"). After Landlord has approve the Final Construction Drawings, Tenant shall have the right to request from Landlord a written determination of which Improvements, if any, Landlord will reserve the right to require Tenant to remove upon the termination of the Lease (a "Landlord Restoration Determination"). Within five (5) business days after receiving a written request from Tenant fora Landlord Restoration Determination, Landlord shall provide the Landlord Restoration Determination to Tenant. Upon the termination of the Lease, Landlord shall have the right at its sole option to elect to have Tenant leave some or all of the restorations described in the Landlord Restoration Determination, in which event such Improvements shall be the sole property of Landlord. Noiv✓ithstanding the forgoing, Tenant shall not be obligated to remove Improvements typically found in similar buildings being used for general office use. 4. Cgnstcucton of Tenani tmnravements 4.1 TenanYsSelectionofContractors. (a) The Cont~actor~ Tenant shall select a qualified general contractor for the construction of the Improvements (the "Contractor"). The Contractor shall be experienced in the construction of tenant improvements similar to the Improvements in similar buildings under similar circumstances. In addition, the Contractor shall be financially solvent. Landlord shall have the right to approve the Contractor, in Landlord's reasonable discretion. If Landlord fails to approve or disapprove the Contractor within five (5) business days after Tenant provides Landlord with the a!I of the information Landlord has reasonably requested concerning the Contractor, Landlord shall be deemed to have approved the Contractor. {b) Tenant's Agents. Landlord shall have the right to designate which subcontractors may perform work on the Building's roof and on the Landlord HVAC Units and the Landlord Boilers (as such terrns are defined in the Addendum to this Lease). All of Tenant's 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 properly licensed by the state of California and shall be experienced in pertorming the work they have agreed to perform in similar buildings. Tenant shall submit a written list of Tenant's subcontractors performing work valued in excess of $250,000 to Landlord, and Landlord shall approve or disapprove the persons or entities on the list within five (5) business days after Landlord receives the list. If Landlord does not disapprove a person or entity on the list within said five (5) day period, said person or entity shall be deemed approved. if Landlord disapproves a person or entity on the list, Tenant shall submit the name of another person or entity to pertorm that work. 4.2 Construction of Tenant Improverrients by Tenant's Agents. (a) Construction Contract' Gas# Budgef. Within five (5) business days after Tenant enters into a construction contract with Contractor (the "Contract"), Tenant shall deliver a copy of the Contract to Landlord. (b) Tenant's R:gents. (i) indemnity. Tenant's indemnification set forth in the Lease shall also apply with respect to any and all damages, cost, loss or expense (including reasonable attorneys fees) related in any way to any act or omission of 38

 
Tenant or Tenants Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenants non- payment of any amount arising out of the Improvements; provided, however, Tenant shall have no obligation to indemnify Landlord for liability arising out of the negligence or willful misconduct of Landlord or Landlord's employees, contractors or agents. By way of example, and not limitation, Tenant shall indemnify and defend Landlord from any Damages to the Premises caused by the actions of the persons'constructing the Improvements. (ii) Warranty. The Contractor shall guarantee to Tenant and for the benefit of Landlord that the Improvements shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the Commencement Date of the Lease. The correction of any defective work shall include, without additional charge, all additional expenses and damages incurred in connection with the removal or replacement of all or any part of the Improvements, and/or any other Building improvements that may be damaged or disturbed thereby. All such warranties or guarantees shall be contained in the Contract and shall inure to the benefit of both Landlord and Tenant. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement. {iii) Insurance Requirements. (A) .Genera(. Coverages. All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Landlord. Tenants Agents shall not be entitled to satisfy their insurance obligations through self-insurance. (B) Special Coverages'; Tenant shall carry "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of the Improvements, it being understood and agreed that the Improvements shall be insured by Tenant during the construction period and throughout the term of the Lease. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord. (C) GEnerat Terms. Certificates for all insurance carried pursuant to this section shall be delivered to Landlord before the commencement of construction of the Improvements and before any equipment is moved onto the site. All such policies of insurance shall name Landlord and its property manager as an additional insured and must contain a provision that, to the extent commercially available, the company writing the policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance, provided that only ten (10) days' prior written notice shall be required prior to cancellation in connection with a failure to pay insurance premiums. !n the event that the Improvements are damaged by any cause during the course of the construction thereof, Tenant shall promptly repair the same at Tenant's sole cost and expense, unless the damage results from the negligence or willful misconduct of Landlord or i#s employees, agents or contractors, in which case Landlord shall pay for the cost to repair. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until all of the Improvements are fully completed. All insurance, except Worker's Compensation, maintained by Tenants Agents shall preclude subrogation claims by the insurer against Landlord or Tenant. Such insurance shall provide that it is primary insurance as respects Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not limit Tenant's indemnification obligations under this Work Letter Agreement. (c) Corns~liance ~tf~ Laws and Qiher kandlord Requirements: The Improvements shall comply in all respects with the following: (i) all applicable building codes, laws and regulations; (ii) applicable standards of the American insurance Association (formerly, the National Board of Fire Underwriters); and (iii) building material manufacturer's specifications. In addition, Tenant's Agents shall comply with all of Landlord's reasonable rules, regulations and procedures concerning the construction of improvements in the Building. Landlord's Construction Procedures are available from the Building`s property manager and shall be provided to Tenant for review prior to the execution and delivery of this Lease. (d) Inspection by Landlord. Landlord shall have the right to inspect the Improvements at reasonable times upon reasonable advance notice, provided however, that Landlord's inspection of the Improvements shall not constitute Landlord's approval of the Improvements. Any defects in the Improvements shall be rectified by Tenant at no expense to Landlord. Landlord shall have the right to receive a fee to reimburse it for its costs in providing approvals hereunder and in monitoring the construction of the Improvements in an amount equal to one percent (1%) of the total hard costs of constructing the Improvements (the "Landlord Fee"). In addition, if Landlord incurs architectural, engineering or other consultants' fees in evaluating such Improvements ("Third Party Fees"), Tenant shall reimburse Landlord for these fees in addition to the Landlord Fee. Landlord shall have the right to deduct the Landlord Fee and the Third Party Fees from the Improvement Allowance. (e) NoEic~ of Non-Responsibii~tV Not less than ten (10) days prior to the date Tenant intends to first commence construction of the Improvements, Tenant shall provide Landlord with written notice of its intention to commence construction: Landlord shall have the right from time to time to post notices ofnon-responsibility at the Premises.

 
4.3 Nrstice of Completion` Cozy of Record Sef of R)ans. Within fifteen (15) days after completion of construction of the Improvements, and as a condition to Landlord's final reimbursement of the Improvement Allowance, Tenant shall cause a Notice of Completion to be recorded in the office of the County Recorder for the County in which the Premises is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to 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, and as a condition to Landlord's final reimbursement of the Improvement Allowance, {a) Tenant shall cause the Architect and Contractor (i) to update the Final Construction Drawings as necessary to reflect all changes made to the Final Construction Drawings during the course of construction, (ii) to certify to their knowledge that the "record-set" of as-built drawings are true and correct and (iii) to deliver to Landlord two (2) sets of copies of such record set of drawings, and (b) 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. 5. Gompietion. Tenant hereby covenants and agrees to cause the Improvements to be completed as soon as reasonably passible following the Delivery Date. Subject to the performance by Landlord of its obligations with respect to the funding of the Improvement Allowance, Tenant agrees to cause the Improvements to be paid for, at Tenants sole cost and expense. Tenant shall be primarily obligated to complete the cons#ruction of the Improvements, and the failure of 7enanYs Agents to perform their obligations with respect to the construction of the Improvements shall no# relieve Tenant of its obligation to complete the construction of the Improvements. Tenan# acknowledges and agrees that its obligation to pay Base Rent and other amounts due under the Lease as of February 1, 2018 is not conditioned on Tenant's completion of the Improvements prior to February 1, 2018 or at any other time. Consequently, Tenant shall be obligated to pay Base Rent, Operating Expenses and other amounts due under the Lease from and after February 1, 2018 even though Tenant is unable to occupy or use the Premises on February 1, 2018 due to its failure to complete the Improvements on or before August 1, 2018. Landlord shall have no obligation to make any disbursements from the Improvement Allowance after the August 1, 2018, and any monies remaining in the Improvement Allowance after such date shall be retained by Landlord and shall not be available to Tenant for any purpose. 6. Miscellaneous 6.1 Tena~tYs Representative. Tenant has designated Scott Doubek as its sole representative with respect to the matters set forth in this Work Letter Agreement, and, until further notice to Landlord, Tenant's representative shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter Agreement. 6.2 .Landlord's Represen#afiue, Landlord has designated Thomas Newman as its sole representative with respect to the matters set forth in this Work Letter Agreement, and until further notice to Tenant, Landlord's representative shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter Agreement. 6.3 Time of the Essence. Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days. If any item requiring approval is #imely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord. 6.4 Tenant's Default. Notwithstanding any provision to the contrary contained in the Lease, if Tenant commits a default as defined in Section 16.1 of the Lease, and fails to cure such default during any applicable cure period, then, in addition to all other rights and remedies granted to Landlord pursuant to the Lease, (a) Landlord shat! have the right to withhold payment of all or any portion of the improvement Allowance, and (b) Landlord shall have no other obligations under the terms of this Work Letter Agreement until such time as such default is cured pursuant to the terms of the Lease. The failure of Tenant to perform any of its obligations under this Work Letter Agreement shall constitute a default under Section 16.1(c) of the Lease. 6.5 Incorporation. This Work Letter Agreement is and shall be incorporated by reference in the Lease, and all of the terms and conditions of the Lease are and shall be incorporated herein by this reference. Unless otherwise defined herein, capitalized terms included in this Work Letter Agreement shall have the same meaning as capitalized terms included in the Lease. 40

 
Exhibit E Addendum to Standard Lease {the "Lease") Between The Realty Associates Fund IX, L.P. ("Landlord") and Cavium, Inc. ("Tenant") It is hereby agreed by Landlord and Tenant that the provisions of this Addendum are a part of the Lease. If there is a conflict between the terms and conditions of this Addendum and the terms and conditions of the Lease, the terms and conditions of this Addendum shall control. Capitalized terms in this Addendum shall have the same meaning as capitalized terms in the Lease, and, if a Work Letter Agreement is attached to this Lease, as those terms have been defined in the Work Letter Agreement. Landlord improvements: (a) Description of Improvements: Landlord shall make the following improvements to the Premises using building standard materials and procedures at Landlord's sole cost and expense (the "Landlord Improvements"): (1) Remove the equipment described on Exhibit 1 attached hereto; (2) Replace the existing roof membrane of the Building with a new roof membrane (the "New Roof Membrane"); (3) F2emove the HVAC units described on Exhibit 2 attached hereto and replace the HVAC units with the new HVAC units described on Exhibit 2 (the "Landlord NVAC Units"); and (4) Replace the two heating boilers described on Exhibit 2 and replace the boilers with the new boilers described on Exhibit 2 ("Landlord Boilers"). (b) Timing for Completion. Landlord shall use commercially reasonable efforts to complete the Landlord Improvements on or before June 30, 2017, but Landlord shall have no obligation to incur overtime expenses or other extraordinary costs. (c) coordination. Tenant acknowledges that Landlord will construct the Landlord Improvements after Landlord has delivered possession of the Premises to Tenant. Tenant agrees to move, from time to time, at Tenants sole cost and expense, its materials, furniture, fxtures, equipment and other personal property located at the Premises (the "Personal Property") to the extent necessary to permit Landlord's contractors to complete the Landlord Improvements in an expeditious manner. Landlord and Landlord's contractors shall have no obligation to move any of Tenants Personal Property. Tenant shall be obligated to cause its Personal Property to be moved promptly during the completion of the Landlord Improvements in accordance with Landlord's construction schedule. Landlord shall use reasonable efforts to keep Tenant informed of Landlord's construction schedule, and shall work with Tenant, at no cost to Landlord, to schedule any required movement of Tenant's personal property in a way that minimizes the number of times Tenant must move the personal property. Tenant acknowledges that the construction of the Landlord Improvements may prevent Tenant from using portions of the Premises from time to time and may interfere with the construction of the Improvements (as defined in the Work Letter Agreement) and #hat the construction of the Landlord Improvements will create noise dust and debris that may interfere with Tenant's use of the Premises. Tenant acknowledges and agrees that it shall have no right to any abatement of rent or to recover any other damages from Landlord due to its inability to use portions of the Premises while the Landlord Improvements are being completed or due to interference with its business operations caused by such construction or due to interterence with the construction of the Improvements. Landlord shall use its commercially reasonable efforts to minimize any interference with Tenant's construction of the Improvements and use of the Premises due to the completion of the Landlord Improvements; provided, however, that Landlord shall have no obligation to incur any extraordinary expenses (e.g., overtime costs). (d) ~Jelav iii Completifln: Subject to the limitations set forth below, if Landlord does no# substantially complete the Landlord Improvements on or before June 30, 2017 (the "Outside Completion Date"), for each day after the Outside Completion Date, as such date is adjusted as provided below, that Landlord does not tender possession of the Premises to Tenant, Tenant shall receive a $2,50Q.00 Base Rent abatement (the "Base Rent Abatement'). For purposes of calculating the Base Rent Abatement, the Outside Completion Date shall be extended by the period of any delay resulting from (a) delays in completing the Landlord Improvements caused by acts or omissions of Tenant, Tenant's agents, employees and contractors ("Tenant Delay") and (b) Force Majeure Events (e.g., if there was five (5) days of Tenant Delay, the Outside Completion Date would be extended to July 5, 2017). The Landlord Improvements shall be deemed "substantially" completed when the Landlord Improvements have been completed except for minor items or defects which can be completed or remedied without causing substantial interference with Tenant's use of the Premises. 41

 
(e) Warranty. For purposes of this Addendum Section, the "New Roof Membrane Completion Date" shall mean the date Landlord completes the installation of the New Roof Membrane, the "Landlord HVAC Units Completion Date" shall mean the date Landlord completes the installation of the Landlord HVAC Units and the "Landlord Boilers Completion Date" shall mean the date Landlord completes the installation of the Landlord Boilers. The New Roof Membrane Completion Date, the Landlord HVAC Units Completion Date and the Landlord Boilers Completion Date are hereinafter collectively referred to as the "Completion Dates". Landlord represents and warrants to Tenant (collectively, the "Warranties" and individually a "Warranty") that {i) on the New Roof Membrane Completion Date the New Roof Membrane will in good working order and condition, (ii) on the Landlord HVAC Units Completion Date, the Landlord HVAC Units will in good working order and condition and (iii) on the Landlord Boilers Completion Date, the Landlord Boilers will in good working order and condition. In the event that it is determined that a Warranty is untrue, Landlord shall not be in default under the Lease if after Landlord receives written notice of the untrue Warranty, Landlord promptly takes the ac#ions, at Landlord's sole expense, necessary to put the New Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable, in good operating order, and such costs shall not be deducted from the Improvement Allowance (as defined in the Work Letter Agreement). The foregoing Warranties shall apply only to the condition of the New Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable, between the applicable Completion Date and the date that is one hundred eighty (180) days after the applicable Completion Date (the "Warranty Period"), and shall not apply to any point in time after the last day of the applicable Warranty Period. Tenant may notify Landlord in writing (the "Warranty Notice") at any time during the applicable Warranty Period, time being of the essence, (the "Notice Date") of each way, if any, that a Warranty is untrue during the applicable Warranty Period (an "Untrue Warranty"). The Warranty Notice shall state the specific way in which the New Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable, were not in good operating order during the applicable Warranty Period. Landlord shall have no responsibility to make a repair based on this Addendum Section unless Tenant notifies Landlord on or before the last day of the applicable Warranty Period in a Warranty Notice of the Untrue Warranty, and if Tenant notifies Landlord that the New Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable, were not in good operating order after the last day of the applicable Warranty Period, Landlord shall have no obligation pursuant fo this Addendum Section to repair the IVew Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable. Notwithstanding the forgoing, Landlord shall have no obligation pursuant to this Addendum Section to repair the New Roof Membrane, the Landlord HVAC Units or the Landlord Boilers, as applicable, if the repair is necessitated by the negligence or misuse of Tenant or by the construction by Tenant, its agents and contractors of the Improvements (as defined in the Work Letter Agreement). 2. Buiidinq Sign and Monument Sign. Subject to the following terms and conditions, Landlord shall permit Tenant to install, at Tenant's sole cost and expense, two (2) exterior building signs containing Tenants name and logo on the Building (the "Building Signs") and to place its name and logo on the existing monument sign at the Premises (the "Monument Sign"): (a) The Building Signs shall be similar to the sign shown on the sign specifications designated on Exhibit 3 attached hereto and incorporated herein by reference (the "Sign Specifications"). Landlord shall not unreasonably withhold its consent to modifications of the Sign Specifications; (b) The cost of designing, fabricating, installing and obtaining governmental approvals for the Building Signs shall be paid by Tenant, at Tenant's sole cost and expense. Landlord shall have the right to reasonably approve the contractor that installs the Building Signs and the contractor shall comply with ail of Landlord's policies and procedures relating to construction performed at the Premises (e.g., insurance, safety etc.); (c) Tenant shall maintain the Building Signs and the Monument Sign in good order and repair, at Tenants sole cost and expense; (d) Tenant's right to install the Building Signs and to place its name on the Monument Sign is subject to Tenant obtaining all required governmental approvals and permits for the installation of the Building Signs and to place its name on the Monument Sign, and Tenant's compliance with the terms and conditions of any covenants, conditions or restrictions applicable to the Building Signs and the Monument Sign. Landlord makes no representation or warranty that Tenant will be able to obtain the required approvals and permits for the installation of the Building Signs or to place its name on the Monument Sign, and Tenant's obligations under this Lease are not conditioned upon Tenants ability to obtain the approvals and permits or upon Tenant's ability to install the Building Signs or any other sign or to place its name on the Monument Sign; (e) Any material modification of the Building Signs or the Monument Sign shall be considered to be an "Alteration" within the meaning of Section 12.1 of the Lease, and shall be governed by the provisions thereof; and (~ Upon the termination or expiration of the Lease term, Tenant shall, at Tenant's sole cost and expense (i) remove the Building Signs and repair any damage to the Premises caused by the initial installation of the Building Signs and its removal and (ii) remove its name from the Monument Sign and repair any damages caused by such removal. 42

 
3. Additi~nai Sians. Tenant shall have the right to place additional signs on the Building containing Tenant's name (the "Additional Signs"}, and Landlord shall not unreasonably withhold, condition or delay its consent to Additional Signs. Sections 2(b)-(~ of this Addendum shall apply to the Additional Signs, 4. Option to Extend. Landlord hereby grants to Tenant the option to extend the term of the Lease for one (1) five (5)-year period (the "Extension Option") commencing when the initial lease term expires upon each and all of the following terms and conditions: (a) On a date which is prior to the date that the option period would commence (if exercised) by at least three hundred sixty (360) days and not more than four hundred fifty (450) days, Landlord shall have received from Tenant a written notice of the exercise of the option to extend the Lease for said additional term (an "Exercise Notice"), time being of the essence. If the Exercise Notice is not so given and received, the Extension Option shall automatically expire, Tenant shall no longer have the right to give an Exercise No#ice and this section shall be of no further force or effect. Tenant shall give the Exercise Notice using certified mail return receipt requested or some other method where the person delivering the package containing the Exercise Notice obtains a signature of the person accepting the package containing the Exercise Notice (e.g., by FedEx with the requirement that the Fed Ex delivery person obtain a signature from the person accepting the package). (b) All of the terms and conditions of the Lease except where specifically modified by this section shall apply:: (c) The monthly Base Rent payable during the option term shall be the Market Rate on the date the option term commences. (d) The term "Market Rate" shall mean the annual amount per rentable square foot that a willing, comparable renewal tenant would pay and a willing, comparable landlord of a similar building would accept at arm's length for similar space, giving appropriate consideration to the following matters: (i) annual rental rates per rentable square foot; (ii) the type of escalation clauses (including, but without limitation, operating expense, real estate taxes, and CPI) and the extent of liability under the escalation clauses i.e., whether determined on a "net lease" basis or by increases over a particular base year or base dollar amount); (iii) rent abatement provisions reflecting free rent and/or no rent during the lease term; (iv) length of lease term; (v) size and location of premises being leased; (vi) tenant improvement allowances being provided by similar landlord's to similar renewal tenants and (vii) other generally applicable terms and conditions of tenancy for similar space. The Market Rate may also designate periodic rental increases and similar economic adjustments. (e) If Tenant exercises the Extension Option, Landlord shall determine the Market Rate by using its good faith judgment. Landlord shall provide Tenant with written notice of such amount on or before the date that is two hundred seventy (270) days prior to the date that the term of the Extension Option will commence. Tenant shall have fifteen (15) days ("Tenants Review Period") after receipt of Landlord's notice of the new rental within which to accept such rental. In the event Tenant fails to accept in writing such rental proposal by Landlord, then such proposal shall be deemed rejected, and Landlord and Tenant shall attempt to agree upon such Market Rate, using their best good faith efforts. If Landlord and Tenant fail to reach agreement within fifteen (15) days following Tenants Review Period ("Outside Agreement Date"), then each party shall place in a separate sealed envelope their final proposal as to the Market Rate, and such determination shall be submitted to arbitration in accordance with subsections {i) through (v) below. (i) Landlord and Tenant shall meet with each other within five {5) business days after the Outside Agreement Date and exchange their sealed envelopes and then open such envelopes in each other's presence. If Landlord and Tenant do not mutually agree upon the Market Rate within one (1) business day of the exchange and opening of envelopes, then, within ten {10) business days of the exchange and opening of envelopes, Landlord and Tenant shall agree upon and jointly appoint a single arbitrator who shall by profession be a real estate broker or agent who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of similar buildings in the geographical area of the Premises. Neither Landlord nor Tenant shall consult with such broker or agent as to his or her opinion as to the Market Rate prior to the appointment. The determination of the arbitrator shall be limited solely to the issue of whether Landlord's or Tenant's submitted Market Rate for the Premises is the closest to the actual Market Rafe for the Premises as determined by the arbitrator, taking into account the requirements for determining Market Rate set forth herein. Such arbitrator may hold such hearings and require such briefs as the arbitrator, in his or her sole discretion, determines is necessary. In addition, Landlord or Tenant may submit to the arbitrator with a copy to the other party within five (5) business days after the appointment of the arbitrator any market data and additional inforrnation such party deems relevant to the determination of the Market Rate ("MR Data"), and the other party may submit a reply in writing within five (5) business days after receipt of such MR Data. (ii) The arbitrator shall, within thirty (30) days of his or her appointment, reach a decision as to whether the parties shall use Landlord's or Tenants submitted Market Rate and shall notify Landlord and Tenant of such determination. 43

 
(iii) The decision of the arbitrator shall be final and binding upon Landlord and Tenant. (iv) If Landlord and Tenant fail to agree upon and appoint an arbitrator, then the appointment of the arbitrator shall be made by the presiding judge of the Superior Court for the county in which the Premises is located, or, if he or she refuses to act, by any judge having jurisdiction over the parties. (v) The cost of the arbitration shall be paid by Landlord and Tenant equally. (vi) Landlord shall have the right to require Tenant to execute and to deliver to Landlord an amendment to the Lease that accurately sets forth the extended term of the Lease and the new Base Rent and other economic terms, if any. Within ten (1D) days after Landlord provides the amendment to Tenant, Tenant shall execute the amendment and deliver the amendment to Landlord. Landlord's election not to require Tenant to execute an amendment shall not invalidate Tenants exercise of the Extension Option. 5. Antenna Equipment. Tenant shall have the right to use a portion of the root of the Building to install, operate and maintain one antenna or one microwave dish (the, "Antenna Equipment'). The Antenna Equipment shall be installed, maintained, operated and removed at Tenant's sole cost and expense. The Antenna Equipment shall be located in an area of the roof proposed by Tenant and approved by Landlord, in Landlord's reasonable discretion. The Antenna Equipment shall be used by Tenant to send and receive radio signals for use in Tenant's business operations at the Premises, and Tenant shall not have the right to permit third parties unrelated to Tenant to use or install Antenna Equipment (e.g., telephone companies). Tenants use of the Antenna Equipment shall be subject to receipt by Tenant of all required governmental approvals and shall not interfere with the building systems. Landlord makes no representation or warranty to Tenant that it will be able to obtain permits and approvals required for the installation of the Antenna Equipment, and Tenant's obligations under this Lease are not continent or conditioned upon its ability to install or operate the Antenna Equipment. Tenant shall pay for any damage or wear and tear to the roof caused by the installation, repair, operation and removal of the Antenna Equipment. Tenant acknowledges that Landlord may decide, in its sole discretion, from time to time, to repair or replace the roof of a Building (hereinafter "Roof Repairs"). If Landlord elects to make Roof Repairs, Tenant shall, upon Landlord's request, temporarily remove the Antenna Equipment so that the Roof Repairs may be completed. The cost of removing and reinstalling the Antenna Equipment shall be paid by Tenant, at Tenants sole cost and expense. Landlord shall not be liable to Tenant for any damages, lost profits or other costs or expenses incurred by Tenant as the result of the Roof Repairs. On the termination of this Agreement, Tenant shall remove the Antenna Equipment and all associated cabling and repair any damages caused thereby, at Tenants sole cost and expense. Any repairs to the roof shad be performed by a contractor designated by Landlord, and paid for by Tenant. For purposes of Section 18 of the Lease, all equipment installed by Tenant on the roof of a Building and Tenants use of the equipment shall be considered a use of the Premises, 6. Certain Subleases. Tenant has requested that Landlord agree to permit Tenant to sublease up to twenty-five percent (25%) of the leasable area of the Building to one or more subtenants without the prior consent of Landlord. Landlord has agreed to permit Tenant to sublease up to twenty-five percent (25%) of the leasable area of the Building to one or more subtenants without Landlord's consent on the following terms and conditions; (a) Tenant may sublease not more than twenty-five percent {25%) of the leasable area of the Building to one or more subtenants without Landlord's consent (the "Permitted Subtenants"). The Permitted Subtenants shall not occupy collectively more than twenty-five percent (25%) of the leasable area of the Building. Each Permitted Subtenant shall enter into a written sublease (a "Permitted Sublease") with Tenant prior to occupying any part of the Premises, and the area occupied by a Permitted Subtenant is hereinafter referred to as "Subleased Premises". A copy of the Permitted Sublease shall be delivered to Landlord prior to the Permitted Subtenant occupying the Subleased Premises. Tenant must at all times be occupying not less than fifty percent (50°/o) the Premises during the term of a Permitted Sublease. (b) Pursuant to each Permitted Sublease, the Permitted Subtenant shall expressly assume, for the express beneft of Landlord, all of the indemnity and insurance obligations of the Tenant under the Lease with respect to the Subleased Premises, provided that the foregoing shall not be construed as relieving or releasing Tenant from any such obligations. (c) Nothing contained in the Permitted Sublease shall be construed as relieving or releasing Tenant from any of its obligations under the Lease, it being expressly understood and agreed that Tenant shall remain liable for such obligations notwithstanding anything contained in the Permitted Sublease. Tenant shall be responsible for the perforrnance of all the terms and conditions of the Permitted Sublease, it being understood that Landlord is not a party to the Permitted Sublease and, notwithstanding anything to the contrary contained in the Permitted Sublease, is not bound by any terms, provisions, representations or warranties contained in the Permitted Sublease and is not obligated to Tenant or Subtenant for any of the duties and obligations contained therein. A Permitted Sublease shall be subject and subordinate to the terms of the Lease. The Permitted Sublease shall expressly provide that a Subtenant shall have no rights or clams against Landlord based on the Permitted Sublease. 44

 
7. Driveway. Tenant currently leases the two buildings (including aU associated parking areas) that are adjacent to the Premises (the "Adjacent Buildings"). The Adjacent Buildings are located at 2315 and 2345 North First Street, San Jose, California. The parking areas of the Premises and the parking areas of the Adjacent buildings are separated by a strip of landscaping and Tenant has requested that it be permitted to create one driveway opening that is approximately twenty (20) feet wide at some location along this strip of landscaping to connect the parking areas of the Premises and the parking areas of the Adjacent Buildings (the "Driveway"). Tenants obligations under the Lease are not conditioned or contingent upon Tenant's ability to install the Driveway. Landlord hereby consents to the creation of the Driveway subject to the following terms and conditions: (a) Prior to installing the Driveway, Tenant shall obtain all required governmental permits and approvals (collectively, "Permits"), and Landlord shall have the right to approve the Permits and any condi#ions imposed by applicable governmental agencies in connection with the Permits in Landlord's reasonable discretion. (b) Prior to installing the Driveway, Tenant shall obtain approvals from any other person or entity affected by the Driveway (e.g., utility companies), and the approvals and any conditions associated with the approvals shall be acceptable to Landlord in Landlord's reasonable discretion. (c) As a condition to Tenants right to install the Driveway, any lender with a lien encumbering the Premises or the Adjacent Property shall consent to the installation of the Driveway, and shall agree to subordinate the lien of its deed of trust to the Driveway Agreement (as defined below). Landlord makes no representation or warranty to Tenant that the lenders) will consent to the Driveway. (d) Prior to installing the Driveway, Landlord, Tenant and the owner of the Adjacent Building shall enter into a written agreement that governs the use, maintenance, repair and removal of the Driveway, and liability associated with the use of the Driveway {the "Driveway Agreement"). At Landlord's option, the Driveway Agreement shall be recorded so as to encumber title to the Premises and the Adjoining Properties. All of the terms and conditions of the Driveway Agreement shall be acceptable to Landlord in its reasonable discretion. The Driveway Agreement shall require Tenant, at Landlord's option, to remove the Driveway and to restore the landscaping strip to its original condition (the "Restorations") on the first to occur of (i) Tenant not leasing all of the Adjacent Buildings and (ii) Tenant not leasing ail of the Premises. The Restorations shall be completed by Tenant at Tenants sole cost and expense, and shall be completed to Landlord's reasonable satisfaction. If any lender subordination is required, Tenant shall be obligated to obtain the lender subordination at Tenant's sole cost and expense. (e) Landlord shall have the right to approve the location of the Driveway, in Landlord's reasonable discretion. (~ The Driveway shall have an asphalt surface and shall be connected to the asphalt surfaces of the parking areas of the Premises and the Adjacent Buildings in a manner and using materials approved by Landlord in its reasonable discretion. (g) Tenant shall pay all costs and expenses associated with the installation, maintenance, repair and removal of the Driveway at Tenant's sole cost and expense, and Landlord shall have no obligation to incur any cost, expense or liability in connection with the installation, maintenance, repair and removal of the Driveway. (h) Tenant shall reimburse Landlord for any costs it incurs in connection with the approval of the Driveway, the preparation of the Driveway Agreement and the preparation and approval of any other agreements or documents. Byway of example and not limitation, Tenant shall reimburse Landlord for all attorneys fees it incurs in evaluating and approving the Driveway (including, but not limited to, attorneys fees incurred in the negotiation and preparation of the Driveway Agreement and in obtaining the approvals of any lender), permit costs, engineering fees, increased taxes and utility charges. Tenant shall reimburse landlord for the Landlord Costs within thirty {30) days after Landlord provides Tenant with reasonable evidence of such costs and requests reimbursement. (i) Landlord shall have the right to require that Tenant obtain a survey establishing the exact location of the Driveway, at Tenants sole cost and expense. (j) Tenant shall construct the Driveway in a good and workmanlike manner, in compliance with all Permits and other laws and in compliance with any other agreements applicable to the Driveway, at Tenant's sole cost and expense. Section 12 of the Lease shall apply to the construction of the Driveway, and if there is a conflict between Section 12 of the Lease and this Addendum section, this Addendum section shall control. 8. Underground Telecommunications Conduit. Tenant has requested that it be permitted to install, operate and maintain underground telecommunications conduit containing telecommunications cabling between the Premises and the Adjacent Buildings (the "Telecom Conduit"). Tenant's obligations under the Lease are not conditioned or contingent upon 45

 
Tenant's ability to install the Telecom Conduit. Landlord hereby consents to the installation of the Telecom Conduit on the Premises subject to the following terms and conditions: (a) Prior to installing the Telecom Conduit, Tenant shall obtain all required governmental permits and approvals (collectively, "Conduit Permits"), and Landlord shall have the right to approve the Conduit Permits and any conditions imposed by applicable governmental agencies in connection with the Conduit Permits in Landlord's reasonable discretion. (b) Prior to installing the Telecom Conduit, Tenant shall obtain approvals from any other person or entity affected by the Telecom Conduit (e.g., utility companies), and the approvals and any conditions associated with the approvals shall be acceptable to Landlord in Landlord's reasonable discretion. {c) Landlord shall have the right to approve the location of the Telecom Conduits, in Landlord's reasonable discretion. (d) Any trenching and replacement of asphalt, concrete or landscaping shall be accomplished using materials and in a manner approved by Landlord in its reasonable discretion. (e) Tenant shall pay all costs and expenses associated with the installation, maintenance, repair and removal of the Telecom Conduit at Tenants sole cost and expense, and Landlord shall have no obligation to incur any cost, expense or liability in connection with the installation, maintenance, repair and removal of the Telecom Conduit. (fl Tenant shall reimburse Landlord for any costs it incurs in connection with the approval of the Telecom Conduit (e.g., engineering fees etc.). (g) Landlord shall have the right to require that Tenant obtain a survey establishing the exact location of the Telecom Conduit, at Tenants sole cost and expense. (h) Tenant shall construct the Telecom Conduits in a good and workmanlike manner, in compliance with all Conduit Permits and other laws and in compliance with any other agreements applicable to the Telecom Conduit, at Tenant's sole cost and expense. Section 12 of the Lease shall apply to the construction of the Telecom Conduit, and if there is a conflict between Section 12 of the Lease and this Addendum section, this Addendum section shall control. (i) The Telecom Conduits shall be used solely for Tenants business operations at the Premises and the Adjacent Buildings and shall not be used by any third parties. After the term of the Lease ends, Tenant shall no longer have the right to use the Telecom Conduits for any purpose. 9. Replacemeni'of Prior Lease. On January 31, 2017, Landlord and Tenant executed and delivered an earlier version of this Lease (the "Prior Lease"). This Lease supersedes and replaces the Prior Lease, and from and after the execution and delivery of this Lease, the Prior Lease shall be of no force or effect. (Remainder of page left intentionally blank.] 46

 
IN WITNESS WHEREOF, the parties hereto have respectively executed this Addendum. LANDLORD:: The Realty Associates Fund IX, L.P., a Delaware limited partnership By: Realty Associates- Fund IX LLC, a Massachusetts limited liability company, its general partner By: TA Realty, LLC, a Massachusetts limit ility company, its manager By: Officer By: Realty Associates nd as Corporation,. REIT General Panne i- BY: O~cer TENANT: Cavium, Inc., a Delaware c 'i~. _. By: -- SVP ~t ~al~Ri'~~ ~O~i/'1 lts: (print title) By. .~rc~.a ~`~-' (print name) its: ~'~"~' (print title) 47

 
Exhibit 1 to Addendum to Lease ~r W.s __r.~ Greenheck Exhaust Fan 05L18350 Aayon Make Up Air Unit 200601-BNVW00252 Vaporstream Humidifier 1137924-01-01-CC Trane 10-ton Condensing Unit 5512S9GAD Trane 20-ton Condensing Unit R111SMYAH Mitsubishi Condensing Unit M/N - PU12K1 Utility Exhaust Fan #21 Utility Exhaust Fan #22 Utility Exhaust Fan #23 Utility Exhaust Fan #14

 
Exhibit 2 to Addendum to Lease (Description of HVAC Units and Boilers to be Removed and Description of New Replacement HVAC Units and Boilers to be Installed) Existing Equipmen# ~~ ..~.\ •. h. ]S K I ~ ~~ 1~~~ "I. e .-' 1 G n F ~M~,Av vi..r:~i~1~~mv pd~3~."- - ~(~:~i51S1'4. .,c,~r uw4.~ AC-1 TRANE ^3 A/C UNIT 105 ton tl AG2 TRANE A/C UNIT ': 70 ton ' AC-3 TRANE 1 A/C UNIT 50 ton AC-4 ~ TRANE ~ A/C UNIT 70 ton AC-5 TRANE A/C UNIT ( 35 ton .~ ~_~._r.. ~_. AC-6 ~ ~ TRANE ' ~ A/C UNIT a 35 ton B-1 TELEDYNE BOILER 1.43 million BTUH B-2 TELEDYNE BOILER 1.43 million BTUH Replacement Equipment AC-1 TBD A/C UNIT 105 ton AG2 T8D A/C UNIT 70 ton AC-3 T8D A/C UNIT 50 ton AC-4 TBQ A/C UNIT 70 ton AC-5 TBD A/C UNIT 35 ton AC-6 TBD A/C UNIT 35 ton B-1 TBD BOILER 1.43 million BTUH B-2 TBD BOILER 1.43 million BTUH 49

 
Exhibit 3 to Addendum to Lease (Building Sign Specifications) gp~ ~. _ _ ._... -ice _,......._,_, _,..._...._.~._ _ _ _ _. _ _. , . ____ .: f . ~ 7' 7 5116' ~~~~ ~~~~I~~~ I~~~ 3' 0.0• f v~<n..~w i^a.'~,..n o~vnrmdm.a~e.w..n~s•a~ cq.w~.:aua~t~,a ~r°a'..~xan'+~-V*r~ tw~nuu» wAiaKgltuaavxatM[ ~~tMtMpi~rt (.4Gk~ L6IX.~Hn~ SYdnEI BuildangSEgn£{awcion stbnnre:. .~ IOS¢crafooc ... 50

 
FXATRTT R BILL OF SALE For good and valuable consideration, the receipt and sufficiency of whicl~ are hereby acknowledged, MARVELL SEMICONDUCTOR INC., a California corporation ("Seller") does hereby grant, bargain, sell, transfer, set over, assign, convey and deliver to A10 NETWORKS, INC., a Delaware corporation ("Buyer"), all of the cubicles, office and conference room furniture, soft seating, racking equipment and other furniture and equipment owned by Seller that is located within the Premises subleased by Seller to Buyer pursuant to that certain Sublease dated as of , 2019, as of the expiration or earlier termination of such Sublease, and more particularly listed on Schedule 1 attached hereto (tlie "Existing Furniture"). BUYER ACKNOWLEDGES THAT SELLER IS SELLING AND BUYER IS PURCHASING SUCH EXISTING FURNITURE ON AN "AS IS WITH ALL FAULTS" BASIS AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, EMPLOYEES OR BROKER. AS TO AN MATTERS CONCERNING SUCH EXISTING FURNITURE. WITH RESPECT TO ALL MATTERS TRANSFERRED HEREUNDER, SELLER EXPRESSLY DISCLAIMS A WARRANTY OF MERCHANTABILITY AND WARRANTY FOR FITNESS FOR A PARTICULAR USE OR ANY OTHER WARRANTY EXPRESSED OR IMPLIED THAT MAY ARISE BY OPERATION OF LAW OR UNDER THE UNIFORM COMMERCIAL CODE FOR THE STATE OF CALIFORNIA (OR ANY OTHER STATE). This Bill of Sale shall be binding upon and inure to the benefit of the successors and permitted assigns of Buyer and Seller. This Bill of Sale shall be governed by, interpreted under, and construed and enforceable in accordance with, the laws of the State of Califori7ia. [Re»~ainder of page intej~tionally left blank.] 4823-0652-5588v4 SLF118332013

 
1N WITNESS WHEREOF, tl~e undersigned has executed this Bill of Sale as of tine day and year written below. SELLER: MARVELL SEMICONDUCTOR, INC., a California corpot~ation By: Name: Title: 4823-0652-5588v4 S1F118332013

 
SCHEDULE 1 TO BILL OF SALE LIST OF EXISTING FURNITURE 4823-0652-5588v4 SLF118332013

 
EXHIBIT C WORK LETTER This Exhibit C is attached to and made a part of the Sublease by and between MARVELL SEMICONDUCTOR, INC., a California corporation ("Sublandlord"), and A10 NETWORKS, INC., a Delaware corporation ("Subtenant") dated as of April _, 2019 (the "Sublease") for the Premises (as defined and more particularly described in Section 2.1 of the Lease referred to in tl~e aforesaid Sublease (the "Lease") and depicted on Exhibit A attached to the Lease, consisting of the Building (as defined in the Lease), the approximate leasable area of which is one hundred sixteen thousand three hundred eighty-one (116,381) square feet and the other areas depicted on Exhibit A attached to the Lease. Capitalized terms not othet•wise defined herein shall have the meaning set forth in the Sublease refen-ed to above. 1. CONSTRUCTION DRAWINGS FOR THE INITIAL IMPROVEMENTS. 1.1 Submittal and Approval of Plans. Sublandlord shall construct, or cause to be constructed, improvements in the Premises (the "Initial Improvements") in conformance with the Approved Final Plans approved by Sublandlord and Subtenant and developed pursuant to this Paragraph 1.1 (including, if identified in the Approved Final Plans, Subtenant's fixtures, work-stations, built-in furniture or equipment, including cabling) and in accordance with fllis Work Letter and otherwise in conformance with the direction and instruction of Subtena~zt. Sublandlord and Subtenant hereby approve the Initial Irnprovements identified on that certain Scope of Work dated April 22, 2019 and delivered to Sublandlord on or before the date of the Sublease (the "Approved Preliminary Scope"). Subtenant shall promptly deliver to Sublaudlord, information in addition to the Approved Preliminary Scope, sufficient to allow Sublandlord to develop, or cause to be developed, preliminary plans and specifications for the Initial Improvements. Sublandlord shall promptly cause the preparation of such prelimii~aiy plans and specifications and Sublandlord shall deliver such preliminary plans and specifications to Subtenant. Following delivery to Subtenant of such preliminary plans and specifications, Subtenant shall promptly review them and either (i) approve them, which approval shall not be unreasonably withheld, conditioned or delayed or (ii) specify in writing its objections to such preliminary plans and specifications, and all changes that must be made to such preliminary plans and specifications to satisfy such objections. If Subtenant does deliver such written objections within such time period, then the parties shall confer and use their best efforts to resolve such objections by Subtenant promptly after• Sublandlord has received notice thereof. As soon as tl~e preliminary plans and specifications are approved by both Sublandlord and Subtenant, Sublandlord shall cause to be prepared final plans and specifications and working drawings ("Final Plans") for the Initial Improvements, as well as an estimate of the total cost for the Initial Improvements ("Cost Estimate"), all of which final plans and specifications and working drawings are consistent with and are logical evolutions of the preliminary plans and specifications approved by the parties. Subtenant acknowledges that the Cost Estimate is an estimate only and does not limit Subtenant's obligation to pay all costs of desig►~ing, permitting and constructing tl~e Initial Improvements as provided in Paragraph 2 below. Following delivery to Subtenant of such Final Plans and Cost Estimate, Subtenant shall promptly review them and either (i) approve them, which approval shall not be ~inreasonably withheld, conditioned or delayed or (ii) specify in writing its objections to such Final Plans and Cost Estimate, aid all changes that must be made to such Final Plans and Cost Estimate to satisfy suc11 objections. If Subtenant does deliver such written objections within such tinge period, then the parties shall confer and use their best efforts to resolve such objections by Subtenant promptly after Sublandlord has received notice thereof. 1 4823-0652-5588v4 SLF118332013

 
As soon as the Final Plans are approved by Subte~iant, Sublandlord shall submit tl~e same to the Landlord for its approval to the extent such approval is required under Section 12.1 of the Lease. Following Landlord and Subtenant's (and Landlord's to the extent required under the Lease) approval of the Final Plans, four (4) copies of such Final Plans shall be i»itialed and dated by Sublandlord and Subtenant, and Sublandlord shall submit such Final Plans to all appropriate governmental agencies for approval Immediately after all such governmental approvals have been obtained, the Final Plans so approved (including any governmentally required changes), and all change orders specifically permitted by this Work Letter, are referred to herein as the "Approved Final Plans" and shall become part of this Sublease as though set forth in full. Sublandlord shall cause the Initial Improvements to be constructed in a good workmanlike manner, free of defects and using new materials and equipment of good quality and in accordance with all rules, regulations, codes, ordinances, statutes, and laws of any governmental or quasi-governmental authority and in accordance with the Approved Final Plans, as amended. Sublandlord shall not construct or install any improvements that are not shown on the Fi»al Plans unless Subtenant requests and Sublandlord approves the same pursuant to Paragraph 1.2 below. Consh•uction of the Initial Improvements shall be performed by Sublandlord on an "open-book" basis atld Subtenant shall have access to all books, records, invoices, plans, specifications, contracts and notices in com7ection with such construction. Without limiting the foregoing, upon approval of the cost of the Initial Improvements and selection of the general contractor and other Construction Consultants (defined below), Sublandlord shall enter into a Guaranteed Maximum Price (GMP) construction contract for the Initial Improvements with the general contractor selected by Subtenant and approved by Sublandlord in the amount of approved Cost Estimate; provided, however, that Sublandlord will only enter into such GMP construction contract as provided above if the general contractor selected by Subtenant and approved by Sublandlord will also execute such GMP construction contract. Sublandlord shall use reasonable efforts, at Subtenant's request and direction, to cause the Initial Improvements to be performed in accordance with the provisions of such approved GMP construction contract. 1.2 Requested Changes. Subtenant shall make no changes or modifications to the Approved Final Plans without the prior written consent of Sublandlord, which consent shall not be unreasonably withheld, conditioned or delayed. All such requests for changes and consent shall be subject to the procedures set forth in Paragraph 5 hereof. 2. COST OF INITIAL IMPROVEMENTS. Notwithstanding the Cost Estimate, Subtenant shall bear all costs of designing, permitting and constructing the Initial Improvements, including, without ]imitation, the Improvement Costs (as defined in Paragraph 2(a) below). Tl~e term "Improvement Costs" shall mean and include all of the following: (i) All "lard" construction costs for the construction of the Initial Improvements according to tl~e Approved Final Plans and all approved changes thereto, including, btiit not limited to: (A) All labor costs, including, without limitation, the cost of a project manager to be hired by Sublandlord; it being understood and agreed that Sublandlord shall lire a third- party project manager selected by Subtenant and reasonably approved by Sublandlord to oversee the construction of tl~e Initial Improvements , (B) Costs of all materials and supplies; (C) Contract price for all construction work undertaken by general contractors and sub-contractors including, without limitation, the amow~t required to be paid to the general contractor selected by Sublandlord to construct the Initial Irnprovements as set forth in such 2 4823-0652-5588v4 SLF118332013

 
general contractor's approved bid and any other actual costs and charges foi- material and labor, contractor's profit and general overhead incurred by Sublandlord for the Initial Improvements. (D) Fees, taxes or other charges levied by governmental or quasi- governmental agencies (including public utilities) in comlection with the issuance of all authorizations, approvals, licenses, and permits necessary to undertake construction of the Initial Improvements; (E) The cost of all equipment and fixtures provided for in the Approved Final Plans, including the cost of installation; (F) The cost of all concrete, welding, survey and other testing expenses; (G) The cost of premiums for surety bonds, i~ any, including but not limited to payment and performance bonds and mechanics' lien bonds, but only if such bonds ai~e required by Subtenant or by Landlord pursuant to the Lease; and (H) The cost of installing standard utility services (i.e., standard HVAC controls and distribution facilities; standard electrical panels, distribution facilities, wiring, fixtures, switches and receptacles) and special utility services (i.e., services other than those specified above). (ii) All "soft" construction costs directly or indirectly related to the construction of the Initial Improvements including, but not limited to, the following: (A) Engineering, space planning and architectural fees for preparation of all plans, specifications and working drawings and processing of applications for all governmental authorizations, approvals, licenses and permits; (B) Fees of engineers, space plaimers, architects, and others providing professional or extra services in connection with the construction of the Initial Improvements (however, there shall be no fee for Sublandlord's supervision or inspection of construction of the Initial Improvements); and (C) City inspection fees, recording costs and filing fees. (iii) All costs and fees to be paid to Landlord by Sublandlord as Tenant under the Lease, in connection with the construction of the Initial Improvernents, including, without limitation, the Landlord's Fee referred to in Section 12.1 of the Lease, and all architectural, engineering or other consultant's fees incurred by Landlord, if any, its connection with evaluating the Initial Improvements, and the cost of any lien and completion bond that Landlord may require Sublandlord, as Tenant under the Lease, to provide to Landlord pursuant to Section 12.1 of the Lease. Prior to the commencement of construction of the Initial Improvements, Subtenant shall pay to Sublandlord in immediately available funds an amount equal to the estimated Improvement Costs (taking into consideration tl~e final bid price received by Sublandlord from the general contractor selected by Subtenant to construct the I~~itial Improvements (which general contractor shall be subject to the reasonable approval of Sublandlord (and approval of Landlord if required under the Lease)) as determined by Sublandlord in good faith (the "Initial Construction Funds"). Such payment of the Initial Construction Funds by Subtenant to Sublandlord shall occur after the amount of such Initial Construction Ftmds has been determined by Sublandlord and within five (5) business days following the date Sublandlord requests such Initial Construction Funds from Subtenant. Such Initial Construction Funds 3 4823-0652-5588v4 SLF118332013

 
received by Sublandlord from Subtenant pursuant to the terms immediately above shall be used by Sublandloi~d solely to pay for Improven~ei~t Costs incurred in connection with tl~e desig~l, permitting a~~d coi~st~~uction of tl~e Initial Improvements. If, following completion of the construction of the I»itial Impt~ovements, the total Improvement Costs incurred by Sublandlord in connection with the design, permitting and construction of the Initial Improvements exceed the Initial Construction Funds paid by Subtenant to Sublaudlord, Sl~blandlord shall promptly notify Subtenant in writing of tl~e a~r~ount of such shortfall (and if requested by Subtenant make available to Subtenant the invoices and statements evidencing the existence of such shortfall) and Subtenant shall pay to Sublandlord, within ten (10) business days following receipt of such written notice, in immediately available funds, the amount of such shortfall. If, following completion of the construction of the Initial Improvements, the total Improvement Costs incurred by Sublandlord in connection with the design, permitting and construction of the Initial Improvements are less than the Initial Construction Funds paid by Subtenant to Sublaudlord, then Sublandlord shall, at its election, either (x) credit such overpayment by Subtenant to the Base Rent payments next coming due under the Sublease (until fully credited) or (y) refund to Subtenant the amount of such overpayment. If this Sublease is terminated prior to completion of the construction of the I~iitial Improvements, all such Initial Construction Funds paid by Subtenant to Sublandlord remaining after application to the Improvement Costs incurred prior to such termination shall be promptly returned to Subtenant. 3. ACCEPTANCE OF PREMISES. 3.1 Substantial Completion. For purposes of the Lease and this Work Letter•, the Initial Improvements shall be deemed "Substantially Complete" (x) upon the completion of the Initial Improvements pursuant to the Approved Final Plans, with the exception of any punch list items approved by Sublandlord which do not prevent Subtenant from using the Premises for the Permitted Use, and (y) either the appropriate governmental approvals for occupancy of the Premises (which shall include, without limitation, a temporary certificate of occupancy or its equivalent) have been issued or all building permits issued with respect to such Initial Improvements have been signed off by the applicable building inspectors. 3.2 Acceptance of Premises. Subtenant shall have five (5) business days following the date Sublandlord notifies Subtenant that the Initial Improvements are substantially complete to inspect the same and to identify in writing any portion of the Initial Improvements still to be completed by Sublandlord (the "Punch List"). To the extent Sublandlord agrees with the items on the Punch List, which approval shall not be unreasonably withheld, Sublandlord shall cause such Punch List items to be diligently completed. 3.3 Removal of Initial Improvements. At the expiration or earlier termination of this Sublease, Subtenant stall be obligated, at its sole cost and expense, to remove any and all Initial Improvements designated for removal by Landlord pursuant to the terms of the Lease and Tenant shall promptly restore all damage, if any, caused by such removal. 4. ARCHITECT, CONTRACTORS. SUBCONTRACTORS AND ENGINEERS. Except as may be otherwise approved by Subtenant, all design, engineering and construction of the Initial Improvements shall be performed by architects, contractors, subcontractors and engineers ("Construction Agents") selected by Subtenant and reasonably approved by Sublandlord (and Landlord to the extent Landlord's approval is required under the Lease). The "Construction Agents" shall include a project manager selected by Subtenant and reasonably approved by Sublandlord. Sublandlord, together with Subtenant, shall have the right to control, instruct and direct the Constructio» Agents iii connection with 4 4823-0652-5588v4 SLF118332013

 
tl~e Initial Improvements and Subtenant and Sublandlord shall use commercially reasonable efforts to cooperate to cause the prompt completion of tl~e I»itial Improvements prior to tl~e Convnencement Date; however, i~eitl~er Sublandlord uor Subtenant wake any representation or warranty that tl~e Initial Improvement will be completed or substantially completed prior to the Commencement Date, or by any other specific date, and Sublandlord shall not be in default under tl~e Sublease or this Work Letter if the Initial Improvements are not completed or substantially completed by tl~e Commencement Date of the Sublease. 5. EXTRA WORK. 5.1 In General. Except as expressly approved in writing by Sublandlord pursuant to the provisions of this Paragraph 5, Sublandlord shall not be required to revise the Approved Final Plans or any portion of the Initial Improvements which have been constructed (all such additional or revised work is hereinafter collectively referred to herein as "Extra Work"). 5.2 Procedure. Any request by Subtenant for Extra Work which would require a change to the Final Approved Plans shall be accompanied by all necessary additional information as shall be required for Sublandlord to cause to be prepared revised plans for such Extra Work, which revised plans shall be prepared at Subtenant's expense. Sublandlord shall respond in writing to any request by Subtenant for the performance of Extra Work. Any approval of such request shall not be unreasonably withheld, conditioned or• delayed by Sublandlord and may, in Sublandlord's sole discretion, be conditioned upon any or all of the following: (i) payment by Subtenant, in advance, of all estimated costs of such Extra Work (includi~lg the cost of designing and constructing the Extra Work), which costs shall include any Landlord's Fee to be paid to Landlord in connection with the Extra Work, and (ii) the written acknowledgment by Subtenant of any additional time required to perform such Extra Work shall constitute a Subtenant Delay. If Subtenant shall fail to meet any such conditions precedent to the performance of Extra Work within three (3) business days following Sublandlord's notice to Subtenant of same, Sublandlord shall not be obligated to perform any portion thereof. 6. ENTRY MADE AT SUBTENANT'S SOLE RISK. 6.1 Subtenant's Entry into Premises Prior to Completion of Construction of Initial Improvements. Upon the prior written consent of Sublandlord (and Landlord) and at such times prior to the Commencement Date of the Sublease as are acceptable to Sublandlord in Sublandlord`s sole and absolute discretion, provided Subtenant has delivered to Sublandlord the Security Deposit and prepaid rent required to be paid under the Sublease and insurance certificates evidencing that Subtenant is maintaining the ii7surance required to be maintained under tl~e Sublease and under Paragraph 6.3 of this Work Letter below, Subtenant and its approved contractors shall have the right to enter the Premises during the construction of the Initial Improvements only to review the progress of the construction of the Initial Improvements for the purpose of coordinating Subtenant's move into the Premises. Any entry into the Premises by Subtenant, its agents, contractors, subcontractors, vendors and/or employees, during the construction of the Initial Improvements shall be at the sole risk of Subtenant, a»d Subtenant I~ereby releases Sublandlord, its agents, contractors, and employees, from any and all liability, cost, damage, lien, action, cause of action, judgment, expense, and claim for injury (including bodily injury, death, or property damage) (collectively "Claims") incurred or suffered by Subtenant in or about the Premises during the construction of the Initial I~nprove~nents. If Sublandlord reasonably determines that any such entry may interfere with or delay the completion of construction or installation of the Initial Improvements or interfere with Sublandlord's ability to obtain a certificate of occ~ipancy (or equivalent) for the Premises, then Sublandlord may in its discretion withhold its consent to airy such entry by 5 4823-0652-5588v4 S~F118332013

 
Subtenant. Prior to tl~e Commencement Date of tl~e Sublease, Sublai~dlord shall not charge Subtenant or any of Subtenant's agents or contractors foi• parking or any Operating Expenses or Real Property Taxes; however, if Tenant or any of its agents, employees, contractors, vendors, consultants or other representatives enter the Premises or any part thereof prior to the Commencement Date for the purpose of constructing tenant improvements or installing airy of Tenant's furniture, furnishings, fixtures and/or equipment, then, for those days during which such construction or installation is occurring, Subtenant shall be responsible for all utilities conswned on the Premises, security and other services, if any, furnished by Sublandlord to Subtenant or any of its agents, employees, contractors, vendors, consultants or other representatives in connection with such constt•uction of any such tenant improvements and/or installation of furniture, furnishings, fixtures and/or equipment. 6.2 Subtenant Indemnity. Subtenant hereby indemnifies, defends, and holds Sublandlord, its agents, contractors, and employees, harmless from and against any and all Claims, including attorneys' fees and costs, made against Sublandlord by any party, or incurred by Sublandlord, as a result of any entry into or inspection of the Premises (or the Initial Improvements) made by Subtenant, its agents, contractors, consultants, vendors, employees, or invitees, during the construction of the Initial Improvements. The obligations of Subtenant under the immediately preceding sentence shall survive the expiration or earlier termination of the Sublease and this Work Letter. 6.3 Insurance. If Subtenant or any of its agents, employees, contractors, vendors, consultants or other representatives constructs or installs any tenant improvements or furniture, furnishings, fixtures or equipment in or on the Premises, or any part thereof, prior to the Commencement Date, the Subtenant shall, at its sole expense, be responsible for the securing of insurance by the Subtenant's contractors, consultants and vendors entering onto the Premises and for the maintenance of same by the Subtenant's contractors, consultants and vendors until completion and final acceptance of the work. Certificates of Insurance affording evidence of same shall be obtained from the Subtenant's contractors, consultants and vendors by the Subtenant and delivered to the Sublandlord prior to the commencement of any work on or in the Premises or Building by the applicable Subtenant's contractors, consultants and/or vendors. The required insurance coverage is as follows: L Worker's Compensation Insurance and affording thirty (30) days written notice of cancellation to Sublandlord. 2. General Liability Insurance on an occurrence basis for an amount of $2,000,000 each occurrence and including the following coverage: a) Premises and Operations coverage. b) Owners and Contractors Protective coverage. c) Products and Completed Operations coverage. d) Blanket Contractual coverage, including both oral and written contracts. e) Personal Injury coverage. fl Broad Fonn Property Damage coverage, including completed operations. g) An endorsement naming Sublandlord as additional insured. h) An endorsement affording 30 days written notice to Sublandlord in event of cancellation or material reduction in coverage. i) Air endorsement providing that such insurance as is afforded under the policy of Subtenant's applicable contractors, consultants and vendors is primary ir7surance 6 4823-0652-5588v4 SLF118332013

 
as respects Sublandlord and that any other insurance maintained by Sublandlord is excess and noncontributing with tl~e insurance required hereunder. j) Insurance covering ACM, hazardous rnaterials, life-safety systems, sprinklers, OSHA, CAL-OSHA and the like. No endorseillent limiting or excluding a required coverage is permitted. CLAIMS-MADE COVERAGE IS NOT ACCEPTABLE. 3. Business Auto Liability Insurance for an amount of $1,000,000 combined single limit for bodily injury and/or property damage liability including: a) Owned Autos, b) Hired or Borrowed Autos, c) Nonowned Autos, and d) An endorsement affording 30 days written notice of cancellation to Sublandlord in event of cancellation or material reduction in coverage. A certificate and endorsements affording evidence of the above requirements must be delivered to Sublandlord before Subtenant's applicable contractor, consultant or vendor performs any work at or prepares or delivers materials to the Premises or Building or applicable part thereof. Subtenant shall require its general contractor to require its subcontractors to provide insurance where Subtenant's general contractor• would be required to carry insurance under this insurance section and to be responsible for obtaining the appropriate certificates or other evidence of insurance. Subtenant's contractors, consultants and vendors shall maintain all of the foregoing insurance coverage in force until the work under this Work Letter to be performed by Tenant or any of its contractors, consultants or vendors is fully completed and accepted except as to 2c, (Products and Completed Operation Coverage), which is to be maintained for one (1) year following completion of the work and acceptance by Sublandlord and Subtenant. All insurance, except Workers' Compensation, maintained by Subtenant's general contractor (and its subcontractors) and consultants and vendor's shall preclude subrogation claims by the insurer against anyone insured thereunder-. The requirements for• the foregoing insurance shall not derogate from the provisions for indemnification of Sublandlord by Subtenant under the "indemnity" provisions of Paragraph 6.2 above or Paragraph 9 below. If the Subtenant fails to secure and maintain the required insurance from Subtenant's contractors, consultants and/or vendors, as the case may be, Sublandlord shall have the right (without any obligation to do so, however) to secure same in the name and for the account of the Subtenant's applicable contractor, cons~iltant and/or vendor in which event the Subtenant shall pay the cost thereof and shall furnish upon demand, all information that may be required in connection therewith. Further, such failure to secure and maintain the required insurance shall constitute a default tinder the Sublease and Sliblandlord shall be entitled to imrnediately have all Initial Improvernents work cease. 6.4 Safety Rules. If Subtenant constructs or installs any tenant improvements in the Building, Subtenant and Subtenant's contractors shall abide by all safety and construction rules and 7 4823-0652-5588v4 SLF118332013

 
regulations of Sublaudlord, and all work and deliveries shall be scheduled tl~i-ough Sublandlord. All Subtenant's materials, work, installations and decorations of auy nature brought upon or installed in the Building and/or on the Premises, ar applicable part thereof, before tl~e Commencement Date of the Sublease shall be at Subtenant's risk, aild neither Subla~~dlord nor any party acting on Sublandlord's behalf shall be responsible for any damage thereto or loss or destructio» thereof Subtenant shall award its contracts and conduct its activities hereunder in a manner• consistent with Sublandlord's contractor's labor agreement affecting the Building. 6.5 Faulty Subtenant Work. Subtenant shall reimburse Sublandlord for any extra expenses incurred by Sublandlord by reason of faulty work done by Subtenant or its contractors, or by reason of delays caused by such work, or by reason of cleanup which fails to comply with Sublandlord's rules and regulations. 6.6 Si ns. Subtenant's contractors shall not post any signs other than those required by law in connection with the construction on any part of the Building or Premises. 6.7. Hiring of Contractors to be Approved by Sublandlord. If Subtenant elects to perform any work in the Premises pursuant to Paragraph 6 above prior to the Commencement Date (and Sublatldlord grants Subtenant and its contractors, in Sublandlord's sole and absolute discretion, access to the Premises prior to the Commencement Date), Subtenant shall not commence, or cause to be com~neuced, such work without the express prior written consent of Sublandlord, which consent may be given or withheld in Sublandlord's sole and absolute discretion. Subtenant's contractors' and subcontractors performing any such work referred to in the immediately preceding sentence shall be licensed in California and shall otherwise be subject to the prior written consent of Sublandlord (which consent shall not be unreasonably withheld). Sublandlord may require Subtenant to furnish a payment and performance bond for the performance of any work in or on the Building and/or- Premises prior to the Co~n~nencement Date and any such work undertaken by Subtenant in the Premises shall be subject to the supervision of Sublandlord's contractor. The foregoing requirements shall apply to all work performed in or on the Building and/or the Premises for tl~e benefit of Subtenant prior to delivery of possession of the Premises to Stiibtenant, including, but not limited to, installation of telephone equipment, electrical devices and attachments, and all installations (other than tl~e Initial Improvements) affecting floors, walls, woodwork, trim, windows, ceilings, equipment, or any other physical portion of tl~e Building. All materials, finishes and workmanship used in the construction by Subtenant or• Subtenant's contractors of any improvements in the Building shall be of a quality that is at least Btiiilding-standard. If Subtenant is to perform, or cause to be performed, any work in the Premises prior to the Commencement Date, Subtenant shall give Sublandlord at least ten (10) days prior written notice of the same. 6.8 No Warranty. Sublandlord's supervision and/or approval of any contractor selected by Subtenant or any contractor's work performed, oi• caused to be performed, by Subtenant shall not under any circumstances constitute a warranty or representation that such work was properly performed or designed or create any liability for payment for such work by Sublandlord. Rather, Subtenant acknowledges that such supervision by Sublandlord, regardless of whether Sublandlord earns a fee for same, is for the sole benefit of Sublandlord and the property wherein the Premises are located. 6.9. Subtenant's Liabilities. Sublandlord shall have no liability for any loss of or damage to any of Subtenant's or Subtenant's contractor's fixtures or property installed or left in or on the Building and/or the Premises, and Subtenant shall be fully responsible for same. Subtenant shall be responsible for the prompt removal of all rubbish and refuse left by Subtenant's contractors and by the delivery of Subtenant's personal property into the Building. Subtenant shall. be liable for the repair of any damage to 8 4823-0652-5588v4 SLF118332013

 
tl~e Initial Improvements to the extent such damage is caused by Subte»ant or any of its agents, employees, contractors, subcontractors or invitees during their entry into the Premises. 6.10 Release of Claims. Subtenant and Sublandlord acknowledge that Subtei7ant's employees may be operating in or occupying the Premises, or applicable part thereof, during the build out of the Initial In7provements; however, Subtenant agrees that its business operations and occupancy shall not interfere with or delay in any manner the commencement or completion of construction or installation of the Ii7itial Improveme»ts. Any occupancy or use of the Premises, or applicable part thereof, by Subtenant or any of its agents, employees, contractors, consultants, vendors, affiliates, licensees, sub-sublessees or invitees during tl~e constructio» or installation of the Initial Improvements shall be at the sole risk of Tenant, and Tenant hereby releases Sublandlord and its agents, employees, contractors and subcontractors from and against any and all claims, damages, liabilities, losses, actions, causes of action, demands, injuries, judgments, costs and expenses (including, without limitation, attorneys' fees and costs of suit) incurred or suffered by Subtenant in or about the Premises during or as a result of the construction or installation of the Initial Improvements. 7. DELAY. 7.1 Force Maieure Delays. The term "Force Majeure Delay" shall mean any delay in the completion of the Initial Improvements which is attributable to any: (1) delay or failure to perform attributable to any strike, lockout, or other labor or industrial disturbance, civil disturbance, judicial order, governmental rule or regulation, act of public enemy, war, riot, sabotage, blockade, embargo, inability to secure customary materials or' supplies; (2) delay attributable to inability to secure building permits and approvals; (3) delay in completing the construction of the Initial Improvements despite Sublandlord's diligent efforts to complete same, because of changes in any laws subsequent to the execution date hereof (including, without limitation, the Americans with Disabilities Act of 1990) or changes in the interpretation of any such law by the applicable building department; or (4) delay attributable to lightning, earthquake, fire, storm, hurricane, tornado, flood, washout, explosion, or any other cause beyond the reasonable control of Sublandlord. Notwithstanding any provisions of the Sublease to the contrary, any prevention, delay, or stoppage due to any Force Majeure Delay shall excuse Sublandlord's and Subtenant's performance under this Work Letter with respect to the completion of the Initial Improvemeirts for a period of time equal to any such prevention, delay, or stoppage, and Subtenant shall have no right to terminate this Lease as a result thereof For avoidance of doubt, the parties hereto agree that Force Majeure Delays shall not however excuse Subtenant from any of its monetary obligations under the Lease or under this Work Letter, including, without limitation, the obligation to pay Base Rent, Sublease Additional Rent or the Improvement Costs, nor shall any Force Majeure Delay excuse Subtenant of any of its indemnification obligations under this Work Letter. 8. REPRESENTATIONS AND WARRANTIES. 8.1 Sublancilord. Sublandlord's general contractor responsible for constructing or installing the I»itial Improvements shall warrant the Initial Improvements against defects in material ai d workmai~sl~ip for a period of twelve (12) months from the Substantial Completion of tl~e Initial Improvements in accordance with the construction contract approved by Sublandlord and Subtenant. Subtenant waives any claims against Sublandlord in tl~e event Sublaudlord's general contractor breaches or defaults under its warranty obligation referred to above. Subtenant agrees that Sublandlord shall not be liable for consequential damages arising as a result of any defect warranted hereunder. Sublandlord shall inform Subtenant of all written equipment warranties existing in favor of Sublandlord which affect any equipment inchided in the Initial Irnprovements. Sublandlord shall assign to Subtenant all warranties obtained in connection with the I»i~ial Improvements. SUBLANDLORD, MAKES NO EXPRESS OR 9 4823-0652-5588u4 SLF118332013

 
IMPLIED WARRANTY WITH RESPECT TO THE CONSTRUCTION OR OPERATION OF THE INITIAL IMPROVEMENTS INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF FITNESS FOR PURPOSE OR MERCHANTABILITY. 8.2 Subtenant. Subtenant acknowledges that it or its contractor or consultant will inspect the Approved Final Plans and Subtenant shall be fully satisfied that the Initial Improvements will satisfy Subtenant's purpose if such Initial Improvements are constructed in substantial accordance with such Approved Final Plans. Subtenant covenants that Subtenant will not pursue any action against Sublandlord if the Initial Improvements made in accordance with such Approved Final Plans fail to meet Subtenant's purpose. Sublandlord makes no warranty, express or implied, of fitness for purpose or merchantability, of auy equipment or fixtures included in the Initial Improvements. Subtenant acknowledges that Subtenant shall rely upon the manufacturer of such equipment or fixtures for any warranty with respect thereto. 9. INDEMNIFICATION. Subtenant shall, at Subtenant's expense, defend, indemnify, save and hold Sublandlord (and Landlord) and their respective agents, employees, contractors, officers, directors, members, partners, shareholders, successors and assigns harmless from any and all claims, demands, losses, actions, causes of action, liabilities, judgments, liens, injuries, damages (general, punitive or otherwise), causes of action (whether legal or equitable in nature), costs and expenses (including, without limitation, attorneys' fees and court costs) asserted by any person, firm, corporation, governmental body or agency, or entity arising out of, related to, or in connection with the design, permitting and/or construction of the Initial Improvements (and the costs of such Initial Improvements). Subtenant shall pay to Sublandlord upon demand all claims, judgments, damages, losses or expenses (including attorneys' fees) incurred by Sublandlord (or any of its agents, employees, contractors, members, partners, shareholders, officers, directors, successor or assigns) as a result of any legal action arising out of the design, permitting and/or construction of the Initial Improvements. The obligations of Subtenant under the two immediately preceding sentences shall not be applicable to any claims, demands, losses, expenses, damages, judgments, causes of action, actions or expenses (including attorneys' fees) to the extent arising from Sublandlord's gross negligence or willful misconduct. The obligations of Subtei~a»t u»der this Paragraph 9 shall survive the termination of the Sublease. 10. DEFAULT. Each of the following events shall constitute an event of default or default by Subtenant under this Work Letter: (a) A breach or default by Subtenant under this Work Letter that is not cured or remedied by Subtenant within five (5) business days following Subtenant's receipt of written notice of such breach or default; (b) A decree or order of a court having jurisdiction shall have been entered adjudging Subtenant to be bankrupt or' insolvent or approving as properly filed a petition seeking the reorganization of Subtenant under the federal bankruptcy law or any other applicable law or statute of the United States, or any state, or appointing a receiver or trustee or assignee in bankruptcy or insolvency for Subtenant and its property, or directing the winding-up or liquidation of Subtenant, and such decree or order shall remain continuing, undischarged or unstayed for a period of thirty (30) days; (c) A general assignment by Subtenant of its assets for the benefit of creditors, or a sequestration or attachment of or execution upon any substantial part of such property, unless the property so assigned, sequestered, attached or executed upon shall have been returned or released within 10 4823-0652-5588v4 SLF118332013

 
thirty (30) days after such event or prior to a sooner sale pursuant to such sequestration, attachment or execution; (d) Tl~e dissolution or termination of Subtenant or tl~e suspension or termination of Subtenant's business or alteration of the nature thereof in any manner which Sublandlord in good faith determines is likely to materially decrease Subtenant's capacity to perform hereunder; or (e) The occurrence of a default or event of default by Subtenant under the Sublease. In addition, Subtenant hereby agrees that a default or event of default by Subtenant under this Work Letter shall be a default by Subtenant under the Sublease. 11. REMEDIES. In the event of an event of default or default by Subtenant hereunder, Sublandlord shall have the right (but not the obligation), among its other rights and remedies under the Sublease and/or at law or in equity, to cease construction and installation of the Initial Improvements. 11 4823-0652-5588v4 SLF118332013

 
EXHIBIT D SUBORDINATION, NON-DISTURBANANCE AND ATTORNMENT AGREEMENT [see attached] 4823-0652-5588v4 SLF118332013

 
RECOf2DING REQUESTED ~Y: Chicago Title Company - C/i Order ~iea.: FWPS-7017000502 When fZecord~ci IUlai9 Documenfi To: Sidley Austin LLP 787 Seventh Avenue New York, New York 10019 Attention: Richard S. Fries, Esq: APN/Parcel lD(s); 101 SPACE ABOVE THfS L(NE FOR RECORDER'S USE SUBORDINATION, NONDISTURBANCE AND ATTORNMENTAGREEMENT THIS. PAGE ,4~DECD TO PROVIDE ADEQt1A7'E SPACE FOR RECORDIM1lG IP1FORiVIATiOtJ {Additional recording fee applies) Recording Document Cover Page PrinteC: 08.02.17 @ 10:38 AM SCA0~00079.doc /Updated: 09.3Q.15 Page t —FWPS-7017000502

 
SUBOFZD~ATION, NONDISTURBANCE AI~1D ATTORNMENT AGREEI~'IENT by and among Hl-1N'S HOLDINGS 2300 ORCH~iZD PAIZKt~rAY, LI~C, as Landlord, CAUIUM; INC., as Tenant, and. CITIBANT~, N.A.; as Administrative Agent Dale: August , 2017 Address: 2300 Orchard Parkwau San Jose, California County:. Santa Clara. RECORD AND RETURly TO: Cidley Austin LLP 787 Seventh avenue New York, New York 10019 Attention; Ricl~a~~d S. Fries, Esq. 2 i sz9z a ~~- i ias~~ oa.o~ r~-~vvcsRosA - ~,isw

 
SU~L30Ft]~INATION, NON-DISTURBANCE A7~TD ATTORNMENT AGREEMENT THIS SUBORDNATION, NO?~T-DISTURBANCE AND ATTORNMENT AGRFE~~IENT {this "Agreement") made as ~f' the l s` day ~f flugust, 2017, by and among (1) HAWS I~OL~7INGS 2 00 ORCHARD PARKWAY, a Delaware limited liabilit}~ company,. leaving an address. at 420 Madison Avenue; Suite SQO; New Yark, Ive~~ Yark 10017 {``Landlord"), (2) CAVIITM, TNC., a Delaware corporation, ha~%ing a~~ address at 2315 North fiirst Street, San Jose; California 9513. ("Tenant"), and (3} CITIBANK, N,A., a;national banking association, having an office at 153 East 53rd Street; 21st Floor; New York, New York 10022, as administrative .agent and. collateral agent (in such capacity, "Administrative Agent") for itself and. the other lending.. institutions (collectively, "Lenders") ~n~hicll are or .may hereafter• become parties to the Loan tlgreement (as hereinafter defined). WITNESSETH' : ~AIHEREAS, Tenant entered into that certain unrecorded Standard Lease, dated as of January 31; 2017; bet~reen The Realty Associates Fund IX, L.F., a Delaware limited partnership "The Realty T'und"), as lessor-; and. Tenant, as lessee; «~hicll was assigned pursuant to that certain Assignment and Assumption of Lease, dated as of the date hereof, between The Rea]ry Fund, as assibnor, and Tenant as assignee {collectively, the "Lease"), with. respect to certain premises- (~Iie "Demised Premises") in the building (the "building") known as and situated on the land- (the "Land") located at 2300 Orchard Parkt~ay, San Jose, California, as more particularly desczibed i.n ~xhbii A anzxexed hereto and made part hereof; WHEREAS, Le~~ders have made or are about to na.ake a certain loan to Landlord in the principal amount of $31,525,t~00 (the "Loan"}, on and subject to the terns, pravis ons,,covena~~ts and conditions -set forth in that certain Loan Agreement dated as of the date hereof made by and among Landlord, Admiiustrative Agent and Lenders {as amended, rnoclified, extended,. supplemented, restated or replaced from tune to t ire, the "Loan ~greeznent"); WHEREAS; administrative Age~lt is the holder of that certain Deed of Trost; Assignment of Leases' and Rents, Security Agreement and Fixture Filing; dated as of the date hereof recorded concurrently herewith, in the principal amount of $~ 1,525,000 made ~iy Landlord to Administrative ~be1~t, on vehalf of Lenders (as amended, modified, extended, s~pplemei7te~~, restated or replaced from time to time; tine "Mortbage"}, which Mortgage encumbers T ie Land,. Building and other im~~ro~~ements (collectively; the "Property") of which t}~e Demised Premises are a part anti La3~dlorc~'s interest i11 the Tease; WHEREAS;. Tenant has requested that Landlord obtain. a non~dis~tirbance agreement from Adniinistr~ative Agent and Landlord leas requested same;. a.nd ~tjHEREAS, lac~ministr~,tive Agent is willing to enter into such an agreemezat upo~l the terms; provisions, covenants and conditions contained herein. NOW, THEREFORE, in consideration of the premises and. the agt•eements ~f the. parties contained herein and ocher good and valuable co~~sideration, receipt. of which is horebyr ~cic~lowledged, the parties hereby -agree as fc~llow~s: 1 21A2921 Ibv:1 1482104.01 D-NYCSR03A - i~7S~1%

 
1. Notwithstanding ai~~Jtl~ing to tl~e contrary contained in the Lease, the Lease and all of Tenatat's rights thereunder are arzd shall be of -a11 ti~n~s and in all respects subject and subordinate to tl~e Mortgage, .and to all advances made ancUor hereafter to be made under the Mortgage, and to all renet~aIs, modifications, consolidations; replacements (by and between Administrative 1~gent and Landlord), substitutions (by aid between Administrative Agent and Landlord), additions and extensions of the Mortgabe acid to any subsequent mortgages with which the Mortgage may be spread and/ar consolidated, with. the sane force anc~ effect as if the Ivtortgage and all such other instruments had been executed; delivered and recorded prior to the execution and delivery of the Lease. 2. Provided and on condition that, as of the date Administrative Ageni coa7lmences a foreclosure actir~n to enforce Administrative Age~1t's and Lenders' rights- under the Mortgage, Ten~nf shall not be in default under the Lease (x) in the payment of basic rent or additional rent or (v) of any of the material norunonetary terms, provisions; covenants or conditions of the Lease or1 Tenant's part. tc~ be performed, in each case, after notice and beyond the applicable period of grace, if any, provided in the Lease ~,vi#h respect to file default in question, {i) Tenant shall not be mined a party its any action or proceeding. to enforce the Mortgage, unless such joinder shall ~e required under applicable la~v, and in which case Administrative Agent and. Lenders shall not seek affirmative relief from Tenant in such action or proceeding, nor shall the Lease be cut off or terniinated nor Tenant's possession thereunder be disturbed in any such action or proceeding,. at~d (ii} subject to tie terms and provisions of Paragraph 4 of this .Agreement, Administrative agent shall recognize the Lease and. Tenant's possession of the Demised Pi•er~lises, and Tenant's rights and privileges under the Lease (including, without limitation, any renewal, extension, expansion or cancellation rights) shall. not be diminished ar interfered ujith by ~dministrati~~e Ageni or Lenders,. subject to she terms ax7d provisions of paragraph 4 hereof. 3. Upon any fo~•~closure of the. Mortgage or other. acquisition of the Property (an3J such foreclosure oi~ conveyance or transfer in lieu of foreclosure being, herein referred to as a "P~reclosure Lvent"), Tenant shall attorn to the Administrative Agent, Lenders or any other party acquiring the Property or so succeeding to Landlord's i•ichts (the "Successor La~idlo~•d") and pei~foi-m all. of the terms, provisions, covenants and conditions of the Lease on Tenant's part to be performed with the wine farce and effect as if the Successt~r Landlord were the landloa•d originally Warned in the Lease and Tenant shall promptly execute and deliver any instrument thaf the Successor Landlord may reasonably request to fiirther evidence such attornment. 4. Upon such attornment or other acquisition of the. Property, the. Lease shall continue as a direct lease between the Successor Landlord and Tenant upon all. of the. terms; prc~visioils, caveriants and conditions tiieleof as a~•e then applicable under the Lease except that the .Successor. Landlord shall not be (a) liable for any previous act; oinissic~r~ ~r default of Landlord. under tale Lease; except That Successor• Laaidlord shall cu~•e any default of Landlord that is continuing as of the date of such attornment or other acquisition of the Pr~pert}➢ ~~ithin thirty (30) days after the elate Tenant delivers written. notice to Successor Landlord of such. continuing 2 zt~2v2i ~c,~.i 1452104.01 D-NYCSR03A - MSW

 
default (unless such default is of a nature as to xeasanably ~~equire more than thirty {30) days to cure aid tlie~z Successor Landlord shall be permitted such additional tune as is reasonably necessary to e fec such cure; provided Successor Landlord diligently ar~d continuously proceeds to cure. such default); (b) required to make any repairs to t11e I~eznised Preanises or to the Property; provided that tl~e foregoitlg shall not (i) Iimit any express remedies of Ienal~i set forth in tl~e Lease with respect to Landlord's failure to pay or perform such obligations; or (ii} relieve Successor Landlord of ar~y ~e~air and: maintenance obligations or any obligation to reimk~urse l~oldaver expenses requarcd of Landlord undez~ the Lease: accruing after the Foi•eclosw-e F..vent; and, provided further, that if, following a Foreclosure Event, Successor Landlord fails to c~n~mence the perrormance of the work necessary to complete any impt~avements or construction of the Property u~itliin i~it~etyr (90) days of such Foreclosure Event or thereafter fails to pur~siie such work ~~ith reasonable: diligence; then Tenant shall have the right upon notice to Successor Landlord to terminate the Lease, (c) intensionally omitted, (d) subject t~ any offsets or defenses that Tenant. .may have against Landlord, except such rights of offset. and defenses as may be expressly set forth in the Lease, (e) bqund by any prepayment of more than one {l) month's rent or other charges under the _Lease, unless. such payment shall have been expressly approved in writing by 1\dministrat ve Agent,. and except where such prepayments :are made. pursuant to any specific provision. of the I,case, (f} found by or be .liable' for any representations, warranties or ind.eiruiit es of Landlord contained in the Lease and which relate to events occurring prior to the acquisition of .Successor Landlord of the .'Landlord's interest in the. Property, (g) Iiable or respoiasible for or with respect to tine retention, application andior return to Tenant of any security deposit paid to an5~ prior landlord (including Landlord}, whether or not stiIl held by such prior laf~dlord, unless and until administrative Agent ~r a~~}~ Successor Landlord has actually received said deposit 1'or its own account. pis the. landlor•el under the Lease as security for the performance of Tenant's ,obligation under the Lease (which deposit. shall, ,nonetheless,. be Held subject to the provisions of the. Lease), or (hj bound by any (i) amer~dinent or modification of the Lease which (x) decreases the rent payable thereul~t~er, {y) reduces the term of tl~e Lease ar {z) materially, adversely impacts on Administrative .Agent's interest in the Demised Premises and/or the I'r~pert5~ or (ii) cancellation of the Lease done in violation of t17e terms and provisions ~f Para~•aph b hereof unless such a~i~endn~ent, n7odification or cancellation was approved in v~~riting by Administrative Agent, v~hicll approval shall not be unreasonablsT ~~~ithhelc~,. conditioned or delayed. .5. Tenant shall not, witlZout obtaining tl~e prior ~~fiitten consent of Admiziistrati~Je Agent which .consent shall not be unreasonably withheld, conditioned or delayed: (i) Modify tl~e Lease. (provided that if Tenant. .shall enter into such modification without ~ldinini~tz~ative Agent's consent, such modification shall not b~; binding .upon ~4dministrative Agent}, so as to (a) decrease the react payable theY'eund~r, or {U} redu.ee the tet•m of the Lease so: as to trove an e:~piration date prior to the Ex~ ration Date, as defined izl the Lease, ~~cept during the last three (3) months of~tl~e term cif the I:ease; (ii) Cancel. or terYn note the Lease in violation of the terms and provisions oi' Paragraph b hereof; ~taz~zi ibv.i ~ as2 3 c~a.c~ i ~-r~ vcs xo~n - Nis~~

 
viii) Assign the Lease other than. pursuaiii to the tern3s and provisions of the Lease, provided tlaat Tenant shall in any event remain filly iia.ble under the terms and provisions of tl~e Lease; (iv) Prepay any of the rents (other than the first (1st) month's rent} under the Zease for more t1~an one (l} n~anth prior to the accrual thereof; except that (A) the payment as .required. under the Lease. on a mo7lthly basis ofd amaunts with respect to operating or other expenses based u}~on an esiinlate of such expenses wliich is to be adjusted by an ap}~ropr~iate payment at the end oC each c~iendar or lease year or other period, and (B) the.:payment. as required under the Lease on a monthly. or otl~e~~ ~eriadic basis of amounts ~~ith xespect to real estate taxes in advaaice of the date on which .such. taxes. ar•e due and payable to tl~e taxing authority shall not, be deemed to be a prepayment o~ rents in violation of the terms and provisions ~f this clause (iu), provided that such. payments with respect to taxes are collected not. earlier than sixty (60) days prior to file date on which :such taxes are due. and payable to the taping authoa•ity, or in periodic. installments equal to the total amount of the payment renuired (as reasonabl}~' estimated in good faith by Landlord if tax bills with respect to such tax payment lave not tllzretofote been ssuea try the. taxing authority} divided by the number of installments, and payable in a ma~~nei: such that the total amount to be collected is collected not earlier than sixty (60} days prior to the date on «~hich such taxes are due and payable to the taxing authority. A~ay such modification, prepayment, assignment, eanceliatian or termination or other act i~~ violation of this Paragza~a~i 5 shall not be binding upon Administz•ative Agent or Lenders. If Administrative Agent :consents to any amendment or modification of the .Lease or to any new Lease, this Agreement-shall apply to such amendment, modification or new Lease. 6. From and after the date hereof, Tenant shall -send a copy of any notice of default or notice ~n connection with the commencement of at~y action to terminate the Lease o~~ similar statement under the Lease or right t~ offset rent under thz Lease to Administrative Agent at the wine time Tenant sends such. notice or statement 'to Landlord, and Tenant` agrees that Tenant .shall not exercise any right to tern7inate the Lease or to offset against rents Ta~7der the Lease until thiriv (30) days shall ha~~e elapsed following the eapiratiom of any applicable cure.. period to which Landlord is entitled to under the Lease to effect such remed3~ (the "Lender Cure Period"}, during which time Administrative Agent shall have the right; but shall not be obligated; t~ remedy or cause to be remedied. such act car omission. Tenant understands anci agrees. that no action of Tenant to terminate the Lease shall be effective against Administrative t~gent :and Lenders unless 'tenant provides Administrative Agent with. a copy of any such ne~tice in accordance with the terms and provisions of this Paragraph 6. Tenant further agrees that if such default is of suc}1 a nature that it care gat v✓ith due diligence be cured within thirty (30) days, Tenant shall n~f exercise an}T suci~ ri~llt if Administrative Agent commences to cure such act or o~~ission within the Lender Cure Pexiod and diligently prosecutessuch cure tk~ereafte~~. ?. Tenant acicaio~~led~es that it has notice that.. Landloxd's interest. under the Lease and the rent and. all other sums due thereunder .have been assigned to Acizninistra#ive Agent as part of the security t~or the note secured by the Mortgage. Notv~~ithsianding anything to the 4 ?1R7921t6v.1 145210401ll-N1'CSR03n - MSL~

 
contrary contained herein or in the Lease, in the event that Admiiustrative agent notifies Tenant of a default under the Mortgage and dema~ids that Tenalit pay its react end all other sums due under tl~e Lease to Aci~ninistrative Agent,. Tenant agrees that' it shall pay its rent a~1d all othea• sums due under the Lease to ~dtninistrative Agent. All rents and_ other sums paid by I~ei~ant to Administrative Abent shall be credited against Tenant's rental obligations under the Lease; and payment to Administ~•ative Agent of rznts and. such other sums due under the Lease shall Lac deemed to be payment to L,andlard for purposes of the Lease. Landlord joins in the execution of this Agreement for the- purpose of, among- other things, consenting to the te~-rns and provisions of this Paragraph 7. 8. {a) Any notice or demand, consent; approval ar disapproval, or staiement (collectively, "Notices") requited or permitteel to be given by the terms and provisions of this Agreement, ar b~~ an~v la~xr or governmental regulation shall be in ~~~riting and unless otherwise required by such law or regulation; s11a11 'be sent by: (i) United States mail postage prepaid. as registered or certified. mail, return receipt requested, ar (ii) nationally recognized overnight courier service. (such. as Federal E press) Frith receipt requested;. or (iii) personal.. delivery «pith acknowledgment of receipt requested. An~~ Notice shall l~~ acidr•essed to the parties hereto, as follows: If to Admtnist~•ative Agent or Lenders: .Citibank,. N.A.. 153 East 53rd Sfreet, 21st Floor New ~ ork., New York 10022 Attention: Mr. Ric~iard B. Werner with a copy to: Sidlev Austin I;LP 7~7 seventh I~venu~ New `Fork. Near York. 10019 Attention: ~ Richard S. Fries, Este. If tc~ Landlord: Han's Ho4dinas Groin (USA) LLC 420 Madison Ave~lue, Suite 50~ New• Yark, New York 1OQ36 .Attention: Peiei- Pngzhi Wu with. a copy t~: Skadden, ~irps, Slate; 11~eaghel• &Flom LLP tour Tirnes Sc~tiare Ne~~~ York, New York 1OQ36 Attentio~i: Marco P, Caffuz7i, Esq. If to 'I~enant: 5 215392116~~ 1 1~3A21U4A117-NYCSRG3A - MSW

 
Cavium, Inc. 231 ~ North First Street. Sail.lose, California 9~ 131 Attention: Vince Pangrazio, SV'P and General counsel with a copy to: Caviui~iy Ine. 2315 North First Street San. Jose,California 951.31 Attention: Scott Doubek By giving the other parties at least five. (5} business days' prior ~r~ritten raatice, any party may, by Notice givea3 as above provid~;d, designate different or additional addresses) or addressees) foi- Notices. (b) A:ny Notice shall be deemed given (i) three (3) days after mailing; (ii} one day after being_ sent by overnight courier and (iii) on the day personally delivered; or in the case ot'refusal to accept rece p# of any such. overnight z>r personal delivery, upon the date of such refusal, 9. This. Agreement may not be modified, amended or terminated unless u~ ~i~riting and dul}~ executed by the party against whom the same is sought to be asserted and- constitutes the entire agreement between tl~e parties with respect to this subject maiter hereof. 1.0. This Agreement shall bind and iz~ui-e to the benefit of the paz-ties hereto and their respective successors and assigns. Tl. ,This Agrecznent shall be .construed without regard to any presumption or other rule requiring const~-uction abainst the party causing this Agreement to be drafted. 12. All reasonable, out-of pocket casts and expenses (inciuciing, without limitation, attorneys' fees and disbursements) actually incurrec: by Administrative Agent or Lenders: in connectozl with fhe review ~f the underlying, documentation (including, without limitation, the_ Lease) and the preparation and ne~otiatian of this Agreement shall. be paid by Landlord to Administrative Agent (~r Administrative ~lbent's attorneys; if so directed} concurrently l~erewi~h by cashier's or certified check. 13. This Agreement shall be c~nstrtted and enforced in accordance with the laws of the State of Califo~•nia without reference to principles of coziflicts of law. 14. To the exte~It that any action is to be taken, an}~ information is to be delivered to or by Lendea•s; and determination is to be made, or any consent is to Ue given or wi~nheld by Lenders, anv .such. action, delivery, determination or consent shall be taken; Pnade or biven or withheld, as the case may be, by ~~:dministrat?ve Agent or any successor agent thereto and landlord alid Tenant shall be protected i~~ their reliance thereon. 6 zis?9?iiv.-.~ 1482104.O1D-NYCSRU3A -MSbI`

 
15. This Agreement may be executed in separate counterparts ~vhicli, when taken together, shall constitute one fully executed Agreement. [balance of page intentionally left bla~ik] 7 218292ll 6v. 14821 c~4.01 D-NYCSR03A - 3vfSW

 
III ~hiI'TNE-S~ ~e'I-~R~~~', the parties heregc~ have duly executed Yhis Agreement as ~f the day and year first at~o~~e written. ~AI'd'S ~iC}L~Il`~T~S 230Q ~~Z~HARL~ P~t.I~.WAY, LLB, a Delaware liilzited liability carnpany _ ~-. By: 7?~ame: I'e~~r';Pi~tr~zhi W~ Title: Vice I~~esident and secretary A, natary public ar c~th~r officer completing this certificate verifies only tine identity of the. individual who signed the document to which this certificate is at~acheci, and not the truthfulness, accuracy, ar validity of that document. ~TA"I~ ~F IV~VE7 ~'C~I~~ § ~V V! V~~J 'Vi' 1Y1.: VY 7- LJl'LL~ _, - ~. Can July ~ ~`; X017, 1~efor~ m~; --~ = "~ F - ~ ;_ ' , 1'~~tary I'ul~lic, personally appeared I~~TE~ P~N~rZ~II VOLT wha proved to me on the basis of satisfactary euidenc~ to be the pers~n~s} whose name{s) is/are subscribzd t~ the within itlstrument and acknowledged t~ m~ that he/shelthey executed the same in his/her/their authorized ca~acity(ies}, and that. by his/her,~their si~nature~s} on the instnzment, the p~rs~n{s), ~r the entity upon vehalf of which the ~erson(s) acted, executed the instrument. I certify under ~'EI~T~I,'F~ ~F PERJUI~~' under the Taws of the State of I~Tew 'Y~ri~ That the foregoing paragra~l~ is taus and correct. ~IITNESS my hand and official peal. ~Zfi otary Public ' ~ ~~ ~sos~au~ ~~zEr~ ~fnfa~y Public, Stage o~ Jew Yaek #~lt~. 01GLS3 i i 3~~1 4~valriiecl in ~FetM Yr~rk Gotin~r. ~or3~missi~s~ ~uiras Sii5/2J-!£~ jSigrraiic~e Page td ~4'IVDAf

 
~t7t~fV~►fl ~~.i~IUI+/1, I1~tC., a I~elativare oration ~,., ~,. ~ ,> >; ff;t TitlPv: j~., L'l~' `~. ~ (~ C. i~'<.~,i ~'~. i ~ t. ~t ~`y ' fc~J_ A notary puhli~ or other nffic~r completing this certificate verifies. only the identity of the individual who signed the c~ocuanent to which this certificate is attached, and i~ot the truthfulness,. a~curaey, or validity of that docurner~t. f'~ 7'~~,7~+ §(~ ~` `' `P~ ~'"t'"';~ ~ ~ ~ a a ~r ap p ~"';"d~'t~`a7 ~ ~. On~_J~~ 2017, before men ~""~~' ~. ~ --~ t . ,Notary Public, perso~a~ly appeared ~~~ ' ~~,~ who proved. to sne on the basis of satisfac~Qry evidence to be the person{s) whose names) is/are subscribed to the ~,Titl~in .instrument .and ackri€~wled~ed to me that he/she/they executed the same in his/her/them authorized capacit~T~i~s}, and ~ha~ by hislher/their signatures? on the instnzrnent; the person(s), or the entity upon behalf s~f vahi~h ghe persori(s) ~~ted, executed the instrrament. I certify under PENALTY (~~' ~'E~J-UIZ~' under the Iaws of the Stale of California that the foregoing paragraph is tx~:ae and correct. ~JITNES~ my hand and official seal. w ~ f ~ ~r~~,,; ~~tar~r S~~~Oic - C~Iifornia r"~. g ~~ ~_' ";' S~nt~ ~9ar~ Counf~ i corr~m~~~,~,n ~~~3229 ~ I°~~sta~~ Public ' ~tiy Comrcr. Expires tea 45. 202i~ . 215292116x.3 148? t 04.0 l I}—NYC:SiZ03A — MSW

 
CITI~AN~E~, N.A., a national banking association Scott I7eTragla ~fi mice President A notary public or other af~icer completing this certificate verifies only the identity of the individual who. signed the document to which this certificate is attached, and not the #ruth~ialness, accuracy, or validity of that document. STATE OF NEW YORK § CO~JN I'Y OF NEW YO~tK § On _July _, 201 "~, before me, =~ ~' ~x ~ , ° ~~~°` ,Notary Public, persanaily appeared. SCQTT DETtZAGLIA w1~o proved to me on the basis of satisfactory evidence to be the persons) whose names) is/are subscribed to the within instrument and acknowledged to me that helshe/they executed the same in his/her/their authorized capacity(iesj, -and that by his/IaerJthear signiature(s) on the instrument, the person(s), or the entity .upon behalf of which :the person~sj :acted, executed the instrument. I certify uiader PENALTY OF PERJURY under the laws of the State of New York that the foregoing paragraph is true and carrect. WITNESS my hand. and r, Public ~~,~53 J. hJoYBry PubltC. S#ate ~ ~' 1Vi3. 49-4 C~raali4i~d in ~tse~r~S ~l7t14;a ~s ~i0iiltY7jS$iOEt ~D(~Of8S2~.r$..~.~ 218292116 1482104.O1D-NYCSR03A - NISW

 
EXHIBIT .4 D~SC127PTION O~ LANI3 11 ztsz~ai t~, t 148210 .011)-NYCSK03A - ~4$~b'

 
~~~'~~~ 19~Bt Legal Description For RPN/Parcel fD(s): 1Q1-03-0Q~ THE LAND REFERRED TO' HERElN BELOW !S SITUATED 1N THE CITY OF SAN J05E, COUNTY OF SANTA Ci_ARA, STATE OF CALIFORNIA AND 15 DESCRIBE) AS FOLLOWS: PARCEL 2, RS SHO+IVN UPON 7NAT CERTAfN PARCEL MAP FILED FOR RECORD W THE OFFlGE OF THE RECORDER. 0~ THE COUNTY OF SANTA CLARF~, STATE OF CALIFORNfA Ott DECEMBER 6, 1995 W BOOK 671 rJF MAPS AT PAGES 4fl AND 41.

 
Exhibit 31.1
CERTIFICATION
I, Lee Chen, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of A10 Networks, Inc. for the quarter ended March 31, 2019 ;
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:
May 8, 2019
By: /s/ Lee Chen
 
 
Lee Chen
 
President and Chief Executive Officer



Exhibit 31.2
CERTIFICATION
I, Tom Constantino , certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of A10 Networks, Inc. for the quarter ended March 31, 2019 ;
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:
May 8, 2019
By: /s/ Tom Constantino
 
 
Tom Constantino
 
 
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)

Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of A10 Networks, Inc. (the “Company”) for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lee Chen, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
May 8, 2019
By: /s/ Lee Chen
 
 
Lee Chen
 
President and Chief Executive Officer



 


Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of A10 Networks, Inc. (the “Company”) for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tom Constantino , Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
May 8, 2019
By: /s/ Tom Constantino
 
 
Tom Constantino
 
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)