SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported): May 13, 2015
 
ARISTA NETWORKS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-36468
 
20-1751121
(State or other jurisdiction of
incorporation)
 
(Commission File No.)
 
(IRS Employer Identification
Number)

 
5453 Great America Parkway
Santa Clara, CA 95054
(Address of principal executive offices)
 
(408) 547-5500
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)
 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






ITEM 2.02
Results of Operations and Financial Condition
On May 14, 2015 , Arista Networks, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended March 31, 2015 . The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
This information and Exhibit 99.1 are intended to be furnished under Item 2.02, “Results of Operations and Financial Condition,” and Item 9.01, “Financial Statements and Exhibits,” of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 4.02      Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Report.
The Company has determined that an amendment to its previously filed Form 10-K is required to correct the previously reported consolidated statement of cash flows and related disclosures for the year ended December 31, 2014.
The correction has no impact on the Company’s consolidated balance sheets, statements of income, comprehensive income or stockholders equity as previously reported for the year ended December 31, 2014. Furthermore, the correction does not materially impact any other previously reported periods.
In the course of preparing its interim financial statements for the quarter ended March 31, 2015, the Company identified an error in its consolidated statement of cash flows for the year ended December 31, 2014. The error was due to duplicate recognition of the excess tax benefits associated with its equity incentive plans resulting in a $17.4 million understatement of cash provided by operating activities and a corresponding $17.4 million overstatement of cash provided by financing activities.  The net increase in cash and cash equivalents and the ending cash and cash equivalents balance on the consolidated statement of cash flows were unaffected by this error and there was no impact to net income. No other previously reported periods require correction.
The Audit Committee of the Company’s Board of Directors concluded, on May 13, 2015, after discussion with the Company’s management and its independent registered public accounting firm, Ernst & Young LLP, that the consolidated statement of cash flows for the year ended December 31, 2014 included in the Company’s Form 10-K for the year ended December 31, 2014, originally filed with the Securities and Exchange Commission on March 11, 2015, could no longer be relied upon and should be restated.
As a result of the restatement, the Company has determined that a material weakness in its internal control over financial reporting existed as of December 31, 2014, which has not yet been remediated. The Company has concluded that discussions of cash flows and existence of a material weakness in internal controls in Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Supplementary Data, and Controls and Procedures reported in the Annual Report on Form 10-K should be restated in order to correct the errors and disclosures. The Company will file an amendment to its Form 10-K, on Form 10-K/A, to correct the errors and disclosures as described above consistent with such restatement.
ITEM 5.02      Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Appointment of Chief Financial Officer; Departure of Interim Chief Financial Officer
On May 14, 2015, the Company announced the appointment of Ita Brennan as Senior Vice President, Chief Financial Officer of the Company. The appointment will become effective on or before May 18, 2015. Upon commencement of her employment, Ms. Brennan will assume the duties of the Company's principal financial officer and principal accounting officer until such time as her successor is appointed, or until her earlier resignation or removal. There are no reportable family relationships or related person transactions involving the Company and Ms. Brennan.
Ms. Brennan, age 48, has most recently served as Chief Financial Officer of a stealth start up firm in the energy sector from February 2014 to May 2015. Prior to that, Ms. Brennan had an eight year career at Infinera Corporation, an intelligent transport networking company, most recently as CFO from July 2010 to February 2014 and Vice President of Finance and Corporate Controller from July 2006 to July 2010.  From 1997 to 2006, Ms. Brennan held various roles at Maxtor Corporation, a multi-billion dollar information storage solutions company, including Vice President of Finance for the Company’s Worldwide Operations .
The Company entered into an offer letter with Ms. Brennan to memorialize her employment. Pursuant to the terms of the offer letter, Ms. Brennan will receive an annual base salary of $300,000. Ms. Brennan will also be eligible to participate in the Company’s corporate bonus program for executive officers. Subject to necessary corporate approvals, Ms. Brennan will receive a grant of restricted stock units covering 50,000 shares of the Company common stock (“RSUs”) under the Company’s 2014 Equity Incentive Plan (the “Plan”). Such RSUs will vest quarterly over a total of approximately five years with an annual vesting cliff, subject to Ms. Brennan’s continued service to the Company through each vesting date. Additionally, subject to necessary





corporate approvals, Ms. Brennan will receive a grant of nonstatutory options to purchase 50,000 shares of the Company’s common stock (the “Option”) pursuant to the Plan. The Option will vest monthly over a five year period with an annual vesting cliff, subject to Ms. Brennan’s continued service to the Company through each vesting date.
In addition, the Company entered into a severance agreement with Ms. Brennan. The severance agreement provides that if Ms. Brennan’s employment is involuntarily terminated other than for “cause” (as defined in the severance agreement) or if Ms. Brennan resigns for “good reason” (as defined in the severance agreement) then, subject to her execution of a release of claims, Ms. Brennan will receive continuing payments of her base salary for 12 months and accelerated vesting of time-based equity awards that would have vested had Ms. Brennan remained employment with us for 12 months following her termination of employment date. If the qualified termination of employment occurred during the period beginning on, and for 12 months following a change in control, then the equity acceleration benefit would be 50% of the then-unvested equity awards, if greater than the acceleration benefit described in the previous sentence.    
The offer letter and severance agreement between Ms. Brennan and the Company are attached as Exhibits 10.1 and 10.2, respectively, to this Current Report and is incorporated herein by reference.
Upon the effective date of Ms. Brennan’s employment, Andreas Bechtolsheim will resign from the positions of interim Chief Financial Officer and Principal Financial Officer of the Company, a position he has held since April 9, 2015.
ITEM 9.01      Financial Statements and Exhibits
(d)    Exhibits
Exhibit No.
Description
10.1
Offer letter by and between the Company and Ita Brennan, dated April 17, 2015
10.2
Severance agreement by and between the Company and Ita Brennan, effective May 18, 2015
99.1
Press release issued by Arista Networks, Inc. dated May 14, 2015








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 hereunto duly authorized.

 
ARISTA NETWORKS, INC.
 
 
May 14, 2015
By: /s/ Marc Taxay
 
 
Marc Taxay
 
Vice President and General Counsel
 
 






EXHIBIT INDEX
Exhibit No.
Description
10.1
Offer letter by and between the Company and Ita Brennan, dated April 17, 2015
10.2
Severance agreement by and between the Company and Ita Brennan, effective May 18, 2015
99.1
Press release issued by Arista Networks, Inc. dated May 14, 2015








Exhibit 10.1


Ita Brennan
[home address]

April 17, 2015

Dear Ita,

On behalf of Arista Networks, Inc. (the “Company”), I am pleased to offer you a full-time exempt position as Senior Vice President, Chief Financial Officer, starting on May 18, 2015 (the “Start Date”). You have until April 25, 2015 to accept this offer, at which time it expires. The terms of this offer are as follows:
1. Salary: The Company will pay you a base salary of $300,000.00 per year in accordance with the Company's standard payroll policies.
2. Benefits:  During the term of your employment, you will be eligible to participate in all of the Company's standard health, vacation, and other benefits covering employees. The Company reserves the right to change
the benefit plans and programs it offers to its employees at any time.
3. Bonus: You will be eligible to participate in the Company’s Corporate bonus program pursuant to the terms of such bonus program.  Please note that you must be an employee of the Company on the payout date of the Corporate bonus payout to be eligible to receive any such bonus. Lastly, as a reminder, both your base salary and the components of your Corporate bonus are subject to periodic review and may be modified by the Company as deemed necessary in its sole and absolute discretion.
4. Stock: At the first regularly scheduled meeting of the Company’s board of directors following the Start Date, it will be recommended:
1)
That you be granted nonstatutory options to purchase 50,000 shares of the Company’s common stock (the “Stock Options”) pursuant to the Company’s 2014 Equity Incentive Plan (the “Plan”) and form of stock option agreement under the Plan (the “Option Agreement”). Subject to the accelerated vesting provisions set forth in such stock option agreement and in the Severance Agreement (as defined below), the Stock Options will vest as to 1/5 th of the shares subject thereto on the one-year anniversary of the Start Date and thereafter as to 1/60 th of the shares subject thereto on the monthly anniversary of the Start Date, subject to your continuing to be a Service Provider (as defined in the Plan) through each vesting date. If your status as a Service Provider terminates for any reason, the unvested portion of your Stock Options, after giving effect to the applicable acceleration provisions, terminate as shall be set forth in the Plan and the Option Agreement. The Stock Options will have an exercise price per share equal to the fair market value per share of the Company’s common stock on the date of grant.
2)
That you will be granted restricted stock units covering 50,000 shares of the Company common stock (the “RSUs”) pursuant to the Company’s 2014 Equity Incentive Plan (the “Plan”) and individual RSU agreement. The RSUs will be governed by the form of RSU Agreement. Subject to the accelerated vesting provisions set forth in such stock option agreement and in the Severance Agreement (as defined below), the Company’s restricted stock units vest on 4 designated dates each quarter (each, a “Quarterly Vesting Date”). Your RSU Agreement will specify these Quarterly Vesting Date. Your RSUs will vest at a rate of 1/5 on the first Quarterly Vesting Date after the one year anniversary of the vesting commencement date and 1/20th of the RSUs vest per quarter on each Quarterly Vesting Date thereafter over a total of approximately five years. All vesting is subject to your continued service to the Company through each Quarterly Vesting Date. If your status as a Service Provider terminates for any reason, the unvested portion of your RSUs, after giving effect to the applicable acceleration provisions, terminate as shall be set forth in the Plan and the RSU Agreement.
Your employment with the Company is “at-will”. This means that it is not for any specified period of time and can be terminated either by you or by the Company at any time, with or without advance notice, and for any or no particular reason or cause. It also means that your job duties, title, responsibilities, reporting level, compensation and benefits, as well as the Company’s personnel policies and procedures, may be changed with or without notice at any time in the sole discretion of the Company. Notwithstanding the foregoing, you may be entitled to accelerated vesting and other severance benefits in the event of a termination or change in the nature of your job, all as set forth in the Severance Agreement.
This offer is conditioned on you signing the Company’s Employment, Confidential Information and Invention Assignment Agreement (the “Confidentiality and Invention Assignment Agreement”) and submitting the legally required proof of your identity and authorization to work in the United States. By signing and accepting this offer, you represent and warrant that you are not subject to any other legal obligation that prevents you to be employed with or to provide services to the Company.




The Company intends that all payments made under this letter agreement be exempt from, or comply with, the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and any guidance promulgated thereunder (“Section 409A”) so that none of the payments or benefits will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to so be exempt or comply. You and the Company agree to work together in good faith to consider amendments to this letter agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A. In no event will the Company reimburse you for any taxes that may be imposed on you as a result of Section 409A.
On the Start Date, you and the Company will enter into a Severance Agreement dated as of the Start Date in the form attached hereto as Exhibit A (the “Severance Agreement”). This letter agreement, the Severance Agreement (when entered into), the Confidentiality and Invention Assignment Agreement, the Plan, the Option Agreement and the RSU Agreement (when entered into upon grant of the Stock Options and RSUs) set forth the terms of your employment with the Company and supersede any prior representations and agreements, whether written and oral.  This letter agreement may not be modified or amended, except by a written agreement, signed by both you and the Company’s Chief Executive Officer. This letter agreement is governed by California law. If any provision of this agreement is held invalid or unenforceable, the remaining provisions shall continue to be valid and enforceable
Ita, I look very much forward to working with you.
Sincerely,
/s/ Jayshree Ullal
Jayshree Ullal
President & CEO


Enclosure:

Exhibit A - Severance Agreement

Accepted:
/s/ Ita Brennan
 
Date:
April 22, 2015




Exhibit 10.2
ARISTA NETWORKS, INC.
SEVERANCE AGREEMENT
This Severance Agreement (the “ Agreement ”) is made and entered into by and between Ita Brennan (“ Executive ”) and Arista Networks, Inc., a Delaware corporation (“ Company ”), effective as of May 18, 2015 (the “ Effective Date ”).
RECITALS
1. The Board of Directors of the Company (the “ Board ”) believes that it is in the best interests of the Company and its stockholders (i) to assure that the Company will have the continued dedication and objectivity of Executive, notwithstanding the possibility, threat, or occurrence of a Change in Control (as defined below) and (ii) to provide Executive with an incentive to continue Executive’s employment and to motivate Executive to maximize the value of the Company for the benefit of its stockholders.
2. The Board believes that it is imperative to provide Executive with certain severance benefits upon Executive’s termination of employment under certain circumstances. These benefits will provide Executive with enhanced financial security and incentive and encouragement to remain with the Company.
3. Certain capitalized terms used in the Agreement are defined in Section 6 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement . This Agreement will terminate upon the date that all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2. At-Will Employment . The Company and Executive acknowledge that Executive’s employment is and will continue to be at-will, as defined under applicable law. If Executive’s employment terminates for any reason and Executive elects to sign and not revoke the Release (as defined in Section 4(a)), Executive will not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement or any Equity Award agreement, the payment of accrued but unpaid wages or other compensation, as required by law, as may otherwise be available in accordance with the Company’s established employee plans, and any unreimbursed reimbursable expenses, and this Agreement supersedes all prior agreements or arrangements relating to the same.
3. Severance Benefits .
(a) Termination without Cause or Resignation for Good Reason not in Connection with a Change in Control . If the Company terminates Executive’s employment with the Company without Cause (excluding Executive’s death or Disability) or if Executive resigns from such employment for Good Reason, then, subject to Section 4, Executive will receive the following:
(i) Accrued Compensation . The Company will pay Executive all accrued but unpaid vacation, expense reimbursements, wages, and other benefits due to Executive under any Company-provided plans, policies, and arrangements.
(ii) Severance Payment . Executive will be paid continuing payments of severance pay at a rate equal to Executive’s base salary rate, as then in effect, for twelve (12) months from the date of such termination of employment, to be paid periodically in accordance with the Company’s normal payroll policies.
(iii) Equity Acceleration for Time-Based Equity Awards . The vesting of Executive’s outstanding Equity Awards subject to time-based vesting will accelerate and vest as to the portion that would have vested had Executive remained employed with the Company for twelve (12) months following the termination of employment date. For the avoidance of doubt, no portion of any Equity Award subject to performance-based vesting will vest under this Section 3(a)(iii).
(b) Termination without Cause or Resignation for Good Reason in Connection with a Change in Control . If the Company terminates Executive’s employment with the Company without Cause or if Executive resigns from such employment for Good Reason, and such termination occurs within the period commencing with, and ending twelve (12) months following, a Change in Control, then, subject to Section 4, Executive will receive the following (in addition to the consideration set forth in Sections 3(a)(i) and (ii) above):
(i) Vesting Acceleration of Equity Awards . Fifty percent (50%) of Executive’s then outstanding and unvested Equity Awards as of the termination of employment date will become vested and otherwise will remain subject to the terms and conditions of the applicable Equity Award agreement. If, however, an outstanding Equity Award is to vest and/or the amount of the award to vest is to be determined based on the achievement of performance criteria, then the Equity Award will

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vest as to fifty percent (50%) of the amount of the Equity Award assuming the performance criteria had been achieved at target levels for the relevant performance period(s). For the avoidance of doubt, if the accelerated vesting benefit for an applicable Equity Award is greater under Section 3(a)(iii) than under this Section 3(b)(i), then Executive shall be entitled to the superior benefit set forth in Section 3(a)(iii).
(c) Voluntary Resignation; Termination for Cause . If Executive’s employment with the Company terminates (i) voluntarily by Executive (other than for Good Reason) or (ii) for Cause by the Company, then Executive will not be entitled to receive severance or other benefits except for those (if any) as may then be established under the Company’s then existing severance and benefits plans and practices or pursuant to other written agreements with the Company.
(d) Disability; Death . If the Company terminates Executive’s employment as a result of Executive’s Disability, or Executive’s employment terminates due to his or her death, then Executive will not be entitled to receive any other severance or other benefits, except for those (if any) as may then be established under the Company’s then existing written severance and benefits plans and practices or pursuant to other written agreements with the Company.
(e) Exclusive Remedy . In the event of a termination of Executive’s employment as set forth in Section 3 of this Agreement and assuming that Executive elects to sign and not revoke the Release, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company otherwise may be entitled, whether at law, tort or contract, in equity, or under this Agreement (other than the payment of accrued but unpaid wages, as required by law, any unreimbursed reimbursable expenses, and any rights under any Equity Award agreement). In such case, Executive will be entitled to no benefits, compensation or other payments or rights upon a termination of employment other than those benefits expressly set forth in Section 3 of this Agreement and in any Equity Award agreement.
4. Conditions to Receipt of Severance
(a) Release of Claims Agreement . The receipt of any severance payments or benefits (other than the accrued benefits set forth in Section 3(a)(i)) pursuant to this Agreement is subject to Executive signing and not revoking a separation agreement and release of claims in a form acceptable to the Company (the “ Release ”), which must become effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination of employment (the “ Release Deadline ”). If the Release does not become effective and irrevocable by the Release Deadline, Executive will forfeit any right to severance payments or benefits under this Agreement. In no event will severance payments or benefits be paid or provided until the Release actually becomes effective and irrevocable.
(b) Confidential Information and Invention Assignment Agreements . Executive’s receipt of any payments or benefits under Section 3 (other than the accrued benefits set forth in Section 3(a)(i)) will be subject to Executive continuing to comply with the terms of the Employment, Confidential Information and Invention Assignment Agreement dated May 18, 2015 (the “ Confidentiality and Invention Assignment Agreement ”), between the Company and Executive, as such agreement may be amended from time to time.
(c) Section 409A .
(i) Notwithstanding anything to the contrary in this Agreement, no severance payments or benefits to be paid or provided to Executive, if any, pursuant to this Agreement that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the final regulations and any guidance promulgated thereunder (“ Section 409A ”) (together, the “ Deferred Payments ”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A. Similarly, no severance payable to Executive, if any, pursuant to this Agreement that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A‑1(b)(9) will be payable until Executive has a “separation from service” within the meaning of Section 409A. Termination of employment is intended to constitute a “separation from service” within the meaning of Section 409A.
(ii) It is intended that none of the severance payments under this Agreement will constitute “ Deferred Payments ” but rather will be exempt from Section 409A as a payment that would fall within the “short-term deferral period” as described in Section 4(c)(iv) below or resulting from an involuntary separation from service as described in Section 4(c)(v) below. However, any severance payments or benefits under this Agreement that would be considered Deferred Payments will be paid on, or, in the case of installments, will not commence until, the sixtieth (60th) day following Executive’s separation from service, or, if later, such time as required by Section 4(c)(iii). Except as required by Section 4(c)(iii), any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60th) day following Executive’s separation from service and the remaining payments shall be made as provided in this Agreement.
(iii) Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Payments, if any, that are payable within the first six (6) months following Executive’s separation from service, will become

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payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service. All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but before the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute a separate payment under Section 1.409A-2(b)(2) of the Treasury Regulations.
(iv) Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of clause (i) above.
(v) Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit (as defined below) will not constitute Deferred Payments for purposes of clause (i) above.
(vi) The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition before actual payment to Executive under Section 409A.
5. Limitation on Payments . In the event that the severance and other benefits provided for in this Agreement or otherwise payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this Section 5, would be subject to the excise tax imposed by Section 4999 of the Code, then Executive’s benefits under Section 3 will be either:
(a) delivered in full, or
(b)
delivered as to such lesser extent which would result in no portion of such benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If a reduction in severance and other benefits constituting “parachute payments” is necessary so that benefits are delivered to a lesser extent, reduction will occur in the following order: (i) reduction of cash payments; (ii) cancellation of awards granted “contingent on a change in ownership or control” (within the meaning of Code Section 280G), (iii) cancellation of accelerated vesting of equity awards; (iv) reduction of employee benefits. In the event that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.
Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s independent public accountants immediately prior to a Change in Control or such other person or entity to which the parties mutually agree (the “ Firm ”), whose determination will be conclusive and binding upon Executive and the Company. For purposes of making the calculations required by this Section 5, the Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Firm such information and documents as the Firm may reasonably request in order to make a determination under this Section. The Company will bear all costs the Firm may incur in connection with any calculations contemplated by this Section 5.
6. Definition of Terms . The following terms referred to in this Agreement will have the following meanings:
(a) Cause . “ Cause ” will mean:
(i)    an act of dishonesty made by Executive in connection with Executive’s responsibilities as an employee;
(ii)    Executive’s conviction of, or plea of nolo contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude;
(iii)    Executive’s gross misconduct;
(iv)    Executive’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of Executive’s relationship with the Company;

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(v)    Executive’s willful breach of any obligations under any written agreement or covenant with the Company; or
(vi)    Executive’s continued failure to perform his employment duties after Executive has received a written demand of performance from the Company which specifically sets forth the factual basis for the Company’s belief that Executive has not substantially performed his duties and has failed to cure such non-performance to the Company’s reasonable satisfaction within 10 business days after receiving such notice.
(b) Change in Control . “ Change in Control ” will have the meaning set forth in the Company’s 2014 Equity Incentive Plan.
(c) Disability . “ Disability ” means that Executive has been unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. Alternatively, Executive will be deemed disabled if determined to be totally disabled by the Social Security Administration. Termination resulting from Disability may only be effected after at least thirty (30) days’ written notice by the Company of its intention to terminate Executive’s employment. In the event that Executive resumes the performance of substantially all of Executive’s duties hereunder before the termination of Executive’s employment becomes effective, the notice of intent to terminate based on Disability will automatically be deemed to have been revoked.
(d) Equity Awards . “ Equity Awards ” will mean an Executive’s outstanding stock options, stock appreciation rights, restricted stock, restricted stock units and other Company equity compensation awards.
(e) Good Reason . “ Good Reason ” will mean Executive’s resignation within thirty (30) days following the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without Executive’s consent:
(i)    a material diminution of Executive’s authority, duties or responsibilities; provided, however, that a reduction in authority, duties or responsibilities in connection with the Company being acquired and made part of a larger entity (as, for example, when the Chief Financial Officer of the Company remains as such following an acquisition of the Company but is not made the Chief Financial Officer of the acquiring corporation) will constitute “Good Reason”;
(ii)    a material reduction in Executive’s base salary (except where there is a reduction applicable to the management team generally); provided, however, that a reduction in Executive’s base salary of fifteen percent (15%) or less in any one (1) year will not be deemed a material reduction; or
(iii)    a material change in the geographic location of Executive’s primary work facility or location; provided that a relocation of less than fifty (50) miles from Executive’s then present location will not be considered a material change in geographic location.
Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a cure period of thirty (30) days following the date of such notice.
(f) Section 409A Limit . “ Section 409A Limit ” will mean two (2) times the lesser of: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding the Executive’s taxable year of Executive’s termination of employment as determined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.
7. Successors .
(a) The Company’s Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets will assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” will include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 7(a) or which becomes bound by the terms of this Agreement by operation of law.
(b) Executive’s Successors . The terms of this Agreement and all rights of Executive hereunder will inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

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8. Notice .
(a) General . Notices and all other communications contemplated by this Agreement will be in writing and will be deemed to have been duly given when sent electronically or personally delivered when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or when delivered by a private courier service such as UPS, DHL or Federal Express that has tracking capability. In the case of Executive, notices will be sent to the e-mail address or addressed to Executive at the home address, in either case which Executive most recently communicated to the Company in writing. In the case of the Company, electronic notices will be sent to the e-mail address of the Chief Executive Officer and the General Counsel and mailed notices will be addressed to its corporate headquarters, and all notices will be directed to the attention of its Chief Executive Officer and General Counsel.
(b) Notice of Termination . Any termination by the Company for Cause or by Executive for Good Reason will be communicated by a notice of termination to the other party hereto given in accordance with Section 8(a) of this Agreement. Such notice will indicate the specific termination provision in this Agreement relied upon, will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and will specify the termination date (which will be not more than ninety (90) days after the giving of such notice).
9. Resignation . Upon the termination of Executive’s employment for any reason, Executive will be deemed to have resigned from all officer and/or director positions held at the Company and its affiliates voluntarily, without any further required action by Executive, as of the end of Executive’s employment and Executive, at the Board’s request, will execute any documents reasonably necessary to reflect Executive’s resignation.
10. Miscellaneous Provisions .
(a) No Duty to Mitigate . Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any such payment be reduced by any earnings that Executive may receive from any other source.
(b) Waiver . No provision of this Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party will be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c) Headings . All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.
(d) Entire Agreement . This Agreement, the Confidentiality and Invention Assignment Agreement, Executive’s offer letter agreement, and the Equity Award agreements (when entered into) with the Company constitute the entire agreement of the parties hereto and supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the parties with respect to the subject matter hereof. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto and which specifically mention this Agreement.
(e) Choice of Law . The validity, interpretation, construction and performance of this Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). Any claims or legal actions by one party against the other arising out of the relationship between the parties contemplated herein (whether or not arising under this Agreement) will be commenced or maintained in any state or federal court located in the jurisdiction where Executive resides, and Executive and the Company hereby submit to the jurisdiction and venue of any such court.
(f) Severability . The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision hereof, which will remain in full force and effect.
(g) Withholding . All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment and other taxes.
(h) Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
[Signature Page to Follow]

5



IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.

COMPANY
 
ARISTA NETWORKS, INC.
 
 
By:
 
 
Title:
 
 
Date:
 
 
 
EXECUTIVE
 
By: /s/ Ita Brennan
 
 
Title: CFO
 
 
Date: April 22, 2015
 
 
 
 
 
 


6


Exhibit 99.1

Arista Networks, Inc. Reports First Quarter 2015 Financial Results
Cloud Networking Adoption Drives Record Revenue and non-GAAP Operating Income
SANTA CLARA, Calif., May 14, 2015 - Arista Networks, Inc. (NYSE: ANET), an industry leader in software-driven cloud networking solutions for large data center and computing environments, today announced financial results for its first quarter ended March 31, 2015 .
First Quarter Financial Highlights
Revenue of $179.0 million , an increase of 52.8% compared to the first quarter of 2014, and an increase of 3.2% from the fourth quarter of 2014.
Non-GAAP gross margin of 66.1% , compared to Non-GAAP gross margin of 69.6% in the first quarter of 2014 and 67.4% in the fourth quarter of 2014.
GAAP gross margin of 65.8% , compared to GAAP gross margin of 69.4% in the first quarter of 2014 and 67.1% in the fourth quarter of 2014.
Non-GAAP net income of $35.5 million , or $0.50 per diluted share, compared to non-GAAP net income of $16.4 million , or $0.25 per diluted share, in the first quarter of 2014.
GAAP net income of $24.5 million , or $0.34 per diluted share, compared to GAAP net income of $12.3 million , or $0.20 per diluted share, in the first quarter of 2014.
Operating cash flow of $20.8 million , compared to $17.7 million of operating cash flow in the first quarter of 2014.
"I am pleased with our Q1 2015 results, as we made strides in our top four verticals,” stated Jayshree Ullal, Arista President and CEO. “Our customer momentum in cloud networking, combined with our profitable growth and disruptive product innovations positions us well for the year."
Commenting on the company's financial results, Andy Bechtolsheim, Arista’s Chairman and Interim CFO, said, "We continued to execute strongly in Q1 2015 and achieved record revenue, a record non-GAAP operating margin of 28.6% , and doubled our non-GAAP earnings per share year-over-year.”
Company Highlights
Arista Networks has been recognized as a leader in Gartner's 2015 Magic Quadrant for Data Center Networking.
Announced Arista EOS as a Subscription (EaaS) service, a disaggregated offering that aligns to new cloud business models.
Converged solutions with Supermicro to deliver converged compute networking for cloud scale data centers for EVO.
Technology alliances with Infinera to deliver high performance metro-area cloud networks, and Lawo for IP-based broadcast Infrastructure.
Certification from ServiceNow of the Arista cloud networking portfolio, for comprehensive operations and management of the network.
In addition, President and CEO Jayshree Ullal will be speaking with the financial community at the William Blair Growth Stock Conference in Chicago, Illinois on Wednesday, June 10, 2015 at 8:00am CT. A live audio webcast of the event will be accessible from the "Investors" section of Arista Networks website at investors.arista.com.
Financial Outlook
For the second quarter of 2015, we expect:
Revenue between $183 and $191 million.
Non-GAAP gross margin in the range of 63% to 65% and
Non-GAAP operating margin in the range of 23% to 25%.
Guidance for non-GAAP financial measures excludes legal expenses associated with the OptumSoft and Cisco litigation, stock-based compensation and other non-recurring expenses. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.
Prepared Materials and Conference Call Information
Arista executives will discuss first quarter 2015 financial results on a conference call at 1:30 p.m. Pacific time today. To listen to the call via telephone, dial 1-877-201-0168 in the United States or 1-647-788-4901 from outside the US. The Conference ID is 21647872.





The financial results conference call will also be available via live webcast on our investor relations website at investors.arista.com. Shortly after the conclusion of the conference call, a replay of the audio webcast will be available on Arista’s Investor Relations website.
Forward-Looking Statements
This press release contains “forward-looking statements” regarding our future performance, including statements in the section entitled “Financial Outlook,” such as estimates regarding revenue, non-GAAP gross margin and non-GAAP operating margin for the second quarter of FY 2015 and statements regarding being well positioned for future periods. Forward-looking statements are subject to a number of uncertainties and risks that could cause actual results to differ materially from those anticipated in the forward-looking statements including: Arista Networks’ limited operating history; risks associated with Arista Networks’ rapid growth; Arista Networks’ customer concentration; requests for more favorable terms and conditions from our large end customers; declines in the sales prices of our products and services; changes in customer order patterns or customer mix; increased competition in our products and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; the dispute with Cisco Systems, Inc. and OptumSoft, Inc.; the evolution of the cloud networking market and the adoption by end customers of Arista Networks’ cloud networking solutions; and general market, political, economic and business conditions. Additional risks and uncertainties that could affect Arista Networks can be found in Arista’s Annual Report on Form 10-K that was filed with the SEC on March 12, 2015 for the year ended December 31, 2014, and other filings that the company makes to the SEC from time to time. You can locate these reports through our website at http://investors.arista.com and on the SEC’s website at www.sec.gov . All forward-looking statements in this press release are based on information available to the company as of the date hereof and Arista Networks disclaims any obligation to publicly update or revise any forward-looking statement to reflect events that occur or circumstances that exist after the date on which they were made.
Non-GAAP Financial Measures
The company reports non-GAAP results for gross margins, net income and net income per share in addition to, and not as a substitute for, financial measures calculated in accordance with GAAP. The company uses these non-GAAP financial measures internally in analyzing its financial results and believes that the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends.
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the company’s non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.
Arista Networks defines non-GAAP gross margins as total gross profit, excluding stock-based compensation expenses, divided by total revenue. Arista Networks defines non-GAAP net income as net income, excluding stock based compensation expense, expenses associated with the OptumSoft and Cisco litigation and the related income tax effect of these exclusions. Arista Networks defines non-GAAP net income per share as non-GAAP net income divided by the diluted weighted average shares outstanding on a pro forma basis. In order to evaluate per share information on a comparative basis, the company believes it is meaningful to provide a non-GAAP financial measure that gives pro forma effect to the conversion of the preferred shares and notes payable into common shares and the issuance of common shares in connection with the company’s initial public offering as if each happened at the beginning of each period presented.
Gartner, Magic Quadrant for Data Center Networking, Mark Fabbi | Andrew Lerner, 11 May 2015 Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose .
About Arista Networks
Arista Networks was founded to deliver software-driven cloud networking solutions for large data center and computing environments. Arista’s award-winning 10/40/100 GbE switches redefine scalability, robustness, and price-performance. At the core of Arista’s platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers.
ARISTA, EOS and Spline are among the registered and unregistered trademarks of Arista Networks, Inc. in jurisdictions around the world. Other company names or product names may be trademarks of their respective owners.
Additional information and resources can be found at: http://www.arista.com.





Media Contact
Amanda Jaramillo
Corporate Communications
(408) 547-5798
amanda@arista.com

 
Investor Contact
Chuck Elliott
Product and Investor Advocacy
(408) 547-5549
chuck@arista.com







ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2015
 
2014
Revenue:
 
 
 
Product
$
160,141

 
$
106,493

Service
18,904

 
10,714

Total Revenue
179,045

 
117,207

Cost of revenue:
 
 
 
Product
54,439

 
33,027

Service

6,852

 
2,866

Total cost of revenue
61,291

 
35,893

Total gross profit
117,754

 
81,314

Operating expenses:
 
 
 
Research and development
43,340

 
33,446

Sales and marketing
24,587

 
18,655

General and administrative
14,072

 
7,231

Total operating expenses
81,999

 
59,332

Income from operations
35,755

 
21,982

Other income (expense), net:
 
 
 
Interest expense—related party

 
(432
)
Interest expense
(821
)
 
(2,111
)
Other income (expense), net
(468
)
 
8

Total other income (expense), net
(1,289
)
 
(2,535
)
Income before provision for income taxes
34,466

 
19,447

Provision for income taxes
9,974

 
7,118

Net income
$
24,492

 
$
12,329

Net income attributable to common stockholders:
 
 
 
Basic
$
24,032

 
$
6,362

Diluted
$
24,071

 
$
6,816

Net income per share attributable to common stockholders:
 
 
 
Basic
$
0.37

 
$
0.22

Diluted
$
0.34

 
$
0.20

Weighted-average shares used in computing net income per share attributable to common stockholders:
 
 
 
Basic
64,635

 
29,124

Diluted
70,722

 
33,816









ARISTA NETWORKS, INC.
Reconciliation of Selected GAAP to Non-GAAP Financial Measures
(Unaudited in thousands, except percentages and per share amounts)
 
Three Months Ended March 31,
 
2015
 
2014
GAAP gross profit
$
117,754

 
$
81,314

GAAP gross margin
65.8
%
 
69.4
%
   Stock-based compensation expense
636

 
211

Non-GAAP gross profit
$
118,390

 
$
81,525

Non-GAAP gross margin
66.1
%
 
69.6
%
 
 
 
 
GAAP income from operations
$
35,755

 
$
21,982

   Stock-based compensation expense
8,839

 
4,782

   Litigation expense
6,670

 

Non-GAAP income from operations
$
51,264

 
$
26,764

Non-GAAP operating margin
28.6
%
 
22.8
%
 
 
 
 
GAAP net income
$
24,492

 
$
12,329

   Stock-based compensation expense
8,839

 
4,782

   Litigation expense
6,670

 

   Income tax effect on non-GAAP exclusions
(4,469
)
 
(705
)
Non-GAAP net income
$
35,532

 
$
16,406

 
 
 
 
Weighted average shares used in computing GAAP diluted income per share attributable to common stockholders
70,722

 
33,816

Additional weighted average dilutive shares 1

 
32,282

Non-GAAP weighted average diluted shares
70,722

 
66,098

 
 
 
 
GAAP diluted net income per share attributable to common stockholders
$
0.34

 
$
0.20

   Net income attributable to participating securities

 
0.16

   Non-GAAP adjustments to net income
0.16

 
0.12

   Non-GAAP adjustments to diluted shares

 
(0.23
)
Non-GAAP diluted net income per share
$
0.50

 
$
0.25

Summary of Stock-Based Compensation Expense
 
 
 
Cost of revenue
$
636

 
$
211

Research and development
4,928

 
2,467

Sales and marketing
2,409

 
1,428

General and administrative
866

 
676

Total
$
8,839

 
$
4,782

______________________________
1 Includes weighted average shares from the issuance of shares upon our IPO and the assumed conversion of preferred stock and notes payable at the beginning of the quarter.






ARISTA NETWORKS, INC.
Condensed Consolidated Balance Sheets
(Unaudited in thousands)
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
275,186

 
$
240,031

Marketable securities
209,153

 
209,426

Accounts receivable, net
113,057

 
96,982

Inventories
91,225

 
80,519

Deferred tax assets
9,801

 
12,252

Prepaid expenses and other current assets
37,622

 
40,269

Total current assets
736,044

 
679,479

Property and equipment, net
72,787

 
71,558

Investments
36,636

 
36,636

Deferred tax assets
12,291

 
11,510

Other assets
17,334

 
11,840

TOTAL ASSETS
$
875,092

 
$
811,023

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
29,123

 
$
32,428

Accrued liabilities
28,920

 
40,369

Deferred revenue
81,826

 
60,327

Other current liabilities
8,462

 
11,249

Total current liabilities
148,331

 
144,373

Income taxes payable
17,502

 
17,323

Lease financing obligations, non-current
42,232

 
42,547

Deferred revenue, non-current
50,998

 
46,141

Other long-term liabilities
5,558

 
4,981

TOTAL LIABILITIES
264,621

 
255,365

STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock

 

Common stock
7

 
7

Additional paid-in capital
456,509

 
426,171

Retained earnings
154,306

 
129,814

Accumulated other comprehensive loss
(351)

 
(334
)
TOTAL STOCKHOLDERS’ EQUITY
610,471

 
555,658

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
875,092

 
$
811,023









ARISTA NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited in thousands)
 
Three Months Ended March 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
24,492

 
$
12,329

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
2,893

 
2,285

Stock-based compensation
8,839

 
4,782

Deferred income taxes
1,670

 
2,110

Provision for bad debts
201

 
43

Amortization of debt discount

 
292

Excess tax benefit on stock based-compensation
(10,569
)
 
(311
)
Other
487

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(16,276
)
 
14,950

Inventories
(10,706
)
 
(5,619
)
Prepaid expenses and other current assets
2,613

 
(3,349
)
Other assets
(3,502
)
 
(2,794
)
Accounts payable
(1,936
)
 
(5,904
)
Accrued liabilities
(12,358
)
 
27

Deferred revenue
26,356

 
(2,797
)
Interest payable

 
1,110

Interest payable—related party

 
370

Income taxes payable
8,985

 
109

Other liabilities
(422
)
 
56

Net cash provided by operating activities
20,767

 
17,689

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(5,136
)
 
(3,103
)
Other investing activities
(667
)
 

Net cash used in investing activities
(5,803
)
 
(3,103
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Principal payments of lease financing obligations
(255
)
 
(133
)
Payments—offering costs
(261
)
 
(775
)
Proceeds from issuance of common stock upon exercising options, net of repurchases
5,322

 
1,861

Proceeds from issuance of common stock under employee stock purchase plan

4,856

 

Excess tax benefit on stock-based compensation
10,569

 
311

Net cash provided by financing activities
20,231

 
1,264

Effect of exchange rate changes
(40
)
 
10

NET INCREASE IN CASH AND CASH EQUIVALENTS
35,155

 
15,860

CASH AND CASH EQUIVALENTS—Beginning of period
240,031

 
113,664

CASH AND CASH EQUIVALENTS—End of period
$
275,186

 
$
129,524