UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 1, 2017
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For transition period from to
Commission File Number: 001-37927
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QUANTENNA COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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33-1127317
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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3450 W. Warren Avenue
Fremont, California 94538
(Address of principal executive offices, including zip code)
(510) 743-2260
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.0001
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The NASDAQ Stock Market LLC
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(NASDAQ Global Select Market)
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Securities registered pursuant to section 12(g) of the Act:
None
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Indicate by a check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on October 28, 2016 as reported by the NASDAQ Global Select Market on such date was approximately $317,688,682 million. The registrant has elected to use October 28, 2016, which was the initial trading date of the registrant’s common stock on the NASDAQ Global Select Market because on June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter), the registrant was a privately-held company. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.
As of February 24, 2017, 33,076,150 shares of the registrant’s common stock, $0.0001 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information called for by Part III of this Annual Report on Form 10-K where indicated are hereby incorporated by reference from the Definitive Proxy Statement for the registrant’s Annual Meeting of Stockholders to be held in 2017, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended January 1, 2017.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
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our ability to design and develop Wi-Fi solutions;
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our ability to attract and retain customers;
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our ability to attract and maintain relationships with service providers;
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our ability to maintain an adequate rate of revenue growth;
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our ability to expand into new Wi-Fi market segments and additional markets;
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our ability to achieve design wins;
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our future financial and results of operations;
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our business plan and our ability to effectively manage our growth and associated investments;
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our expectations regarding our industry and potential market;
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beliefs and objectives for future operations;
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beliefs associated with the use of our solutions;
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our ability to further penetrate our existing customer base;
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our ability to further develop strategic relationships;
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our expectations concerning additional purchase orders by existing customers;
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our ability to maintain our competitive technological advantages against new entrants in our industry;
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our ability to timely and effectively scale and adapt our existing technology;
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our ability to innovate new solutions and bring them to market in a timely manner;
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our ability to maintain, protect, and enhance our brand and intellectual property;
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our ability to expand internationally;
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our ability to increase our revenue and our revenue growth rate;
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the effects of increased competition in our market and our ability to compete effectively;
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cost of revenue, including changes in costs associated with production, manufacturing and customer support;
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operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;
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anticipated income tax rates;
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costs associated with defending intellectual property infringement and other claims;
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our expectations concerning relationships with third parties, including manufacturing partners;
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the release of new products;
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economic and industry trends or trend analysis;
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the attraction and retention of qualified employees and key personnel; and
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future acquisitions of or investments in complementary companies, products or technologies.
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We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
PART I
Item 1. BUSINESS
Overview
We are a leader in the design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking. Our solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. We apply our wireless systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated Wi-Fi solutions to our customers. Our technical expertise and focus on innovation enable us to address the increasing complexity inherent in managing Wi-Fi network access for multiple client devices with different high-bandwidth content streams, while simultaneously delivering superior network speed, broad coverage area, and high capacity and reliability. Our innovative solutions have historically addressed the telecommunications service provider market for home networking applications, including home gateways, repeaters, and set-top boxes, or STBs, but we are increasingly addressing additional end markets, with solutions for retail, outdoor, small and medium business, enterprise and consumer electronics. As a pioneer in high performance Wi-Fi solutions, we believe that we are well positioned to serve the rapidly evolving Wi-Fi needs of customers in both our existing and future end markets. We also believe our significant engineering expertise in wireless and communications can be applied to address other markets beyond Wi-Fi.
Wi-Fi is a ubiquitous standard for wireless network connectivity, defined by the Institute of Electrical and Electronics Engineers, or IEEE, 802.11 standardization body working group, that is rapidly evolving to deliver continued performance improvements while maintaining backward compatibility. According to ABI Research, in 2016 there were approximately 2.8 billion Wi-Fi-enabled devices shipped, of which approximately 1 billion were non-mobile phone devices, and cumulatively, over 12 billion Wi-Fi-connected devices have been shipped worldwide as of the end of 2016. The rapid growth in Wi-Fi connected devices, coupled with the steadily rising volume of global Internet Protocol-based, or IP-based, traffic, such as web browsing, email, Internet audio and video, file sharing, cloud computing and online gaming, has significantly increased the performance requirements of access points that power Wi-Fi networks. Such requirements have led to the adoption of 802.11ac, the latest revision of the 802.11 standard, which offers up to a 10-fold improvement in network speeds over its predecessor. Given the limited wireless spectrum available for Wi-Fi networks and the rapidly increasing demand for Wi-Fi-enabled services, the IEEE standardization body is expected to continue to define more advanced capabilities for future revisions of the standard, such as 802.11ax. The 802.11 standard implementation is left to the chipset vendors, and the inherent complexity and many optional features of the standard result in trade-offs leading to wide-ranging levels of Wi-Fi chipset functionality, performance, power and cost.
As the performance requirements of next generation Wi-Fi increase, a more advanced approach to the design of high-speed wireless communication products is required to address numerous challenges such as increasing Wi-Fi speeds, spectrum sharing, competing traffic, evolving standards, legacy Wi-Fi processing architecture and network interferences. We have pioneered significant enhancements to advanced features such as higher-order Multiple Input and Multiple Output, or MIMO, Multi-User MIMO, or MU-MIMO, transmit beamforming, and additional technologies to achieve superior Wi-Fi performance relative to our competition. Our competitive strengths include support of the most advanced specifications, proprietary technology architectures, and advanced software and system-level algorithms. Furthermore, we have created a cloud-based Wi-Fi analytics and monitoring platform that diagnoses and repairs network inefficiencies remotely.
Customers choose our Wi-Fi solutions to offer products with differentiated network speed, coverage area, reliability, and capacity. Our solutions portfolio is currently comprised of multiple generations of our radio frequency chip and our digital baseband chip, which together support the IEEE Wi-Fi standards, including 802.11n, 802.11ac and draft 802.11ax standard. Radio frequency chips use a combination of analog, digital and high frequency circuits to transmit and receive signals in certain frequencies, such as 2.4 gigahertz, or GHz, and 5GHz for Wi-Fi. Digital baseband chips transmit and receive data to and from radio frequency chips. These chips are typically sold together as a chipset combined with software and system-level reference designs that constitute a highly integrated Wi-Fi solution. We maintain our product differentiation by designing and implementing a variety of innovative system architecture features, as well as advanced software and system-level algorithms.
According to ABI Research, the global market for Wi-Fi chipsets is expected to grow from $3.8 billion in 2016 to $5.2 billion in 2021. We have shipped over 90 million chips to our customers across four semiconductor process generations. Our
chips consist of transistors using various advanced semiconductor fabrication technology nodes, which are measured in nanometers, or nm, to address different system requirements. We are currently in volume production in 90nm, 65nm, 40nm, and we began volume production of 28nm in early 2017. During the year ended January 1, 2017, our global original equipment manufacturer, or OEM, and original design manufacturer, or ODM, customers included Arris International plc, or Arris, Sagemcom Broadband SAS, or Sagemcom, and Technicolor SA, or Technicolor. During the same period, these OEM and ODM customers supported a number of major service providers in the United States as well as internationally. For the
year ended
January 1, 2017
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$129.1 million
and our net loss was
$1.9 million
, and we had an accumulated deficit of
$161.6 million
as of
January 1, 2017
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Industry Background
Global growth in IP data traffic and the proliferation of Wi-Fi connected devices are driving demand for more and better Wi-Fi connectivity. In addition, the types of IP traffic carried over Wi-Fi are also expanding. When Wi-Fi was first introduced into homes and enterprises, the predominant applications were email and Internet access. Today, the number of applications supported over Wi-Fi has grown to also encompass voice over IP, high-definition audio, Ultra High Definition television, or UHD, TV, cloud computing, gaming and over-the-top video, which refers to the delivery of video over the subscriber’s broadband connection without the involvement of traditional TV service providers. We believe that Wi-Fi will become the most prevalent method to carry these applications.
To meet these demands, service providers, retail OEMs, enterprise OEMs, and consumer electronics OEMs are increasingly focused on integrating the best Wi-Fi capabilities into their products.
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Service Providers
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Service providers, including AT&T, Inc., or AT&T, Orange S.A., and Telefonica, S.A., are seeking to deploy and manage the best Wi-Fi infrastructure inside the home to enable the connectivity of a growing number of Wi-Fi devices, and to offer a richer complement of value-added services such as high-speed Internet, UHD TV, voice over IP, home security, energy management, cloud computing and gaming. To meet the connectivity and bandwidth demands of such wireless infrastructure, service providers have migrated from home gateways with single-band 2.4GHz 802.11n to the latest dual-band 2.4GHz and 5GHz solutions, which include support for the latest 802.11ac standard. The 802.11ac standard not only supports faster speeds but also allows more devices to be simultaneously connected within the home, which is a crucial requirement as the average number of connected devices per household will continue to grow rapidly. Furthermore, service providers desire to offer their customers a seamless Wi-Fi connectivity experience outside the home. They have increased investments in the deployment of Wi-Fi hotspots to support sophisticated roaming and authentication with other hotspots and with customers’ home gateways. As a result, service providers use Wi-Fi to offer a higher performance, lower cost alternative to traditional mobile cellular services.
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Retail OEMs.
Retail OEMs, including Asus, Belkin International, Inc. and NETGEAR, Inc. are focusing on higher performance Wi-Fi as consumers are increasingly motivated to invest in higher-performance Wi-Fi for their homes. Consumers desire high-performance Wi-Fi throughout the home to connect many devices including laptops, smartphones, tablets, TVs, gaming consoles, wireless speakers, thermostats, smoke detectors, home security and other IoT applications. As a result, retail OEMs strive to offer routers with the latest Wi-Fi technology and performance to provide customers’ homes with the fastest and most reliable speeds. Accordingly, we believe high-performance Wi-Fi routers will constitute an increasing portion of retail OEM router sales.
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Enterprise OEMs.
Enterprise OEMs for enterprise networking are seeking to meet the demands of an increasingly mobile workforce that is connecting to the network via multiple devices beyond a desktop or laptop, such as smartphones and tablets. Enterprises are also seeking to optimize the costs of their networking infrastructure by adopting cost-effective wireless architecture. As a result, enterprise OEMs are increasingly adopting higher performance Wi-Fi in their products to achieve higher speeds and improved wireless network capacity. Capacity refers to the amount of data that can be supported in a given frequency or channel. 802.11ac access points can support almost three times the capacity of 802.11n access points. Higher capacity translates into a lower cost per bit, which is an important metric when tens, hundreds, or even thousands of access points are deployed in a given enterprise environment. We believe that the combination of higher capacity and lower cost per bit translates into greater enterprise demand for high-performance Wi-Fi enterprise access points.
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Consumer Electronics OEMs.
A more robust Wi-Fi network inside the home has enabled a proliferation of connected Wi-Fi devices and has driven an increasing need for better delivery of content to those Wi-Fi-enabled devices. As a
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result, consumer electronics OEMs are seeking to incorporate high-performance Wi-Fi in their products. We believe high-performance Wi-Fi is becoming a differentiator in consumer purchase decisions for high-end products which deliver optimal user experience and, as a result, we believe consumer electronics device OEMs will increasingly enable devices, such as 4K UHD TVs, over-the-top set top boxes, and gaming consoles with higher performance Wi-Fi.
Industry Challenges
Designing Wi-Fi solutions to provide the highest levels of performance is imperative to address consumer demands, yet remains very challenging due to the following factors.
Increasing Wi-Fi Speeds.
802.11ac-based devices are up to 10 times faster than prior generation devices, sending data at gigabits per second through the wireless channel, an unpredictable medium filled with obstacles, such as walls, doors, and furniture. As a result, more advanced digital signal processing techniques, such as MIMO, MU-MIMO, and explicit transmit beamforming, are required to keep up with the increasing performance requirements. A device incorporating MIMO technology transmits signals using more than one antenna and receives signals using more than one antenna, which allows the device to have increased speed and range. MU-MIMO refers to an algorithm that allows multiple client devices to be served by a Wi-Fi access point simultaneously. Explicit transmit beamforming is a technique that enables gateways and access points to direct their signals toward a client rather than covering a larger area, which increases transmission efficiency and ultimately improves Wi-Fi speed, range and reliability. Together, these techniques increase the performance level of 802.11ac solutions with improved range and more reliable connections, while serving an increased number of simultaneous users.
Spectrum Sharing.
Wi-Fi operates in a limited, unlicensed wireless spectrum, as regulated in the United States by the Federal Communications Commission, or FCC. While the 5GHz spectrum used by 802.11ac is inherently wider relative to the 2.4GHz spectrum, it is not always entirely available due to regulatory constraints that vary from country to country. For example, in many parts of the world, much of the 5GHz spectrum is reserved for military, weather radar, and air traffic control applications. These regulations mandate that Wi-Fi devices vacate such reserved spectrum upon detection of higher priority applications. To reliably achieve maximum speeds with 802.11ac, some of this restricted spectrum needs to be utilized. Therefore, a method referred to as Dynamic Frequency Selection, or DFS, needs to be implemented to accurately detect when these channels are available for Wi-Fi use. As bands become wider, it becomes increasingly critical for Wi-Fi applications to operate in the DFS spectrum. In the United States, in the 5GHz frequency band, there are 16 DFS channels that can be used in addition to the nine non-DFS channels. Therefore, a network that can use these DFS channels will increase total system capacity by almost threefold. Implementing efficient use of DFS channels requires complex algorithms.
Competing Traffic.
The types of traffic carried by Wi-Fi are rapidly increasing as technology providers seek to enable more device connectivity and value-added services. Each type of traffic has unique quality metrics that must be met in order to create a satisfactory user experience. For example, voice and video latencies must be low to ensure that users do not perceive any gaps in performance. Internet webpage and email traffic are sporadic by nature and typically do not have strict latency guidelines. As a result, certain traffic types need to be prioritized over others. A comprehensive Quality of Service, or QoS, mechanism is needed to prioritize traffic types, guarantee on-time delivery of specific traffic types ahead of others, and scale to meet the increased number of Wi-Fi clients in a network.
Rapid Evolution of Industry Standards.
The IEEE standardization body continually strives to improve Wi-Fi functionality and performance. For example, from 1997 to 2013, Wi-Fi maximum speeds increased from 1Mbps under the 802.11 standard to 6.8 gigabit per second, or Gbps, with the 802.11ac revision. All competitors in the Wi-Fi solutions market design their products according to the same IEEE Wi-Fi standards, which have become more complex as each subsequent standard includes an increasing number of specifications for both basic and optional features. While all Wi-Fi products need to incorporate all of the basic specifications under the standards, competitors in the high-performance Wi-Fi solutions market distinguish themselves by the speed with which they introduce new products and the degree to which their products are able to support advanced specifications and optional features such as explicit transmit beamforming, high-order MIMO, and MU-MIMO. This trend will continue with 802.11ax, the future revision of the 802.11 Wi-Fi standard. Some competitors decide to only implement the mandatory specifications and leave more complex optional features out of their products.
Legacy Wi-Fi Processing Architecture.
There are seven distinct layers of software functions needed for one Wi-Fi device to transmit data to another under IEEE Wi-Fi standards. Layers one and two comprise the Wi-Fi protocol stack, and layers three and above are referred to as higher-layer network functions. Historically, Wi-Fi chipsets were architected such that the host central processing unit, or CPU, inside a gateway or access point handled the majority of the higher-layer network processing
activity. However, as Wi-Fi speeds increase, the ability of the CPU to sustain maximum Wi-Fi data bandwidth while also performing other tasks is compromised. As a result, in order for the end product to meet its performance specifications, the Wi-Fi chipset must be capable of processing a greater proportion of both the Wi-Fi protocol stack and network functions to ensure that host CPUs have the bandwidth to operate properly.
Network Interference Management.
As Wi-Fi usage increases, higher levels of network congestion will occur. This was especially common with 802.11b 2.4GHz networks, which only had three non-overlapping channels. The limited number of channels meant that there was a high likelihood that competing devices were using the same channel, thereby degrading performance. While the industry’s transition to 5GHz networks temporarily helped to alleviate such degradation by offering more channels, similar congestion and degradation of performance may occur over time. A Wi-Fi management system is needed to constantly monitor and optimize Wi-Fi network performance. Such a system would not only oversee one access point or gateway within a particular home, but would also have the capability to monitor a whole network of access points, which can comprise millions of Wi-Fi clients.
Our Solution and Competitive Strengths
Our four generations of Wi-Fi solutions have been designed to achieve and maintain market leadership. Historically, in each case where we have introduced a new high performance Wi-Fi solution compliant with the 802.11 IEEE standard, we have done so well before our competitors have introduced a comparable product with the same features. This first-mover advantage has enabled us to market and monetize our solutions and capture key new customers and design wins while our competitors were still in the product development phase. This advantage has been particularly evident in the service provider market for home networking applications. Due to long design and deployment cycles, service providers may only undertake major product updates every few years. As a result, the ability to secure a service provider design win for a solution with advanced features can create a market advantage that lasts for months to years, depending on various factors, including how quickly a competitor releases a comparable product, how the performance of the competing product compares to ours, and how the timing of such release relates to the service provider’s design and deployment cycle. We believe our success in pioneering previous Wi-Fi solutions has also given us a head start in the development of next generation Wi-Fi solutions.
We strive to deliver the industry’s highest speed, broadest coverage, highest capacity, and most reliable performance through advanced software and system-level algorithms, Wi-Fi protocol processing using embedded CPUs, and, more recently, the introduction of a cloud-based Wi-Fi network management system. Our solutions allow us to address the industry challenges posed by increasing Wi-Fi speeds, limited spectrum, increasing traffic, legacy Wi-Fi processing architectures and network interference management. We deliver proprietary feature set extensions beyond standard requirements, offering significant performance advantages to the user. Our innovative solutions have historically addressed the service provider market for home networking applications such as home gateways, repeaters, and STBs, and we are increasingly addressing additional end markets, with solutions for home networking and small and medium business applications (e.g., routers and repeaters), enterprise networking (e.g., access points), and consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers.
Performance Benefits We Provide to Our Customers and Service Providers
We believe our Wi-Fi solutions enable the highest overall level of Wi-Fi performance in the market relative to network speed, range, capacity and reliability. A high-performing solution results in a positive user experience and high level of satisfaction from customers, service providers and their subscribers. The performance benefits that we provide to our customers and their target service providers are set forth below.
OEM and ODM Customers
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Integrated 2.4GHz and 5GHz Solutions.
Our most recent solutions include both 2.4 GHz and 5 GHz capabilities. As a result, our customers only need to design in a single chipset, instead of one for each frequency band. This integrated solution not only enables a more streamlined design process, but also maximizes interoperability and performance.
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Streamlined Integration and Faster Time to Market.
We have designed host offload technology, which allows the majority of Wi-Fi functions to be executed within our baseband chips. This offload software capability streamlines the integration of our chipsets into customer and reference design partner platforms. In addition, our experienced customer engineering support team engages with our OEM and ODM customers and partners early in their respective design cycles, which we believe accelerates their product development and ultimately optimizes product performance.
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Service Providers
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Improved Subscriber Experience and Increased Subscriber Retention.
Our Wi-Fi solutions are high-performance solutions, which helps create a positive subscriber experience when using Wi-Fi. Our Wi-Fi solutions also provide enhanced network performance capabilities, which enable service providers to offer their subscribers a broader range of value-added products and services such as wireless phone service, wireless set-top boxes and seamless streaming of ultra-high definition video. By offering such premium products and services, we believe service providers are able to generate more revenue per subscriber and deliver a better subscriber experience, which contributes to improved subscriber retention.
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Longer Lifecycle and Reduced Capital Investment.
Subscribers desire the most up-to-date technologies from their service providers. Devices featuring our solutions offer the leading edge of Wi-Fi technology, and therefore have a longer lifecycle and time to obsolescence. Additionally, a high-performing Wi-Fi infrastructure results in lower network expenditures for service providers by offloading cellular data, thereby reducing the burden on the cellular network.
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Fewer Service Disruptions and Lower Support Costs.
Because our Wi-Fi solutions support the most advanced IEEE Wi-Fi optional specifications, they provide higher speed, greater range and better reliability than our competitors’ products, which increases the quality of data transmission and improves Wi-Fi connectivity within a given area. We believe the high quality and reliability of our Wi-Fi solutions results in fewer service disruptions, and therefore reduces customer complaints and the need for support calls and on-site service requests.
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Automated Network Management.
We have a cloud-based Wi-Fi analytics platform which allows us to remotely collect data from our products in the field. The dataset helps us to efficiently support our customers, improve future performance of our products and improve our customers’ ability to ramp deployments, ultimately accelerating our time to market.
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Our competitive strengths include:
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Market Leadership through Support of the Most Advanced Specifications.
We design Wi-Fi solutions that support the most advanced IEEE Wi-Fi optional specifications, which allows us to be a leader in terms of both performance and innovation. For example, we shipped the world’s first 4x4 MIMO solution when our competitors were providing products with support for only 2x2 or 3x3 MIMO. Today, we are the first and only company shipping the full 8x8 MIMO specification of 802.11ac with our QSR10G Wi-Fi solution, which we believe allows us to offer the highest speed as well as the farthest range. While some of our competitors offer a wider variety of products, many of those products incorporate only basic features for low-performance applications outside our target market segments. In contrast, we focus on segments of the market where advanced features are critical for the targeted application to provide higher performance, such as whole home coverage or video delivery over Wi-Fi.
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Proprietary Technology Architectures.
We design proprietary technology architectures that we deliver through our high-performing chipsets. The 802.11 standard does not dictate implementation and a significant portion of modem design is vendor discretionary. We were the first to commercially introduce several new technology architectures, including the first 4-stream 802.11n 4x4 chipset in 2010, the first 4x4 802.11ac chipset in 2013 and the first 802.11ac 8x8 chipset in 2015. We were the first Wi-Fi solution provider to have integrated 12 chains on a single baseband chip die and eight transmit and eight receive chains on a single radio frequency chip, or RFIC, die as part of a 10Gbps Wi-Fi access point solution. Transmit and receive chains refer to circuitry in the RFIC responsible for transmitting and receiving data, respectively. We believe our proprietary architectures are a key part of what enables us to successfully compete against our larger, more established competitors.
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Advanced Software and System-Level Algorithms.
We enable our innovative Wi-Fi solutions with advanced proprietary software and system-level algorithms that provide superior functionality. For example, we were the first to commercially introduce a number of features built on the 802.11 standards, such as 4x4 MIMO, 8x8 MIMO, MU-MIMO, and 4x4 universal beamforming. We have integrated advanced digital signal processing, or DSP, algorithms in each of our baseband chips. The process of detecting and decoding the desired data from a noisy environment requires sophisticated DSP algorithms, which we have developed over the last 10 years. These algorithms include explicit transmit beamforming, MIMO, MU-MIMO, and others. We believe these algorithms are crucial to the performance and stability of products integrating our solutions.
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Pure Focus on High-Performance Wi-Fi Solutions and Deep Wireless Engineering Expertise.
Our research and development, engineering, manufacturing, sales, and marketing activities are focused mainly on high-performance Wi-
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Fi solutions, which we believe gives us an advantage over many of our competitors who do not focus exclusively on Wi-Fi. We have assembled a world-class wireless engineering team comprised of over 250 engineers worldwide with demonstrated capabilities in silicon and systems engineering, software engineering and customer engineering, including more than 150 with advanced degrees in relevant fields.
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Deep Relationships with Our Customers and Reference Design Partners.
We have built collaborative relationships with our customers and reference design partners, many of whom are industry leaders. We believe these relationships provide us with enhanced visibility into their future requirements. We often collaborate with these leaders at the front end of the design cycle and help them architect their next-generation products. We believe we have a strong industry reputation for responsiveness and delivering Wi-Fi solutions that meet or exceed our customers and reference design partners’ technological requirements, as well as their overall business needs.
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Our Strategy
The key components of our strategy include the following:
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Continue to Deliver Wi-Fi Innovation.
The Wi-Fi industry is constantly evolving as new technologies emerge and standards are updated. We intend to continue our investment in research and development to drive further innovation, including new Wi-Fi standards, and maintain a market leadership position in the Wi-Fi marketplace.
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Expand Share in Service Provider Market.
We intend to leverage our growing number of service provider and OEM and ODM relationships to aggressively market our solutions’ competitive advantages and increase our footprint among service providers. This market is characterized by long product lifecycles and stable customer engagements with greater visibility into future revenue. In addition, we intend to expand our geographic reach beyond North America and Western Europe, which are currently the predominant end markets for our Wi-Fi solutions.
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Leverage Industry Partnerships to Promote Adoption of Our Solutions.
We maintain partnerships with several technology industry leaders to ensure the compatibility of our solutions with other components of the end product, and to promote the adoption of our Wi-Fi solutions. We will seek to broaden and strengthen these partnerships to drive design wins and establish incumbency.
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Address Other Wi-Fi Market Segments.
We have addressed only a small portion of the retail Wi-Fi market opportunity and have not yet entered the small and medium business, enterprise and consumer electronics markets. We intend to leverage our existing technologies and solutions, as well as broaden our Wi-Fi solutions portfolio, to continue to expand our presence in the retail Wi-Fi market and address the small and medium business, enterprise, consumer electronics and other markets.
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Broaden Solutions Beyond Wi-Fi
.
We believe our existing technologies and wireless engineering expertise, as well as our deep industry relationships, provide us an opportunity to expand beyond the Wi-Fi market through a combination of organic investments and acquisitions.
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Our Products and Technology
Our differentiated Wi-Fi system architecture typically consists of a RFIC and a digital baseband system-on-chip, or baseband SOC. The RFIC transmits and receives at a particular frequency, and the baseband SOC implements system-level algorithms to process physical layer (layer one) functions and additional logic that executes software to process 802.11 protocols from the signals received to and from the RFIC. The RFIC and baseband SOC are placed on a printed circuit board called a “reference design,” where they interact with the rest of the hardware and software system of the end product.
The typical applications that use our current solutions are:
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Access Point and Gateways.
These applications are at the core of wireless home networking and enterprise access. Our initial solutions supported 2-stream applications with 4x4 5GHz 802.11n, and we have continuously innovated to deliver increasing speeds, culminating in our latest 12-stream (8x8 5GHz 802.11ac and 4x4 2.4GHz and 5GHz 802.11n), 10Gbps, dual-band dual-concurrent offering. Our solutions have also evolved from primarily supporting real-time video delivery over Wi-Fi to supporting voice, video, and data. We seek to extend our industry-leading position by continuing to develop solutions to support the next-generation of Wi-Fi applications. We believe that the increasing demands on wireless home networks and enterprise applications will help drive the need for high performance access points and gateways in the marketplace, which we believe will also contribute to greater demand for high-performance Wi-Fi solutions with higher average selling prices, or ASPs, given the benefits they provide to our customers.
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Clients.
We provide Wi-Fi solutions for non-mobile client applications such as STBs. We believe the performance advantages of our solutions will better support the latest generation of UHD STBs, which have higher Wi-Fi speed requirements. In addition, increased speed, range, capacity and reliability can be achieved when our client solutions are used in conjunction with our access point and gateway solutions. We believe that overall Wi-Fi penetration of STBs in the marketplace is relatively low.
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Repeaters and Distributed Access Points.
In certain challenging networking environments, repeaters and distributed access points can be used to provide extended Wi-Fi coverage. Our repeater and distributed access point solutions support advanced functionality, including setup, management, and client connectivity features. We believe repeaters, along with our access point solutions, can play an important role in addressing the growing consumer demand for whole-home coverage.
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We differentiate our solutions portfolio by designing and implementing a variety of innovative system architecture and software features that are aimed at solving the challenges of high-performance wireless networking, including:
Increasing Wi-Fi Speeds
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Transmit Beamforming.
Beamforming is critical to effectively compete in the high-performance Wi-Fi market as it enables gateways and access points to direct their signals toward a client to increase transmission efficiency and improve Wi-Fi speed and range. We were the first to apply Wi-Fi transmit beamforming technology to four antennas, and have continued to optimize it for eight antennas. Beamforming is an integral part of our solutions, and our engineering team includes leading system algorithm experts to address the design and implementation challenges in this field.
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Advanced MIMO and MU-MIMO.
MIMO technology multiplies the capacity of a wireless connection by allowing access points to transmit and receive multiple streams of data at the same time. MU-MIMO technology permits not only multiple streams to a single device, but also enables multiple client devices to receive multiple streams of data at the same time. When combined, these two features allow the most efficient use of a given channel by offering the highest bits per hertz. A 4x4 MIMO transmission uses four antennas, and an 8x8 MIMO transmission uses eight antennas. We refer to these technologies as higher-order MIMO. Four antennas are used in the 2.4GHz band, and four or eight antennas are used in the 5GHz band. We were the first to commercially introduce MIMO and MU-MIMO for 4x4 802.11n, 4x4 802.11ac, and 8x8 802.11ac. We have experienced wireless system architects and software engineers to lead the implementation of these technologies.
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Spectrum Scarcity
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SuperDFS Dynamic Smart Channel Selection.
SuperDFS is a set of system-level algorithms that combine RFIC, baseband, and software functions to select a particular DFS channel that has the least interference and best system capacity. Our detection mechanisms have been optimized to pass strict FCC product certification guidelines without being overly reactive in DFS frequencies.
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More Traffic Types
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IQStream Advanced Traffic Management.
IQstream is a proprietary system-level algorithm that classifies and prioritizes all types of Wi-Fi traffic in order for the most critical traffic to be delivered with the least interruption. For example, IQStream allows the prioritization of real-time HD video or voice call transmissions over lower priority data such as email and Internet webpage access.
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Legacy Wi-Fi Processing Architecture
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Host Offload.
We have implemented host offload technology, which allows the majority of Wi-Fi functions to be executed within our baseband chips. This not only frees up the resources of the host CPU, but also requires less software integration and optimization between our Wi-Fi chips and the host CPU during system design. This significantly decreases our customers’ product development time.
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Network Management
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Cloud-based Wi-Fi Management Platform.
Our proprietary cloud-based platform comprises a debugging agent embedded within a product, such as an access point, which sends Wi-Fi data to an analytics engine in the cloud. This system permits remote, real-time issue identification and resolution. This allows us to deliver enhanced customer support and Wi-Fi performance. Our cloud-based platform can scale to manage millions of Wi-Fi devices and thus can provide a complete network-wide Wi-Fi management system for our customers.
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Smart Wi-Fi Management.
Our smart Wi-Fi managed home solution provide a comprehensive solution for total home connectivity. This solution is comprised of a software framework, SONiQ, for the management of multiple access points or repeaters, and a range of repeater hardware reference designs. Together, these two elements manage and optimize home Wi-Fi networks and help provide maximum speed and quality of experience for our customers.
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We are currently shipping our second generation 4x4 802.11n and third generation 4x4 802.11ac Wi-Fi solutions in volume, as well as production samples of our fourth generation 10Gbps Wi-Fi solution.
In October 2016, we announced our QSR 10G-AX product, which follows the 802.11ax draft standard. We are expecting to begin sampling this product to early access partners in 2017.
Our Customers
We sell our Wi-Fi solutions directly to global OEMs and ODMs that serve the end markets we target. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. OEMs incorporate our Wi-Fi solutions into their products, which are then sold to their own customers, such as service providers, retailers, enterprises, small and medium businesses, and retail consumers. To date, we have primarily addressed the service provider market for home networking applications, including home gateways, repeaters, and set-top boxes. We are increasingly addressing additional end markets with solutions for (i) retail OEMs for home networking as well as small and medium business applications (e.g., routers and repeaters), (ii) enterprise OEMs for enterprise networking applications (e.g., access points), and (iii) consumer electronics OEMs for consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers. We believe the life cycles of our customers’ products can range from approximately one year to five years or more depending on the end market.
Some OEMs purchase our Wi-Fi solutions directly from us and use them in the design and manufacture (directly or through their third-party contract manufacturers) of their own products. Other OEMs utilize ODMs to design and build subsystem products incorporating our Wi-Fi solutions, which the OEMs then purchase from the ODM and incorporate into the OEM products. Accordingly, we ship our Wi-Fi solutions either directly to the OEM, its contract manufacturer, or its ODM, based on the requirements of each OEM. However, we maintain close relationships with the target OEM to monitor OEM end-market demand as the initial Wi-Fi solution design win is generally awarded by the OEM.
Service providers purchase the products they sell to, or subsidize for use by, their subscribers through OEMs and ODMs. We typically do not enter into formal agreements with service providers, and our relationship with service providers varies depending on the service provider’s strategy:
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Service Providers Selecting Wi-Fi Technology Directly.
Some service providers, typically those with large subscriber bases, require that a specific Wi-Fi solution be designed into the OEM products they purchase. As a result, although our customers are OEMs and ODMs, we maintain close relationships with these service providers since they award design wins for our Wi-Fi solutions. After a design win is achieved, we continue to work closely with the service providers to assist them and their OEMs and ODMs throughout their product development and early deployment, which can often last six to 18 months.
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Service Providers Selecting OEM / ODM Products
. Other service providers, typically those with smaller subscriber bases, do not require that specific Wi-Fi solutions be designed into the OEM or ODM products they purchase. As a
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result, the OEM or ODM is the key decision maker with respect to awarding design wins and may incorporate the winning design into their products for numerous service providers. We maintain close relationships with our OEM and ODM customers to secure design wins and monitor end-market demand.
The following table represents OEM, ODM and third-party distributor customers comprising 10% or more of our revenue:
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Years Ended
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January 1,
2017
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December 27,
2015
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December 28,
2014
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(Percentage of revenue)
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Customer:
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Pace plc**
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19%
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14%
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*
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Technicolor SA
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11%
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15%
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11%
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Sagemcom Broadband SAS
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11%
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*
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*
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Prohubs International Corp.
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*
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11%
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*
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Gemtek Electronics Co. Ltd.
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*
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10%
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28%
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CyberTAN, Technology, Inc.
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*
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*
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21%
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________________________
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*
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Customer percentage of revenue was less than 10%.
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**
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Pace plc was acquired by Arris International plc in January 2016.
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Substantially all of our revenue as of January 1, 2017 has been derived from sales to customers serving the service provider home networking market.
Almost all of our revenue is generated outside the United States in the years ended
January 1, 2017
,
December 27, 2015
, and,
December 28, 2014
, based on ship-to destinations, and we anticipate that the vast majority of our shipments will continue to be delivered outside the United States. Although almost all shipments are delivered outside the United States, we believe that a significant number of the Wi-Fi products that include our chips, such as access points, gateways, set-top boxes and repeaters, are ultimately directed and sold by OEM customers to service providers in North America and Western Europe. See Note 13 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding our operations by geographic area.
We currently derive substantially all of our revenue from the sale of our Wi-Fi solutions. During the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, revenue from sales of our Wi-Fi solutions constituted 99%, 89%, and 91% of our total revenue, respectively. In addition, during the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we also derived revenue from a limited number of licensing and non-recurring arrangements, which together constituted 1%, 11%, and 9%, of our total revenue, respectively. These arrangements are no longer active. In the future, we may enter into new licensing arrangements on an opportunistic basis. To date, all of our revenue has been denominated in United States dollars.
Sales and Marketing
We sell our solutions worldwide using a combination of a direct sales force and third-party distributors. We employ direct sales teams in the United States, Europe and Asia who support our OEM and ODM customers and service providers. We have located our sales and marketing teams near our existing OEM and ODM customers and larger service providers in the United States (serving North America), France, Spain, Japan, and Taiwan (serving greater Asia). Each salesperson has specific end market expertise. We also employ field application engineers, or FAEs, typically co-located with our direct sales teams, who provide technical pre-sales support to our sales team and assistance to existing and potential customers throughout their design-in and qualification cycles. Our FAE team is organized by end markets as well as core competencies in hardware, software, and wireless systems necessary to support our customers and their target service providers.
To supplement our direct sales team, we have contracts with several independent sales representatives and distributors in the United States, Taiwan, Korea, and China. We selected these independent representatives and distributors based on their ability to provide effective field sales, marketing communications and technical support for our Wi-Fi solutions. In the case of
representatives, our customers place orders with us directly rather than with the representatives who do not maintain any inventory. In the case of distributors, our customers place orders through distributors who purchase inventory from us.
Our sales have historically been made on the basis of purchase orders rather than customer specific, long-term agreements. All of our material terms and conditions are consistent with general industry practice, but vary from customer to customer. We typically receive purchase orders 12 to 14 weeks ahead of the customer’s desired delivery date. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, we believe that backlog is not a reliable indicator of our future revenue.
Our marketing team focuses on our solutions strategy and road maps, product marketing, new solution introduction processes, demand assessment and competitive analysis, marketing communication and public relations.
Manufacturing
We use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs. We believe this outsourced manufacturing approach gives us access to the best available process technology, reduces our capital requirements, and allows us to focus our resources on the design, development, marketing, sales and customer integration of our Wi-Fi solutions. We use industry-standard complementary metal-oxide semiconductor manufacturing process technology, which enables us to produce cost-effective products and achieve high-performance. We partner with our third-party contractors to improve the efficiency of our supply chain and to secure the necessary level of manufacturing capacity. We work closely with these contractors to improve our chipset’s manufacturability, enhance yields, lower product and manufacturing costs, and improve quality. We are committed to continuous improvements in our chipset design for better manufacturability and in our third-party contractors’ manufacturing processes to achieve the high-quality, reliability, cost, and the performance metrics targets.
Wafer Fabrication, Assembly and Testing
We purchase silicon wafers from Taiwan Semiconductor Manufacturing Corporation, or TSMC, in Taiwan, our foundry partner, which are then shipped to third-party contractors who assemble and test our chipsets. We currently use several process nodes ranging from 90nm to 28nm. We qualify and utilize multiple TSMC facilities to ensure consistent production performance and redundancy, which is a critical component of our supply chain strategy. We currently use Advanced Semiconductor Engineering in Taiwan and Signetics Corporation in Korea for assembly and testing. All of our material terms and conditions are consistent with general industry practice, but vary from vendor to vendor. Our inventory is distributed from the third-party contractors and a contracted warehouse in Taiwan. We require our third-party contractors to have comprehensive quality manufacturing systems, certified at International Organization for Standardization, or ISO, 9000 levels.
Research and Development
We believe that our success depends on our ability to enhance our existing Wi-Fi solutions, develop new innovative solutions, and integrate additional capabilities to serve our existing and future target markets. We engage in research and development efforts in four core areas:
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System-level algorithm development (core Wi-Fi algorithms and system-level integration);
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Digital, mixed-signal, and RFIC design (baseband and RFIC Wi-Fi silicon chipsets);
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Software development (embedded Wi-Fi and network-level drivers); and
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Reference hardware platforms (board designs for internal use and customer reference).
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We also have a team of dedicated customer engineers to support our OEMs and service providers in their integration of our solutions into their products. We believe our competencies can be leveraged to broaden our solutions portfolio within and beyond the Wi-Fi market.
Our research and development team is comprised of highly skilled engineers and technologists with extensive experience in digital, mixed signal, and RFIC design, system level architecture, and software development. We have assembled our engineering team in the United States, Australia, China, Taiwan, and Russia. Approximately 70% of our research & development team holds advanced technical degrees.
Our research and development expense was
$46.6 million
,
$35.6 million
, and
$31.3 million
, for the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, respectively. We intend to continue to invest in research and development to support and enhance our existing Wi-Fi solutions and design and develop future product offerings.
Intellectual Property
We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology and intellectual property. As of
January 1, 2017
, we had
42
issued patents in the United States and
five
foreign counterpart patents issued in Taiwan. The issued patents in the United States expire beginning in 2026 through 2035. Our issued patents and pending patent applications relate to MIMO systems, algorithms, circuits, system level optimization and wireless network management.
In addition to our own intellectual property, we also use third-party licenses for certain technologies embedded in our Wi-Fi solutions. These are typically non-exclusive contracts provided under royalty-accruing or paid-up licenses. While we do not believe our business is dependent to any significant degree on any individual third-party license, we expect to continue to use and may license additional third-party technology for our solutions. We also invest in the latest commercially available software design and simulation tools, which enable us to leverage our intellectual property portfolio, improve time to commercialization, and deliver high-performance solutions.
We generally control access to and use of our confidential information through employing internal and external controls, including contractual protections with employees, consultants, customers, partners and suppliers. Our employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. Despite our efforts to protect our intellectual property, unauthorized parties may copy or otherwise obtain and use our software, technology or other information that we regard as proprietary intellectual property.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. From time to time, we have received communications from other third parties, including non-practicing entities, alleging our infringement of their patents, and we may receive additional claims of infringement in the future. In addition, our customers and our customers’ customers may also receive communications regarding alleged infringement of their products that implicate our Wi-Fi solutions, which could trigger warranty and indemnity obligations from us. Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. See the section titled “Risk Factors” for additional information.
Competition
We compete with numerous domestic and international semiconductor companies, many of which have greater financial and other resources with which to pursue design, development, manufacturing, sales, marketing and distribution of their products. Our competitors include public companies with broader product lines, a larger base of customers and greater resources compared to us. We consider our primary competitors to be other companies that provide Wi-Fi products to the market, including Broadcom Corporation, or Broadcom, Intel Corporation, or Intel, Marvell Technology Group Ltd., or Marvell, MediaTek USA Inc., or MediaTek, Qualcomm Incorporated, or Qualcomm, and Realtek Semiconductor Corp. We may also face competition from other new and emerging companies, including emerging companies in China.
The principal competitive factors in our market include:
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performance of Wi-Fi solutions, including the ability to support advanced optional IEEE Wi-Fi specifications;
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cost effectiveness of Wi-Fi solutions;
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design process and time to market;
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innovation and development of functionality and features not previously available in the marketplace;
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ability to anticipate requirements of customers’ and service providers’ next-generation products and applications;
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ability to identify new and emerging markets, applications and technologies;
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brand recognition and reputation;
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strength of personnel, including software engineers and chip designers; and
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customer service and support.
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While most of our competitors may offer a wider variety of products, we design Wi-Fi solutions that support the most advanced optional IEEE Wi-Fi specifications. As such, we focus on high-performance Wi-Fi solutions for each of our end markets and we believe we compete favorably with respect to the factors described above.
Information about Segment and Geographic Revenue
Information about segment and geographic revenue is set forth in Note 13 of the “Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
Employees
As of
January 1, 2017
, we employed a total of
325
people, comprised of
261
in research and development and in operations, and
64
in sales, marketing, and administration. We also engage temporary employees and consultants. We have never had a work stoppage, and we consider our employee relations to be good. None of our employees are represented by a labor organization or subject to a collective bargaining arrangement.
Facilities
Our corporate headquarters is located in Fremont, California in a facility consisting of approximately 27,000 square feet of office space under a lease that expires in September 2018, but can be terminated earlier at our option. We have also recently entered into a new lease agreement located in San Jose, California for our corporate headquarters consisting of approximately 84,000 square feet, which expires in 2024. We also lease properties in Australia, China, Russia, and Taiwan which accommodate our design centers and sales support team. Based on our business requirements, the location and size of these leased properties will change from time to time. We intend to expand our existing facilities as we grow our business and add resources. We believe that additional facilities will be available on commercially reasonable terms to accommodate foreseeable expansion of our operations. We do not own any real property.
Corporate Information
We were incorporated in Delaware in November 2005 as mySource Communications, Inc., and we changed our name to Quantenna Communications, Inc. in January 2007. Our headquarters is located at 3450 W. Warren Avenue, Fremont, California 94538, and our telephone number is (510) 743-2260. We completed our initial public offering in November 2016 and our common stock is listed on the NASDAQ Global Select Market under the symbol “QTNA.” Unless the context requires otherwise, the words “Quantenna,” “we,” “Company,” “us” and “our” refer to Quantenna Communications, Inc. and our wholly owned subsidiaries.
“Quantenna” and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on Form 10-K are the property of Quantenna Communications, Inc. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, we have elected to comply with certain reduced public company reporting requirements. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” are intended to have the meaning associated with it in the JOBS Act.
Available Information
Our website is located at www.quantenna.com, and our investor relations website is located at http://ir.quantenna.com/. We have used, and intend to continue to use, our Investor Relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
Item 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occurs, our business, operating results, financial condition, cash flows and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
If we fail to develop and introduce new or enhanced Wi-Fi solutions to meet the requirements of our target markets on a timely basis, our ability to retain and attract customers could be impaired and our competitive position could be harmed.
We are largely dependent on sales of leading-edge, high-performance Wi-Fi solutions. The markets we target with our solutions are characterized by rapidly changing technology, changing customer and service provider needs, evolving industry standards, intense competition and frequent introductions of new products. To succeed, we must effectively anticipate customer and service provider requirements and respond to these requirements on a timely basis. For example, we were the first to announce an 802.11ac 8x8 product, our QSR-10G product, in September 2015. We also announced a new product based on the draft 802.11ax standard in October 2016. If we fail to develop new Wi-Fi solutions or enhancements to our existing solutions that offer increased features and performance in a cost-effective manner, or if our customers or service providers do not believe that our solutions have compelling technological advantages, our business could be adversely affected. We must also successfully manage the transition from older solutions to new or enhanced solutions to minimize disruptions in our business. In addition, if our competitors introduce new products that outperform our solutions or provide similar performance at lower prices, we may lose market share or be required to reduce our prices. For example, in February 2017, Qualcomm announced a new 8x8 product based on the draft 802.11ax standard that may compete with our previously announced product. Our failure to accurately predict market needs or timely develop Wi-Fi solutions that address market needs could harm our business, results of operations and financial condition.
The complexity of our solutions could result in unforeseen design and development delays or expenditures.
Developing our Wi-Fi solutions is expensive, complex, time-consuming and involves uncertainties. We must often make significant investments in product roadmaps, design and development far in advance of established market needs and may not be able to consistently and accurately predict what those actual needs will be in the future. Each phase in the development of our solutions presents serious risks of failure, rework or delay, any one of which could impact the timing and cost-effective development of such solutions and could jeopardize customer acceptance of the solutions. Product development efforts may last two years or longer, and require significant investments of time, third-party development costs, prototypes and sample materials, as well as sales and marketing resources and expenses, which will not be recouped if the product launch is unsuccessful. We also have limited resources and may not be able to develop alternative designs or address a variety of differing market requirements in parallel. Our failure to adequately address any such delays in a cost-effective manner could harm our business, results of operations and financial condition.
In addition, as is common in our industry, our Wi-Fi solutions may contain defects, errors and bugs when they are first introduced or as new versions are released. We have in the past, and may in the future, experience defects, errors and bugs. For example, in 2015, in response to a defect we identified, we were required to make a revision to one of our chips, which resulted in a four month delay in product introduction. Product defects, errors or bugs could affect the performance of our products resulting in reliability, quality or compatibility problems, and delay the development or shipments of new solutions or new
versions of our solutions. As a result, our reputation may be damaged and the market adoption of our Wi-Fi solutions could be adversely affected. If any of these problems are not found until after we have commenced shipment of a new solution, we may incur significant additional development costs to redesign, recall, repair or replace the defective solution. These problems may also trigger warranty or contractual indemnity claims against us by our customers or others, and our reputation and results of operations may be adversely affected.
Our solutions must also successfully operate with products from other vendors. As a result, when problems occur in a customer product in which our solution is used, it may be difficult to identify the source of these problems. The occurrence of hardware and software errors, whether or not caused by our solutions, could result in the delay or loss of market adoption of our solutions, and therefore delay our ability to recognize revenue from sales, and any necessary repairs may cause us to incur significant expenses. The occurrence of any such problems could harm our business, results of operations and financial condition.
We depend on a limited number of customers and service providers for a significant portion of our revenue.
We derive a significant portion of our revenue from a small number of OEMs and ODMs, and we anticipate that we will continue to do so for the foreseeable future. In 2016, four customers accounted for approximately 50% of our revenue. In addition, substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. Based on sell-through information provided to us by our OEM and ODM customers, we estimate that our two largest service providers, which are based in the United States, represented approximately 40% of our revenue in 2016. The loss of a key customer or service provider, or a reduction in sales to any key customer or service provider could negatively impact our revenue, cause us to have excess or obsolete inventory, and harm our business, results of operations and financial condition.
We have an accumulated deficit and have incurred net losses in the past, and we may incur net losses in the future.
We have incurred net losses in the past and may incur net losses in the future. For the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we incurred net losses of
$1.9 million
,
$7.0 million
, and
$13.6 million
, respectively. As of
January 1, 2017
, we had an accumulated deficit of
$162.0 million
. We expect to continue to make significant investments related to the development of our Wi-Fi solutions and the expansion of our business, including investments to support our research and development, sales and marketing and general and administrative functions. As a public company, we will also incur significant additional legal, accounting and other expenses. If our revenue growth does not exceed the growth of these anticipated expenses, we may not be able to achieve or sustain profitability, and our stock price could decline.
We face intense competition from a number of larger and more established companies and expect competition to increase in the future, which could have an adverse effect on our market share, revenue and results of operations.
Many of our competitors, including Broadcom, Intel Corporation, Marvell, MediaTek, and Qualcomm, have greater financial, technical, sales, marketing and other resources than we do, as well as longer operating histories, greater name recognition, larger customer bases and more established customer relationships. In the future, we may also face competition from other new and emerging companies, including from companies in China.
Our competitors may be able to anticipate, influence or adapt more quickly to new or emerging technologies and standards and changes in customer and service provider requirements. Our competitors may also be able to devote greater resources to the promotion and sale of their products, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily and develop and expand their product offerings more quickly than we can. In addition, many of our larger competitors offer a broader range of products than we do, including non-Wi-Fi products. These competitors may be able to sell at lower margins, bundle additional products and features with their Wi-Fi products, or create closed platforms that discourage customers or service providers from purchasing our Wi-Fi solutions. This strategy may be particularly effective for customers and service providers who prefer the convenience of purchasing all of their Wi-Fi products from a single provider. If we are unable to maintain our competitive advantages through the delivery of superior solutions, our business, results of operations and financial condition may be harmed.
Consolidation in our industry or in a related industry that involves our customers, service providers, partners and competitors could disrupt our business.
There has been a significant amount of consolidation in our industry and related industries. Examples include consolidation among service providers, such as the acquisition of DIRECTV by AT&T in 2015; consolidation involving our customers, such as the acquisition of the Cisco video business by Technicolor in 2015 and the acquisition of Pace plc, or Pace, by Arris, in 2016; consolidation involving our partners, such as the acquisition of Freescale Semiconductor by NXP Semiconductors in 2015; and consolidation involving our competitors, such as the acquisition of Broadcom by Avago Technologies in 2016 and the pending acquisition of NXP Semiconductors by Qualcomm announced in October 2016.
Consolidation among our customers and service providers can create significant uncertainty regarding demand for our Wi-Fi solutions and could cause delays in the purchase of our Wi-Fi solutions or the loss of business. For example, in 2015 our two largest service providers consolidated, resulting in the cancellation of previously submitted purchase orders, which adversely impacted our revenue for several quarters. Consolidation among our competitors could adversely affect the competitive landscape and industry dynamics, including causing increased pricing pressure, intensifying the focus of our competitors on certain markets or customers that could cause us to lose market share or customers, and enabling our competitors to leverage complementary products or technologies of the combined company. Accordingly, any industry consolidation could have an adverse effect on our business, results of operations and financial condition.
Our customers may cancel their orders, change production quantities or delay production, which could harm our business.
Our customers typically do not provide us with firm, long-term purchase commitments. Substantially all of our sales to date have been made on a purchase order basis, which permits our customers to cancel, change or delay their purchases of our solutions with little or no notice to us. As a result, our ability to accurately forecast customer demand is limited. Any such cancellation of or decrease in purchase orders subjects us to a number of risks, including unanticipated revenue shortfalls, loss of volume-based wafer rebates from our third-party foundry and excess or obsolete inventory.
We may face claims of intellectual property infringement, which could be time-consuming and costly to defend or settle and, if adversely adjudicated, could harm our business.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. We have received communications from third parties, including non-practicing entities, alleging our infringement of their patents, and we may receive additional claims of infringement in the future. For example, in October 2016, a third party filed suit in the United States District Court for the Northern District of Illinois alleging infringement by us of nine expired United States patents. See Note 6 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In addition, our customers and service providers may become subject to litigation or receive communications regarding alleged infringement of their products that implicate our Wi-Fi solutions. We have certain contractual obligations to defend and indemnify our customers and other third parties from damages and costs which may arise in connection with any such infringement claims. We or our customers may be required to obtain licenses for such patents, which could require us to pay royalties. Any lawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and management personnel. If we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms or at all, cease sale of products or licensing of our technology, expend significant resources to redesign our solutions, develop alternative technology or discontinue the use of processes requiring the relevant technology.
Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation, which could adversely affect our results of operations and financial condition.
Our success depends, in part, on our ability to adequately protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other contractual provisions, to protect our proprietary technologies and know-how. As of
January 1, 2017
, we had
42
issued patents in the United States and
five
foreign counterpart patents issued in Taiwan. The rights granted to us may not be meaningful or provide us with any commercial advantage. For example, any patent claims we make may be deemed insufficient to cover the third party’s product or technology or the patent could be opposed, contested, circumvented, designed around or be declared invalid or
unenforceable in judicial or administrative proceedings. The failure of any of our patents to adequately protect our technology could make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is not as comprehensive as our United States patent protection. As a result, we may not be able to effectively protect our intellectual property in some countries where our solutions are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may be challenging or may not be available. Furthermore, changes to the patent laws in the United States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our patent protection.
We cannot ensure that the steps we have taken will prevent unauthorized use of our intellectual property or the reverse engineering of our technology. In addition to the protection afforded by patents, we rely on confidential proprietary information, including trade secrets and know-how, to develop and maintain our competitive position. Any disclosure or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate our proprietary information, thus eroding our competitive position. We seek to protect our proprietary information in part by confidentiality agreements with our employees, contractors, customers, partners and other third parties. These agreements are designed to protect our proprietary information; however, any of these parties may breach the agreements and disclose our proprietary information, and we may not be able to obtain adequate remedies for such breaches. Detecting and monitoring unauthorized use of our intellectual property can be difficult and costly. It is possible that unauthorized use of our intellectual property may have occurred or may occur without our knowledge. Our failure to adequately protect our intellectual property could adversely impact our ability to maintain a competitive advantage in our markets, thus harming our business, results of operations and financial condition.
We may in the future need to initiate infringement claims or litigation to try to protect our intellectual property rights. Litigation, whether we are a plaintiff or a defendant, can be very expensive and time-consuming and may divert the efforts of our technical and management personnel without resulting in a favorable outcome. Further, many of our current and potential competitors have the ability to dedicate substantially greater resources to defending intellectual property infringement claims and to enforcing their intellectual property rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed.
We may have difficulty accurately predicting our future revenue, cost of revenue, operating expense, working capital, and capital investments.
We were incorporated in 2005 and only began shipments of our Wi-Fi solutions in 2010. As a result, we have a limited operating history from which to predict future operating results. This limited operating history, combined with the rapidly evolving nature of the markets in which we sell our Wi-Fi solutions, substantial uncertainty concerning how these markets may develop and other factors beyond our control, limit our ability to accurately forecast our future revenue, cost of revenue, operating expense, working capital, and capital investments. Additionally, if we are unable to accurately forecast customer demand or service provider deployments in a timely manner, we may not build enough supply or maintain enough inventory, which could lead to delays in product shipments and lost sales opportunities, as well as cause our customers to identify alternative sources of supply. Alternatively, we may accumulate excess or obsolete inventory. Any of these factors could harm our margins, increase our write-offs due to product obsolescence and restrict our ability to fund our operations. If our revenue does not increase as anticipated, we could incur significant losses to the extent we are unable to decrease our expenses in a timely manner to offset any shortfall in future revenue. Any failure to accurately predict our future operating results could cause us to miss our financial projections and adversely affect the price of our common stock.
If we are unable to effectively manage any future growth, we may not be able to execute our business plan and our results of operations could suffer.
We have expanded our operations significantly since our inception in 2005 and anticipate that further expansion will be required to achieve our business objectives. For example, we grew from
219
employees as of
December 28, 2014
to
325
employees as of
January 1, 2017
, and expect our headcount to continue to grow rapidly as we scale our business. The growth and expansion of our business have placed and will continue to place a significant strain on our management, operations and financial resources. We expect that any future growth will also add complexity to, and require effective coordination throughout, our organization.
To manage any future growth effectively, we must continue to improve and expand our operating and administrative systems and controls. We may not be able to successfully implement improvements to these systems and controls in a timely or efficient
manner, which could result in operating inefficiencies and could cause our costs to increase more than planned. If we are unable to effectively manage our future growth, our business, results of operations and financial condition may be harmed.
We rely on a limited number of third-party contractors and suppliers in connection with the design and manufacture of certain parts of our solutions. The failed performance or loss of any of these third parties may adversely impact our business.
We currently depend on a single foundry, TSMC, for the supply of our mask-sets and for the fabrication of our wafers. We also depend on a limited number of sources in connection with the design, development, testing and assembly of our solutions and components thereof. We currently do not have long-term supply contracts with any of our third-party contractors or suppliers, and we typically negotiate pricing separately for each purchase order. Therefore, our contractors and suppliers are not obligated to perform services or supply products to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. Sufficient capacity through our foundry or the third-party contractors we rely on for assembly and testing may not be available when we need it or at reasonable prices. In addition, we rely on intellectual property rights and software development tools from third-parties such as Cadence Design Systems, Inc., Mentor Graphics Corporation, and Synopsys, Inc., to support the design, development, simulation and verification of new solutions or enhancement to existing solutions. If licenses to such technologies are not available on commercially reasonable terms and conditions, or such products become unavailable for any other reason, and we cannot otherwise integrate such technologies, our solutions or our customers’ products could become unmarketable or obsolete, and we could lose market share. In such instances, we could also incur substantial unanticipated costs or scheduling delays to develop or acquire substitute technologies to deliver competitive products.
If we lose any of our single source or limited source contractors or suppliers, we could be required to transition to a new third party, which could increase our costs, result in delays in the manufacture and delivery of our solutions, require a redesign of our solutions to transition to alternative sources, or cause us to carry excess, obsolete or insufficient inventory. In addition, if these contractors or suppliers fail to produce and deliver our solutions according to required specifications, quantity, quality, cost and time requirements, our business, results of operations and financial condition could suffer.
Our results of operations are likely to vary significantly from period to period, which could cause the trading price of our common stock to decline.
Our results of operations have fluctuated from period to period, and we expect such results to continue to fluctuate as a result of a number of factors, many of which are outside our control and may be difficult to predict, including:
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the fluctuations in demand for high-performance Wi-Fi products in general;
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the inherent complexity, length and associated unpredictability of the sales cycles for our Wi-Fi solutions;
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changing market conditions and competitive dynamics of our markets, including new entrants and current and potential customer or service provider consolidation;
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timing of introductions of new products by our customers and service providers and our ability to secure design wins related to such products;
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changes to or inaccurate demand forecasts from our customers and service providers;
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the timing and amount of purchase orders, especially from significant customers;
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reductions in or cancellations of purchase orders by our customers, including with little or no notice;
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changes in the mix of our sales in the service provider market versus retail, enterprise or consumer electronics end markets and among different customers;
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declines in average selling prices, or ASPs, and the extent to which the impact of such declines is offset by increased sales volume or decreased manufacturing and other costs;
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changes in manufacturing costs, including wafer fabrication, testing and assembly costs, manufacturing yields and product quality and reliability;
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our ability to develop, introduce and ship new Wi-Fi solutions in a timely manner and anticipate future market demands that meet our customers’ requirements;
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the timing and amount of tape-out costs;
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timing of headcount adjustments;
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the timing and amount of litigation expense or settlement of any litigation or other disputes;
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volatility in our stock price, which may lead to material changes in stock compensation expense; and
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our ability to derive benefits from our investments in research, development, sales, marketing, and other activities.
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In addition, changes in general economic or political conditions in the United States or other regions could adversely affect our business. For example, the new administration under President Donald Trump has indicated that it may propose significant changes with respect to a variety of issues, including trade agreements among nations, import and export regulations, tariffs and customs duties, foreign relations, immigration laws, tax laws and corporate governance laws, that could have a positive or negative impact on our business.
The effects of the risk factors noted herein could result in large fluctuations and unpredictability in our quarterly and annual results of operations. Therefore, comparing our results of operations on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.
If we fail to successfully address additional Wi-Fi markets, our revenue growth and financial condition could be harmed.
Currently, we sell most of our Wi-Fi solutions to OEMs and ODMs that target the service provider market for home networking. Our success will depend in part on our ability to expand beyond the service provider market to other Wi-Fi markets, including the enterprise and consumer electronics markets, as well as grow our market share in the retail market. These other markets have separate and unique requirements that may not be directly addressed by our current Wi-Fi solutions, including different specifications, performance requirements and product support needs. For example, our current Wi-Fi solutions may not be well suited for certain market opportunities and may require significant new functionality or features. Therefore, meeting the technical requirements and securing design wins with customers targeting these markets will require a substantial investment of our time and resources. We may also face challenges and delays in accurately understanding the specific needs of new markets, which in turn may impair our ability to develop the customer and partner relationships necessary to be successful in such markets. If any of these markets do not develop as we currently anticipate or if we are unable to penetrate them successfully, our growth opportunities could be harmed and our business, results of operations and financial condition could be negatively impacted.
If we fail to successfully leverage our engineering expertise to penetrate markets beyond Wi-Fi, our long-term revenue growth and financial condition could be harmed.
Our future growth will depend in part on our ability to leverage our engineering expertise in wireless and communications to address other markets beyond Wi-Fi. We have historically focused on high-performance Wi-Fi solutions, and may not be successful in identifying or implementing strategies to penetrate and sustain growth in new markets. If we are unable to develop solutions that are applicable beyond the Wi-Fi market, or to manage the expansion and growth of our business in such markets, our long-term revenue growth and financial condition could be harmed.
If we are unable to attract, train and retain qualified and key personnel, particularly our engineering personnel, we may not be able to execute our business strategy effectively.
We believe our future success will depend in large part upon our ability to attract, train and retain highly skilled management, engineering and sales and marketing personnel. Each of our employees is an at-will employee. The loss of any key employees or the inability to attract, train or retain qualified personnel, particularly our engineering personnel, could harm our business. For example, if any of these individuals were to leave unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity during the search for any such successor and while any successor is integrated into our business and operations.
Our key engineering personnel represent a significant asset and serve as the source of our technological and product innovations. We may not be successful in attracting, training and retaining sufficient numbers of technical and engineering personnel to support our anticipated growth. The competition for qualified engineering personnel in our industry is very intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for highly skilled personnel.
Changes to industry standards and government requirements relevant to our solutions and markets could adversely affect our business, results of operations and financial condition.
If our customers adopt new or competing industry standards with which our solutions are not compatible, our existing solutions would become less desirable and our revenue and results of operations would suffer. In addition, changes in government-imposed requirements, such as maximum power consumption regulations in Europe, can prevent our solutions from being shipped to certain countries if they do not meet such requirements.
To compete effectively in the Wi-Fi marketplace, we rely on industry partners to enable and complement our Wi-Fi solutions.
Our Wi-Fi solutions need to be integrated with other components and products, such as broadband processors, video SOCs and network processors, to serve the service provider markets. We have developed relationships with various third-party partners who enable and enhance our ability to bring our Wi-Fi solutions to various markets. These partners can provide critical support to enable us to reach certain markets and better address customer needs, including through the development of joint reference designs, the establishment of relationships with key customers, the validation of our Wi-Fi solutions, and the creation of bundled solutions to contend with competitive offerings. For example, when our Wi-Fi solution is designed into a product that also incorporates Intel or Broadcom network processors, we depend on the ability of these partners to deliver their products in a timely fashion in order to meet shipping schedules. These partners may also be our competitors, which can negatively impact their willingness to collaborate with us, to support the integration of our solutions with their products, and to pursue joint sales and marketing efforts. In addition, in some cases it may be necessary to share competitively sensitive information with our partners that could enable our partners to compete more effectively against us or create uncertainty regarding ownership of intellectual property rights. If we are unable to continue to successfully develop or maintain these relationships, we may not be able to compete effectively and our business and results of operations may be adversely affected.
Our historical growth rate may not be indicative of future financial results.
You should not consider the growth rate in our revenue in recent periods as indicative of our future performance. Our revenue increased to $83.8 million in the year ended December 27, 2015 from $66.9 million in the year ended December 28, 2014, representing an increase of 25%.Our revenue increased to
$129.1 million
in the
year ended
January 1, 2017
from
$83.8 million
in the
year ended
December 27, 2015
, representing an increase of
54%
. Our revenue may be adversely impacted by various factors, including reduced demand for our Wi-Fi solutions, increased competition, a decrease in the size of our target markets, and the failure to capitalize on growth opportunities. Moreover, even if our revenue continues to increase in absolute terms, we expect that our revenue growth rate will decline over time as we mature as a public company.
We may pursue strategic acquisitions or partnerships which could require significant management attention, increase operating risk, dilute stockholder value, fail to achieve intended results, and adversely affect our business, results of operations and financial condition.
In the future, we may acquire other businesses, products or technologies, or partner with other businesses. Our ability to make and successfully integrate acquisitions is unproven. Even if we complete one or more acquisitions, we may not be able to strengthen our competitive position or realize the intended benefits of the acquisition in a timely manner, or at all. Any acquisitions may also be viewed negatively by our customers, financial markets or investors. In addition, any acquisitions we make could lead to difficulties in integrating technologies, products and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expense and adversely impact our business. Acquisitions may also reduce our cash available for operations and other uses, and could also result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, any of which could harm our business.
Our business is subject to disruption from hazards, natural disasters, terrorism, and political unrest, which could cause significant delays in the design, development, production or shipment of our solutions.
Our operations and those of our third-party contractors are vulnerable to interruptions caused by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fires, earthquakes, power losses, telecommunications failures, terrorist attacks, wars, Internet failures and other events beyond our control. For example, our sole foundry, TSMC, is located in Taiwan, which has been subject to a number of earthquakes, which has in the past impacted, and
may in the future impact, the fabrication of our solutions. In addition, a significant portion of our engineering equipment, servers, storage and networking equipment, and other office equipment is located in our offices in the seismically active San Francisco Bay Area and Taiwan. If we suffer a significant hazard or outage to these offices and equipment, our business could experience disruption, which could harm our business and negatively impact our business, results of operations and financial condition.
The average selling prices for our Wi-Fi solutions could decrease over time, which could harm our revenue, gross margin and results of operations.
Products sold in our industry, including our Wi-Fi solutions, have often experienced a decrease in ASPs over time. We anticipate that the ASPs of our solutions may decrease in the future in response to competitive pricing pressures, customer expectations for price reduction, increased sales discounts, and new product introductions by our competitors. Our future results of operations may be harmed due to the decrease of our average selling prices.
Additionally, because we use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs, we may not be able to reduce our costs as rapidly as companies that operate their own manufacturing processes, and our costs may even increase, which could also reduce our gross margins. To maintain our current gross margins or increase our gross margins in the future, we must develop and introduce on a timely basis new solutions and enhancements to existing solutions; continually reduce the costs of manufacturing our solutions; and manage transitions from one solution to another in a timely and cost-effective manner. Our failure to do so would likely cause our revenue and gross margins to decline, which could have an adverse effect on our business, results of operations and financial condition.
Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our business.
We have international operations in China, Russia, Taiwan, Australia, Japan, and parts of Europe, and we derive substantially all of our revenue from shipments delivered outside the United States, particularly in Asia. International operations are subject to inherent risks, and our future results could be adversely affected by a number of factors, including:
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differing technical standards, existing or future regulatory and certification requirements and required product features and functionality;
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challenges related to managing and integrating operations in new markets with different languages, cultures and political systems;
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heightened risks of unfair or corrupt business practices in certain countries and of improper or fraudulent sales arrangements that may impact financial results and lead to restatements of, and irregularities in, our financial statements or violations of law, including the United States Foreign Corrupt Practices Act;
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tariffs and trade barriers, export controls and trade and economic sanctions regulations and other regulatory or contractual limitations on our ability to sell or develop our solutions in certain foreign markets, particularly in China and Russia;
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difficulties and costs associated with staffing and managing international operations;
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difficulties associated with enforcing and protecting intellectual property rights in some countries;
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requirements or preferences for in-country products, which could reduce demand for our products;
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difficulties in enforcing contracts and collecting accounts receivable, which may result in longer payment cycles, especially in emerging markets;
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potentially adverse tax consequences, including taxes impacting our ability to repatriate profits to the United States;
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added legal compliance obligations and complexity;
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public health emergencies and other disasters, such as earthquakes and tsunamis, that are more common in certain regions;
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increased cost of terminating employees in some countries;
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the effect of currency exchange rate fluctuations; and
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political and economic instability, and terrorism.
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In 2012, we established our Russian subsidiary for research and development activities pursuant to a letter agreement with Joint Stock Company “RUSNANO” (formerly Open Joint Stock Company “RUSNANO”), or RUSNANO. Pursuant to the letter agreement, as amended, we have obligations to periodically fund the subsidiary, and RUSNANO has certain rights regarding the governance and operation of the subsidiary. While certain of these rights terminated upon completion of our initial public offering, RUSNANO may seek to continue to remain involved with our subsidiary, including its board of directors and use of our subsidiary’s funds. We may incur specified penalties under the letter agreement if we fail to meet any applicable funding obligations, and may incur other unanticipated costs if we are required to restructure our operations in Russia. See the section titled “Certain Relationships and Related Party Transactions--Agreement with RUSNANO” in this Annual Report on Form 10-K for additional information about this arrangement.
We expect that we will continue to rely on our international operations, and our success will depend on our ability to anticipate and effectively manage these and other associated risks. Our failure to manage any of these risks successfully could harm our international operations and adversely affect our business.
We could be subject to additional tax liabilities.
We are subject to United States federal, state and local income, sales and other taxes in the United States and foreign income taxes, withholding taxes and value-added and other transaction taxes in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. Our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by challenges to our intercompany arrangements, valuation methodologies and transfer pricing, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. In addition, the new Trump administration has indicated that they plan to propose significant tax and other changes, but it is not yet clear what specific changes will be proposed or ultimately enacted. Such changes could have an adverse impact on our tax liabilities. We may also be audited in various jurisdictions, and such jurisdictions may challenge our intercompany structures or assess additional taxes, interest and penalties, including sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have an adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
We currently have a significant amount of net operating losses, or NOLs, which we expect will reduce our overall tax liability for the foreseeable future. However, our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
Our use of open source software in our solutions, processes and technology may expose us to additional risks and compromise our proprietary intellectual property.
We incorporate open source software into our Wi-Fi solutions, including certain open source code governed by the GNU General Public License, Lesser GNU General Public License and Common Development and Distribution License. The terms of many open source licenses have not been interpreted by United States courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, we could be required to seek licenses from third parties to continue offering our solutions, make our proprietary code generally available in source code form (for example, proprietary code that links to certain open source modules), re-engineer our solutions, discontinue the sale of our solutions if re-engineering cannot be accomplished on a cost-effective and
timely basis, or become subject to other consequences, any of which could adversely affect our business, results of operations and financial condition.
The requirements of being a public company may strain our resources and divert management’s attention from managing our business.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the listing requirements of the securities exchange on which our common stock is traded, and other applicable securities rules and regulations. Our management team and other personnel will need to devote a substantial amount of time to compliance. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demands on our administrative systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations, and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. In addition, we have limited internal resources and we may need to hire additional employees to comply with these requirements in the future, which will increase our costs and expenses. We may also not be able to hire additional, qualified resources on a timely basis.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment will increase our general and administrative expense and result in a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards are unsuccessful, regulatory authorities may initiate legal proceedings against us and our business, results of operations and financial condition may be harmed.
We have identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.
During the course of the preparation of our 2015 consolidated financial statements, we identified a material weakness in our internal control over financial reporting as a result of a lack of sufficient qualified personnel within the finance and accounting function who possessed an appropriate level of expertise to effectively perform the following functions commensurate with our structure and financial reporting requirements: (i) identify, select and apply generally accepted principles in the United States, or GAAP, sufficiently to provide reasonable assurance that transactions were being appropriately recorded, and (ii) assess risk and design appropriate control activities over financial and reporting processes necessary to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements.
In response to the identified material weakness, we have taken a number of steps to remediate this material weakness and improve our internal control over financial reporting during the year ended January 1, 2017. We hired a number of individuals, including additional certified public accountants, which we believe have appropriate knowledge and capacity to help fulfill our obligations to comply with the accounting and reporting requirements applicable to public companies. The additional resources added to the finance function (i) allow separate preparation and review of reconciliations and other account analysis, (ii) enable us to develop a more structured close process, including enhancing our existing policies and procedures, to improve the completeness, timeliness and accuracy of our financial reporting, and (iii) identify and review complex or unusual transactions.
While we believe that the foregoing actions will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. In addition, we may need to implement additional systems and controls, including further segregation of duties, to help ensure that our internal controls are effective. As a result, we determined that the material weaknesses had not been fully remediated as of January 1, 2017, and there is no assurance that these remediation
efforts will be successful. If not properly remediated, this material weakness could result in material misstatements in our financial statements in future periods and impair our ability to comply with accounting and reporting requirements.
We also cannot be certain that other material weaknesses and control deficiencies will not be discovered in the future. In addition, if our remediation efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the trading price of our common stock to decline. As a result of any such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition, or divert financial and management resources from our core business.
We may not be able to implement an effective system of internal controls and accurately report our financial results on a timely basis, which may adversely affect investor confidence in our company and negatively impact the trading price of our common stock
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Pursuant to the Exchange Act, we will be required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for fiscal year 2017 . This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We are currently documenting and testing our internal controls in order to identify, evaluate and remediate any deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more additional material weaknesses in our internal control over financial reporting, as we did in preparing our 2015 consolidated financial statements, that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors, when required, are unable to attest to management’s report on the effectiveness of our internal controls, 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 subject to the cyclical nature of the semiconductor industry, which has suffered, and may in the future suffer, from cyclical downturns.
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, consolidation and wide fluctuations in product supply and demand. The industry has historically experienced cyclical downturns, including during global recessions, which have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of ASPs. A significant portion of our operating expense is incurred in connection with developing our Wi-Fi solutions, securing design wins and assisting customers and service providers in the development of their product specifications in advance of anticipated sales. As a result, in the event that such sales do not ultimately materialize due to a cyclical downturn or otherwise, we may not be able to decrease our operating expense rapidly enough to offset any unanticipated shortfall in revenue. There is a risk that future downturns could negatively impact our revenue, which could harm our business, results of operations and financial condition.
Our results of operations and financial condition could be seriously impacted by security breaches, including cyber security incidents.
We may not be able to effectively detect, prevent and recover from security breaches, including attacks on information technology and infrastructure by hackers and viruses. Cyber-attacks could result in unauthorized parties gaining access to certain confidential business information, and could include unauthorized third parties obtaining trade secrets and proprietary information related to our solutions. For example, we offer a cloud-based Wi-Fi analytics and monitoring platform that collects certain Wi-Fi network and system data. While we utilize Amazon Web Services for this platform, which provides a number of sophisticated technical and physical controls designed to prevent unauthorized access to or disclosure of customer content, we cannot be certain that such controls will be sufficient to prevent a security breach. It can be difficult, if not impossible, to entirely prevent cyber-attacks. As these threats continue to evolve, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, if we experience a cyber security incident, such incident could adversely affect our business, results of operations and financial condition.
Failure to comply with the terms of our loan and security agreements with a financial institution may adversely affect our working capital and financial condition.
Our Loan Agreement and Mezzanine Loan Agreement with Silicon Valley Bank, or SVB, contains customary covenants, which could restrict our ability to operate and finance our business and operations, such as nonpayment of amounts due under the revolving line of credit or the loans, violation of the restrictive covenants, violation of other contractual provisions, or a material adverse change in our business. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of any of these covenants could result in defaults under the loan agreements. In addition, borrowings under these loan agreements are collateralized by certain of our assets, including our receivables and inventory, subject to customary exceptions and limits.
The loan agreements also contain customary events of default. Defaults, if not waived, could cause all of the outstanding indebtedness under our loan agreements to become immediately due and payable and would permit Silicon Valley Bank to exercise remedies against the collateral in which we granted Silicon Valley Bank a security interest.
If we are unable to comply with the terms of these agreements, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, and our assets may become subject to Silicon Valley Bank’s security interest. This could materially and adversely affect our working capital, financial condition and our ability to operate.
We are exposed to fluctuations in currency exchange rates that could negatively impact our business, operating results and financial condition.
Because a portion of our business is conducted outside of the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time, as international customer mix, business practices and our international footprint evolve, and they could have a material adverse impact on our business, operating results and financial condition.
To date, all of our revenue has been denominated in U.S. dollars; however, most of our expenses associated with our international operations are denominated in local currencies. As a result, a decline in the value of the U.S. dollar relative to the value of these local currencies could have a material adverse effect on our results of operations. Conversely, an increase in the value of the U.S. dollar could result in our Wi-Fi solutions being more expensive to our customers in their local currencies, and could have an adverse impact on our pricing and our business.
To date, we have not used risk management techniques to hedge the risks associated with these fluctuations. Even if we were to implement hedging strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchange exposure, they are based on forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchange rates or our failure to successfully hedge against these fluctuations could have a material adverse effect on business, operating results and financial condition.
Risks Related to Ownership of Our Common Stock
The market price of our common stock has been and may continue to be volatile, which could cause the value of an investment in our common stock to decline.
Technology stocks have historically experienced high levels of volatility. Prior to our initial public offering, there had been no public market for shares of our common stock. Since our initial public offering, the trading price of our common stock has been subject to significant fluctuations and may continue to fluctuate substantially. These fluctuations depend on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause an investor to lose all or part of their investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
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announcements of new products or technologies, commercial relationships, acquisitions or other events by us or our competitors;
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changes in how customers perceive the benefits of our Wi-Fi solutions;
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departures of key personnel;
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price and volume fluctuations in the overall stock market from time to time;
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fluctuations in the trading volume of our shares or the size of our public float;
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sales of large blocks of our common stock;
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actual or anticipated changes or fluctuations in our results of operations;
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whether our results of operations meet the expectations of securities analysts or investors;
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changes in actual or future expectations of investors or securities analysts;
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litigation involving us, our industry, or both;
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regulatory developments in the United States, foreign countries or both;
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general economic conditions and trends;
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major catastrophic events in our domestic and foreign markets; and
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“flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed.
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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. If our stock price is volatile, we may become the target of securities litigation. Securities litigation 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.
If securities analysts or industry analysts downgrade our stock, publish negative research or reports or fail to publish reports about our business, our stock price could be adversely be adversely affected.
The trading market for our common stock will, to some extent, depend 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 stock or publish negative research or reports, cease coverage of our company or fail to regularly publish reports about our business, such actions could adversely affect our stock price .
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.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could have an adverse effect on the market price of our common stock and may make it more difficult for investors to sell their shares of our common stock at a desirable time and price. In addition, our executive officers and directors may wish to sell shares of our common stock held by them, including sales through automatic and non-discretionary written plans, known as “Rule 10b5-1 Plans.” Sales made by our executive officers and directors, including sales pursuant to Rule 10b5-1 Plans, regardless of the amount of such sales, could adversely affect the market price of our common stock.
As of January 1, 2017, we had 33,076,150 shares of common stock outstanding. As a result of lock-up agreements entered into by certain stockholders in connection with our initial public offering and certain transfer restrictions under our insider trading policy, shares of our common stock will be available for sale in the public market, subject to the provisions of Rules 144 and 701 under the Securities Act. We and all of our directors and officers, and substantially all of our stockholders, have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of the representatives of the underwriters for a period of 180 days from the date of our final prospectus filed with the SEC on October 28, 2016 pursuant to Rule 424(b) under the Securities Act of 1933. When the lock-up period expires, we and our locked-up security holders will be able to sell shares in the public market. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. Sales of a substantial number of such shares upon expiration, or the perception that such sales may occur, or early release of the lock-up, could cause our share price to fall or make it more difficult for investors to sell their common stock at a time and price that they deem appropriate.
As of January 1, 2017, certain holders of our common stock also have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Such a transaction could divert management’s attention from the Company’s core business, require us to incur additional expenses, and could have an adverse effect on the price of our common stock.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors and consultants under our stock incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our common stock to decline.
A limited number of stockholders will continue to have substantial control over us , which could limit your ability to influence the outcome of key transactions, including a change of control and other matters requiring stockholder approval.
Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock, in the aggregate, beneficially own approximately 62.7% of the outstanding shares of our common stock , based on the number of shares outstanding as of January 1, 2017. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, and limit your ability to influence the outcome of key transactions, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any dividends on our common stock. 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 foreseeable future. In addition, our SVB Loan Agreement and Mezzanine Loan Agreement impose restrictions on our ability to pay dividends on our common stock. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Our amended and restated certificate of incorporation and amended and restated 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 who 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:
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a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
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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 preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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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;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president (in the absence of a chief executive officer), which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
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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 amended and restated certificate of incorporation relating to the management of our business (including our classified board structure) or certain provisions of our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;
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the ability of our board of directors 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
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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or 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.
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In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a specified period of time.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders and our failure to raise capital when needed could prevent us from executing our growth strategy.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new and enhance our existing Wi-Fi solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of common stock, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
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develop new or enhance our existing Wi-Fi solutions;
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respond to competitive pressures or unanticipated working capital requirements;
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hire, train and retain employees;
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acquire complementary technologies, products or businesses.
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Our failure to do any of these things could harm our business, financial condition and results of operations.
We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors.
For so long as we remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on
executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.
In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
Our corporate headquarters is located in Fremont, California in a facility consisting of approximately 27,000 square feet of office space under a lease that expires in September 2018, but can be terminated earlier at our option. We have also recently entered into a new lease agreement located in San Jose, California for our corporate headquarters consisting of approximately 84,000 square feet, which expires in 2024. We also lease properties in Australia, China, Russia, and Taiwan which accommodate our design centers and sales support team. Based on our business requirements, the location and size of these leased properties will change from time to time. We intend to expand our existing facilities as we grow our business and add resources. We believe that additional facilities will be available on commercially reasonable terms to accommodate foreseeable expansion of our operations. We do not own any real property.
Item 3. LEGAL PROCEEDINGS
We are currently not party to litigation that could have a material adverse effect on our business. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business. The semiconductor and Wi-Fi industries are characterized by frequent claims and litigation, including claims regarding infringement of intellectual property rights. Litigation is often unpredictable, costly, diverts management’s attention, and may result in an unfavorable outcome, including monetary damages or injunctive relief.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has traded on the NASDAQ Global Select Market under the symbol “QTNA” since October 28, 2016. The following table sets forth the high and low sales prices per share for our common stock as quoted on the NASDAQ Global Select Market during the fourth quarter of our fiscal year ended January 1, 2017:
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Common Stock Price
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Year Ended January 1, 2017:
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Fourth Quarter (from October 28, 2016)
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$20.68
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$13.75
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On February 24, 2017, the last reported sale price on the NASDAQ Global Select Market for our common stock was $21.44 per share.
Holders of Record
As of February 24, 2017, there were 180 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act, except as shall be expressly set forth by specific reference in such filing.
The following performance graph compares, for the period beginning on October 28, 2016, the first day of trading of our common stock on the NASDAQ Global Select Market, and ending on January 1, 2017, the last day of our fiscal year, the cumulative total stockholder return for our common stock, the NASDAQ Composite Index and Philadelphia Semiconductor Index. The graph assumes that $100 was invested on October 28, 2016 in each of our common stock, the NASDAQ Composite Index and Philadelphia Semiconductor Index and assumes reinvestment of any dividends. The stock price performance on the
following graph is not necessarily indicative of future price performance of our stock.
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Company/Index
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October 28, 2016
|
|
|
November 30, 2016
|
|
|
January 1, 2017
|
|
|
Quantenna Communications, Inc
|
|
$
|
100
|
|
|
$
|
123
|
|
|
$
|
118
|
|
|
NASDAQ Composite Index
|
|
$
|
100
|
|
|
$
|
103
|
|
|
$
|
104
|
|
|
Philadelphia Semiconductor Index
|
|
$
|
100
|
|
|
$
|
107
|
|
|
$
|
110
|
|
Dividends
We have never declared or paid a cash dividend on our common stock and we intend to retain all available funds and any future earnings to fund the development and growth of our business. We therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our credit facility materially restricts, and future debt instruments may materially restrict, our ability to pay dividends on our common stock. Any future determinations to pay dividends on our common stock would depend on our results of operations, our financial condition and liquidity requirements, restrictions that may be imposed by applicable law or our contracts, and any other factors that our board of directors may consider relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017, and is incorporated herein by reference.
Recent Sales of Unregistered Securities
The following list sets forth information regarding all unregistered securities sold by us during the fiscal year ended January 1, 2017. All of the share numbers shown reflect the 1-for-50 reverse stock split of our capital stock effected on October 13, 2016.
No underwriters were involved in the sales, and the certificates representing the securities sold and issued contain legends restricting transfer of the securities without registration under the Securities Act or an applicable exemption from registration.
Warrant Issuances
In February 2016, we issued warrants to purchase up to 9,000 shares of its common stock to one accredited investor in connection with a consulting agreement at an exercise price of $0.05 per share and warrants to purchase up to 20,250 shares of our common stock to one accredited investor in connection with a separation agreement at an exercise price of $4.00 per share.
In May 2016, we issued warrants to purchase up to 126,400 shares of our common stock to two accredited investors in connection with a loan agreement at an exercise price of $4.00 per share.
Option and Common Stock Issuances
During the fiscal year ended January 1, 2017, prior to filing our Registration Statement on Form S-8 on October 28, 2016:
|
|
|
|
•
|
We granted to our directors, officers, employees, consultants and other service providers options to purchase an aggregate of 174,075 shares of our common stock under our 2006 Equity Incentive Plan at exercise prices ranging from $4.00 to $5.00 per share.
|
|
|
|
|
•
|
We granted to our directors, officers, employees, consultants and other service providers options to purchase an aggregate of 1,763,380 shares of our common stock under our 2016 Equity Incentive Plan at exercise prices ranging from $7.00 to $15.00 per share.
|
|
|
|
|
•
|
We issued to consultants an aggregate of 2,777 shares of our common stock under our 2016 Equity Incentive Plan in exchange for services rendered.
|
|
|
|
|
•
|
We issued and sold to our officers, directors, employees, consultants, and other service providers an aggregate of 324,157 shares of our common stock upon the exercise of options under our 2006 Stock Plan at exercise prices ranging from $1.00 to $3.00 per share, for an aggregate exercise price of $568,568.50.
|
|
|
|
|
•
|
We issued and sold to our officers, directors, employees, consultants, and other service providers an aggregate of 72,000 shares of our common stock upon the exercise of options under our 2016 Equity Incentive Plan at an exercise price of $8.50 per share, for an aggregate exercise price of $612,000.00.
|
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe the offers, sales and issuances of the above securities were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act (or Regulation D promulgated thereunder) because the issuance of securities to the recipients did not involve a public offering, or in reliance on Rule 701 because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under such rule. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
There were no other sales of unregistered securities during the year ended January 1, 2017.
Use of Proceeds
On October 27, 2016, our Registration Statement on Form S-1 (File No. 333-213871) was declared effective by the SEC for our initial public offering, or IPO, of common stock. We started trading on the NASDAQ Global Select Market on October 28, 2016. On November 2, 2016, we closed our IPO and sold 6,775,466 shares of our common stock, including the exercise of the underwriters’ option to purchase an additional 75,466 shares, at an offering price of $16.00 per share, for an aggregate offering price of approximately $108.4 million. Upon completion of the sale of the shares of our common stock, our IPO terminated.
The underwriters for our initial public offering were Morgan Stanley & Co. LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., Needham & Company, LLC, William Blair & Company, L.L.C. and Roth Capital Partners, LLC. We paid to the underwriters of our IPO underwriting discounts and commissions totaling approximately $7.6 million and incurred estimated offering expenses of approximately $3.4 million which, when added to the underwriting discounts and commissions, amount to total expenses of approximately $11.0 million. Thus, the net offering proceeds, after deducting underwriting discounts and commission and other offering expenses and including the exercise by the underwriters of their option to purchase additional shares of our common stock, were approximately $97.4 million.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus, dated October 27, 2016, pursuant to Rule 424(b) of the Securities Act. The net offering proceeds have been invested in money market funds.
Purchases of Equity Securities by the Issuer
None.
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and the accompanying notes appearing in Part II, Item 8, “Financial Statements and Supplementary Data”, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included elsewhere in this Annual Report on Form 10-K. The selected data in this section is not intended to replace our Consolidated Statements of Operations and Consolidated Balance Sheets. Our historical results are not necessarily indicative of the results that may be expected in the future.
The following consolidated statement of operations data for the years ended January 1, 2017, December 27, 2015 and December 28, 2014 and the balance sheet data as of January 1, 2017 and December 27, 2015 have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
(In thousands, except share and per share data)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
Revenue
|
$
|
129,069
|
|
|
$
|
83,773
|
|
|
$
|
66,860
|
|
|
Cost of revenue
(1)
|
64,640
|
|
|
42,554
|
|
|
38,211
|
|
|
Gross profit
|
64,429
|
|
|
41,219
|
|
|
28,649
|
|
|
Operating expenses
(1)
:
|
|
|
|
|
|
|
Research and development
|
46,604
|
|
|
35,575
|
|
|
31,283
|
|
|
Sales and marketing
|
8,091
|
|
|
6,644
|
|
|
5,932
|
|
|
General and administrative
|
10,559
|
|
|
5,212
|
|
|
4,532
|
|
|
Total operating expenses
|
65,254
|
|
|
47,431
|
|
|
41,747
|
|
|
Loss from operations
|
(825
|
)
|
|
(6,212
|
)
|
|
(13,098
|
)
|
|
Interest expense
|
(665
|
)
|
|
(697
|
)
|
|
(481
|
)
|
|
Other income (expense), net
|
(38
|
)
|
|
(21
|
)
|
|
89
|
|
|
Loss before income taxes
|
(1,528
|
)
|
|
(6,930
|
)
|
|
(13,490
|
)
|
|
Provision for income taxes
|
(367
|
)
|
|
(115
|
)
|
|
(108
|
)
|
|
Net loss
|
$
|
(1,895
|
)
|
|
$
|
(7,045
|
)
|
|
$
|
(13,598
|
)
|
|
Net loss attributable to common stockholders per share, basic and diluted
(2)
|
$
|
(0.30
|
)
|
|
$
|
(9.16
|
)
|
|
$
|
(20.72
|
)
|
|
Weighted average shares used to compute basic and diluted net loss per share
(2)
|
6,384,709
|
|
|
769,524
|
|
|
656,146
|
|
|
|
|
|
|
|
|
________________________
|
|
|
|
(1)
|
Cost of revenue and operating expenses include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
(In thousands)
|
|
|
|
Cost of revenue
|
$
|
33
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
Research and development
|
911
|
|
|
302
|
|
|
256
|
|
|
Sales and marketing
|
248
|
|
|
445
|
|
|
101
|
|
|
General and administrative
|
1,898
|
|
|
446
|
|
|
203
|
|
|
Total stock-based compensation expense
|
$
|
3,090
|
|
|
$
|
1,202
|
|
|
$
|
567
|
|
|
|
|
|
(2)
|
See Notes 1 and 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of the calculation of our basic and diluted net loss per common share, pro forma net loss per common share, and the weighted-average number of shares used in the computation of the per share amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
January 1,
2017
|
|
December 27, 2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
117,045
|
|
|
$
|
18,850
|
|
|
$
|
18,320
|
|
|
Working capital
|
$
|
127,981
|
|
|
$
|
28,287
|
|
|
$
|
21,091
|
|
|
Total assets
|
$
|
154,789
|
|
|
$
|
46,667
|
|
|
$
|
43,533
|
|
|
Total liabilities
|
$
|
26,041
|
|
|
$
|
17,635
|
|
|
$
|
23,078
|
|
|
Convertible preferred stock
|
$
|
—
|
|
|
$
|
184,704
|
|
|
$
|
170,448
|
|
|
Total stockholders’ equity (deficit)
|
$
|
128,748
|
|
|
$
|
(155,672
|
)
|
|
$
|
(149,993
|
)
|
Item 7. 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 should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
Overview
We are a leader in the design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking. Our solutions are designed to deliver leading-edge Wi-Fi performance to support an increasing number of connected devices accessing a rapidly growing pool of digital content. We combine our wireless systems and software expertise with high-performance radio frequency, mixed-signal and digital semiconductor design skills to provide highly integrated solutions to our customers.
Our solutions portfolio is currently comprised of multiple generations of our radio frequency chip and our digital baseband chip, which together support the IEEE Wi-Fi standards, including 802.11n and 802.11ac. These chips are typically sold together as a chipset combined with software and system-level reference designs that constitute a highly integrated Wi-Fi solution.
We sell our Wi-Fi solutions directly to global OEMs and ODMs that serve the end markets we address. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. OEMs incorporate our solutions into their products, which are then sold to their own customers, such as service providers, retailers, enterprises, small and medium businesses, and retail consumers. To date, we have primarily addressed the service provider market for home networking applications, including home gateways, repeaters, and set-top boxes. We are also addressing additional end markets, with solutions for (i) retail OEMs for home networking as well as small and medium business applications (e.g., routers and repeaters), (ii) enterprise OEMs for enterprise networking applications (e.g., access points), and (iii) consumer electronics OEMs for consumer applications, including wireless streaming of audio and video, wireless TVs, and wireless speakers. We believe the life cycles of our customers’ products can range from approximately one year to five years or more depending on the end market.
Some OEMs purchase our Wi-Fi solutions directly from us and use them in the design and manufacture (directly or through their third-party contract manufacturers) of their own products. Other OEMs utilize ODMs to design and build subsystem products incorporating our Wi-Fi solutions, which the OEMs then purchase from the ODM and incorporate into the OEM products. Accordingly, we ship our Wi-Fi solutions either directly to the OEM, its contract manufacturer, or its ODM, based on the requirements of each OEM. However, we maintain close relationships with the target OEM to monitor OEM end-market demand as the initial Wi-Fi solution design win is generally awarded by the OEM.
We derive the substantial majority of our revenue from the sale of our Wi-Fi solutions. In addition, historically we also derived a portion of our revenue from a limited number of licensing and non-recurring arrangements. These arrangements are no longer active. In the future, we may enter into new licensing arrangements on an opportunistic basis.
The following table shows percentage of our revenue by category:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
(Percentage of revenue)
|
|
Wi-Fi Solutions
|
99.5%
|
|
89.4%
|
|
90.6%
|
|
Licensing
|
0.4%
|
|
6.8%
|
|
9.4%
|
|
Non-recurring Arrangements
|
0.1%
|
|
3.8%
|
|
—%
|
The following table shows OEM, ODM and third-party distributor customers from which we derived 10% or more of our revenue:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
(Percentage of revenue)
|
|
Customer:
|
|
|
|
|
|
|
Pace plc**
|
19%
|
|
14%
|
|
*
|
|
Technicolor SA
|
11%
|
|
15%
|
|
11%
|
|
Sagemcom Broadband SAS
|
11%
|
|
*
|
|
*
|
|
Prohubs International Corp.
|
*
|
|
11%
|
|
*
|
|
Gemtek Electronics Co. Ltd.
|
*
|
|
10%
|
|
28%
|
|
CyberTAN, Technology, Inc.
|
*
|
|
*
|
|
21%
|
________________________
|
|
|
|
*
|
Customer percentage of revenue was less than 10%.
|
|
|
|
|
**
|
Pace plc was acquired by Arris International plc in January 2016
.
|
Substantially all of our revenue as of January 1, 2017 has been derived from sales to customers serving the service provider home networking market.
Almost all of our revenue is generated outside the United States in the years ended
January 1, 2017
,
December 27, 2015
, and,
December 28, 2014
, based on ship-to destinations, and we anticipate that the vast majority of our shipments will continue to be delivered outside the United States. Although almost all shipments are delivered outside the United States, we believe that a significant number of the Wi-Fi products that include our chips, such as access points, gateways, set-top boxes and repeaters, are ultimately directed and sold by OEM customers to service providers in North America and Western Europe. To date, all of our revenue has been denominated in U.S. dollars.
We use a fabless semiconductor business model and rely on third-party contractors to fabricate, assemble, and test our chipset designs. We purchase silicon wafers from TSMC, our foundry partner, which are then shipped to third-party contractors who assemble and test our chipsets. Our inventory is distributed from the third-party contractors and a contracted warehouse in Taiwan. We believe this outsourced manufacturing approach gives us access to the best available process technology, reduces our capital requirements, and allows us to focus our resources on the design, development, marketing, sales, and customer integration of our Wi-Fi solutions. We typically receive purchase orders 12 to 14 weeks ahead of our customers’ desired delivery date, and we build our inventory primarily on the basis of purchase orders from our customers.
Our revenue increased to
$129.1 million
in
2016
from
$83.8 million
in
2015
, representing an increase of
54%
. Our revenue increased to
$83.8 million
in
2015
from
$66.9 million
in
2014
, representing an increase of
25%
. Our net loss was
$1.9 million
,
$7.0 million
and
$13.6 million
in
2016
,
2015
and
2014
, respectively.
Our employee headcount has increased to
325
as of
January 1, 2017
from
241
employees as of
December 27, 2015
, of which
80%
are engaged in research and development activities.
We intend to continue scaling our business to meet the needs of our growing customer base. Key elements of our growth strategy include continuing to deliver innovation and drive new standards, expanding our share of the service provider market for home networking, and addressing other markets, such as retail, small and medium business applications, and enterprise. In addition, we are focused on broadening our solutions portfolio to address additional market segments such as consumer electronics. We anticipate that our operating expense will increase in absolute dollars in the future as we further invest in research and development to support and enhance our solutions and a growing number of customer products, in sales and marketing to acquire new customers in both new and existing markets, and in general and administrative to support our growth. We believe these investments will contribute to our long-term growth.
Factors Affecting Our Performance
Design Wins with Existing and Prospective Service Providers
Existing and prospective service providers that we serve through our OEM and ODM customers tend to be global enterprises that are continuously working with their partners to deploy new products. We believe our Wi-Fi solutions enable service providers to differentiate their products and services and drive the next upgrade cycles in their end market to ultimately gain market share. We work closely with service providers to assist in the development of their product specifications and designs. We compete to secure service provider design wins through an extended sales cycle, which can often last six to 18 months. After a design win is achieved, we continue to work closely with the service providers to assist them and their OEMs and ODMs throughout their product development and early deployment, which can often last six to 18 months. We believe our design win performance is dependent on the investments we make in research and development and sales and marketing to bring innovative Wi-Fi solutions to our existing and new markets and develop close relationships with our customers and service providers. As a result, we expect our research and development and sales and marketing expenses to increase in absolute dollars as we continue to grow our business.
Because of this extended sales cycle, our revenue is highly dependent upon the ongoing achievement of service provider design wins. We expect future revenue to depend upon sales to service providers with whom we have existing relationships as well as our ability to garner design wins with new service providers with whom we currently do not have relationships or sales. Further, because we expect revenue relating to our earlier generation solutions to decline in the future, we consider these design wins critical to our future success.
Product Life Cycle of our Customers and Service Providers; Expanding into Other End Markets
In the service provider home networking market, once service providers select our Wi-Fi solutions for integration into their products, we work with our OEM and ODM customers to monitor all phases of the product life cycle, including the initial design phase, prototype production and volume production. Our service providers’ product life cycles typically range from three to five years or more, based on product features, size of subscriber base, and roll-out plans. In contrast, wireless products sold in the retail or consumer electronics end markets have shorter life cycles than those sold into the service provider home networking market. In the retail or consumer electronics markets, a wireless product typically has a product life cycle of one to two years.
Currently, the majority of our revenue is derived from sales to OEMs and ODMs serving the service provider home networking market, with relatively longer sales cycles, longer customer product development cycles and longer time to shipment, but also with longer product life cycles. However, as we expand into additional end markets, such as retail, small and medium business, enterprise or consumer electronics, we expect revenue from such markets to increase as a proportion of our revenue over time. The shorter product life cycles associated with such additional end markets typically require greater frequency of design wins, and they may also result in faster time to shipment of our Wi-Fi solutions.
Sales Volume and Customer Concentration
A typical design win can generate a wide range of sales volumes for our Wi-Fi solutions, depending on the end market demand for our customers’ products. Such demand depends on several factors, including end market size, size of the service providers, product price and features, and the ability of customers and service providers to sell their products into their end markets. As such, some design wins result in orders and significant revenue shortly after the design win is awarded and other design wins do not result in significant orders and revenue for several months or longer after the initial design win, if at all. As a result, an increase or decrease in the number of design wins we achieve on a quarterly or annual basis does not necessarily correlate to a likely increase or decrease in revenue in the same or immediately succeeding quarter or year. Nonetheless, design wins are critical to our continued sales, and we believe that the collective impact of design wins correlates to our overall revenue growth over time.
Our customers and service providers often share their product development schedules with us, including the projected launch dates of their wireless product offerings. Once customers and service providers are in production, they generally will provide nine to 12-month forecasts of expected demand. However, they may change their purchase orders and demand forecasts at any time with limited or no prior notice.
We derive a significant portion of our revenue from a small number of OEMs and ODMs, and substantially all of our revenue to date has been generated by sales of our solutions to OEMs and ODMs serving the service provider market for home networking. While we strive to expand and diversify our customer base and we expect our customer concentration to decline over time, we
anticipate that sales to a limited number of customers will continue to account for a significant percentage of our revenue in the foreseeable future. In light of this customer and service provider concentration, our revenue is likely to continue to be materially impacted by the purchasing decisions of our largest customers and the service providers they serve.
Wi-Fi Solutions Pricing, Cost and Gross Margin
Our average selling price, or ASP, can vary by product mix, customer mix and end market, due to end market-specific characteristics such as supply and demand, competitive landscape, the maturation of Wi-Fi solutions launched in prior years and the launch of new Wi-Fi solutions. Our gross margin depends on a variety of factors, including the sales volume, features, price, and manufacturing costs of our Wi-Fi solutions. We make continuous investments in our solutions to enhance existing and add new features, maintain our competitiveness, minimize ASP erosion, and reduce the cost of our solutions.
As we rely on third-party contractors for the fabrication, assembly and testing of our chipsets, we work closely with these third-parties to improve the manufacturability of our chipsets, lower wafer cost, enhance yields, lower assembly and test costs, and improve quality.
In general, our latest generation solutions have higher prices compared to our prior generation solutions. As is typical in the semiconductor industry and consistent with our historical trends, we expect the ASPs of our solutions to decline as those solutions mature and unit volumes increase. These ASP declines often coincide with improvements in manufacturing yields and lower wafer, assembly and testing costs, which may offset some or all of the margin reduction that results from lower ASPs.
Components of Results of Operations
Revenue
Our revenue is generated primarily from sales of our Wi-Fi solutions to our OEM and ODM customers. In addition, we sell our Wi-Fi solutions to third-party distributors who in turn resell to OEMs and ODMs. Our Wi-Fi solutions are integrated into OEM products, such as gateways, set-top boxes, repeaters or routers, which are then sold primarily to service providers. Our sales have historically been made on the basis of purchase orders against our standard terms and conditions, rather than long-term agreements. Sales of our Wi-Fi solutions fluctuate primarily based on competition, sales volume, customer inventory and price. We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, such as customer product development and deployment cycles and the purchasing patterns of our customers and third-party distributors.
During the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we also derived revenue from a limited number of licensing and non-recurring arrangements. These arrangements are no longer active. In the future, we may enter into new licensing arrangements on an opportunistic basis.
Cost of Revenue, Gross Margin
We utilize third-party contractors for the production of the chipsets included in our Wi-Fi solutions. Cost of revenue primarily relates to the purchase of silicon wafers from our third-party foundry, and costs associated with assembly, testing and inbound and outbound shipping of our wafers and chipsets. After we purchase wafers from our third-party foundry, we bear the manufacturing yield risk related to assembling and testing these wafers into chipsets, which can result in benefit or expense recorded in cost of revenue. Cost of revenue also includes lower of cost or market adjustments to the carrying value of inventory, scrap and inventory obsolescence, and any accruals for warranty obligations, which we record when revenue is recognized. Additionally, cost of revenue includes manufacturing overhead expense, such as personnel cost which primarily consist of compensation costs related to employees, consultants and contractors, including salaries, sales commissions, bonuses, stock-based compensation and other employee benefits; depreciation expense, and allocated administrative costs associated with supply chain management and quality assurance activities, as well as property insurance premiums and royalty costs.
We seek to negotiate price reductions, which historically has included rebates, from our third-party foundry on the purchase of silicon wafers upon achieving certain volume targets. Such rebates are recorded as a reduction of inventory cost and are recognized as a reduction of cost of revenue. Because we do not have long-term, fixed supply agreements, our wafer costs are subject to changes based on the cyclical demand for semiconductors.
We calculate gross margin as revenue less cost of revenue divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including ASPs, sales volume, and wafer, assembly and testing costs. We believe the primary driver of our gross margin is the ASPs negotiated between us and our customers, relative to the wafer, assembly and testing costs for our Wi-Fi solutions. As each of our Wi-Fi solutions matures and sales volumes increase, we expect ASPs to decline. Historically, such ASP declines have often coincided with lower wafer, assembly and testing costs, which have offset some or all of the gross margin reduction resulting from lower ASPs. In the future, we expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs, introductions of new Wi-Fi solutions, changes in our product and customer mix, and changes in wafer, assembly and testing costs.
Operating Expenses
Our operating expenses consist of research and development, or R&D, sales and marketing, or S&M, and general and administrative, or G&A, expense. Personnel costs are the largest component of operating expenses and primarily consist of compensation costs related to employees, consultants and contractors, including salaries, sales commissions, bonuses, stock-based compensation and other employee benefits. As we continue to grow our business, we expect operating expenses to increase in absolute dollars.
Research and Development.
Our R&D expense consists primarily of personnel costs to support our R&D activities, including silicon design, software development and testing, and customers’ product development support and qualification. R&D expense also includes tape-out costs, which include layout services, mask sets, prototype wafers, mask set revisions, intellectual property license fees, and system qualification and testing incurred before releasing new chip designs into production. In addition, R&D expense includes design software and simulation tools licenses, depreciation expense, and allocated administrative costs. All R&D costs are expensed as incurred. We expect R&D expense to fluctuate from period to period based on the timing and amount of tape-out costs and hiring.
Sales and Marketing.
Our
S&M expense consists primarily of personnel costs for our S&M activities, including pre-sales support. S&M expense also includes sales-based commissions we pay to independent sales representatives, public relations costs, trade show expenses, product marketing and communication, promotional activities, travel and entertainment costs and allocated administrative costs. Our S&M expense in a given period can be particularly affected by the timing of marketing programs and hiring.
General and Administrative.
Our
G&A expense consists primarily of personnel costs for our administrative personnel in support of our infrastructure functions such as general management, finance, human resources, legal, facilities and information technology. G&A expense also includes professional services fees, insurance premiums, depreciation expense, and allocated administrative costs, as well as any allowance for doubtful accounts. We expect our G&A expense to increase in absolute dollars as we grow our business, support our operations as a public company, and increase our headcount.
Interest Expense
Interest expense consists primarily of interest related to outstanding debt and amortization of debt discount.
Other Income (Expense), Net
Other income (expense), net currently consists primarily of interest income from our cash equivalent portfolio, the effect of exchange rates on our foreign currency-denominated asset and liability balances as well as changes in the fair value of our convertible preferred stock warrants.
Provision for Income Taxes
Provision for income taxes consists primarily of alternative minimum tax and income taxes in the foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for deferred tax assets, including net operating loss carry-forward and R&D credits. Due to improvements in the United States operating results over the past three years, we believe a reasonable possibility exists that, within the next year, sufficient positive evidence may become available to reach a conclusion that the valuation allowance against our federal and state net deferred tax assets will no longer be needed.
Results of Operations
The following tables set forth our results of operations for the periods presented, in dollars and as a percentage of our revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Revenue
|
$
|
129,069
|
|
|
100
|
%
|
|
$
|
83,773
|
|
|
100
|
%
|
|
$
|
66,860
|
|
|
100
|
%
|
|
Cost of revenue
(1)
|
64,640
|
|
|
50
|
|
|
42,554
|
|
|
51
|
|
|
38,211
|
|
|
57
|
|
|
Gross profit
|
64,429
|
|
|
50
|
|
|
41,219
|
|
|
49
|
|
|
28,649
|
|
|
43
|
|
|
Operating expenses
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
46,604
|
|
|
36
|
|
|
35,575
|
|
|
42
|
|
|
31,283
|
|
|
47
|
|
|
Sales and marketing
|
8,091
|
|
|
6
|
|
|
6,644
|
|
|
8
|
|
|
5,932
|
|
|
9
|
|
|
General and administrative
|
10,559
|
|
|
8
|
|
|
5,212
|
|
|
6
|
|
|
4,532
|
|
|
7
|
|
|
Total operating expenses
|
65,254
|
|
|
50
|
|
|
47,431
|
|
|
56
|
|
|
41,747
|
|
|
63
|
|
|
Loss from operations
|
(825
|
)
|
|
—
|
|
|
(6,212
|
)
|
|
(7
|
)
|
|
(13,098
|
)
|
|
(20
|
)
|
|
Interest expense
|
(665
|
)
|
|
(1
|
)
|
|
(697
|
)
|
|
(1
|
)
|
|
(481
|
)
|
|
(1
|
)
|
|
Other income (expense), net
|
(38
|
)
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
89
|
|
|
—
|
|
|
Loss before income taxes
|
(1,528
|
)
|
|
(1
|
)
|
|
(6,930
|
)
|
|
(8
|
)
|
|
(13,490
|
)
|
|
(21
|
)
|
|
Provision for income taxes
|
(367
|
)
|
|
—
|
|
|
(115
|
)
|
|
—
|
|
|
(108
|
)
|
|
—
|
|
|
Net loss
|
$
|
(1,895
|
)
|
|
(1
|
)%
|
|
$
|
(7,045
|
)
|
|
(8
|
)%
|
|
$
|
(13,598
|
)
|
|
(21
|
)%
|
|
Net loss attributable to common stockholders per share, basic and diluted
|
$
|
(0.30
|
)
|
|
|
|
$
|
(9.16
|
)
|
|
|
|
$
|
(20.72
|
)
|
|
|
|
Weighted average shares used to compute basic and diluted net loss per share
|
6,384,709
|
|
|
|
|
769,524
|
|
|
|
|
656,146
|
|
|
|
________________________
|
|
|
|
(1)
|
Cost of revenue and operating expenses include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Cost of revenue
|
$
|
33
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
Research and development
|
911
|
|
|
302
|
|
|
256
|
|
|
Sales and marketing
|
248
|
|
|
445
|
|
|
101
|
|
|
General and administrative
|
1,898
|
|
|
446
|
|
|
203
|
|
|
Total stock-based compensation expense
|
$
|
3,090
|
|
|
$
|
1,202
|
|
|
$
|
567
|
|
Comparison of the Years Ended
January 1, 2017
and
December 27, 2015
Revenue, Cost of Revenue, Gross Profit and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
Change
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
|
|
Revenue
|
$
|
129,069
|
|
|
$
|
83,773
|
|
|
$
|
45,296
|
|
|
54
|
%
|
|
Cost of revenue
|
64,640
|
|
|
42,554
|
|
|
22,086
|
|
|
52
|
%
|
|
Gross profit
|
$
|
64,429
|
|
|
$
|
41,219
|
|
|
$
|
23,210
|
|
|
56
|
%
|
|
Gross margin
|
49.9
|
%
|
|
49.2
|
%
|
|
0.7
|
%
|
|
|
Revenue
. Revenue
increased
$45.3 million
, or
54%
, to
$129.1 million
in
2016
compared to
2015
. This increase was primarily due to a
$53.5 million
increase in sales of our Wi-Fi solutions driven by higher sales volumes on substantially flat ASPs period to period, partially offset by a
$8.2 million
, decrease in revenue from licensing and non-recurring arrangements that ended in January 2016. In
2016
and
2015
, licensing revenue was
$0.5 million
and
$5.7 million
, respectively. We expect that revenue will decrease in absolute dollars in the first quarter of 2017 due to seasonality and as we will operate with one less week sequentially.
Cost of Revenue, Gross Profit and Gross Margin
. Cost of revenue
increased
$22.1 million
, or
52%
, to
$64.6 million
in
2016
compared to
2015
, as a result of higher sales volume partially offset by lower unit cost for our Wi-Fi solutions.
Gross profit
increased
$23.2 million
, or
56%
, to
$64.4 million
in
2016
compared to
2015
due to the higher sales volume and lower unit cost. Gross margin increased by 70 basis points, to
49.9%
in
2016
, compared to
2015
, primarily consisting of an approximately 600 basis points gross margin increase from higher gross margin from sales of our Wi-Fi solutions, partially offset by an approximately 530 basis points of lost gross margin from the expiration of certain licensing and non-recurring arrangements. The 600 basis points from higher gross margin from Wi-Fi solutions resulted from a mix shift towards higher margin 802.11ac Wi-Fi solutions, and unit cost reductions due to more favorable pricing from our third-party contractors as a result of higher manufacturing volume.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
Amount
|
|
% of
Revenue
|
|
Amount
|
|
% of
Revenue
|
|
Change
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
46,604
|
|
|
36
|
%
|
|
$
|
35,575
|
|
|
42
|
%
|
|
$
|
11,029
|
|
|
31
|
%
|
|
Sales and marketing
|
8,091
|
|
|
6
|
%
|
|
6,644
|
|
|
8
|
%
|
|
1,447
|
|
|
22
|
%
|
|
General and administrative
|
10,559
|
|
|
8
|
%
|
|
5,212
|
|
|
6
|
%
|
|
5,347
|
|
|
103
|
%
|
|
Total operating expenses
|
$
|
65,254
|
|
|
50
|
%
|
|
$
|
47,431
|
|
|
56
|
%
|
|
$
|
17,823
|
|
|
38
|
%
|
Research and Development Expense
. R&D expense
increased
$11.0 million
, or
31%
, to
$46.6 million
in the
year ended
January 1, 2017
compared to the
year ended
December 27, 2015
, primarily due to a $6.0 million increase in personnel costs, including $0.6 million in stock-based compensation expense, resulting from additional headcount to further develop and expand our solutions portfolio, and to support increased customer product development activities. R&D expense also increased due to tape-out, lay-out and prototype related expenses of $2.4 million, equipment related expenses of $0.9 million to support and qualify new product platforms and $1.2 million from allocated administrative costs. We expect that research and development expense will decrease in absolute dollars in the first quarter of 2017 as we will operate with one less week sequentially.
Sales and Marketing Expense
. S&M expense
increased
$1.4 million
, or
22%
, to
$8.1 million
in the
year ended
January 1, 2017
compared to the
year ended
December 27, 2015
due to an increase of $1.2 million in personnel costs to support our expanding business and, $0.2 million from allocated administrative costs. We expect that sales and marketing expense will decrease in absolute dollars in the first quarter of 2017 as we will operate with one less week sequentially.
General and Administrative Expense
. G&A expense
increased
$5.3 million
, or
103%
, to
$10.6 million
in the
year ended
January 1, 2017
compared to the
year ended
December 27, 2015
, primarily due to $2.4 million in legal and consulting costs as we prepared to become a public company, $1.4 million in stock-based compensation expense due to a
$1.1 million
expense from accelerated vesting of stock options and shares of common stock issued upon early exercise of a warrant, and $1.2 million in personnel costs as we increased our administrative headcount to support the growth of our business. We expect that general and administrative expense will decrease in absolute dollars in the first quarter of 2017 as we will operate with one less week sequentially.
Comparison of the Years Ended
December 27, 2015
and
December 28, 2014
Revenue, Cost of Revenue, Gross Profit and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 27,
2015
|
|
December 28,
2014
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
Revenue
|
$
|
83,773
|
|
|
$
|
66,860
|
|
|
$
|
16,913
|
|
|
25
|
%
|
|
Cost of revenue
|
42,554
|
|
|
38,211
|
|
|
4,343
|
|
|
11
|
%
|
|
Gross profit
|
$
|
41,219
|
|
|
$
|
28,649
|
|
|
$
|
12,570
|
|
|
44
|
%
|
|
Gross margin
|
49.2
|
%
|
|
42.8
|
%
|
|
6.4
|
%
|
|
|
Revenue.
Revenue increased
$16.9 million
, or
25%
, to
$83.8 million
in
2015
compared to
2014
. This increase was primarily due to a $14.3 million increase in sales of our Wi-Fi solutions driven by higher sales volumes and higher ASPs resulting from the start of shipment of our latest generation 802.11ac solution in late
2014
and related mix-shift from 802.11n to 802.11ac. The increase was also due to $3.2 million of revenue from a non-recurring arrangement, which ended in 2015, offset by a $0.5 million decrease in licensing revenue. Revenue in each of
2015
and
2014
included $5.7 million and $6.2 million, respectively, from a licensing arrangement that ended in January 2016.
Cost of Revenue, Gross Profit and Gross Margin.
Cost of revenue
increased
$4.3 million
, or
11%
, to
$42.6 million
in
2015
compared to
2014
, as a result of higher sales volume, partially offset by lower unit cost. Gross profit
increased
$12.6 million
, or
44%
, to
$41.2 million
in
2015
compared to 2014 due to the higher sales volume and lower unit cost. Of the
$12.6 million
increase, $9.8 million resulted from the growth of our Wi-Fi solutions sales volume, and $2.7 million resulted from revenue from licensing and non-recurring arrangements. Gross margin improved 640 basis points to
49.2%
in 2015 compared to 2014, driven by a 480 basis point increase from sales of our Wi-Fi solutions, and a 160 basis points increase from licensing and non-recurring arrangements. The 480 basis points from higher Wi-Fi solutions gross margin resulted from a more favorable customer mix, the sales of higher margin 802.11ac Wi-Fi solutions and cost reductions due to more favorable pricing from our third-party contractors as a result of higher manufacturing volume.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
Change
|
|
% Change
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
35,575
|
|
|
42
|
%
|
|
$
|
31,283
|
|
|
47
|
%
|
|
$
|
4,292
|
|
|
14
|
%
|
|
|
Sales and marketing
|
6,644
|
|
|
8
|
|
|
5,932
|
|
|
9
|
|
|
712
|
|
|
12
|
%
|
|
|
General and administrative
|
5,212
|
|
|
6
|
|
|
4,532
|
|
|
7
|
|
|
680
|
|
|
15
|
%
|
|
|
Total operating expenses
|
$
|
47,431
|
|
|
57
|
%
|
|
$
|
41,747
|
|
|
62
|
%
|
|
$
|
5,684
|
|
|
14
|
%
|
Research and Development Expense.
R&D expense
increased
$4.3 million
, or
14%
, to
$35.6 million
in
2015
, compared to
2014
, primarily due to an increase of $2.7 million in tape-out costs related to our next generation solutions, and an increase of $1.5 million in personnel costs from additional headcount to further develop and expand our solutions portfolio, and to support increased customer product development activities.
Sales and Marketing Expense.
S&M expense
increased
$0.7 million
, or
12%
, to
$6.6 million
in
2015
, compared to
2014
, as we increased sales headcount to drive growth, and recorded additional stock-based compensation expense. In
2015
, stock-based compensation expense was
$0.4 million
as compared to
$0.1 million
in
2014
.
General and Administrative Expense.
G&A expense
increased
$0.7 million
, or
15%
, to
$5.2 million
in
2015
, compared to
2014
, primarily due to an increase in personnel costs as we increased our administrative headcount to support the growth of our business.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended
January 1, 2017
. The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of this information. These quarterly operating results are not necessarily indicative of the results that may be expected for a full year or any other period. This information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Basic and diluted net income (loss) per share for each of the quarters in 2016 and 2015 and for the full years ended January 1, 2017 and December 27, 2015 have been computed separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the weighted-average shares outstanding during each quarter due to the effect of potentially dilutive securities only in the periods in which such effect would be dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 1,
2017
|
|
September 25, 2016
|
|
June 26, 2016
|
|
March 27, 2016
|
|
December 27, 2015
|
|
September 27, 2015
|
|
June 28, 2015
|
|
March 29,
2015
|
|
|
|
|
(In thousands, except per share data)
(Unaudited)
|
|
Revenue
|
$
|
37,492
|
|
|
$
|
34,105
|
|
|
$
|
33,035
|
|
|
$
|
24,437
|
|
|
$
|
25,412
|
|
|
$
|
21,806
|
|
|
$
|
18,171
|
|
|
$
|
18,384
|
|
|
Cost of revenue
(1)
|
18,188
|
|
|
17,247
|
|
|
16,671
|
|
|
12,534
|
|
|
12,425
|
|
|
11,395
|
|
|
8,903
|
|
|
9,831
|
|
|
Gross profit
|
19,304
|
|
|
16,858
|
|
|
16,364
|
|
|
11,903
|
|
|
12,987
|
|
|
10,411
|
|
|
9,268
|
|
|
8,553
|
|
|
Operating expenses
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
13,691
|
|
|
11,162
|
|
|
11,524
|
|
|
10,227
|
|
|
9,545
|
|
|
7,587
|
|
|
8,681
|
|
|
9,762
|
|
|
Sales and marketing
|
2,520
|
|
|
2,172
|
|
|
1,769
|
|
|
1,630
|
|
|
1,625
|
|
|
1,490
|
|
|
1,681
|
|
|
1,848
|
|
|
General and administrative
|
2,756
|
|
|
3,248
|
|
|
2,993
|
|
|
1,562
|
|
|
1,302
|
|
|
1,178
|
|
|
1,305
|
|
|
1,427
|
|
|
Total operating expenses
|
18,967
|
|
|
16,582
|
|
|
16,286
|
|
|
13,419
|
|
|
12,472
|
|
|
10,255
|
|
|
11,667
|
|
|
13,037
|
|
|
Income (loss) from operations
|
337
|
|
|
276
|
|
|
78
|
|
|
(1,516
|
)
|
|
515
|
|
|
156
|
|
|
(2,399
|
)
|
|
(4,484
|
)
|
|
Interest expense
|
(252
|
)
|
|
(189
|
)
|
|
(111
|
)
|
|
(114
|
)
|
|
(137
|
)
|
|
(160
|
)
|
|
(179
|
)
|
|
(221
|
)
|
|
Other income (expense), net
|
261
|
|
|
(52
|
)
|
|
(180
|
)
|
|
(68
|
)
|
|
87
|
|
|
(28
|
)
|
|
(42
|
)
|
|
(38
|
)
|
|
Income (loss) before income taxes
|
346
|
|
|
35
|
|
|
(213
|
)
|
|
(1,698
|
)
|
|
465
|
|
|
(32
|
)
|
|
(2,620
|
)
|
|
(4,743
|
)
|
|
Provision for income taxes
|
(314
|
)
|
|
(14
|
)
|
|
(21
|
)
|
|
(17
|
)
|
|
(38
|
)
|
|
(40
|
)
|
|
(21
|
)
|
|
(16
|
)
|
|
Net income (loss)
|
$
|
32
|
|
|
$
|
21
|
|
|
$
|
(234
|
)
|
|
$
|
(1,715
|
)
|
|
$
|
427
|
|
|
$
|
(72
|
)
|
|
$
|
(2,641
|
)
|
|
$
|
(4,759
|
)
|
|
Basic net income (loss) per share:
|
—
|
|
|
0.02
|
|
|
(0.22
|
)
|
|
(1.63
|
)
|
|
0.49
|
|
|
(0.09
|
)
|
|
(3.64
|
)
|
|
(6.81
|
)
|
|
Dilutive net income (loss) per share:
|
—
|
|
|
—
|
|
|
(0.22
|
)
|
|
(1.63
|
)
|
|
0.02
|
|
|
(0.09
|
)
|
|
(3.64
|
)
|
|
(6.81
|
)
|
|
Shares used in computing basic net income (loss) per share:
|
21,245,757
|
|
|
1,157,279
|
|
|
1,075,323
|
|
|
1,050,798
|
|
|
872,396
|
|
|
781,830
|
|
|
726,190
|
|
|
698,337
|
|
|
Shares used in computing diluted net income (loss) per share:
|
35,386,904
|
|
|
29,974,428
|
|
|
1,075,323
|
|
|
1,050,798
|
|
|
27,066,613
|
|
|
781,830
|
|
|
726,190
|
|
|
698,337
|
|
________________________
|
|
|
|
(1)
|
Cost of revenue and operating expenses include stock-based compensation expense as follows (unaudited)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
September 25,
2016
|
|
June 26,
2016
|
|
March 27,
2016
|
|
December 27,
2015
|
|
September 27,
2015
|
|
June 28,
2015
|
|
March 29,
2015
|
|
|
|
|
|
|
Cost of revenue
|
$
|
18
|
|
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Research and development
|
457
|
|
|
231
|
|
|
122
|
|
|
101
|
|
|
77
|
|
|
72
|
|
|
70
|
|
|
83
|
|
|
Sales and marketing
|
128
|
|
|
60
|
|
|
30
|
|
|
30
|
|
|
26
|
|
|
26
|
|
|
196
|
|
|
197
|
|
|
General and administrative
|
263
|
|
|
734
|
|
|
731
|
|
|
170
|
|
|
139
|
|
|
113
|
|
|
102
|
|
|
92
|
|
|
Total stock-based compensation expense
|
$
|
866
|
|
|
$
|
1,034
|
|
|
$
|
886
|
|
|
$
|
304
|
|
|
$
|
245
|
|
|
$
|
213
|
|
|
$
|
370
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 1,
2017
|
|
September 25,
2016
|
|
June 26,
2016
|
|
March 27,
2016
|
|
December 27,
2015
|
|
September 27,
2015
|
|
June 28,
2015
|
|
March 29,
2015
|
|
|
(As a percentage of revenue)
(Unaudited)
|
|
Revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of revenue
|
48.5
|
|
|
50.6
|
|
|
50.5
|
|
|
51.3
|
|
|
48.9
|
|
|
52.3
|
|
|
49.0
|
|
|
53.5
|
|
|
Gross profit
|
51.5
|
|
|
49.4
|
|
|
49.5
|
|
|
48.7
|
|
|
51.1
|
|
|
47.7
|
|
|
51.0
|
|
|
46.5
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
36.5
|
|
|
32.7
|
|
|
34.9
|
|
|
41.9
|
|
|
37.6
|
|
|
34.8
|
|
|
47.8
|
|
|
53.1
|
|
|
Sales and marketing
|
6.7
|
|
|
6.4
|
|
|
5.4
|
|
|
6.7
|
|
|
6.4
|
|
|
6.8
|
|
|
9.3
|
|
|
10.1
|
|
|
General and administrative
|
7.4
|
|
|
9.5
|
|
|
9.1
|
|
|
6.4
|
|
|
5.1
|
|
|
5.4
|
|
|
7.2
|
|
|
7.8
|
|
|
Total operating expenses
|
50.6
|
|
|
48.6
|
|
|
49.3
|
|
|
54.9
|
|
|
49.1
|
|
|
47.0
|
|
|
64.2
|
|
|
70.9
|
|
|
Income (loss) from operations
|
0.9
|
|
|
0.8
|
|
|
0.2
|
|
|
(6.2
|
)
|
|
2.0
|
|
|
0.7
|
|
|
(13.2
|
)
|
|
(24.4
|
)
|
|
Interest expense
|
(0.7
|
)
|
|
(0.6
|
)
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
(0.7
|
)
|
|
(1.0
|
)
|
|
(1.2
|
)
|
|
Other income (expense), net
|
0.7
|
|
|
(0.2
|
)
|
|
(0.5
|
)
|
|
(0.3
|
)
|
|
0.3
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|
Income (loss) before income taxes
|
0.9
|
|
|
0.1
|
|
|
(0.6
|
)
|
|
(6.9
|
)
|
|
1.8
|
|
|
(0.1
|
)
|
|
(14.4
|
)
|
|
(25.8
|
)
|
|
Provision for income taxes
|
(0.8
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
Net income (loss)
|
0.1
|
%
|
|
0.1
|
%
|
|
(0.7
|
)%
|
|
(7.0
|
)%
|
|
1.7
|
%
|
|
(0.3
|
)%
|
|
(14.5
|
)%
|
|
(25.9
|
)%
|
Quarterly Revenue Trends
Our quarterly revenue was
$18.4 million
and
$18.2 million
in the three months ended March 29, 2015 and June 28, 2015, respectively, on flat sales volume and ASPs. Quarterly revenue grew to
$21.8 million
,
$25.4 million
,
$24.4 million
,
$33.0 million
,
$34.1 million
and
$37.5 million
in the three months ended September 27, 2015, December 27, 2015, March 27, 2016, June 26, 2016, September 25, 2016 and January 1, 2017, respectively, as a result of consecutive quarterly sales volume increases reflecting higher customer adoption of our Wi-Fi solutions, and substantially flat ASPs. Revenue in the three months ended March 27, 2016 saw a slight decline over that of the prior quarter as a result of a decrease in revenue from a licensing arrangement that ended in January 2016 and from a non-recurring arrangement that ended in December 2015.
Quarterly Gross Profit and Gross Margin Trends
Quarterly gross profit steadily increased sequentially from the three months ended March 29, 2015, through the three months ended January 1, 2017, primarily as a result of increasing sales volume, substantially flat ASPs and declining average unit cost over the quarterly periods. In addition, in the three months ended June 28, 2015 and December 27, 2015, gross profit was positively impacted by cancellation fees charged to customers. In the three months ended March 27, 2016, gross profit was negatively impacted by the completion of revenue from a licensing arrangement in January 2016 and from a non-recurring arrangement that ended in December 2015. In the three months ended June 26, 2016, September 25, 2016 and January 1, 2017, gross profit increased primarily as a result of increasing sales volume.
Gross margin increased to
51.5%
in the three months ended January 1, 2017 from
46.5%
in the three months ended March 29, 2015, as result of product mix shift toward higher margin 802.11ac Wi-Fi solutions with flat ASPs and lower unit cost over the period. In the three months ended June 28, 2015 and December 27, 2015, gross margin increased to approximately 51% as a result of customer cancellation fees we received in each of those quarters.
Quarterly Operating Expense Trends
Total operating expenses fluctuated during the period primarily as a result of the timing of tape-out costs, timing of sales and marketing programs, and fluctuations in headcount and stock-based compensation expense.
R&D expense fluctuated from period to period primarily due to the timing and amount of tape-out costs and hiring.
S&M expense was stable between $1.5 million and $1.7 million a quarter, other than at $1.8 million in the three months ended March 29, 2015 and June 26, 2016. For the three months ended March 29, 2015, the increase in expense was primarily as a result of higher sales commission and trade show expenses, as well as stock-based compensation expense. For the three months ended June 26, 2016, the increase was primarily as a result of higher sales commission expenses due to increased revenue. For the three months ended January 1, 2017 and September 25, 2016, the increase was primarily as a result of increased personnel cost to support the growth of our business.
G&A expense fluctuated from period to period primarily due to hiring and timing of professional services costs to support the growth of our business. In the three months ended June 26, 2016 and September 25, 2016, G&A expense increased primarily related to a
$0.6 million
and
$0.5 million
expense due to the accelerated vesting of certain shares issued upon the early exercise of warrants and the accelerated vesting of stock options, respectively. G&A expense for June 26, 2016 and September 25, 2016 also increased as a result of higher legal and consulting costs as we prepared to become a public company. G&A expense for January 1, 2017 declined as compared to the previous quarter due to reduced legal and consulting cost.
Liquidity and Capital Resources
Since our inception in 2005, we have funded our operations primarily through sales of our common stock in conjunction with our IPO, private equity financing, gross profits generated from sales and, to a lesser extent, through technology licensing and debt financing arrangements. As of
January 1, 2017
and
December 27, 2015
, we had cash and cash equivalents of
$117.0 million
and
$18.9 million
, respectively. As of
January 1, 2017
, we had an accumulated deficit of
$161.6 million
.
On November 2, 2016, we consummated our IPO and sold 6,775,466 shares of common stock, including the sale of 75,466 shares of common stock to the underwriters upon their exercise of their option to purchase additional shares. We received net proceeds of approximately
$97.4 million
, after underwriting discounts, commissions and other offering expenses. Immediately prior to the consummation of our IPO, all outstanding shares of convertible preferred stock and preferred stock warrants were converted into common stock and common stock warrants, respectively.
Credit Facilities
In April 2013, we entered into a Loan and Security Agreement with Silicon Valley Bank, or the Lender. The agreement provided for a revolving line of credit and a term loan. The maximum amount available for borrowing under the revolving line of credit was
80%
of eligible accounts receivable, not to exceed
$3.5 million
in the aggregate. Interest under the revolving line of credit was calculated at the greater of the prime rate plus
0.50%
or
3.75%
. The original maturity date of the revolving line of credit was April 26, 2015. The term loan amount was for
$1.0 million
, which was advanced in April 2013. The principal amount outstanding on the term loan accrued interest at a per annum rate equal to prime rate plus
0.75%
, fixed at the time of funding. The term loan was payable in
36
equal monthly payments starting on May 1, 2013, with the last payment occurring on April 1, 2016.
In October 2013, we and the Lender agreed to increase the maximum amount available for borrowing under the revolving line of credit to
80%
of eligible accounts receivable plus
60%
of eligible customer purchase orders, not to exceed
$9.5 million
in the aggregate. We may request cash advances for eligible purchase orders at any time provided that our net cash balance is equal to or greater than
$8.0 million
and the amount of purchase order advances outstanding does not exceed
$2.0 million
. The effective annual interest rate for borrowing against receivables is
4.69%
, and the effective annual percentage rate for borrowing against purchase order advances is
6.25%
. We and the Lender also added a growth capital term loan for up to
$5.0 million
, of which
$3.0 million
was advanced on October 31, 2013, and the remaining
$2.0 million
was to become available to us upon the achievement of certain milestones related to revenue growth during 2013. We achieved the milestones under this agreement, but we did not borrow the remaining
$2.0 million
. The principal amount outstanding for the growth capital advance accrues interest at a floating per annum rate equal to prime plus
2.25%
. The growth capital loan is payable monthly over a 30-month period starting on October 1, 2014, with the last payment set to occur on March 1, 2017.
On January 30, 2015, we and the Lender agreed to (i) increase the maximum amount available under the revolving line of credit to
80%
of eligible accounts receivable, not to exceed
$12.5 million
in the aggregate, (ii) extend the maturity date of the revolving line of credit to April 26, 2016, and (iii) add a supplemental growth capital term loan for up to
$3.0 million
, of which
$3.0 million
was advanced on February 3, 2015. The effective annual interest rate for borrowing against receivables under the revolving line of credit is
4.25%
if our net cash is equal to or greater than
$4.0 million
. If our net cash is less than
$4.0 million
, the effective annual percentage rate for borrowing against receivables is
6.75%
. The principal amount outstanding for the supplemental growth capital loan accrues interest at a floating rate per annum equal to prime plus
1.00%
. The supplemental growth capital loan is payable monthly over a 36-month period starting on August 1, 2015, with the last payment set to occur on July 1, 2018.
In May 2016, we and the Lender amended and restated the Loan and Security Agreement to (i) increase the maximum amount available under the revolving line of credit to
$20.0 million
, (ii) extend the maturity date of the revolving line of credit to May 17, 2018, and (iii) add a new senior term loan in the amount of
$4.0 million
, in addition to the growth capital term loans described above. The new senior term loan has a one-year draw down period, and the principal amount outstanding under the new senior term loan accrues interest at a floating rate per annum equal to prime plus
0.75%
. The new senior term loan is payable monthly over a 30-month term starting on June 1, 2017, with the last payment due on November 1, 2019. We drew down
$3.0 million
under the revolving line of credit in June 2016, and repaid
$3.0 million
in August 2016. We had an undrawn balance under the revolving line of credit of
$20.0 million
as of
January 1, 2017
, subject to availability of borrowing base.
In connection with the amendment and restatement of the Loan and Security Agreement, we entered into a subordinated secured Mezzanine Loan with the Lender for up to
$10.0 million
. The principal amount outstanding on the Mezzanine Loan accrues interest at a fixed rate per annum equal to
10.5%
. The Mezzanine Loan has a one-year draw down period, with repayment due on May 1, 2019. In connection with the Mezzanine Loan, we issued warrants to purchase up to
126,400
shares of common stock, which become exercisable depending on the amounts borrowed under the Mezzanine Loan at an exercise price of
$4.00
per share.
As of
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, the aggregate outstanding balance under the Loan and Security Agreement, in each case as amended through such date, and the Mezzanine Loan was
$6.0 million
,
$4.4 million
and $3.2 million, respectively.
The amended and restated Loan and Security Agreement, or the SVB Loan Agreement, and the Mezzanine Loan are collateralized by certain of our assets, including pledging of certain of our equity interest in our subsidiaries, receivables and inventory, subject to customary exceptions and limits. The SVB Loan Agreement and the Mezzanine Loan contain customary events of default upon the occurrence of certain events, such as nonpayment of amounts due under the revolving line of credit or the term loans, violation of restrictive covenants, violation of other contractual provisions, or a material adverse change in our business. In addition, the credit facilities prohibit the payment of cash dividends on our capital stock and also places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. As of
January 1, 2017
, we were in compliance with all applicable covenants.
In accordance with the SVB Loan Agreement, we paid $0.2 million in fees to the Lender upon our IPO.
Based on our current operating plan, we expect that our cash on hand, will be sufficient to fund our operations through at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
|
|
|
|
•
|
the degree and rate of market adoption of our solutions, including design wins with customers and service providers;
|
|
|
|
|
•
|
the emergence of new competing technologies and products;
|
|
|
|
|
•
|
the costs of R&D activities we undertake to develop and expand our solutions portfolio;
|
|
|
|
|
•
|
the costs of commercialization activities, including sales, marketing and manufacturing;
|
|
|
|
|
•
|
the level of working capital required to support our growth; and
|
|
|
|
|
•
|
our need for additional personnel, information technology or other operating infrastructure to support our growth and operations as a public company.
|
In the event that additional capital is needed, we may not be able to raise such capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. We may also seek to raise capital opportunistically to support the anticipated growth of our business.
Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
(In thousands)
|
|
Net cash provided by (used in) :
|
|
|
|
|
|
|
Operating activities
|
2,316
|
|
|
$
|
(12,077
|
)
|
|
$
|
(17,851
|
)
|
|
Investing activities
|
(2,783
|
)
|
|
(1,702
|
)
|
|
(1,257
|
)
|
|
Financing activities
|
98,662
|
|
|
14,309
|
|
|
20,566
|
|
|
Net increase in cash and cash equivalents
|
$
|
98,195
|
|
|
$
|
530
|
|
|
$
|
1,458
|
|
Cash flows from Operating Activities.
Net cash provided by operating activities for
2016
was
$2.3 million
, compared to net cash used in operating activities for
2015
of
$12.1 million
.
Net cash provided by operating activities for
2016
of
$2.3 million
was comprised of a net loss of
$1.9 million
, as well as net cash outflow from changes in operating assets and liabilities of
$0.6 million
, partially offset by non-cash expenses of
$3.1 million
of stock-based compensation,
$1.3 million
of depreciation and amortization and
$0.3 million
of non-cash interest expense. The changes in operating assets and liabilities primarily consist of a
$5.8 million
increase in accrued liabilities and other current liabilities as a result of an increase in expenses consistent with the growth of our business,
$1.8 million
increase in accounts payable due to timing of payments to our suppliers, and a decrease of
$1.2 million
in accounts receivable due to timing of payments from our customers, offset by an increase of
$8.4 million
in inventory due to timing of purchases of raw materials and an increase of
$0.9 million
in prepaid expenses and other current assets.
Net cash used in operating activities was
$12.1 million
and
$17.9 million
for
2015
and
2014
, respectively.
Net cash used in operating activities for
2015
of
$12.1 million
was comprised of a net loss of
$7.0 million
, as well as a net cash outflow from changes in operating assets and liabilities of
$7.6 million
in the normal course of business, partially offset by non-cash expenses of
$1.2 million
of stock-based compensation and
$1.0 million
of depreciation and amortization. The changes in operating assets and liabilities primarily consist of an increase of
$5.9 million
in accounts receivable due to increased sales, decreases of
$4.4 million
in accounts payable due to timing of payments to our suppliers and a decrease of
$2.2 million
in deferred revenue as a result of recognition of revenue under a contractual arrangement, respectively, partially offset by a decrease of
$3.4 million
in inventory due to timing of shipments of Wi-Fi solutions to our customers, and an increase of
$0.9 million
in accrued liabilities and other current liabilities.
Net cash used in operating activities for
2014
of
$17.9 million
was comprised of a net loss of
$13.6 million
, as well as a net cash outflow from changes in operating assets and liabilities of
$5.7 million
in the normal course of business, partially offset by non-cash expenses of
$0.9 million
of depreciation and amortization and
$0.6 million
of stock-based compensation. The changes in operating assets and liabilities primarily consist of a decrease of
$2.7 million
in deferred revenue as a result of recognition of revenue under a contractual arrangement, increases of
$4.0 million
in inventory as a result of production of inventory at the end of the period,
$2.1 million
in accounts receivable due to increased sales, and
$1.6 million
in prepaid expenses and other current assets, respectively, partially offset by increases of
$3.4 million
in accounts payable and
$1.3 million
in accrued liabilities and other current liabilities as a result of an increase in expenses consistent with the growth of our business.
Cash flows from Investing Activities.
Net cash used in investing activities was
$2.8 million
for
2016
compared to net cash used in investing activities for
2015
of
$1.7 million
compared to net cash used in investing activities for 2014 of $1.3 million. Cash used in investing activities for
2016
was primarily related to
$2.7 million
purchase of property and equipment. Net cash used increased in 2015 compared to 2014 primarily due to increased purchases of equipment.
Cash flows from Financing Activities.
Net cash provided by financing activities was
$98.7 million
for
2016
, compared to net cash provided by financing activities of
$14.3 million
for
2015
. Cash flow provided by financing activities for
2016
primarily reflected
$97.5 million
proceeds from the IPO, net of issuance costs,
$3.9 million
in long-term debt borrowing, net of debt issuance costs,
$3.0 million
from borrowing under our revolving line of credit, and
$1.2 million
proceeds from exercise of stock options, partially offset by repayments of outstanding long-term debt of
$3.8 million
and repayment of outstanding amounts under the revolving line of credit of
$3.0 million
.
Net cash provided by financing activities was
$14.3 million
for
2015
, compared to
$20.6 million
for
2014
. Cash flow from financing activities in
2015
consisted of
$14.3 million
in net proceeds from the issuance of convertible preferred stock and
$3.0 million
of long-term debt borrowing, partially offset by repayments of outstanding long-term debt of
$3.1 million
. Cash flows from financing activities in
2014
consisted primarily of
$21.5 million
in net proceeds from the issuance of convertible notes and convertible preferred stock, partially offset by repayments of outstanding long-term debt of
$1.1 million
.
Contractual Obligations and Commitments
The following table summarizes our contractual commitments and obligations as of
January 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
|
(In thousands)
|
|
Debt obligations and related interest payments and fees
(1)
|
$
|
6,570
|
|
|
$
|
2,570
|
|
|
$
|
4,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Operating lease obligations
|
1,273
|
|
|
811
|
|
|
462
|
|
|
—
|
|
|
—
|
|
|
Commitments
(2)
|
7,100
|
|
|
2,200
|
|
|
4,900
|
|
|
—
|
|
|
—
|
|
|
|
$
|
14,943
|
|
|
$
|
5,581
|
|
|
$
|
9,362
|
|
|
$
|
—
|
|
|
$
|
—
|
|
________________________
|
|
|
|
(1)
|
Future interest payments were calculated using the rates applicable as of
January 1, 2017
. See Note 7 of our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K
.
In May 2016, we amended and restated the April 2013
Loan and Security Agreement with Silicon Valley Bank and entered into a new Mezzanine Loan Agreement to increase the total amount available for borrowing to $34.0 million. Borrowings bear interest at a fluctuating rate, as further discussed in the section titled “Liquidity and Capital Resources.” As of
January 1, 2017
, the debt obligations and related interest payments and fees amount to
$6.6 million
.
|
|
|
|
|
(2)
|
In April 2012, we entered into a letter agreement with RUSNANO, one of our private company investors, pursuant to which we agreed, among other matters, to create a subsidiary to be incorporated in Russia and to fund such subsidiary in an aggregate amount of $20.0 million over three years.
In July 2014, we amended and restated such letter agreement with RUSNANO, pursuant to which we agreed, among other matters, to operate and fund our Russian operations in an aggregate amount of
$13.0 million
over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are
$2.2 million
,
$1.7 million
,
$2.0 million
,
$2.2 million
,
$2.4 million
, and
$2.5 million
, respectively. In the event that we fail to meet our funding obligations for any period, we will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline. As of
January 1, 2017
, we had met the minimum funding requirements.
For more information about this agreement, see the section titled “Certain Relationships and Related Party Transactions-Agreement with RUSNANO” in this Annual Report on Form 10-K.
|
Obligations under contracts that we can cancel without a significant penalty are not included in the table above. As of
January 1, 2017
and
December 27, 2015
, we have purchase obligations of
$10.5 million
and
$5.6 million
, respectively, that are
based on outstanding purchase orders related to the fabrication of silicon wafers for which production has started. These purchase orders are cancellable at any time, provided that we are required to pay all costs incurred through the cancellation date. Historically, we have rarely canceled these agreements once production has started.
Off-Balance Sheet Arrangements
As of
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we did not have any off-balance sheet arrangements.
Segment Information
We have one primary business activity and operate as one reportable segment, design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking.
JOBS Act Accounting Election
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Critical Accounting Policies, Significant Judgments and Use of Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates. We believe that the critical accounting policies discussed below are essential to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s estimates and judgments.
Revenue Recognition
We derive a vast majority of our revenue from the sale of Wi-Fi solutions. Revenue is recognized net of accruals for sales returns and rebates, which is estimated based on past experience or contractual rights. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is deemed fixed or determinable and collection is reasonably assured. These criteria are met upon shipment to customers. For sales made through distributors, revenue is recognized when title passes to the distributor upon shipment, and payment by distributors is not contingent on resale of the Wi-Fi solutions. Our sales arrangements with distributors do not allow for rights of return or price protection on unsold Wi-Fi solutions. Our policy is to classify shipping and handling costs, net of costs charged to customers, as cost of revenue.
We also derive revenue from contracts with multiple deliverables, including a mix of intellectual property licenses, research and development services, and other non-recurring arrangements. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when (i) the delivered item has value to the customer on a stand-alone basis; and (ii) if a general right of return exists, the delivery or performance of an undelivered item is considered probable and under our control. Items are considered to have a stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. In addition, intellectual property deliverables are considered to have value on a stand-alone basis if the customer could use them without the remaining elements of the arrangement. When a deliverable does not meet the criteria to be considered a separate unit of accounting, it is grouped together with other deliverables that, when combined, meet the criteria, and the appropriate allocation of arrangement consideration and revenue recognition is determined.
In April 2013, we entered into an agreement consisting of intellectual property licenses and research and development services. We concluded that the agreement consisted of two deliverables, intellectual property licenses and research and development services. We determined that the two deliverables do not meet the criteria to be accounted as separate units of accounting because the intellectual property licenses do not have a value on a standalone basis from the research and development
services. As a result, the intellectual property licenses and research and development services are considered one combined unit of accounting. Revenue is recognized on a straight-line basis over the 33-month period the services are expected to be performed, provided all other revenue recognition criteria are met. If the estimated period over which the services are originally expected to be performed changes, the amount of revenue remaining to be recognized will be recognized over the revised remaining performance period. The agreement’s term is ten years. The agreement may be terminated by either party if (a) the other party materially breaches a material provision of the agreement unless such breach is cured during the 30 day grace period, (b) the other party materially breaches any provision of the agreement that cannot be cured, or (c) the other party makes any assignment for the benefit of creditors, files a petition in bankruptcy, is adjudged bankrupt, becomes insolvent, or is placed in the hands of a receiver. Certain payments received under the agreement are refundable if the agreement is terminated for our material breach of the agreement terms. The fees under this agreement totaled
$16.5 million
, of which
$0.5 million
,
$5.7 million
, and
$6.2 million
, was recognized as revenue for the year ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, respectively.
The agreement was terminated in 2016.
Inventory
Inventory is stated at the lower of cost to purchase or manufacture the inventory or the market value of such inventory. Cost is determined using the standard cost method which approximates the first-in first-out basis. Market value is determined as the lower of replacement cost or net realizable value. On at least a quarterly basis, we assess the recoverability of all inventories to determine whether adjustments are required to record inventory at the lower of cost or market. Potentially excess and obsolete inventory is written off based on management’s analysis of inventory levels and estimates of future 12-month demand and market conditions. We are also entitled to receive rebates from our foundry partner on the purchase of silicon wafers upon achieving certain volume targets. Rebates from our foundry partner are recorded as a reduction of inventory cost and are recognized in cost of revenue as the chipsets made from such silicon wafers are sold to customers.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based awards made to employees, directors and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period.
The fair value of stock-based awards issued to employees and non-employees is estimated on the grant date using the Black-Scholes option valuation model. We account for stock-based awards issued to non-employees under ASC 505-50
Equity-Equity based payments to Non-Employees
, and the fair value of such non-employee awards is remeasured at each quarter-end over the vesting period.
The Black-Scholes option valuation model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. The assumptions used in our option-pricing model represent management’s best estimates. These estimates are complex, involve a number of factors, variables, uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. The assumptions and estimates we use in the Black-Scholes option valuation model are as follows:
|
|
|
|
•
|
Fair value of common stock
: Prior to our IPO in November 2016, the fair value of the common stock underlying our stock-based awards were determined by the Company’s board of directors, with input from management and a third-party valuation firm as discussed below under the heading “Common Stock Valuations Prior to Our Initial Public Offering”. Since our IPO, the fair value of common stock was determined based on the market closing price for our common stock as reported on the NASDAQ Global Select Market at each grant date.
|
|
|
|
|
•
|
Risk-Free Interest Rate.
We base the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the option or warrant.
|
|
|
|
|
•
|
Expected Term.
Expected term represents the period that our stock-based awards are expected to be outstanding. We use the simplified method to calculate the expected term, which is the average of the contractual term and vesting period.
|
|
|
|
|
•
|
Volatility.
We determine the price volatility based on the historical volatilities of industry peers as we have limited trading history for our common stock price. Industry peers consist of several public companies in the semiconductor industry with comparable characteristics, including revenue growth, operating model and working capital requirements.
|
|
|
|
|
•
|
Dividend Yield.
The expected dividend assumption is based on our current expectations about our anticipated dividend policy. To date, we have not declared any dividends and do not expect to declare dividends in the foreseeable future. Consequently, we have used an expected dividend yield of zero.
|
In addition to the assumptions used in the Black-Scholes option valuation model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on our actual forfeiture experience, analysis of employee turnover, and other factors. Quarterly changes in our estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in our financial statements. If a revised forfeiture rate is lower than our previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our financial statements.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense. Subsequent to our IPO, we determine the fair values of the shares of common stock underlying our share–based awards based upon the closing stock price on the date of grant.
Common Stock Valuations Prior to Our Initial Public Offering
Historically, for all periods prior to the IPO, the fair values of the shares of common stock underlying our share-based awards were estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide,
Valuation of Privately-Held-Company Equity Securities Issued as Compensation
.
Convertible Preferred Stock Warrants Liability
Warrants to purchase shares of convertible preferred stock are classified as liabilities on the consolidated balance sheets at fair value upon issuance because the underlying shares of convertible preferred stock are redeemable at the option of the holders upon the occurrence of certain deemed liquidation events considered not solely within our control, which may therefore obligate us to transfer assets at some point in the future. The convertible preferred stock warrants are subject to remeasurement to fair value at each balance sheet date and any change in fair value is recognized as a component of “Other income (expense), net” in the consolidated statements of operations. We adjusted the liability for changes in fair value until immediately prior to the consummation of our IPO in November 2016, at which time all convertible preferred stock warrants were converted into shares of common stock and the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.
Common Stock Warrants
We account for common stock warrants as equity in accordance with the accounting guidance for derivatives. The accounting guidance provides a scope exception from classifying and measuring as a financial liability a contract that would otherwise meet the definition of a derivative if the contract is both (i) indexed to the entity’s own stock and (ii) meets the requirement for classification in the stockholders’ equity (deficit) section of the balance sheet.
We determined that the common stock warrants issued in connection with the debt arrangement are required to be classified in equity. Warrants classified as equity are recorded as additional paid in capital on the consolidated balance sheet in “Stockholders’ equity (deficit)” and no further adjustments to their valuation are made.
We account for common stock warrants issued to non-employees for services under ASC 505-50. The fair value of such non-employee warrants is remeasured at each quarter-end over the vesting period. We determine the fair value of the common stock warrants using the Black-Scholes option valuation model using the stock price and other measurement assumptions as of the earlier of the date at which either (1) a commitment for performance by the counterparty has been reached; or (2) the counterparty’s performance is complete.
Income Taxes
We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. We periodically evaluate the positive and negative evidence bearing upon realizability of
our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we maintained a full valuation allowance against federal and state net deferred tax assets as of
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
. We intend to maintain a full valuation allowance on the federal and state deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
At
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we had federal net operating loss carry-forwards of
$134.1 million
,
$151.9 million
and $145.1 million, respectively, and state net operating loss carry-forwards of
$104.7 million
,
$106.7 million
and $109.2 million, respectively. These federal and state net operating loss carry-forwards expire beginning in 2026 and 2017, respectively. At
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, we also had federal research and development tax credit carry-forwards of
$7.2 million
,
$6.3 million
and $5.3 million, respectively, and state research and development tax credit carry-forwards of
$7.7 million
,
$6.3 million
and $5.4 million, respectively. The federal tax credits will expire in 2026, and the California tax credits carry forward indefinitely. Realization of these NOL and research tax credit carry-forwards depends on future income, and there is a risk that our existing carry-forwards could expire unused and be unavailable to reduce future income tax liabilities, which could impact our financial position and results of operations.
In addition, under Section 382 of the Code, our ability to utilize NOL carry-forwards or other tax attributes such as research tax credits, in any taxable year may be limited if we experience, or have experienced, an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of our stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.
No deferred tax assets have been recognized on our balance sheet related to our NOLs and tax credits, as they are fully reserved by a valuation allowance. We may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes,” including in connection with our initial public offering. If so, or if we do not generate sufficient taxable income, we may not be able to utilize a material portion of our NOLs and tax credits even if we achieve profitability. If we are limited in our ability to use our NOLs and tax credits in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs and tax credits. This could adversely affect our results of operations.
We record unrecognized tax benefits as liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. Our policy is to recognize interest and penalties related to income taxes as a component of income tax expense. No interest and penalties related to income taxes have been recognized in the consolidated statements of operations in the years ended
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
.
Contingencies and Litigation
The outcome of litigation is inherently uncertain and subject to numerous factors outside of our control. Significant judgment is required when we assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, and when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation, and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our results of operations, financial position and cash flows.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements for information regarding recently issued accounting pronouncements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and inflation rates. These exposures may change over time as business practices evolve, and could have a material adverse impact on our financial results.
Interest Rate Risk
We had cash and cash equivalents of
$117.0 million
,
$18.9 million
and $18.3 million as of
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, respectively. We manage our cash and cash equivalents portfolio for operating and working capital purposes. Our cash and cash equivalents are held in cash and short-term money market funds. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash equivalents portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce our future interest income. During the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, the effect of a hypothetical 100 basis points increase or decrease in overall interest rates would not have had a material impact on our interest income. In addition, as of
January 1, 2017
, we had
$6.6 million
in long-term debt (current and non-current), including accrued interest, with variable interest rate components. A hypothetical 100 basis points increase or decrease in interest rates would not have had a material impact on our consolidated statements of operations.
Foreign Currency Exchange Risk
To date, all of our revenue has been denominated in United States dollars. Some of our operating expenses are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Chinese Yuan Renminbi and the Russian Ruble. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. To date, foreign currency gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging activities. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in foreign currency exchange rates. During
January 1, 2017
,
December 27, 2015
, and
December 28, 2014
, the effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts as of
January 1, 2017
and
December 27, 2015
would not have had a material impact on our consolidated statements of operations.
Inflation Risk
We do not believe that inflation had a significant impact on our results of operations for any periods presented in our consolidated financial statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Page(s)
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Consolidated Financial Statements:
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The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations.”
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Quantenna Communications, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of convertible preferred stock and stockholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Quantenna Communications, Inc. and its subsidiaries as of
January 1, 2017 and December 27, 2015, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2017, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 1, 2017
Quantenna Communications, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
117,045
|
|
|
$
|
18,850
|
|
|
Accounts receivable
|
14,480
|
|
|
15,717
|
|
|
Inventory
|
15,820
|
|
|
7,407
|
|
|
Prepaid expenses and other current assets
|
2,470
|
|
|
1,428
|
|
|
Total current assets
|
149,815
|
|
|
43,402
|
|
|
Property and equipment, net
|
4,742
|
|
|
3,083
|
|
|
Other long-term assets
|
232
|
|
|
182
|
|
|
Total assets
|
$
|
154,789
|
|
|
$
|
46,667
|
|
|
Liabilities, Convertible Preferred Stock, and Stockholders’ Equity (Deficit)
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
$
|
7,776
|
|
|
$
|
5,917
|
|
|
Accrued liabilities and other current liabilities
|
11,801
|
|
|
5,617
|
|
|
Long-term debt, current portion
|
2,257
|
|
|
3,581
|
|
|
Total current liabilities
|
21,834
|
|
|
15,115
|
|
|
Long-term debt
|
3,680
|
|
|
2,265
|
|
|
Other long-term liabilities
|
527
|
|
|
—
|
|
|
Convertible preferred stock warrant liability
|
—
|
|
|
255
|
|
|
Total liabilities
|
26,041
|
|
|
17,635
|
|
|
Commitments and contingencies (see Note 6)
|
|
|
|
|
Convertible preferred stock, $0.0001 par value 100,000,000 and 23,049,634 shares authorized at January 1, 2017 and December 27, 2015, respectively; zero and 22,471,537 shares issued and outstanding at January 1, 2017 and December 27, 2015, respectively; Liquidation preference of zero and 190,130 at January 1, 2017 and December 27, 2015 respectively;
|
—
|
|
|
184,704
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
Common stock, $0.0001 par value 1,000,000,000 and 33,136,893, shares authorized at January 1, 2017 and December 27, 2015, respectively; 33,076,150 and 1,106,240 shares issued and outstanding at January 1, 2017 and December 27, 2015, respectively
|
3
|
|
|
—
|
|
|
Additional paid-in capital
|
290,319
|
|
|
4,007
|
|
|
Accumulated deficit
|
(161,574
|
)
|
|
(159,679
|
)
|
|
Total stockholders’ equity (deficit)
|
128,748
|
|
|
(155,672
|
)
|
|
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)
|
$
|
154,789
|
|
|
$
|
46,667
|
|
The accompanying notes are an integral part of these financial statements.
57
Quantenna Communications, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
129,069
|
|
|
$
|
83,773
|
|
|
$
|
66,860
|
|
|
Cost of revenue
|
64,640
|
|
|
42,554
|
|
|
38,211
|
|
|
Gross profit
|
64,429
|
|
|
41,219
|
|
|
28,649
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
46,604
|
|
|
35,575
|
|
|
31,283
|
|
|
Sales and marketing
|
8,091
|
|
|
6,644
|
|
|
5,932
|
|
|
General and administrative
|
10,559
|
|
|
5,212
|
|
|
4,532
|
|
|
Total operating expenses
|
65,254
|
|
|
47,431
|
|
|
41,747
|
|
|
Loss from operations
|
(825
|
)
|
|
(6,212
|
)
|
|
(13,098
|
)
|
|
Interest expense
|
(665
|
)
|
|
(697
|
)
|
|
(481
|
)
|
|
Other income (expense), net
|
(38
|
)
|
|
(21
|
)
|
|
89
|
|
|
Loss before income taxes
|
(1,528
|
)
|
|
(6,930
|
)
|
|
(13,490
|
)
|
|
Provision for income taxes
|
(367
|
)
|
|
(115
|
)
|
|
(108
|
)
|
|
Net loss
|
$
|
(1,895
|
)
|
|
$
|
(7,045
|
)
|
|
$
|
(13,598
|
)
|
|
Net loss attributable to common stockholders per share, basic and diluted
|
$
|
(0.30
|
)
|
|
$
|
(9.16
|
)
|
|
$
|
(20.72
|
)
|
|
Weighted average shares used to compute basic and diluted net loss per share
|
6,384,709
|
|
|
769,524
|
|
|
656,146
|
|
The accompanying notes are an integral part of these financial statements.
58
Quantenna Communications, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Additional Paid-In Capital
|
|
Accumulated
Deficit
|
|
Total Stockholders’ Equity (Deficit)
|
|
Balances at December 31, 2013
|
19,821,417
|
|
|
$
|
148,905
|
|
|
|
598,280
|
|
|
$
|
—
|
|
|
$
|
1,946
|
|
|
$
|
(139,036
|
)
|
|
$
|
(137,090
|
)
|
|
Issuance of common stock for exercise of options
|
—
|
|
|
—
|
|
|
|
97,380
|
|
|
—
|
|
|
128
|
|
|
—
|
|
|
128
|
|
|
Expiration of Series A preferred stock warrants
|
—
|
|
|
5
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of Series G convertible preferred stock, net of issuance costs
|
1,599,540
|
|
|
21,538
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
567
|
|
|
—
|
|
|
567
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,598
|
)
|
|
(13,598
|
)
|
|
Balances at December 28, 2014
|
21,420,957
|
|
|
170,448
|
|
|
|
695,660
|
|
|
—
|
|
|
2,641
|
|
|
(152,634
|
)
|
|
(149,993
|
)
|
|
Issuance of common stock for exercise of options
|
—
|
|
|
—
|
|
|
|
121,880
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
150
|
|
|
Issuance of common stock for exercise of warrants
|
—
|
|
|
—
|
|
|
|
288,700
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
Issuance of Series G convertible preferred stock, net of issuance costs
|
1,050,580
|
|
|
14,256
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
1,202
|
|
|
—
|
|
|
1,202
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,045
|
)
|
|
(7,045
|
)
|
|
Balances at December 27, 2015
|
22,471,537
|
|
|
184,704
|
|
|
|
1,106,240
|
|
|
—
|
|
|
4,007
|
|
|
(159,679
|
)
|
|
(155,672
|
)
|
|
Issuance of common stock for exercise of options
|
—
|
|
|
—
|
|
|
|
329,017
|
|
|
—
|
|
|
579
|
|
|
—
|
|
|
579
|
|
|
Issuance of common stock for service provided
|
—
|
|
|
—
|
|
|
|
2,777
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
Proceeds from initial public offering, net of issuance costs
|
—
|
|
|
—
|
|
|
|
6,775,466
|
|
|
1
|
|
|
97,418
|
|
|
—
|
|
|
97,419
|
|
|
Conversion of preferred stock to common stock pursuant to IPO
|
(22,471,537
|
)
|
|
(184,704
|
)
|
|
|
24,790,650
|
|
|
2
|
|
|
184,702
|
|
|
—
|
|
|
184,704
|
|
|
Conversion of preferred stock warrants to common stock warrants
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
342
|
|
|
—
|
|
|
342
|
|
|
Issuance of common stock upon exercise of options subject to repurchase
|
—
|
|
|
—
|
|
|
|
72,000
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
Vesting of options subject to repurchase
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
|
|
85
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
3,065
|
|
|
|
|
3,065
|
|
|
Issuance of common stock warrants
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
96
|
|
|
—
|
|
|
96
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,895
|
)
|
|
(1,895
|
)
|
|
Balances at January 1, 2017
|
—
|
|
|
—
|
|
|
|
33,076,150
|
|
|
3
|
|
|
290,319
|
|
|
(161,574
|
)
|
|
128,748
|
|
The accompanying notes are an integral part of these financial statements.
59
Quantenna Communications, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share data)
The accompanying notes are an integral part of these financial statements.
60
Quantenna Communications, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(1,895
|
)
|
|
$
|
(7,045
|
)
|
|
$
|
(13,598
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
Depreciation and amortization
|
1,278
|
|
|
987
|
|
|
875
|
|
|
Stock-based compensation expense
|
3,090
|
|
|
1,202
|
|
|
567
|
|
|
Non-cash interest expense
|
322
|
|
|
271
|
|
|
—
|
|
|
Change in fair value of convertible preferred stock warrants liability
|
87
|
|
|
61
|
|
|
(38
|
)
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
Accounts receivable
|
1,237
|
|
|
(5,877
|
)
|
|
(2,120
|
)
|
|
Inventory
|
(8,413
|
)
|
|
3,387
|
|
|
(3,967
|
)
|
|
Prepaid expenses and other current assets
|
(901
|
)
|
|
541
|
|
|
(1,556
|
)
|
|
Other assets
|
(50
|
)
|
|
60
|
|
|
43
|
|
|
Accounts payable
|
1,804
|
|
|
(4,401
|
)
|
|
3,356
|
|
|
Accrued liabilities and other current liabilities
|
5,757
|
|
|
934
|
|
|
1,269
|
|
|
Deferred revenue
|
—
|
|
|
(2,197
|
)
|
|
(2,682
|
)
|
|
Net cash provided by (used) in operating activities
|
2,316
|
|
|
(12,077
|
)
|
|
(17,851
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchase of property and equipment
|
(2,724
|
)
|
|
(1,761
|
)
|
|
(1,257
|
)
|
|
Restricted cash
|
(59
|
)
|
|
59
|
|
|
—
|
|
|
Net cash used in investing activities
|
(2,783
|
)
|
|
(1,702
|
)
|
|
(1,257
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
—
|
|
|
—
|
|
|
16,163
|
|
|
Proceeds from issuance of convertible preferred stock, net of issuance costs
|
—
|
|
|
14,256
|
|
|
5,375
|
|
|
Proceeds from issuance of common stock
|
1,191
|
|
|
164
|
|
|
128
|
|
|
Proceeds from initial public offering, net of issuance costs
|
97,483
|
|
|
—
|
|
|
—
|
|
|
Proceeds from revolving line of credit, net of fees paid
|
2,950
|
|
|
—
|
|
|
—
|
|
|
Repayment of revolving line of credit
|
(3,000
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from issuance of long-term debt, net of fees paid
|
3,854
|
|
|
3,000
|
|
|
—
|
|
|
Repayments of long-term debt
|
(3,816
|
)
|
|
(3,111
|
)
|
|
(1,100
|
)
|
|
Net cash provided by financing activities
|
98,662
|
|
|
14,309
|
|
|
20,566
|
|
|
Net increase in cash and cash equivalents
|
$
|
98,195
|
|
|
$
|
530
|
|
|
$
|
1,458
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Beginning of period
|
$
|
18,850
|
|
|
$
|
18,320
|
|
|
$
|
16,862
|
|
|
End of period
|
$
|
117,045
|
|
|
$
|
18,850
|
|
|
$
|
18,320
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
Interest paid during the period
|
$
|
489
|
|
|
$
|
440
|
|
|
$
|
481
|
|
|
Income taxes paid during the period
|
$
|
106
|
|
|
$
|
135
|
|
|
$
|
23
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
Unpaid deferred offering costs
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Issuance of convertible preferred stock upon conversion of convertible notes and accrued interest
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,163
|
|
The accompanying notes are an integral part of these financial statements.
61
Quantenna Communications, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued liabilities and other current liabilities
|
$
|
213
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Conversion of convertible preferred stock warrants to common stock
|
$
|
342
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Conversion of convertible preferred stock to common stock
|
$
|
184,704
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Issuance of warrants in conjunction with the execution of debt agreement
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial statements.
62
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
1.
The Company and Summary of Significant Accounting Policies
Quantenna Communications, Inc. (the “Company”) was incorporated in the State of Delaware on November 28, 2005. The Company designs, develops and markets advanced high-speed wireless communication solutions enabling wireless local area networking. The Company’s wireless communication solutions deliver high performance, speed, and reliability for wireless networks and devices.
Reporting Calendar
The Company’s fiscal year consists of either 52 or 53 weeks. For each year consisting of 52 weeks, the Company’s fiscal year ends on the Sunday nearest the end of December. For each year consisting of 53 weeks, the Company’s fiscal year ends on the first Sunday in January. Fiscal 2014 and 2015 each included 52 weeks and fiscal 2016 included 53 weeks.
Initial Public Offering
On October 27, 2016, the Company’s registration statement on Form S-1 relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on The NASDAQ Global Select Market on October 28, 2016. The public offering price of the shares sold in the IPO was $16.00 per share. The IPO closed on
November 2, 2016
and second close on
November 25, 2016
, pursuant to which the Company sold 6,775,466 shares of common stock, including the sale of 75,466 shares of common stock to the underwriters upon their exercise of their option to purchase additional shares. The Company received net proceeds of approximately
$97.4 million
, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of convertible preferred stock and preferred stock warrants were converted into common stock and common stock warrants, respectively.
Liquidity and Capital Resources
The Company has funded its operations primarily through sales of its common stock in conjunction with the IPO and private equity financing. In November 2016, the Company consummated its IPO and raised net proceeds of approximately
$97.4 million
, after deducting underwriting discounts and commissions and offering expenses and including the exercise by the underwriters of their option to purchase additional shares of common stock. As of
December 27, 2015
, the Company had completed several rounds of private equity financing with net proceeds totaling
$184.7 million
. The Company has incurred losses for every fiscal year since inception and has generated positive cash flow from operations for the first time in the fiscal year ended
January 1, 2017
. As of
January 1, 2017
and
December 27, 2015
, the Company had cash and cash equivalents of
$117.0 million
and
$18.9 million
, respectively, and an accumulated deficit of
$161.6 million
and
$159.7 million
, respectively. In May 2016, the Company amended and restated the April 2013 Loan and Security Agreement with Silicon Valley Bank and entered into a new Mezzanine Loan Agreement to increase the total amount available for borrowing to
$34.0 million
. The Company has under the revolving line of credit an undrawn balance of
$20.0 million
as of
January 1, 2017
, subject to availability of borrowing base. There is no draw down on the Mezzanine Loan as of
January 1, 2017
.
Use of Estimates
Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods covered by the financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Reclassifications
Certain prior year balances presented in the consolidated financial statements have been reclassified to conform to the current year presentation. For the year ended December 28, 2014, the Company has reallocated $1.7 million of facility and information technology overhead expenses from general and administrative expense, and included $1.5 million in research and development expense and $0.2 million in sales and marketing expense. These reclassifications had no effect on the previously reported net loss.
Foreign Currency Remeasurement
The Company and its subsidiaries use the U.S. dollar as the functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at the end-of-period exchange rates except for non-monetary assets and liabilities, which are measured at historical exchange rates. Revenue and expenses are remeasured using an average exchange rate for the respective period, except for expenses related to non-monetary assets and liabilities, which are measured at historical exchange rates. Gains or losses from foreign currency remeasurement and transactions are included in “Other income (expense), net”. For the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, foreign currency remeasurement and transactions gains and losses were immaterial.
Cash and Cash Equivalents
Cash equivalents include liquid short-term investments with original or remaining maturities of three months or less at the date of purchase, readily convertible to known amounts of cash.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued liabilities and other current liabilities, approximate their fair values due to their short maturities. The estimated fair value of the Company’s debt approximates the carrying value because the interest rate on the borrowings approximates market rates and was determined to be a Level 2 instrument. The Company also has issued certain convertible preferred stock warrants which are accounted for as liabilities at fair value. See Note
5
for further details.
Accounts Receivable and Allowances for Doubtful Accounts
Accounts receivable are stated at invoice value less estimated allowances for returns and doubtful accounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from its customers’ inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay. In cases where there are circumstances that may impair a specific customer’s ability to meet its financial obligations, a specific allowance is recorded against amounts due, which reduces the net recognized receivable to the amount reasonably believed to be collectible. For all periods presented, the Company concluded that no allowance for doubtful accounts was necessary.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents primarily in banks and highly rated institutional money market funds.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
The Company generally requires no collateral from its customers. For the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, three, four and three customers accounted for 10% or more of revenue, respectively. The following table discloses these customers’ percentage of revenue for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
A
|
19%
|
|
14%
|
|
*
|
|
B
|
11%
|
|
15%
|
|
11%
|
|
C
|
11%
|
|
*
|
|
*
|
|
D
|
*
|
|
11%
|
|
*
|
|
E
|
*
|
|
10%
|
|
28%
|
|
F
|
*
|
|
*
|
|
21%
|
________________________
|
|
|
|
*
|
Total customer percentage of revenue was less than 10%.
|
At
January 1, 2017
and
December 27, 2015
, three customers accounted for 10% or more of accounts receivable. The following customers represented 10% or more of accounts receivable:
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
Customer
|
|
|
|
|
A
|
30%
|
|
17%
|
|
B
|
12%
|
|
16%
|
|
C
|
12%
|
|
*
|
|
G
|
*
|
|
13%
|
________________________
|
|
|
|
*
|
Total customer accounts receivable was less than 10%.
|
Restricted Cash
The Company maintained
$59,000
of restricted cash in certificate of deposit accounts at
January 1, 2017
, supporting letters of credit required for the Company’s operating lease facility and deposits required by the Company’s foundry partner in connection with its purchase of silicon wafers. Restricted cash is included in Prepaid expenses and other current assets on the consolidated balance sheet. There was zero restricted cash as of
December 27, 2015
.
Inventory
Inventory is stated at the lower of cost to purchase or manufacture the inventory or the market value of such inventory. Cost is determined using the standard cost method which approximates the first-in first-out basis. Market value is determined as the lower of replacement cost or net realizable value. The Company, at least quarterly, assesses the recoverability of all inventories to determine whether adjustments are required to record inventory at the lower of cost or market. Potentially excess and obsolete inventory is written off based on management’s analysis of inventory levels and estimates of future 12-month demand and market conditions. The Company is also entitled to receive rebates from its foundry partner on the purchase of silicon wafers upon achieving certain volume targets. Rebates from the Company’s foundry partner are recorded as a reduction of inventory cost when it is probable and reasonably estimable, and are recognized in cost of revenue as the chipsets made from such silicon wafers are sold to customers.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Prepaid Expenses and Other Current Assets
The Company purchases rights to software and intellectual property used in the development of its Wi-Fi solutions. Certain of the arrangements require payment over the life of the right to use the related software and intellectual property. The Company records the up-front fees and periodic payments in prepaid expenses and other current assets and amortizes the amount over the life of the arrangement using the straight-line method.
Debt Issuance Costs and Debt Discounts
Costs incurred in connection with the issuance of new debt are capitalized and amounts paid in connection with the modification of existing debt are expensed as incurred. Capitalizable debt issuance costs paid to third parties and debt discounts paid to creditors, net of amortization, are recorded as a reduction to the long-term debt balance on the consolidated balance sheet.
Amortization expense on capitalized debt issuance costs and debt discounts related to loans with fixed payment terms is calculated using the effective interest method over the term of the associated loans. Amortization expense on capitalized debt issuance costs and debt discounts related to revolving loans are calculated using the straight-line method over the term of the revolving loan commitment, and is recorded as Interest expense in the consolidated statements of operations. When debt is extinguished prior to the maturity date, any remaining associated debt issuance costs or debt discounts are expensed to Interest expense in the consolidated statements of operations.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight‑line method over the estimated useful lives of the assets as follows:
|
|
|
|
|
|
Computer and lab equipment
|
3 to 5 years
|
|
Computer software
|
3 years
|
|
Furniture and fixtures
|
3 to 5 years
|
|
Leasehold improvements
|
Shorter of remaining lease term or estimated useful lives of the assets
|
Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset or asset group and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the discounted cash flows compared to the carrying amount attributable to the asset group. No impairment loss has been recognized for the periods presented.
Warranty
The Company provides 12-month warranty coverage on all of its Wi-Fi solutions. The warranty provides for replacement of the associated Wi-Fi solutions during the warranty period. The Company establishes a liability for estimated warranty costs at the time revenue is recognized. The warranty obligation is affected by historical failure rates and associated replacement costs. The warranty liability is included in accrued liabilities and other current liabilities on the consolidated balance sheet. The warranty liability and activity for the periods presented are immaterial.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company recognizes future tax benefits, measured by enacted tax
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
rates attributable to deductible temporary differences between financial statements and income tax bases of assets and liabilities, and net operating loss carry-forwards to the extent that realization of such benefits is more likely than not.
The Company records a liability for the difference between the benefit recognized and measured pursuant to the accounting guidance on accounting for uncertain tax positions and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The Company establishes these liabilities based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when the Company believes that certain positions might be challenged despite the Company’s belief that the tax return positions are fully supportable. The liabilities are adjusted in light of changing facts and circumstances, such as the outcome of tax audits.
Revenue Recognition
The Company derives majority of its revenue from the sale of its Wi-Fi solutions. Revenue is recognized net of accruals for sales returns and rebates, which is estimated based on past experience or contractual rights. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price is deemed fixed or determinable and collection is reasonably assured. These criteria are met upon shipment to customers. For sales made through distributors, revenue is recognized when title passes to the distributor upon shipment, and payment by the Company’s distributors is not contingent on resale of the Wi-Fi solutions. The Company’s sales arrangements with distributors do not allow for rights of return or price protection on unsold Wi-Fi solutions. The Company’s policy is to classify shipping and handling costs, net of costs charged to customers, as cost of revenue.
The Company also derives revenue from contracts with multiple deliverables, including a mix of intellectual property licenses, research and development services, and other non-recurring arrangements. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when (i) the delivered item has value to the customer on a stand-alone basis; and (ii) if a general right of return exists, the delivery or performance of an undelivered item is considered probable and under the Company’s control. Items are considered to have a stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. In addition, intellectual property deliverables are considered to have value on a stand-alone basis if the customer could use them without the remaining elements of the arrangement. When a deliverable does not meet the criteria to be considered a separate unit of accounting, it is grouped together with other deliverables that, when combined, meet the criteria, and the appropriate allocation of arrangement consideration and revenue recognition is determined.
In April 2013, the Company entered into an agreement consisting of intellectual property licenses and research and development services. The Company concluded that the agreement consisted of two deliverables, intellectual property license and research and development services. The Company determined that two deliverables did not meet the criteria to be accounted as separate units of accounting because the intellectual property licenses did not have a value on a standalone basis from the research and development services. As a result, the intellectual property licenses and research and development services was considered one combined unit of accounting. Revenue was recognized on a straight-line basis over the 33-month period the services were expected to be performed, provided all other revenue recognition criteria were met. If the estimated period over which the services were originally expected to be performed changed, the amount of revenue remaining to be recognized would be recognized over the revised remaining performance period. The agreement’s term was ten (10) years. The agreement may be terminated by either party if (a) the other party materially breaches a material provision of the agreement unless such breach is cured during the thirty (30) day grace period, (b) the other party materially breaches any provision of the agreement that cannot be cured, or (c) the other party makes any assignment for the benefit of creditors, files a petition in bankruptcy, is adjudged bankrupt, becomes insolvent, or is placed in the hands of a receiver. Certain payments received under the agreement were refundable if the agreement is terminated for the Company’s material breach of the agreement terms. The fees under this agreement totaled
$16.5 million
, of which
$0.5 million
,
$5.7 million
,
$6.2 million
, was recognized as revenue for the year ended
January 1, 2017
,
December 27, 2015
,
December 28, 2014
, respectively. The agreement was terminated in 2016.
Deferred Revenue
Deferred revenue is comprised of billings or payments received in advance of meeting revenue recognition criteria.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Research and Development Expenses
All costs related to the research and development of the Company’s Wi-Fi solutions are expensed as incurred. Research and development (“R&D”) expense consists primarily of personnel costs for the Company’s R&D activities. R&D expense also includes costs associated with the design and development of the Company’s Wi-Fi solutions, such as mask sets, prototype wafers, prototype engineering boards, software and computer-aided design software licenses, intellectual property licenses, reference design development, development testing and evaluation, depreciation expense, and allocated administrative costs.
Operating Leases
The Company recognizes rent expense on a straight-line basis over the non-cancellable term of the operating lease. The difference between rent expense and rent paid is recorded as deferred rent in accrued liabilities and other current liabilities on the consolidated balance sheets.
Advertising and Promotion Costs
Expenses related to advertising and promotion of products are charged to sales and marketing expense as incurred. The Company incurred immaterial advertising or promotion expenses in the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, respectively.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all stock-based awards made to employees, directors and non-employees, based on estimated fair values recognized using the straight-line method over the requisite service period.
The fair value of options and warrants to purchase common stock granted to employees is estimated on the grant date using the Black-Scholes option valuation model. The calculation of stock-based compensation expense requires that the Company make assumptions and judgments about the variables used in the Black-Scholes model, including the expected term, expected volatility of the underlying common stock, risk-free interest rate, as well as estimating future forfeitures of unvested stock options. To the extent actual forfeiture results differ from the estimates, the difference will be recorded as a cumulative adjustment in the period the estimates are revised.
The Company accounts for common stock warrants and options issued to non-employees under ASC 505-50
Equity-Equity based payments to Non-Employees
, using the Black-Scholes option valuation model. The fair value of such non-employee awards is remeasured at each quarter-end over the vesting period.
Common Stock Warrants
The Company accounts for common stock warrants as equity in accordance with the accounting guidance for derivatives. The accounting guidance provides a scope exception from classifying and measuring as a financial liability a contract that would otherwise meet the definition of a derivative if the contract is both (i) indexed to the entity’s own stock and (ii) meets the requirement for classification in the stockholders’ equity (deficit) section of the balance sheet.
The Company determined that the common stock warrants issued in connection with the debt arrangement are required to be classified in equity. Warrants classified as equity are recorded as additional paid in capital on the consolidated balance sheet in stockholders’ equity (deficit) and no further adjustments to their valuation are made.
The Company accounts for common stock warrants issued to non-employees for services under ASC 505-50. The fair value of such non-employee warrants is remeasured at each quarter-end over the vesting period. The Company determines the fair value of the common stock warrants using the Black-Scholes option valuation model using the stock price and other measurement assumptions as of the earlier of the date at which either (1) a commitment for performance by the counterparty has been reached; or (2) the counterparty’s performance is complete.
Convertible Preferred Stock
The Company recorded the convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock is recorded outside of “Stockholders’ equity (deficit)” because, in the event of certain deemed liquidation events considered not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
all of the Company’s assets, the convertible preferred stock will become redeemable at the option of the holders. The Company has not adjusted the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur. In November 2016, pursuant to the consummation of the IPO, all outstanding shares of convertible preferred stocks were converted into common stock.
Convertible Preferred Stock Warrants Liability
Warrants to purchase shares of convertible preferred stock are classified as liabilities on the consolidated balance sheets at fair value upon issuance because the underlying shares of convertible preferred stock are redeemable at the option of the holders upon the occurrence of certain deemed liquidation events considered not solely within the Company’s control, which may therefore obligate the Company to transfer assets at some point in the future. The convertible preferred stock warrants are subject to remeasurement to fair value at each balance sheet date and any change in fair value is recognized as a component of “Other income (expense), net” in the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event, conversion of convertible preferred stock into common stock, or until the convertible preferred stock can no longer trigger a deemed liquidation event. At that time, the convertible preferred stock warrant liability will be reclassified to convertible preferred stock or additional paid-in-capital, as applicable. In November 2016, pursuant to the consummation of the IPO, all outstanding convertible preferred stock warrants were converted into common stock warrants and the warrant liability was reclassified to additional paid-in capital.
Net Loss per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, warrants and convertible preferred stock are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security. In addition, the Company considers shares issued upon the early exercise of non-vested warrants to purchase common stock to be participating securities, as the holders of these shares have a non-forfeitable right to dividends. In accordance with the two-class method, earnings allocated to these participating securities and the related number of outstanding shares of the participating securities, which include contractual participation rights in undistributed earnings, have been excluded from the computation of basic and diluted net loss per share attributable to common stockholders. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss in all periods presented, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders for all periods presented.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments and distributions to owners. The Company has not included a separate statement of comprehensive income (loss) as there were no transactions to report in the periods presented.
Deferred Offering Costs
Deferred offering costs, consisted of legal, accounting and other fees and costs related to the Company’s IPO were capitalized within “Other assets” on the consolidated balance sheet until the consummation of the IPO. These offering costs were reclassified to common stock upon the closing of the initial public offering in November 2016. There were no deferred offering costs capitalized as of
January 1, 2017
and December 27, 2015.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Reverse Stock Split
In September 2016 and October 2016, respectively, the Company’s board of directors and stockholders approved a one-for-50 reverse split of the Company’s common stock and convertible preferred stock (the “Reverse Stock Split”), which was effected on October 13, 2016. The board of directors and stockholders also approved a proportionate adjustment in the authorized number of shares of common stock and each series of convertible preferred stock and proportionate adjustments to the conversion prices, dividend rates, original issue prices and liquidation preferences of each series of preferred stock. The number of options and warrants to purchase common stock and convertible preferred stock were also proportionately adjusted to reflect the Reverse Stock Split. The par value of the common and convertible preferred stock was not adjusted as a result of the Reverse Stock Split. All share and per share information included in the accompanying financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split.
2.
Recent Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows - Restricted Cash
, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flow. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated statements of cash flows.
In October 2016, the FASB issued ASU 2016-17,
Consolidation - Interests Held through Related Parties That Are under Common Control
, to amend the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control within the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
, ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this standard is not expected to have a material impact on the Company’s consolidated statements of cash flow.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax effects, statutory withholding requirements, forfeitures, and classification on the statement of cash flows. The standard is effective for companies for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases today. ASC 842 supersedes the previous leases standard, ASC 840
Leases
. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The standard is effective on January 1, 2017, with early adoption permitted. The Company adopted ASU 2015-17 as of January 1, 2017 and the adoption of this guidance did not have a material effect on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, which permits companies to measure inventory at the lower of cost and realizable value. ASU 2015-11 applies to all business entities and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05,
“Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,”
which provides guidance for a customer’s accounting for cloud computing costs. Under ASU 2015-05, if a software cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. This standard may be applied either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively. ASU 2015-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The adoption of ASU 2015-05 did not have a material effect on the Company’s consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03,
Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
Under ASU No. 2015-03, debt issuance costs related to a recognized debt liability are presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The adoption of ASU No. 2015-03 has been applied retrospectively to the Company’s Consolidated Balance Sheet and resulted in an immaterial impact on the outstanding carrying value of the debt as of
December 27, 2015
.
In June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
. ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for the Company in its first quarter of 2016 with early adoption permitted. The adoption of ASU 2014-12 did not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
. This ASU is based on the principle that revenue is recognized to depict the transfer of 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. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which effectively delayed the adoption date by one year, to an effective date for public entities for annual and interim periods beginning after December 15,
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
2017. In March, April and May 2016, the FASB issued additional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, and narrow-scope improvements and practical expedients, respectively. The effective date of this additional update is the same as that of ASU 2014-09. The guidance permits the use of either a retrospective or cumulative effect transition method. The Company has not yet selected a transition method. The Company is still finalizing the analysis to quantify the adoption impact of the provisions of the new standard, but it does not currently expect to have a material impact on the consolidated financial position or results of operations. Based on the evaluation of its current contracts and revenue streams, most of the revenue will be recorded consistently under both the current and new standard. The FASB has issued, and may issue in the future, interpretive guidance which may cause the Company’s evaluation to change. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption effective the beginning of fiscal year 2018.
3.
Earnings Per Share
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
(in thousands, except share and per share data)
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(1,895
|
)
|
|
$
|
(7,045
|
)
|
|
$
|
(13,598
|
)
|
|
Weighted-average shares outstanding
|
6,454,038
|
|
|
775,710
|
|
|
656,146
|
|
|
Less: weighted average shares subject to repurchase due to early exercise
|
(69,329
|
)
|
|
(6,186
|
)
|
|
—
|
|
|
Weighted average shares used to compute basic and diluted net loss per share
|
6,384,709
|
|
|
769,524
|
|
|
656,146
|
|
|
Net loss attributable to common stockholders per share, basic and diluted
|
$
|
(0.30
|
)
|
|
$
|
(9.16
|
)
|
|
$
|
(20.72
|
)
|
The following potentially dilutive securities outstanding at the end of the periods have been excluded from the computation of diluted shares outstanding as the effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Convertible preferred stock (as-converted)
|
—
|
|
|
24,790,650
|
|
|
23,740,070
|
|
|
Warrants to purchase convertible preferred stock
|
—
|
|
|
271,248
|
|
|
271,248
|
|
|
Warrants to purchase common stock
|
477,404
|
|
|
283,006
|
|
|
288,700
|
|
|
Shares available for ESPP
|
223,662
|
|
|
—
|
|
|
—
|
|
|
Restricted Stock Units (RSUs)
|
6,950
|
|
|
—
|
|
|
—
|
|
|
Options to purchase common stock
|
6,473,624
|
|
|
5,062,342
|
|
|
5,046,448
|
|
|
Total
|
7,181,640
|
|
|
30,407,246
|
|
|
29,346,466
|
|
4.
Balance Sheets Components
Property and equipment, net consisted of the following:
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
Computer and lab equipment
|
$
|
9,748
|
|
|
$
|
7,100
|
|
|
Computer software
|
625
|
|
|
363
|
|
|
Furniture and fixtures
|
136
|
|
|
136
|
|
|
Leasehold improvements
|
218
|
|
|
218
|
|
|
|
10,727
|
|
|
7,817
|
|
|
Accumulated depreciation and amortization
|
(5,985
|
)
|
|
(4,734
|
)
|
|
Property and equipment, net
|
$
|
4,742
|
|
|
$
|
3,083
|
|
Depreciation expense related to property and equipment was
$1.3 million
,
$1.0 million
and
$0.9 million
, for the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, respectively.
Inventory
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
Raw materials
|
$
|
9,067
|
|
|
$
|
3,707
|
|
|
Work in progress
|
1,128
|
|
|
1,238
|
|
|
Finished goods
|
5,625
|
|
|
2,462
|
|
|
|
$
|
15,820
|
|
|
$
|
7,407
|
|
Accrued Liabilities and Other Current Liabilities
Accrued liabilities and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
|
|
|
|
|
Accrued payroll and related benefits
|
$
|
2,842
|
|
|
$
|
2,243
|
|
|
Accrued customer rebates
|
3,026
|
|
|
2,501
|
|
|
Accrual for inventory purchases
|
1,353
|
|
|
182
|
|
|
Accrued Expenses
|
2,952
|
|
|
259
|
|
|
Other
|
1,628
|
|
|
432
|
|
|
|
$
|
11,801
|
|
|
$
|
5,617
|
|
5.
Fair Value Measurements
The Company determines fair value measurements used in its consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
|
|
Level 1
|
Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
|
|
|
|
|
Level 2
|
Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
|
|
|
|
|
Level 3
|
Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
At
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, highly liquid money market funds of
$100.9 million
,
$10.0 million
and
$14.0 million
, respectively, were valued using Level 1 of the fair value hierarchy, quoted prices in active markets for identical assets and are included in cash equivalents.
There were no transfers between Level 1 and Level 2 categories during any of the periods presented.
The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs. At
December 27, 2015
, the Company’s only Level 3 financial instruments were convertible preferred stock warrants which ceased to be a financial instrument upon their conversion to common stock warrants.
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of
January 1, 2017
and
December 27, 2015
based on the three-tier fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of January 1, 2017
|
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
100,876
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 27, 2015
|
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
10,014
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,014
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Convertible preferred stock warrant liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
255
|
|
|
$
|
255
|
|
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
(in thousands)
|
Convertible Preferred Stock Warrant Liability
|
|
Fair value using Level 3 inputs
|
|
|
Balance at January 1, 2014
|
$
|
232
|
|
|
Addition
|
—
|
|
|
Change in fair value
|
(38
|
)
|
|
Balance at December 28, 2014
|
194
|
|
|
Addition
|
—
|
|
|
Change in fair value
|
61
|
|
|
Balance at December 27, 2015
|
255
|
|
|
Addition
|
—
|
|
|
Change in fair value
|
87
|
|
|
Converted to common stock warrants and reclassified to additional paid-in capital
|
$
|
(342
|
)
|
|
Balance at January 1, 2017
|
$
|
—
|
|
Series A Convertible Preferred Stock Warrants
In connection with a
$6.0 million
debt agreement entered into in 2007, the Company issued warrants to purchase an aggregate of
13,892
shares of Series A convertible preferred stock at an exercise price of
$17.28
per share to two lenders during 2007. The Company recorded the fair value of the warrants of
$118,000
on issuance as a debt discount, which was determined using the Black-Scholes option valuation model with the following assumptions: contractual life of
seven years
, volatility of
74%
, risk-free interest rate of
4.5%
, and
no
expected dividends. The Company accreted this discount to interest expense over the three-year contractual life of the debt. The warrants expired in March 2014.
Series F-1 Convertible Preferred Stock Warrants
During the Series F-1 financing in March 2012, the Company issued a convertible preferred stock warrant to purchase
232,500
shares of Series F-1 convertible preferred stock at an exercise price of
$0.0001
per share. The warrants become exercisable upon the achievement of certain milestones. The milestones were not considered probable of being met and were not reached during the periods presented. As a result, no amount was recorded in the Company’s consolidated financial statements during the periods presented. On March 23, 2016, the convertible preferred stock warrants expired.
In addition, in October 2013, in connection with a $3.0 million finance agreement, the Company issued a convertible preferred stock warrant to purchase
38,748
shares of Series F-1 preferred stock at an exercise price of
$7.74
per share. The Company recorded the fair value of the warrant of
$0.2 million
on issuance, which was determined using the assumptions: contractual life of
10 years
, volatility rate of
49.3%
, risk free interest rate of
2.57%
and no expected dividends.
The convertible preferred stock warrant liabilities increased or decreased each period based on the fluctuations of the fair value of the underlying convertible preferred stock. Immediately prior to the consummation of the IPO, all outstanding convertible preferred stock warrants were converted into common stock warrants and the preferred stock warrant liability of
$0.3 million
was reclassified into Additional paid-in capital.
The Company recorded a loss of
$87,000
, a loss of
$61,000
and gain of
$38,000
within “Other income (expense), net” in the consolidated statements of operations for the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, respectively, for the change in fair value of the convertible preferred stock warrants.
The following assumptions were used to determine the fair value of the Series F-1 convertible preferred stock warrants issued in October 2013:
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
November 2,
2016
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Remaining contractual life (in years)
|
7.0
|
|
0.2 - 7.9
|
|
1.2 - 8.8
|
|
Volatility rate
|
40%-44%
|
|
42% - 44%
|
|
34% - 48%
|
|
Risk–free interest rate
|
1.3% - 1.7%
|
|
0.2% - 2.1%
|
|
0.4% - 2.1%
|
|
Expected dividends
|
—
|
|
—
|
|
—
|
Common Stock Warrants
In October 2014, in connection with the Series G financing and the appointment of a member of the Company’s board of directors, the Company issued a common stock warrant to Centerview Capital Technology Management, L.P., or Centerview, to purchase
288,700
shares of common stock at an exercise price of
$0.05
per share, of which
173,220
become exercisable upon the achievement of certain milestones, which were achieved during 2015. The remaining
115,480
shares were subject to vesting over a service period of
four years
ending in October 2018, of which
28,870
vested during 2015. In December 2015, the warrant was exercised with respect to all
288,700
shares of common stock, of which
86,610
shares remained subject to future vesting. In June 2016, the Company accelerated the vesting of the remaining unvested shares of common stock issued upon early exercise of the warrant, and the Company recorded stock-based compensation expense of
$0.6 million
associated with this modification.
In September 2015 and in February 2016, in connection with a separation agreement with a former executive, the Company issued warrants to purchase
283,006
and
20,250
shares of common stock, at an exercise price of
$2.50
and
$4.00
per share, respectively. Both warrants were fully exercisable on the grant date and expire in February 2019.
In February 2016, in connection with a consulting arrangement, the Company issued warrants to purchase
9,000
shares of common stock at an exercise price of
$0.05
per share. The warrants are subject to a 12-month vesting term and expire in January 2018.
In May 2016, in connection with the Mezzanine Loan (see Note 7), the Company issued warrants to purchase up to
126,400
shares of common stock, of which
31,600
were immediately exercisable, and up to an additional
94,800
will become exercisable depending on the amounts borrowed under the Mezzanine Loan, at an exercise price of
$4.00
per share. The fair value of vested warrants on the date of issuance was
$96,000
. The warrants expire in May 2026.
For expenses recognized by the Company in connection to the common stock warrants transactions discussed above, see section “stock-based compensation for non-employees” within Note 10.
The following assumptions were used to determine the fair value of the common stock warrants:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Remaining contractual life (in years)
|
1.3 - 10.0
|
|
3.4 - 9.6
|
|
9.8
|
|
Volatility rate
|
37% - 44%
|
|
36% - 47%
|
|
45%
|
|
Risk–free interest rate
|
0.6% - 1.8%
|
|
0.2% - 2.5%
|
|
2.2%
|
|
Expected dividends
|
—
|
|
—
|
|
—
|
As of
January 1, 2017
, warrants issued and outstanding were as follows:
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Issuance
|
|
Number of Warrants
|
|
Exercise Price
|
|
Expiration Date
|
|
|
|
|
|
Common stock warrants
|
October 2013
|
|
38,748
|
|
|
$
|
7.74
|
|
|
October 2023
|
|
Common stock warrants
|
September 2015
|
|
283,005
|
|
|
$
|
2.50
|
|
|
February 2019
|
|
Common stock warrants
|
February 2016
|
|
20,251
|
|
|
$
|
4.00
|
|
|
February 2019
|
|
Common stock warrants
|
February 2016
|
|
9,000
|
|
|
$
|
0.05
|
|
|
January 2018
|
|
Common stock warrants
|
May 2016
|
|
126,400
|
|
|
$
|
4.00
|
|
|
May 2026
|
As of
December 27, 2015
, warrants issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Issuance
|
|
Number of Warrants
|
|
Exercise Price
|
|
Expiration Date
|
|
|
|
|
Series F-1 convertible preferred stock warrants
|
March 2012
|
|
232,500
|
|
|
$
|
0.0001
|
|
|
March 2016
|
|
|
Series F-1 convertible preferred stock warrants
|
October 2013
|
|
38,748
|
|
|
$
|
7.74
|
|
|
October 2023
|
|
|
Common stock warrants
|
September 2015
|
|
283,006
|
|
|
$
|
2.50
|
|
|
February 2019
|
6.
Commitments and Contingencies
Leases
The Company conducts its operations using leased office facilities in various locations.
The following is a schedule of future minimum lease payments under operating leases as of
January 1, 2017
:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
2017
|
$
|
811
|
|
|
2018
|
421
|
|
|
2019
|
41
|
|
|
Total minimum lease payments
|
$
|
1,273
|
|
The Company leases office space under arrangements expiring through 2019. Rent expense for the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
was
$1.2 million
,
$1.0 million
and
$0.9 million
, respectively.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
In February 2017, the Company entered into a lease agreement for its new corporate headquarters in San Jose, California. For additional details on lease terms refer to Note 15.
Purchase Commitments
The Company has purchase obligations of
$10.5 million
that are based on outstanding purchase orders as of
January 1, 2017
, related to the fabrication of certain wafers for which production has started. These purchase orders are cancellable at any time, provided that the Company is required to pay all costs incurred through the cancellation date. Historically, the Company has rarely canceled these agreements once production has started. The Company did not otherwise have any outstanding non-cancellable purchase obligations as of
January 1, 2017
.
Indemnification
In connection with the sale of its semiconductor chip products, the Company executes standard software license agreements allowing customers to use its firmware. Under the indemnification clauses of these license agreements, the Company agrees to defend the licensee against third-party claims asserting infringement by the Company’s products of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the licensee, subject to certain restrictions and limitations. The Company has never incurred significant expense defending its licensees against third-party claims. Further, the Company has never incurred significant expense under its standard product or services performance warranties. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has
no
liabilities recorded for these agreements at
January 1, 2017
.
Commitments
In April 2012, an agreement was entered into with Joint Stock Company “RUSNANO” (formerly Open Joint Stock Company “RUSNANO”), which required the Company to form a wholly-owned subsidiary in the Russian Federation and to provide funding to the subsidiary in the three years following April 16, 2012. This wholly-owned subsidiary performs research and development activities for the Company. Funding shall mean cash transfers to the subsidiary for equity investments, reimbursements of subsidiary operating expenses and Company expenses related to the subsidiary. RUSNANO also requires participation in subsidiary financial decisions.
In July 2014, the Company entered into an amended and restated letter agreement with RUSNANO pursuant to which the Company agreed, among other matters, to operate and fund its Russian operations in an aggregate amount of
$13.0 million
over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are
$2.2 million
,
$1.7 million
,
$2.0 million
,
$2.2 million
,
$2.4 million
, and
$2.5 million
, respectively. In the event that the Company fails to meet its funding obligations for any period, it will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline.
As of
January 1, 2017
,
no
penalty had been incurred, as the Company had met the minimum funding requirements.
Legal Matters
From time to time, the Company is a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims, and other matters. Significant judgment is required when we assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, and when the outcomes of the claims or proceedings are probable and reasonably estimable. Because of uncertainties related to these matters, we base our estimates on the information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation, and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our results of operations and financial position.
In October 2016, Innovatio IP Ventures, LLC filed suit in the United States District Court for the Northern District of Illinois alleging infringement by the Company of nine expired U.S. patents. The complaint seeks unspecified damages. The lawsuit is in the early stages and the Company has not accrued for a loss or range of loss contingency relating to such matter because the Company believes that, although an unfavorable outcome may be possible, it is not considered at this time to be probable and reasonably estimable.
7.
Long-term Debt
Finance Agreement
In October 2013, the Company entered into a finance agreement which provides for equipment funding of
$3.0 million
over
39 months
at an annual percentage rate of
11.9%
. The finance agreement is collateralized by all tangible and intangible property of the Company, excluding any intellectual property. This finance agreement was subordinated to the Loan and Security Agreement entered into in April 2013 as amended in October 2013 and in January 2015. In connection with the finance agreement, the Company issued a warrant to the lender to purchase up to
38,748
shares of Series F-1 convertible preferred stock at
$7.74
per share (refer to Note
5
). As of
December 27, 2015
the outstanding balance under the finance agreement was
$1.5 million
. In May 2016, in connection with the amendment and restatement of the April 2013 Loan and Security Agreement described below, the Company paid the remaining outstanding balance of
$1.0 million
under such finance agreement. Immediately prior to the consummation of the IPO, all outstanding convertible preferred stock warrants were converted into common stock warrants.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Loan and Security Agreement
In April 2013, the Company entered into a Loan and Security Agreement with its primary financial institution (“Lender”). The agreement provides for a revolving line of credit and a term loan. The maximum amount available for borrowing under the revolving line of credit was
80%
of eligible accounts receivable, not to exceed
$3.5 million
in the aggregate. Interest under the revolving line of credit was calculated at the greater of the prime rate plus
0.50%
or
3.75%
. The original maturity date of the revolving line of credit was April 26, 2015. The term loan amount was for
$1.0 million
, which was advanced in April 2013. The principal amount outstanding on the term loan accrued interest at a per annum rate equal to prime rate plus
0.75%
, fixed at the time of funding. The term loan was payable in
36
equal monthly payments starting on May 1, 2013 with the last payment occurring on April 1, 2016.
In October 2013, the Company and Lender agreed to increase the maximum amount available for borrowing under the revolving line of credit to
80%
of eligible accounts receivable plus
60%
of eligible customer purchase orders, not to exceed
$9.5 million
in the aggregate. The Company may request cash advances for eligible purchase orders at any time provided that the Company’s net cash balance is equal to or greater than
$8.0 million
and the amount of purchase order advances outstanding does not exceed
$2.0 million
. The effective annual interest rate for borrowing against receivables is
4.69%
and the effective annual percentage rate for borrowing against purchase order advances is
6.25%
. The Company and the Lender also added a growth capital term loan for up to
$5.0 million
of which
$3.0 million
was advanced on October 31, 2013 and the remaining
$2.0 million
was to become available upon the Company achieving certain milestones related to revenue growth during 2013. The milestones under this agreement were achieved by the Company but the Company did not borrow the remaining
$2.0 million
. The principal amount outstanding for the growth capital advance accrues interest at a floating per annum rate equal to prime plus
2.25%
. The growth capital loan is payable monthly over a 30-month period starting on October 1, 2014 with the last payment set to occur on March 1, 2017.
On January 30, 2015, the Company and the Lender agreed to (i) increase the maximum amount available under the revolving line of credit to
80%
of eligible accounts receivable, not to exceed
$12.5 million
in the aggregate, (ii) extend the maturity date of the revolving line of credit to April 26, 2016, and (iii) add a supplemental growth capital term loan for up to
$3.0 million
of which
$3.0 million
was advanced on February 3, 2015. The effective annual interest rate for borrowing against receivables under the revolving line of credit is
4.25%
if the Company’s net cash is equal to or greater than
$4.0 million
. If the Company’s net cash is less than
$4.0 million
, the effective annual percentage rate for borrowing against receivables is
6.75%
. The principal amount outstanding for the supplemental growth capital loan accrues interest at a floating rate per annum equal to prime plus
1.00%
. The supplemental growth capital loan is payable monthly over a 36-month period starting on August 1, 2015 with the last payment set to occur on July 1, 2018.
In May 2016, the Company and the Lender amended and restated the Loan and Security Agreement to (i) increase the maximum amount available under the revolving line of credit to
$20.0 million
, (ii) extend the maturity date of the revolving line of credit to May 17, 2018, and (iii) add a new senior term loan in the amount of
$4.0 million
, in addition to the growth capital term loans described above. The effective annual percentage rate on the revolving line of credit is between
4.25%
to 5.00% depending on the Company’s consolidated leverage ratio. The new senior term loan has a one-year draw down period, and the principal amount outstanding under the new senior term loan accrues interest at a floating rate per annum equal to prime plus
0.75%
. The new senior term loan is payable monthly over a 30-month term starting on June 1, 2017 with the last payment due on November 1, 2019. The Company had drawn down
$3.0 million
under the revolving line of credit and repaid
$3.0 million
in August 2016. The Company has an undrawn balance under the revolving line of credit of
$20.0 million
as of
January 1, 2017
.
In connection with the amendment and restatement of the Loan and Security Agreement, the Company concurrently entered into a subordinated secured Mezzanine Loan with the Lender for up to
$10.0 million
. The principal amount outstanding on the Mezzanine Loan accrues interest at a fixed rate per annum equal to
10.5%
. The Mezzanine Loan has a one-year draw down period, with repayment due on May 1, 2019. In connection with the Mezzanine Loan, the Company issued warrants to purchase up to
126,400
shares of common stock, of which
31,600
were immediately exercisable, and up to an additional
94,800
may become exercisable depending on the amounts borrowed under the Mezzanine Loan, at an exercise price of
$4.00
per share. The fair value of vested warrants on the date of issuance was
$96,000
. The Company paid $0.2 million in May 2016 to the lender as origination fees. The fair value of warrants and origination fees are accounted as debt discounts and are recorded as interest expense in the consolidated statement of operations over the term of the loan. The debt discounts related to the Mezzanine Loan is recorded in “Prepaid expense and other current assets” on the consolidated balance sheet, as the Company has not yet drawn down from the Mezzanine Loan as of
January 1, 2017
.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
In accordance with the Loan and Security Agreement, as amended and restated, upon the occurrence of an IPO the Company is obligated to pay to its lender an aggregate of $0.2 million in fees. This fee is amortized over the term of the loan.
As of
January 1, 2017
,
December 27, 2015
, the aggregate outstanding balance under the Loan and Security Agreement, in each case as amended through such date, and the Mezzanine Loan was
$6.0 million
and
$4.4 million
, respectively.
The agreement contains usual and customary events of default upon the occurrence of certain events, such as nonpayment of amounts due under the revolving line of credit or the term loans, violation of the restrictive covenants, violation of other contractual provisions, or a material adverse change in its business. The agreement includes customary administrative covenants, including a prohibition on declaring dividends, but does not include any financial maintenance or operating related covenants.
The amended and restated Loan and Security Agreement, or the “SVB Loan Agreement”, and the Mezzanine Loan are collateralized by certain of our assets, including pledges of certain of our equity interests in our subsidiaries, receivables and inventory, subject to customary exceptions and limits. The SVB Loan Agreement and the Mezzanine Loan contain customary events of default upon the occurrence of certain events, such as nonpayment of amounts due under the revolving line of credit or the term loans, violation of restrictive covenants, violation of other contractual provisions, or a material adverse change in the Company’s business. In addition, the credit facilities prohibit the payment of cash dividends on the Company’s capital stock and also place restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates.
As of
January 1, 2017
, future minimum payments for the long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
2017
|
2,570
|
|
|
2018
|
2,383
|
|
|
2019
|
1,618
|
|
|
Total minimum payments
|
6,571
|
|
|
Less: Amount representing interest
|
(357
|
)
|
|
Less: Amount representing closing and repayment fees
|
(330
|
)
|
|
Present value of minimum payments
|
5,884
|
|
|
Less: Unamortized debt discounts
|
(167
|
)
|
|
Plus: Accretion of closing and repayment fees
|
220
|
|
|
Long-term debt, net
|
5,937
|
|
|
Less: Long-term debt, current portion
|
2,257
|
|
|
Non-current portion of long-term debt
|
3,680
|
|
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
As of
December 27, 2015
, future minimum payments for the long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
2016
|
$
|
3,842
|
|
|
2017
|
1,729
|
|
|
2018
|
682
|
|
|
Total minimum payments
|
6,253
|
|
|
Less: Amount representing interest
|
(294
|
)
|
|
Less: Amount representing closing and repayment fees
|
(383
|
)
|
|
Present value of minimum payments
|
5,576
|
|
|
Less: Unamortized debt discounts
|
(31
|
)
|
|
Plus: Accretion of closing and repayment fees
|
301
|
|
|
Long-term debt, net
|
5,846
|
|
|
Less: Long-term debt, current portion
|
3,581
|
|
|
Non-current portion of long-term debt
|
$
|
2,265
|
|
8.
Convertible Preferred Stock
The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue up to
100,000,000
shares of convertible preferred stock. Under the terms of the Certificate of Incorporation, the board of directors may determine the rights, preferences and terms of the Company’s authorized shares of convertible preferred stock.
From May 2015 through August 2015, the Company issued
1,050,580
shares of Series G convertible preferred stock to new investors at
$13.57
per share with gross proceeds of
$14.3 million
.
Convertible preferred stock was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 27, 2015
|
|
|
Shares Authorized
|
|
Shares Issued and Outstanding
|
|
Aggregate Liquidation Preference
|
|
|
|
|
|
|
(in thousands)
|
|
Series A
|
783,862
|
|
|
783,853
|
|
|
$
|
13,542
|
|
|
Series B
|
822,242
|
|
|
822,232
|
|
|
15,277
|
|
|
Series C
|
875,199
|
|
|
875,192
|
|
|
19,254
|
|
|
Series D
|
4,369,204
|
|
|
4,369,186
|
|
|
17,309
|
|
|
Series E
|
5,348,816
|
|
|
5,348,808
|
|
|
29,772
|
|
|
Series F-1
|
7,893,419
|
|
|
7,622,159
|
|
|
59,013
|
|
|
Series G
|
2,956,892
|
|
|
2,650,107
|
|
|
35,963
|
|
|
|
23,049,634
|
|
|
22,471,537
|
|
|
$
|
190,130
|
|
In connection with the consummation of the IPO in November 2016, all outstanding shares of Series A, Series B, Series C, Series D, Series E, Series F-1 and Series G were converted into
24,790,650
shares of common stock. As such, no convertible preferred stock shares were outstanding as of
January 1, 2017
.
9.
Stockholders’ Equity (Deficit)
Common Stock
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
The Company’s Certificate of Incorporation, as amended, authorizes the Company to issue
1,000,000,000
shares of
$0.0001
par value common stock. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends.
The Company had reserved shares of common stock for issuance, on an as-converted basis, as follows:
|
|
|
|
|
|
|
|
As of January 1, 2017
|
|
|
|
|
Options issued and outstanding
|
6,473,624
|
|
|
Common stock warrants
|
477,404
|
|
|
Shares available for ESPP
|
2,000,000
|
|
|
Shares available for future stock option grants
|
4,370,066
|
|
|
|
13,321,094
|
|
10.
Stock-based Compensation
Under the Company’s 2006 Stock Plan, or the “2006 Plan”, the Company may grant options to purchase or directly issue shares of common stock to employees, directors, and consultants of the Company. In 2014 and 2016, the Company’s board of directors and stockholders approved an increase to the shares available under the 2006 Plan of
1,034,200
and
60,092
shares, respectively. Options may be granted at an exercise price per share of not less than 100% of the fair market value at the date of grant. If an incentive stock option is granted to a 10% stockholder, then the purchase or exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years.
In May 2016, the Company’s board of directors discontinued the 2006 Plan and approved the adoption of the 2016 Equity Incentive Plan, or the “2016 EIP”. All outstanding shares under the 2006 Plan were rolled over to the 2016 EIP. Initially the 2016 EIP permitted the Company to grant up to
416,000
shares of the Company’s common stock awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors, and consultants of the Company. In June 2016, the number of shares authorized for issuance under the 2016 EIP was increased to
1,653,000
. In July 2016, the number of shares authorized for issuance under the 2016 EIP was increased to 1,953,000. All granted shares that are canceled, forfeited or expired are returned to the 2016 EIP and are available for grant in conjunction with the issuance of new equity awards. Stock options may be granted at an exercise price per share not less than 100% of the fair market value at the date of grant. If a stock option is granted to a 10% stockholder, then the exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years.
Concurrent with the completion of the IPO in November 2016, the Company’s 2016 Omnibus Equity Incentive Plan, or the “2016 Plan”, became effective. The 2016 EIP plan was terminated and all outstanding shares under the 2016 EIP plan were rolled over to the 2016 Plan. The 2016 Plan allows the Company to grant up to 4,100,000 shares of Company’s common stock with annual increase on the first day of each fiscal year beginning of January 1, 2018, equal to the lesser of (i) 3,400,000 shares, (ii) five percent of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amounts as the board of directors may determine. The 2016 Plan provides for the grant of common stock awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units, performance units and performance shares to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited or expired are returned to the 2016 Plan and are available for grant in conjunction with the issuance of new equity awards. Stock options may be granted at an exercise price per share not less than 100% of the fair market value at the date of grant. If a stock option is granted to a 10% stockholder, then the exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Total stock-based compensation expense for employees and non-employees recognized in the consolidated statements of operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Cost of revenue
|
$
|
33
|
|
|
$
|
9
|
|
|
$
|
7
|
|
|
Research and development
|
911
|
|
|
302
|
|
|
256
|
|
|
Sales and marketing
|
248
|
|
|
445
|
|
|
101
|
|
|
General and administrative
|
1,898
|
|
|
446
|
|
|
203
|
|
|
Total stock-based compensation expense
|
$
|
3,090
|
|
|
$
|
1,202
|
|
|
$
|
567
|
|
In September 2016, the Company accelerated the vesting of the remaining unvested stock options issued to the former Chief Financial Officer upon his termination, and recorded stock-based compensation expense of
$0.5 million
associated with this modification.
At
January 1, 2017
, unamortized compensation expense related to unvested stock awards was approximately
$5.9 million
. The weighted-average period over which such compensation expense will be recognized is
3.2 years
.
At
December 27, 2015
, unamortized compensation expense related to unvested stock awards was approximately
$1.9 million
. The weighted-average period over which such compensation expense will be recognized is
2.9 years
.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Stock Option Activity
The table below summarizes stock option activity under the 2006 Plan, 2016 EIP and 2016 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Available
for Issuance
|
|
Number of
Shares Outstanding
|
|
Weighted–
Average
Exercise
Price
|
|
Weighted–
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Balances at January 1, 2014
|
359,205
|
|
|
3,967,172
|
|
|
$
|
1.36
|
|
|
8.1
|
|
|
|
Authorized
|
1,034,200
|
|
|
|
|
|
|
|
|
|
|
Granted (weighted–average fair value of $0.94 per share)
|
(1,574,681
|
)
|
|
1,574,681
|
|
|
2.00
|
|
|
|
|
|
|
Exercised
|
|
|
(97,380
|
)
|
|
1.32
|
|
|
|
|
|
|
Expired, Forfeited or canceled
|
398,025
|
|
|
(398,025
|
)
|
|
1.54
|
|
|
|
|
|
|
Balances at December 28, 2014
|
216,749
|
|
|
5,046,448
|
|
|
1.55
|
|
|
7.4
|
|
$
|
2,391
|
|
|
Granted (weighted–average fair value of $1.18 per share)
|
(875,715
|
)
|
|
875,715
|
|
|
2.71
|
|
|
|
|
|
|
Exercised
|
|
|
(121,880
|
)
|
|
1.38
|
|
|
|
|
|
|
Expired, Forfeited or canceled
|
737,941
|
|
|
(737,941
|
)
|
|
1.38
|
|
|
|
|
|
|
Balances at December 27, 2015
|
78,975
|
|
|
5,062,342
|
|
|
1.77
|
|
|
7.4
|
|
$
|
11,269
|
|
|
Authorized
|
6,113,092
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units Granted
|
(6,950
|
)
|
|
|
|
|
|
|
|
|
|
Granted (weighted–average fair value of $3.65 per share)
|
(2,064,982
|
)
|
|
2,064,982
|
|
|
8.99
|
|
|
|
|
|
|
Exercised
|
|
|
(403,769
|
)
|
|
2.95
|
|
|
|
|
|
|
Expired, Forfeited or canceled
|
249,931
|
|
|
(249,931
|
)
|
|
3.14
|
|
|
|
|
|
|
Balances at January 1, 2017
|
4,370,066
|
|
|
6,473,624
|
|
|
3.95
|
|
|
7.4
|
|
$
|
91,840
|
|
|
Options Exercisable— January 1, 2017
|
|
|
3,567,314
|
|
|
1.88
|
|
|
6
|
|
$
|
57,974
|
|
|
Options vested and expected to vest—January 1, 2017
(1)
|
|
|
5,959,099
|
|
|
$
|
3.64
|
|
|
7.2
|
|
$
|
86,398
|
|
________________________
|
|
|
|
(1)
|
Options expected to vest reflect an estimated forfeiture rate of 15%
based on historical experience
.
|
The aggregate intrinsic value of options exercised was
$2.6 million
,
$0.8 million
and
$68,000
for the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
, respectively. Upon the exercise of options, the Company issues new common stock from its authorized shares.
The aggregate fair value of options vested during the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
was
$1.8 million
,
$1.2 million
, and
$0.5 million
, respectively.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
Additional information regarding options outstanding at
January 1, 2017
and
December 27, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
Options Outstanding
|
|
Options Vested
|
|
Exercise Price
|
|
Number of Shares
|
|
Weighted- Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Weighted- Average Exercise Price
|
|
Number of Shares
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
$
|
1.00
|
|
|
927,909
|
|
|
4.19
|
|
|
15,895
|
|
|
$
|
1.00
|
|
|
927,909
|
|
|
15,895
|
|
|
$
|
1.50
|
|
|
1,610,095
|
|
|
5.93
|
|
|
26,776
|
|
|
$
|
1.50
|
|
|
1,529,423
|
|
|
25,434
|
|
|
$
|
2.00
|
|
|
1,222,233
|
|
|
7.87
|
|
|
19,715
|
|
|
$
|
2.00
|
|
|
646,221
|
|
|
10,424
|
|
|
$
|
2.50
|
|
|
212,650
|
|
|
7.19
|
|
|
3,324
|
|
|
$
|
2.50
|
|
|
108,147
|
|
|
1,690
|
|
|
$
|
3.00
|
|
|
559,733
|
|
|
8.04
|
|
|
8,469
|
|
|
$
|
3.00
|
|
|
192,458
|
|
|
2,912
|
|
|
$
|
4.00
|
|
|
67,975
|
|
|
9.09
|
|
|
960
|
|
|
$
|
4.00
|
|
|
10,155
|
|
|
143
|
|
|
$
|
5.00
|
|
|
98,100
|
|
|
9.26
|
|
|
1,288
|
|
|
$
|
5.00
|
|
|
—
|
|
|
—
|
|
|
$
|
7.00
|
|
|
53,700
|
|
|
9.40
|
|
|
598
|
|
|
$
|
7.00
|
|
|
1,001
|
|
|
11
|
|
|
$
|
8.50
|
|
|
1,209,700
|
|
|
9.51
|
|
|
11,649
|
|
|
$
|
8.50
|
|
|
152,000
|
|
|
1,464
|
|
|
$
|
9.00
|
|
|
325,980
|
|
|
9.57
|
|
|
2,976
|
|
|
$
|
9.00
|
|
|
—
|
|
|
—
|
|
|
$
|
15.00
|
|
|
60,800
|
|
|
9.74
|
|
|
190
|
|
|
$
|
15.00
|
|
|
—
|
|
|
—
|
|
|
$
|
18.95
|
|
|
124,749
|
|
|
9.94
|
|
|
—
|
|
|
$
|
18.95
|
|
|
—
|
|
|
—
|
|
|
|
|
6,473,624
|
|
|
7.35
|
|
|
$
|
91,840
|
|
|
|
|
3,567,314
|
|
|
$
|
57,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2015
|
|
Options Outstanding
|
|
Options Vested
|
|
Exercise Price
|
|
Number of Shares
|
|
Weighted- Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Weighted- Average Exercise Price
|
|
Number of Shares
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
$
|
1.00
|
|
|
995,309
|
|
|
4.98
|
|
|
$
|
2,986
|
|
|
$
|
1.00
|
|
|
995,309
|
|
|
$
|
2,986
|
|
|
$
|
1.50
|
|
|
1,712,087
|
|
|
6.91
|
|
|
4,280
|
|
|
$
|
1.50
|
|
|
1,346,907
|
|
|
3,367
|
|
|
$
|
2.00
|
|
|
1,536,836
|
|
|
8.85
|
|
|
3,074
|
|
|
$
|
2.00
|
|
|
419,438
|
|
|
839
|
|
|
$
|
2.50
|
|
|
223,650
|
|
|
8.28
|
|
|
335
|
|
|
$
|
1.50
|
|
|
55,033
|
|
|
138
|
|
|
$
|
3.00
|
|
|
594,460
|
|
|
9.05
|
|
|
594
|
|
|
$
|
3.00
|
|
|
69,430
|
|
|
69
|
|
|
|
|
5,062,342
|
|
|
7.43
|
|
|
$
|
11,269
|
|
|
|
|
2,886,117
|
|
|
$
|
7,399
|
|
Stock Options Granted to Employees and Non-Employee Directors
Stock-based compensation expense is based on the grant date fair value. The Company recognizes compensation expense for all stock-based awards on a straight-line basis over the requisite service period of the awards, which is generally the option vesting term of four years.
The Company uses the Black-Scholes option valuation model, which requires the use of highly subjective assumptions to determine the fair value of stock-based awards. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. The assumptions and estimates that the Company uses in the Black-Scholes model are as follows:
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
•
|
Fair Value of Common Stock
. For all periods prior to the IPO, the Company must estimate its fair value
.
The fair value of common stock was determined on a periodic basis by the Company’s board of directors, with the assistance of an independent third-party valuation firm. The board of directors intended all options granted to be exercisable at a price per share not less than the estimated per share fair value of common stock underlying those options on the date of grant. Subsequent to the IPO, the Company determines the fair values of the shares of common stock underlying its share–based awards based upon the closing stock price on the date of grant.
|
|
|
|
|
•
|
Risk-Free Interest Rate.
The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to that of the expected term of the options for each option group.
|
|
|
|
|
•
|
Expected Term.
The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer of the Company’s common stock as a privately held company, the Company does not believe its historical exercise pattern is indicative of the pattern it will experience as a publicly traded company. The Company has consequently used the Staff Accounting Bulletin 110, or SAB 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. The Company plans to continue to use the SAB 110 simplified method until it has sufficient trading history as a publicly traded company.
|
|
|
|
|
•
|
Volatility.
The Company determines the price volatility based on the historical volatilities of industry peers as it has no sufficient trading history for its common stock price. Industry peers consist of several public companies in the semiconductor industry with comparable characteristics, including revenue growth, operating model and working capital requirements. The Company intends to continue to consistently apply this process using the same or a similar peer group of public companies until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available, or unless circumstances change such that the identified peer companies are no longer similar, in which case other suitable peer companies whose common stock prices are publicly available would be utilized in the calculation.
|
|
|
|
|
•
|
Dividend Yield.
The expected dividend assumption is based on the Company’s current expectations about its anticipated dividend policy. To date, the Company has not declared any dividends, and therefore the Company has used an expected dividend yield of zero.
|
In addition to the assumptions used in the Black-Scholes valuation model, the Company must also estimate a forfeiture rate to calculate the stock-based compensation for its equity awards. The Company will continue to use judgment in evaluating the assumptions related to the Company’s stock-based compensation on a prospective basis. As the Company continues to accumulate additional data, it may have refinements to its estimates, which could materially impact the Company’s future stock-based compensation expense. The following assumptions were used to calculate the fair value of options granted to employees and non-employee directors during the years indicated:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
5.5 - 6.6
|
|
5.6 – 6.5
|
|
5.0 – 6.1
|
|
Volatility
|
39% - 40%
|
|
40% – 44%
|
|
40% – 51%
|
|
Risk-free interest rate
|
1.1 % - 2.1%
|
|
1.5% – 2.0%
|
|
1.5% – 1.9%
|
|
Expected dividend
|
—
|
|
—
|
|
—
|
Options Subject to Repurchase
The Company has a right of repurchase with respect to unvested shares issued upon early exercise of options at an amount equal to the lower of (i) the exercise price of each restricted share being repurchased and (ii) the fair market value of such restricted share at the time the Company’s right of repurchase is exercised. The Company’s right to repurchase these shares lapses as to 1/36 of the total number of shares originally granted per month for 36 months. At
January 1, 2017
,
62,000
, shares remained subject to the Company’s right of repurchase.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
The shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules. The cash received in exchange for unvested shares of early exercised stock options is recorded as an early exercise liability on the balance sheets and will be transferred to common stock and additional paid-in capital as such shares vest.
Stock-Based Compensation for Non-employees
Stock-based compensation expense related to stock awards granted to non-employee is recognized as the awards vest. The Company believes that the fair value of the stock-based awards granted is more reliably measurable than the fair value of the services received. The fair value of stock awards granted is calculated using the Black-Scholes option valuation model. Stock-based compensation expense related to awards granted to non-employees for the years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
was
$0.8 million
,
$0.4 million
, and
$22,000
, respectively.
In June 2016, the Company accelerated the vesting of the remaining unvested shares of common stock issued upon early exercise of a warrant by Centerview, and the Company recorded stock-based compensation expense of
$0.6 million
associated with this modification. For additional information on the Centerview common stock warrants, see the section titled “Common Stock Warrants” within Note 5.
During the
year ended
January 1, 2017
, the Company issued
2,777
shares to consultants for payment of services, and the Company recorded $25,000 as stock-based compensation expense.
The fair values of options and common stock warrants granted to non-employees were calculated using the following assumptions for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
|
|
|
|
|
|
Contractual term remaining (in years)
|
1.6 - 8.3
|
|
3.4 - 10.0
|
|
5.0 - 10.0
|
|
Volatility
|
37% - 53%
|
|
36% - 48%
|
|
44% - 76%
|
|
Risk-free interest rate
|
0.6% - 1.7%
|
|
0.2% - 2.5%
|
|
0.7% - 4.7%
|
|
Expected dividend
|
—
|
|
—
|
|
—
|
Employee Stock Purchase Plan
Concurrent with the completion of the IPO in November 2016, the Company’s 2016 Employee Stock Purchase Plan, or ESPP became effective. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 20% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for one year offering periods with purchase periods every six months, and at the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the purchase period or on the last trading day of the offering period. No shares were issued under the ESPP as of January1, 2017. Shares expected to be issued under the ESPP were
223,662
at
January 1, 2017
. Shares authorized for future purchase under the ESPP were
2,000,000
at
January 1, 2017
.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
The fair values of ESPP was calculated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
January 1,
2017
|
|
|
|
|
Contractual term remaining (in years)
|
0.5 - 1.0
|
|
Volatility
|
36% - 41%
|
|
Risk-free interest rate
|
0.5% - 0.7%
|
|
Expected dividend
|
—
|
At
January 1, 2017
, unamortized compensation expense related to ESPP was approximately $0.7 million. The weighted-average period over which such compensation expense will be recognized is six months.
Restricted Stock Unit (“RSU”) Awards
The Company grants restricted stock units to employees under the 2016 Plan. RSUs granted typically vest ratably over a four-year period, and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures. Each RSU award granted from the 2016 Plan will reduce the number of shares available for issuance under the 2016 Plan by one share.
The table below summarizes RSU activity under the 2016 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares Outstanding
|
|
Weighted–
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Balances at December 27, 2015
|
|
—
|
|
|
|
|
|
|
Granted (weighted–average fair value of $18.95 per share)
|
|
6,950
|
|
|
|
|
|
|
Vested
|
|
—
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
|
|
|
Balances at January 1, 2017
|
|
6,950
|
|
|
3.9
|
|
$
|
126
|
|
|
Outstanding and expected to vest at January 1, 2017
|
|
4,938
|
|
|
3.9
|
|
$
|
90
|
|
At
January 1, 2017
, unrecognized compensation expense related to unvested RSU awards was approximately
$0.1 million
. The weighted-average period over which such compensation expense will be recognized is 3.9 years. No RSU’s were vested for the year ended
January 1, 2017
. The Company did not grant any RSUs prior to fiscal year ended
January 1, 2017
.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
11.
Income Taxes
The components of loss before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
United States
|
$
|
16,535
|
|
|
$
|
(7,584
|
)
|
|
$
|
(14,353
|
)
|
|
Foreign
|
(18,063
|
)
|
|
654
|
|
|
863
|
|
|
|
$
|
(1,528
|
)
|
|
$
|
(6,930
|
)
|
|
$
|
(13,490
|
)
|
The components of the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
Federal
|
$
|
266
|
|
|
$
|
—
|
|
|
|
|
State
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Foreign
|
132
|
|
|
113
|
|
|
106
|
|
|
Total current provision
|
$
|
399
|
|
|
$
|
115
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
Foreign
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
Total deferred provision
|
$
|
(32
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total provision
|
$
|
367
|
|
|
$
|
115
|
|
|
$
|
108
|
|
The material components of the deferred tax assets and liabilities consisted of net operating loss carry-forwards and tax credit carry-forwards.
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
Deferred tax assets:
|
|
|
|
|
Accrual, reserve and other
|
$
|
2,112
|
|
|
$
|
2,129
|
|
|
Depreciation and amortization
|
(555
|
)
|
|
(159
|
)
|
|
Net operating loss and credits carry forwards
|
59,628
|
|
|
64,837
|
|
|
Stock-based compensation
|
535
|
|
|
387
|
|
|
Others
|
519
|
|
|
—
|
|
|
Total gross deferred tax assets
|
62,239
|
|
|
67,194
|
|
|
Valuation allowance
|
(62,207
|
)
|
|
(67,194
|
)
|
|
Total net deferred tax assets
|
$
|
32
|
|
|
$
|
—
|
|
The net valuation allowance decreased by
$5.0 million
and increased by
$3.2 million
for the years ended
January 1, 2017
and
December 27, 2015
, respectively.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
US Federal Rate
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
|
Difference between statutory rate and foreign effective tax rate
|
(437.8
|
)
|
|
1.7
|
|
|
2.2
|
|
|
Other permanent Items
|
(125.2
|
)
|
|
(0.8
|
)
|
|
(0.4
|
)
|
|
Stock-based compensation
|
(29.2
|
)
|
|
(2.7
|
)
|
|
(1.1
|
)
|
|
Research and development credit
|
102.2
|
|
|
9.5
|
|
|
5.5
|
|
|
Change in valuation allowance
|
477.6
|
|
|
(43.4
|
)
|
|
(41.1
|
)
|
|
Foreign Income
|
(75.8
|
)
|
|
—
|
|
|
—
|
|
|
Foreign Tax Credit
|
30.7
|
|
|
—
|
|
|
—
|
|
|
|
(23.5
|
)%
|
|
(1.7
|
)%
|
|
(0.9
|
)%
|
The reported amount of income tax expense differs from an expected amount based on statutory rates primarily due to the Company’s valuation allowance and research and development credits offset by the difference between the statutory rate and the foreign effective tax rate.
As of
January 1, 2017
, based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be realized for federal and state purposes. Accordingly, management has applied a full valuation allowance against its federal and state net deferred tax assets at
January 1, 2017
. Due to improvements in the United States operating results over the past three years, management believes a reasonable possibility exists that, within the next year, sufficient positive evidence may become available to reach a conclusion that the valuation allowance against its federal and state net deferred tax assets will no longer be needed.
As of
December 27, 2015
, based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be realized. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at
December 27, 2015
.
At
January 1, 2017
and
December 27, 2015
, the Company has federal net operating loss carry-forwards of approximately
$134.1 million
and
$151.9 million
, respectively, and state net operating loss carry-forwards of approximately
$104.7 million
and
$106.7 million
, respectively. These federal and state net operating loss carry-forwards will expire beginning in 2026 and 2016, respectively. At
January 1, 2017
and
December 27, 2015
, the Company also has federal research and development tax credit carry-forwards of approximately
$7.2 million
and
$6.3 million
, respectively, and state research and development tax credit carry-forwards of approximately
$7.7 million
and
6.3 million
, respectively. The federal tax credits begin to expire in 2026, and the California tax credits carry forward indefinitely. Of the total federal net operating loss carry forwards, approximately $137,000 relates to deductions for stock-based compensation, the tax benefit of which will be credited to additional paid-in capital when realized.
Under Internal Revenue Code Section 382, our ability to utilize NOL carry-forwards or other tax attributes such as research tax credits, in any taxable year may be limited if we experience, or have experienced, an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of our stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.
No deferred tax assets have been recognized on our balance sheet related to our NOLs and tax credits, as they are fully reserved by a valuation allowance. We may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes,” including in connection with our initial public offering. If so, or if we do not generate sufficient taxable income, we may not be able to utilize a material portion of our NOLs and tax credits even if we achieve profitability. If we are limited in our ability to use our NOLs and tax credits in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs and tax credits. This could adversely affect our results of operations.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
As of
January 1, 2017
and
December 27, 2015
, the Company had
$5.2 million
and
$4.4 million
of total unrecognized tax benefits, respectively. Of the total
$5.2 million
of unrecognized tax benefits as of
January 1, 2017
, none represents an amount that if recognized, would favorably affect the effective income tax rate in any future periods. The Company cannot conclude on the range of cash payments that will be made within the next twelve months associated with its uncertain tax positions. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended
January 1, 2017
and
December 27, 2015
, the Company had immaterial amounts related to the accrual of interest and penalties.
A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
Beginning Balance
|
$
|
4,425
|
|
|
$
|
3,738
|
|
|
$
|
2,936
|
|
|
Increases related to current year’s unrecognized tax benefits
|
888
|
|
|
687
|
|
|
802
|
|
|
Decrease related to prior year’s unrecognized tax benefits
|
$
|
(92
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Ending Balance
|
$
|
5,221
|
|
|
$
|
4,425
|
|
|
$
|
3,738
|
|
The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of the year ended
January 1, 2017
.
The Company and its subsidiaries are subject to taxation in various jurisdictions, including federal, state and foreign. As of
January 1, 2017
, the Company’s federal and state income tax returns remain subject to examination by taxing authorities for fiscal years from 2006 to 2016.
The Company intends to reinvest the earnings of its non U.S. subsidiaries in those operations. The Company does not provide for U.S. income taxes on the earnings of foreign subsidiaries because the Company intends to reinvest such earnings offshore indefinitely. As of
January 1, 2017
and
December 27, 2015
, there is approximately $3.4 million earnings upon which U.S. income taxes have not been provided. The amount of unrecognized deferred tax liability related to these earnings is not material.
12.
Employee Benefit Plans
Defined Contribution Plan
The Company adopted a 401(k) Plan that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings not to exceed the maximum amount allowable. The 401(k) plan permits the Company to make matching contributions and profit sharing contributions to eligible participants. The Company has made matching contributions of $0.1 million as of
January 1, 2017
.
13.
Segment Information and Operations by Geographic Area
The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity consisting of design, development, and marketing of advanced high-speed wireless communication solutions enabling wireless local area networking, and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated level. Accordingly, the Company has determined that it has a single reportable and operating segment structure.
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
The following table sets forth revenue by country, based on ship-to destinations, for countries with 10% or more of revenue during any of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
January 1,
2017
|
|
December 27,
2015
|
|
December 28,
2014
|
|
|
Amount
|
% of Revenue
|
|
Amount
|
% of Revenue
|
|
Amount
|
% of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
China
|
$
|
86,107
|
|
66
|
%
|
|
$
|
45,102
|
|
54
|
%
|
|
$
|
43,185
|
|
65
|
%
|
|
Taiwan
|
13,752
|
|
11
|
|
|
10,169
|
|
12
|
|
|
4,925
|
|
7
|
%
|
|
Tunisia
|
13,755
|
|
11
|
|
|
5,414
|
|
6
|
|
|
4,039
|
|
6
|
%
|
|
United States
|
291
|
|
—
|
|
|
3,326
|
|
4
|
|
|
321
|
|
—
|
%
|
|
Other foreign countries
|
15,164
|
|
12
|
|
|
19,762
|
|
24
|
|
|
14,390
|
|
22
|
%
|
|
Total
|
$
|
129,069
|
|
100
|
%
|
|
$
|
83,773
|
|
100
|
%
|
|
$
|
66,860
|
|
100
|
%
|
Long-lived assets outside the U.S. are immaterial; therefore, disclosures have been limited to revenue.
14.
Related Party transactions
Purchases from Cadence Design Systems, Inc.
Lip-Bu Tan, a member of the Company’s board of directors since June 2015, is the President and Chief Executive Officer of Cadence Design Systems, Inc., or Cadence, an electronic design automation software and engineering services company. Since 2012, the Company has paid licensing fees for digital and analog layout tools and simulation tools from Cadence in the ordinary course of business. The Company incurred fees of approximately
$1.7 million
,
$1.2 million
and
$1.1 million
under the terms of this arrangement in fiscal years ended
January 1, 2017
,
December 27, 2015
and
December 28, 2014
,
respectively.
Agreement with RUSNANO
Dmitry Akhanov, formerly a member of the Company’s board of directors, is President and Chief Executive Officer at Rusnano USA, Inc., a U.S. subsidiary of RUSNANO, one of the Company’s investors. In July 2014, the Company entered into an amended and restated letter agreement with RUSNANO in connection with RUSNANO’s investment in convertible promissory notes, which subsequently converted into shares of the Company’s Series G convertible preferred stock. Pursuant to the amended and restated letter agreement, the Company agreed, among other matters, to operate and fund the Company’s Russian operations in an aggregate amount of
$13.0 million
over six annual periods beginning on December 31, 2014. The annual funding requirements in period one to period six are
$2.2 million
,
$1.7 million
,
$2.0 million
,
$2.2 million
,
$2.4 million
, and
$2.5 million
, respectively. In the event that the Company fails to meet its funding obligations for any period, the Company will be required to pay RUSNANO a penalty fee of 10% on 80% of the difference between the funding obligation and the actual funding for that period, subject to a cure period of one calendar quarter after the applicable period funding deadline. As of
January 1, 2017
, the Company had met the minimum funding requirements.
Common stock warrants granted to Centerview
In October 2014, in connection with the Series G financing and the appointment of a member of the Company’s board of directors, the Company issued a common stock warrant to Centerview, a convertible preferred stockholder of the Company, to purchase
288,700
shares of common stock at an exercise price of
$0.05
per share. In December 2015, the warrant was fully exercised by Centerview (see Note 5). In June 2016, the Company accelerated the vesting of the remaining unvested shares of common stock issued upon early exercise of the warrant, and the Company recorded stock-based compensation expense of
$0.6 million
associated with this modification.
15. Subsequent Events
Quantenna Communications, Inc.
Notes to Consolidated Financial Statements
In February 2017, the Company entered into a new lease agreement for its corporate headquarters located in San Jose, California consisting of approximately 84,000 square feet. The lease term is 76 months commencing on October 1, 2017 and expiring in 2024 with total base rent of approximately $9.3 million over the lease term.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of January 1, 2017 the last day of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s, or SEC, rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance 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 principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As disclosed in our final prospectus, dated October 27, 2016, or Prospectus, during the course of the preparation of our 2015 consolidated financial statements, we identified a control deficiency in our internal control over financial reporting. This control deficiency did not result in a misstatement of the annual or interim financial statements, however, this control deficiency could result in a misstatement of the consolidated financial statements or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. 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 the annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, our management has determined that this control deficiency constitutes a material weakness.
The material weakness was a result of a lack of sufficient qualified personnel within the finance and accounting function who possessed an appropriate level of expertise to effectively perform the following functions commensurate with our structure and financial reporting requirements:
|
|
|
|
•
|
identify, select and apply GAAP sufficiently to provide reasonable assurance that transactions were being appropriately recorded; and
|
|
|
|
|
•
|
assess risk and design appropriate control activities over financial and reporting processes necessary to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements.
|
As discussed in our Prospectus, and as discussed below, we have already taken steps to remediate the material weakness in internal control over financial reporting and we continue to take additional steps to remediate the material weakness in internal control over financial reporting; however, we are not yet able to determine whether the steps we are taking will fully remediate the material weakness.
Because of the material weakness in our internal control over financial reporting as previously disclosed, and as described above, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 1, 2017, our disclosure controls and procedures were not effective. Our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with United States GAAP.
In response to the identified material weakness, we have taken a number of steps to remediate this material weakness and improve our internal control over financial reporting during the year ended January 1, 2017.
These steps include hiring a number of individuals, including additional certified public accountants, with appropriate knowledge and capacity to help fulfill our obligations to comply with the accounting and reporting requirements applicable to public companies.
The additional resources added to the finance function are intended to (i) allow separate preparation and review of reconciliations and other account analysis, (ii) enable us to develop a more structured close process, including enhancing our existing policies and procedures, to improve the completeness, timeliness and accuracy of our financial reporting, and (iii) identify and review complex or unusual transactions.
While we believe that the foregoing actions will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.We also believe that our planned efforts to assess risk and identify, design and implement the necessary control activities to address such risk will be effective in remediating the material weakness described above. However until the remediation steps, including training the additional resources in the finance function and potentially hiring additional qualified resources as needed, are completed and operate for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the material weakness previously disclosed, and as described above, will continue to exist. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.
Changes in Internal Control Over Financial Reporting
We are taking actions to remediate the material weakness relating to our internal control over financial reporting, as described above. Except as otherwise described herein, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13(a)-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended January 1, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. 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 the policies or procedures may deteriorate.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules and regulations of the SEC for newly public companies. Further, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financials reporting as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.
Item 9B. OTHER INFORMATION
On February 21, 2017, the Company entered into a real estate lease agreement
,
or the Lease Agreement, for the premises located at 1704 Automation Parkway, San Jose, California, with Automation Parkway Owner LLC, a Delaware limited liability company. The premises is intended for the Company’s corporate headquarters, including research and development, and consists of approximately 84,208 square feet. The lease term is 76 months commencing on October 1, 2017 and expiring in 2024 with total base rent of approximately $9.3 million over the lease term.
The foregoing summary of the Lease Agreement is qualified in its entirety by reference to the full text of the Lease Agreement, which is filed as Exhibit 10.35 to this Annual Report.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be contained in our Definitive Proxy Statement to be filed with the Securities and Exchange Commission, or SEC, in connection with our 2017 annual meeting of stockholders, or the Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended January 1, 2017, and is incorporated in this report by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017, and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017, and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017, and is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in the Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017, and is incorporated herein by reference.
With the exception of the information incorporated in Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K, our Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended January 1, 2017 is not deemed “filed” as part of this Annual Report on Form 10-K.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Documents filed as part of this report are as follows:
|
|
|
|
1.
|
Consolidated Financial Statements
|
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.
|
|
|
|
2.
|
Financial Statement Schedules
|
Financial Statement Schedules have been omitted as information required is inapplicable or the information is presented in the consolidated financial statements and the related notes.
3.
Exhibits
The documents listed in the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K are incorporated by reference or are filed or furnished with this Annual Report on Form 10-K, in each case as indicted therein (numbered in accordance with Item 601 of Regulation S-K).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 1, 2017
|
|
|
|
|
|
|
|
QUANTENNA COMMUNICATIONS, INC.
|
|
|
|
|
|
|
By:
|
/s/ Sam Heidari
|
|
|
|
Sam Heidari
|
|
|
|
Chairman and Chief Executive Officer
|
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Sam Heidari and Sean Sobers, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Sam Heidari
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
|
March 1,
2017
|
|
Sam Heidari
|
|
|
|
|
|
|
|
|
|
/s/ Sean Sobers
|
|
Chief Financial Officer
(Principal Accounting and Financial Officer)
|
|
March 1,
2017
|
|
Sean Sobers
|
|
|
|
|
|
|
|
|
|
/s/ Fahri Diner
|
|
Director
|
|
March 1,
2017
|
|
Fahri Diner
|
|
|
|
|
|
|
|
|
|
/s/ Edward Frank
|
|
Director
|
|
March 1,
2017
|
|
Edward Frank
|
|
|
|
|
|
|
|
|
|
/s/ Edwin B. Hooper III
|
|
Director
|
|
March 1,
2017
|
|
Edwin B. Hooper III
|
|
|
|
|
|
|
|
|
|
/s/ Harold Hughes
|
|
Director
|
|
March 1,
2017
|
|
Harold Hughes
|
|
|
|
|
|
|
|
|
|
/s/ Jack Lazar
|
|
Director
|
|
March 1,
2017
|
|
Jack Lazar
|
|
|
|
|
|
|
|
|
|
/s/ John Scull
|
|
Director
|
|
March 1,
2017
|
|
John Scull
|
|
|
|
|
|
|
|
|
|
/s/ Mark Stevens
|
|
Director
|
|
March 1,
2017
|
|
Mark Stevens
|
|
|
|
|
|
|
|
|
|
/s/ Lip-Bu Tan
|
|
Director
|
|
March 1,
2017
|
|
Lip-Bu Tan
|
|
|
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Registrant.
|
|
S-1/A
|
|
333-213871
|
|
3.1
|
|
October 17, 2016
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant.
|
|
S-1
|
|
333-213871
|
|
3.4
|
|
September 29, 2016
|
|
4.1
|
|
Form of common stock certificate of the Registrant.
|
|
S-1/A
|
|
333-213871
|
|
4.1
|
|
October 17, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1+
|
|
Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
|
|
S-1
|
|
333-213871
|
|
10.1
|
|
September 29, 2016
|
|
10.2+*
|
|
Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan and related form agreements.
|
|
|
|
|
|
|
|
|
|
10.3+*
|
|
Quantenna Communications, Inc. 2016 Employee Stock Purchase Plan and related form agreements.
|
|
|
|
|
|
|
|
|
|
10.4+
|
|
Quantenna Communications, Inc. 2016 Equity Incentive Plan and related form agreements.
|
|
S-1/A
|
|
333-213871
|
|
10.4
|
|
October 17, 2016
|
|
10.5+
|
|
Quantenna Communications, Inc. 2006 Stock Plan and related form agreements.
|
|
S-1/A
|
|
333-213871
|
|
10.5
|
|
October 17, 2016
|
|
10.6+
|
|
Quantenna Communications, Inc. Executive Incentive Compensation Plan.
|
|
S-1
|
|
333-213871
|
|
10.6
|
|
September 29, 2016
|
|
10.7
|
|
Warrant to Purchase Shares of Preferred Stock of the Registrant issued to Eastward Fund Management, LLC, dated October 31, 2013.
|
|
S-1
|
|
333-213871
|
|
10.7
|
|
September 29, 2016
|
|
10.8
|
|
Warrant to Purchase Shares of Common Stock of the Registrant issued to Behrooz Rezvani, dated September 10, 2015.
|
|
S-1
|
|
333-213871
|
|
10.8
|
|
September 29, 2016
|
|
10.9
|
|
Warrant to Purchase Shares of Common Stock of the Registrant issued to Behrooz Rezvani, dated February 3, 2016.
|
|
S-1
|
|
333-213871
|
|
10.9
|
|
September 29, 2016
|
|
10.10
|
|
Warrant to Purchase Shares of Common Stock of the Registrant issued to Airfide Networks, dated February 3, 2016.
|
|
S-1
|
|
333-213871
|
|
10.10
|
|
September 29, 2016
|
|
10.11
|
|
Warrant to Purchase Stock issued to Silicon Valley Bank, dated May 17, 2016.
|
|
S-1
|
|
333-213871
|
|
10.11
|
|
September 29, 2016
|
|
10.12
|
|
Warrant to Purchase Stock issued to Westriver Mezzanine Loans, dated May 17, 2016.
|
|
S-1
|
|
333-213871
|
|
10.12
|
|
September 29, 2016
|
|
10.13
|
|
Amended and Restated Loan and Security Agreement, dated May 17, 2016, between the Registrant, as Borrower, and Silicon Valley Bank, as Bank.
|
|
S-1
|
|
333-213871
|
|
10.13
|
|
September 29, 2016
|
|
10.14
|
|
Mezzanine Loan and Security Agreement, dated May 17, 2016, between the Registrant, as Borrower, and Silicon Valley Bank, as Bank.
|
|
S-1
|
|
333-213871
|
|
10.14
|
|
September 29, 2016
|
|
10.15
|
|
Amended and Restated Stock Pledge Agreement, dated May 17, 2016, between the Registrant, as Pledgor, and Silicon Valley Bank, as Bank.
|
|
S-1
|
|
333-213871
|
|
10.15
|
|
September 29, 2016
|
|
10.16
|
|
Amended and Restated Investors’ Rights Agreement among the Registrant and certain holders of its capital stock, dated August 29, 2014, as amended from time to time.
|
|
S-1
|
|
333-213871
|
|
10.16
|
|
September 29, 2016
|
|
10.17
|
|
Agreement Regarding Investment in Series F Preferred Stock Financing, dated April 16, 2012, between the Registrant and Open Joint Stock Company “RUSNANO,” as amended on July 9, 2014.
|
|
S-1/A
|
|
333-213871
|
|
10.17
|
|
October 17, 2016
|
|
10.18+
|
|
Executive Change of Control Agreement between the Registrant and Sam Heidari.
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|
S-1/A
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|
333-213871
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10.18
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|
October 27, 2016
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|
10.19+
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|
Executive Change of Control Agreement between the Registrant and Sean Sobers.
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S-1/A
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333-213871
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10.19
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October 27, 2016
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10.20+
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Executive Change of Control Agreement between the Registrant and David Carroll.
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S-1/A
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333-213871
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10.20
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October 27, 2016
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10.21
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Industrial Lease between the Registrant, BTP Investors, LLC and other parties therein.
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S-1
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333-213871
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10.21
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September 29, 2016
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10.22
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Landlords Consent and Agreement (Sublease) among the Registrant, JER Bayside, LLC, DCG Systems, Inc. and other parties therein.
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S-1
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333-213871
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10.22
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September 29, 2016
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10.23+
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Offer Letter between the Registrant and Sam Heidari, dated May 19, 2009, and amendments thereto.
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S-1
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333-213871
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10.23
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September 29, 2016
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10.24+
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Offer Letter between the Registrant and Philippe Morali, dated August 25, 2014.
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S-1
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333-213871
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10.24
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September 29, 2016
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10.25+
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Offer Letter between the Registrant and Lionel Bonnot, dated October 30, 2007, and amendments thereto.
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S-1
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333-213871
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10.25
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September 29, 2016
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10.26+
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Offer Letter between the Registrant and David Carroll, dated December 20, 2012.
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S-1
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333-213871
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10.26
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September 29, 2016
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10.27+
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Offer Letter between the Registrant and Harold Hughes, dated October 17, 2014.
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S-1
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333-213871
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10.27
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September 29, 2016
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|
10.28+
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Offer Letter between the Registrant and Jack Lazar, dated June 9, 2016.
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S-1
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333-213871
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10.28
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September 29, 2016
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10.29+
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Offer Letter between the Registrant and Edward Frank, dated June 13, 2016.
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S-1
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333-213871
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10.29
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September 29, 2016
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10.30+
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Offer Letter between the Registrant and Mark Stevens, dated June 24, 2016.
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S-1
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|
333-213871
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10.30
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|
September 29, 2016
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|
10.31+
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Offer Letter between the Registrant and Sean Sobers, dated July 8, 2016.
|
|
S-1
|
|
333-213871
|
|
10.31
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|
September 29, 2016
|
|
10.32+
|
|
Quantenna Communications, Inc. Outside Director Compensation Policy.
|
|
S-1/A
|
|
333-213871
|
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10.32
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|
October 17, 2016
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|
10.33+*
|
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Amended and Restated Change of Control and Severance Agreement between the Registrant and David Carroll.
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10.34+*
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Amended and Restated Change of Control and Severance Agreement between the Registrant and Sean Sobers.
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10.35
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Office Lease, between the Registrant and Automation Parkway Owner, LLC, dated February 21, 2017
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21.1
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List of subsidiaries of the Registrant.
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|
S-1
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333-213871
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21.1
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September 29, 2016
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23.1*
|
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Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
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24.1*
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Power of Attorney (included on signature page).
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31.1*
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Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1**
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|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of hte Sarbanes-Oxley Act of 2002.
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32.2**
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Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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________________________
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+
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Indicates management contract or compensatory plan.
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**
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Furnished herewith. The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated
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by reference into any filing of Quantenna Communications, 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 Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
Exhibit 10.2
QUANTENNA COMMUNICATIONS, INC.
2016 OMNIBUS EQUITY INCENTIVE PLAN
1.
Purposes of the Plan.
The purposes of this Plan are:
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•
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to attract and retain the best available personnel for positions of substantial responsibility,
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•
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to provide additional incentive to Employees, Directors and Consultants, and
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•
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to promote the success of the Company’s business.
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The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.
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2.
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Definitions.
As used herein, the following definitions will apply:
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(a)
“
Administrator
” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b)
“
Applicable Laws
” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to, under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
(c)
“
Award
” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.
(d)
“
Award Agreement
” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
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(e)
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“
Board
” means the Board of Directors of the Company.
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(f)
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“
Change in Control
” means the occurrence of any of the following events:
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(i)
A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“
Person
”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership
of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)
A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)
A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(g)
“
Code
” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
(h)
“
Committee
” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
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(i)
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“
Common Stock
” means the common stock of the Company.
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(j)
“
Company
” means Quantenna Communications, Inc., a Delaware corporation, or any successor thereto.
(k)
“
Consultant
” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to such entity, provided the services
(i)
are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided, further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
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(l)
|
“
Director
” means a member of the Board.
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(m)
“
Disability
” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(n)
“
Employee
” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.
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(o)
|
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended.
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(p)
“
Exchange Program
” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is increased or reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(q)
“
Fair Market Value
” means, as of any date, the value of Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value will be the closing sales price for such stock (or, if no closing sales price was reported on that date, as applicable, on the last trading date such closing sales price was reported) as quoted on such exchange or system on the day of determination, as reported in
The Wall Street Journal
or such other source
as the Administrator deems reliable;
(ii)
If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
(iii)
For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Common Stock; or
(iv)
In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
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(r)
|
“
Fiscal Year
” means the fiscal year of the Company.
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(s)
“
Incentive Stock Option
” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
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(t)
|
“
Inside Director
” means a Director who is an Employee.
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(u)
“
Nonstatutory Stock Option
” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(v)
“
Officer
” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
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(w)
|
“
Option”
means a stock option granted pursuant to the Plan.
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(x)
|
“
Outside Director
” means a Director who is not an Employee.
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(y)
“
Parent
” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
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(z)
|
“
Participant
” means the holder of an outstanding Award.
|
(aa) “
Performance Share
” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.
(bb) “
Performance Unit
” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.
(cc) “
Period of Restriction
” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of
forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(dd) “
Plan
” means this Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan.
(ee) “
Registration Date
” means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to any class of the Company’s securities.
(ff) “
Restricted Stock”
means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the early exercise of an Option.
(gg) “
Restricted Stock Unit
” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(hh) “
Rule 16b-3”
means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
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(ii)
|
“
Section 16(b)
” means Section 16(b) of the Exchange Act.
|
(jj) “
Service Provider
” means an Employee, Director or Consultant.
(kk) “
Share
” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.
(ll) “
Stock Appreciation Right
” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a Stock Appreciation Right.
(mm) “
Subsidiary
” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
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3.
|
Stock Subject to the Plan.
|
(a)
Stock Subject to the Plan
. Subject to the provisions of Section 14 of the Plan and the automatic increase set forth in Section 3(b), the maximum aggregate number of Shares that may be issued under the Plan is 4,100,000 Shares, plus (i) any Shares that, as of immediately prior to the termination of the 2016 Equity Incentive Plan (the “2016 EIP”), were reserved but not issued pursuant to any awards granted under the 2016 EIP, and are not subject to any awards granted thereunder, and (ii) any Shares subject to stock options, restricted stock units, or similar awards granted under the 2006 Stock Plan or the 2016 EIP (together, the “Prior Plans”) that, on or after the termination of the 2016 EIP, expire or otherwise terminate without having been exercised or issued in full and Shares issued pursuant to awards granted under the Prior Plans that, on or after the termination of the 2016 EIP, are forfeited to or repurchased by the Company, with the maximum number of Shares to be added to the Plan pursuant to clauses (i) and (ii) equal to 6,997,665 Shares. In addition, Shares may become available for issuance under the Plan pursuant to Sections 3(b) and 3(c). The Shares may be authorized, but unissued, or reacquired Common Stock.
(b)
Automatic Share Reserve Increase
. Subject to the provisions of Section 14 of the
Plan, the number of Shares available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning with the 2018 Fiscal Year, in an amount equal to the least of (i) 3,400,000 Shares, (ii) five percent (5%) of the outstanding Shares on the last day of the immediately preceding Fiscal Year, or (iii) such number of Shares determined by the Administrator.
(c)
Lapsed Awards.
If an Award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights the forfeited or repurchased Shares), which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net Shares issued) pursuant to a Stock Appreciation Right will cease to be available under the Plan; all remaining Shares under Stock Appreciation Rights will remain available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 14, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Sections 3(b) and 3(c).
(d)
Share Reserve
. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
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4.
|
Administration of the Plan.
|
(a)
Procedure
.
(i)
Multiple Administrative Bodies.
Different Committees with respect to different groups of Service Providers may administer the Plan.
(ii)
Section 162(m)
. To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m) of the Code.
(iii)
Rule 16b-3.
To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv)
Other Administration.
Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(b)
Powers of the Administrator
. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i)
to determine the Fair Market Value;
(ii)
to select the Service Providers to whom Awards may be granted hereunder;
(iii)
to determine the number of Shares to be covered by each Award granted hereunder;
(iv)
to approve forms of Award Agreements for use under the Plan;
(v)
to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi)
to institute and determine the terms and conditions of an Exchange Program;
(vii)
to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(viii)
to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws;
(ix)
to modify or amend each Award (subject to Section 19 of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Awards; provided, however, that in no case will an Option or Stock Appreciation right be extended beyond its original maximum term;
(x)
to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 15 of the Plan;
(xi)
to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xii)
to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award; and
(xiii)
to make all other determinations deemed necessary or advisable for administering the Plan.
(c)
Effect of Administrator’s Decision.
The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards and will be given the maximum deference permitted by Applicable Laws.
5.
Eligibility
. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
(a)
Limitations
. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.
(b)
Term of Option.
The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.
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(c)
|
Option Exercise Price and Consideration.
|
(i)
Exercise Price
. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, subject to the following:
(1)
In the case of an Incentive Stock Option
(A)
granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B)
granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(2)
In the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(3)
Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii)
Waiting Period and Exercise Dates.
At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any
conditions that must be satisfied before the Option may be exercised.
(iii)
Form of Consideration
. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment.
(i)
Procedure for Exercise; Rights as a Stockholder
. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) a notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable tax withholdings). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii)
Termination of Relationship as a Service Provider
. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or
her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii)
Disability of Participant
. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv)
Death of Participant
. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(a)
Grant of Restricted Stock
. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.
(b)
Restricted Stock Agreement
. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.
(c)
Transferability
. Except as provided in this Section 7 or the Award Agreement, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(d)
Other Restrictions.
The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(e)
Removal of Restrictions
. Except as otherwise provided in this Section 7, Shares of
Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
(f)
Voting Rights.
During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(g)
Dividends and Other Distributions
. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(h)
Return of Restricted Stock to Company
. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.
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8.
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Restricted Stock Units.
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(a)
Grant
. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b)
Vesting Criteria and Other Terms.
The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws or any other basis determined by the Administrator in its discretion.
(c)
Earning Restricted Stock Units.
Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d)
Form and Timing of Payment
. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may only settle earned Restricted Stock Units in cash, Shares, or a combination of both.
(e)
Cancellation.
On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
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9.
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Stock Appreciation Rights.
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(a)
Grant of Stock Appreciation Rights.
Subject to the terms and conditions of the Plan,
a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.
(b)
Number of Shares.
The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider.
(c)
Exercise Price and Other Terms.
The per share exercise price for the Shares to be issued pursuant to exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d)
Stock Appreciation Right Agreement
. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e)
Expiration of Stock Appreciation Rights
. A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(b) relating to the maximum term and Section 6(d) relating to exercise also will apply to Stock Appreciation Rights.
(f)
Payment of Stock Appreciation Right Amount
. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i)
The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(ii)
The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.
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10.
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Performance Units and Performance Shares.
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(a)
Grant of Performance Units/Shares.
Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.
(b)
Value of Performance Units/Shares.
Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c)
Performance Objectives and Other Terms.
The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time
period during which the performance objectives or other vesting provisions must be met will be called the “Performance Period.” Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.
(d)
Earning of Performance Units/Shares.
After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.
(e)
Form and Timing of Payment of Performance Units/Shares.
Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f)
Cancellation of Performance Units/Shares
. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.
11.
Outside Director Limitations.
No Outside Director may be granted, in any fiscal year of the Company, Awards with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than $810,000, increased to $1,350,000 in connection with his or her initial service.
12.
Leaves of Absence/Transfer Between Locations.
Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
13.
Transferability of Awards
. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
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14.
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Adjustments; Dissolution or Liquidation; Merger or Change in Control.
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(a)
Adjustments.
In the event that any dividend or other distribution (whether in the form
of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of shares of stock that may be delivered under the Plan and/or the number, class, and price of shares of stock covered by each outstanding Award, and the numerical Share limits in Sections 3 and 11 of the Plan.
(b)
Dissolution or Liquidation.
In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c)
Change in Control
. In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines (subject to the provisions of the following paragraph) without a Participant’s consent, including, without limitation, that (i) Awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment), or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions permitted under this subsection 14(c), the Administrator will not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly.
In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the Participant will fully vest in and have the right to exercise such outstanding Option and Stock Appreciation Right, including Shares as to which such Award would not otherwise be vested or exercisable, all restrictions on such Restricted Stock and Restricted Stock Units will lapse, and, with respect to such Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a merger or Change in Control, the Administrator will notify the Participant in writing or electronically that such Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c) (and subsection (d) below), an Award will be
considered assumed if, following the merger or Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.
Notwithstanding anything in this Section 14(c) to the contrary, and unless otherwise provided in an Award Agreement, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
Notwithstanding anything in this Section 14(c) to the contrary, if a payment under an Award Agreement is subject to Code Section 409A and if the change in control definition contained in the Award Agreement does not comply with the definition of “change of control” for purposes of a distribution under Code Section 409A, then any payment of an amount that is otherwise accelerated under this Section will be delayed until the earliest time that such payment would be permissible under Code Section 409A without triggering any penalties applicable under Code Section 409A.
(d)
Outside Director Awards
. In the event of a Change in Control, with respect to Awards granted to an Outside Director, the Outside Directors will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying such Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable.
(a)
Withholding Requirements.
Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as any tax withholding obligations are due, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
(b)
Withholding Arrangements.
The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (a) paying cash, check or other cash equivalents, (b) electing to have the Company withhold otherwise deliverable cash or Shares having a fair
market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion, (c) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine, in each case, provided the delivery of such Shares will not result in any adverse accounting consequences, as the Administrator determines in its sole discretion, (d) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld, or any combination of the foregoing methods of payment. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
(c)
Compliance With Code Section 409A.
Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A. In no event will the Company have any obligation under the terms of this Plan to reimburse a Participant for any taxes or other costs that may be imposed on Participant as a result of Section 409A.
16.
No Effect on Employment or Service
. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or its Subsidiaries or Parents, as applicable, nor will they interfere in any way with the Participant’s right or the right of the Company and its Subsidiaries or Parents, as applicable, to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
17.
Date of Grant
. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
18.
Term of Plan.
Subject to Section 22 of the Plan, the Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the business day immediately prior to the Registration Date. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated earlier under Section 19 of the Plan.
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19.
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Amendment and Termination of the Plan.
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(a)
Amendment and Termination.
The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b)
Stockholder Approval
. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c)
Effect of Amendment or Termination
. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
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20.
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Conditions Upon Issuance of Shares.
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(a)
Legal Compliance
. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b)
Investment Representations
. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
21.
Inability to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
22.
Stockholder Approval
. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
23.
Forfeiture Events
. The Administrator may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award will be subject to the reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Notwithstanding any provisions to the contrary under this Plan, an Award shall be subject to the Company's clawback policy as may be established and/or amended from time to time (the “Clawback Policy”). The Administrator may require a Participant to forfeit, return or reimburse the Company all or a portion of the Award and any amounts paid thereunder pursuant to the terms of the Clawback Policy or as necessary or appropriate to comply with Applicable Laws.
QUANTENNA COMMUNICATIONS, INC.
2016 OMNIBUS EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan (the “Plan”) will have the same defined meanings in this Stock Option Agreement including the Notice of Stock Option Grant (the “Notice of Grant”), the Terms and Conditions of Stock Option Grant, and the exhibits attached thereto (all together, the “Option Agreement”).
NOTICE OF STOCK OPTION GRANT
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Participant Name:
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Address:
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The undersigned Participant has been granted an Option to purchase Common Stock of Quantenna Communications, Inc. (the “Company”), subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Grant Number:
Date of Grant:
Vesting Commencement Date:
Number of Shares Granted:
Exercise Price per Share:
$
Total Exercise Price:
$
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule
:
Subject to accelerated vesting as set forth below or in the Plan, this Option will be exercisable, in whole or in part, in accordance with the following schedule:
[NOTE: INSERT VESTING SCHEDULE, e.g.: Twenty-five percent (25%) of the Shares subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Date, and one forty-eighth (1/48
th
) of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, on the last day of the month), subject to Participant continuing to be a Service Provider through each such date.]
Termination Period
:
This Option will be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option will be exercisable for twelve (12) months after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14 of the Plan.
Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option Agreement subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of this Option and the Option Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
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PARTICIPANT
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QUANTENNA COMMUNICATIONS, INC.
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Signature
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Signature
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Print Name
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Print Name
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Title
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1.
Grant of Option
. The Company hereby grants to the individual (the “Participant”) named in the Notice of Stock Option Grant of this Option Agreement (the “Notice of Grant”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “Exercise Price”), subject to all of the terms and conditions in this Option Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan will prevail.
(a)
For U.S. taxpayers, the Option will be designated as either an Incentive Stock Option (“ISO”) or a Nonstatutory Stock Option (“NSO”). If designated in the Notice of Grant as an ISO, this Option is intended to qualify as an ISO under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it will be treated as an NSO. Further, if for any reason this Option (or portion thereof) will not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted under the Plan. In no event will the Administrator, the Company or any Parent or Subsidiary or any of their respective employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
(b)
For non-U.S. taxpayers, the Option will be designated as an NSO.
2.
Vesting Schedule
. Except as provided in Section 3, the Option awarded by this Option Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Option Agreement, unless Participant will have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.
3.
Administrator Discretion
. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Option at any time, subject to the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the Administrator.
4.
Exercise of Option
.
(a)
Right to Exercise
. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.
(b)
Method of Exercise
. This Option is exercisable by delivery of an exercise notice (the “Exercise Notice”) in the form attached as
Exhibit A
or in a manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together and of any Tax Obligations
(as defined in Section 6(a)). This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
5.
Method of Payment
. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:
(a)
cash in U.S. dollars;
(b)
check designated in U.S. dollars;
(c)
consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d)
if Participant is a U.S. employee, surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares and that are owned free and clear of any liens, claims, encumbrances, or security interests, provided that accepting such Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6.
Tax Obligations
.
(a)
Participant acknowledges that, regardless of any action taken by the Company or, if different, Participant’s employer (the “Employer”) or Parent or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent or Subsidiary to which the Participant is providing services, the “Service Recipient”), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Option, including, without limitation, (i) all federal, state, and local taxes (including the Participant’s Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Service Recipient or other payment of tax-related items related to Participant’s participation in the Plan and legally applicable to Participant, (ii) the Participant’s and, to the extent required by the Company (or Service Recipient), the Company’s (or Service Recipient’s) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of the Option or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Option (or exercise thereof or issuance of Shares thereunder) (collectively, the “Tax Obligations”), is and remains Participant’s responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participant’s liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b)
Tax Withholding
. When the Option is exercised, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer,
Participant will be subject to applicable taxes in his or her jurisdiction. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Service Recipient, (iv) delivering to the Company already vested and owned Shares having a fair market value equal to such Tax Obligations, or (v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount that is necessary to meet the withholding requirement for such Tax Obligations (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences). To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any Tax Obligations by reducing the number of Shares otherwise deliverable to Participant. Further, if Participant is subject to tax in more than one jurisdiction between the Date of Grant and a date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges and agrees that the Company and/or the Service Recipient (and/or former employer, as applicable) may be required to withhold or account for tax in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such amounts are not delivered at the time of exercise.
(c)
Notice of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant will immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant.
(d)
Code Section 409A
. Under Code Section 409A, a stock right (such as the Option) that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified after October 3, 2004) that was granted with a per share exercise price that is determined by the Internal Revenue Service (the “IRS”) to be less than the fair market value of an underlying share on the date of grant (a “discount option”) may be considered “deferred compensation.” A stock right that is a “discount option” may result in (i) income recognition by the recipient of the stock right prior to the exercise of the stock right, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option” may also result in additional state income, penalty and interest tax to the recipient of the stock right. Participant acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the fair market value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the fair market value of a Share on the date of grant, Participant shall be solely responsible for Participant’s costs related to such a determination.
7.
Rights as Stockholder
. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares
deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
8.
No Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
9.
Nature of Grant
. In accepting the Option, Participant acknowledges, understands and agrees that:
(a)
the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(b)
all decisions with respect to future option or other grants, if any, will be at the sole discretion of the Company;
(c)
Participant is voluntarily participating in the Plan;
(d)
the Option and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(e)
the Option and Shares acquired under the Plan and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f)
the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(g)
if the underlying Shares do not increase in value, the Option will have no value;
(h)
if Participant exercises the Option and acquires Shares, the value of such Shares may increase or decrease in value, even below the Exercise Price;
(i)
for purposes of the Option, Participant’s engagement as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or
any Parent or Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participant’s employment or service agreement, if any), and unless otherwise expressly provided in this Option Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, (i) Participant’s right to vest in the Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period (
e.g
., Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or Participant’s employment or service agreement, if any, unless Participant is providing bona fide services during such time); and (ii) the period (if any) during which Participant may exercise the Option after such termination of Participant’s engagement as a Service Provider will commence on the date Participant ceases to actively provide services and will not be extended by any notice period mandated under employment laws in the jurisdiction where Participant is employed or terms of Participant’s engagement agreement, if any; the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of his or her Option grant (including whether Participant may still be considered to be providing services while on a leave of absence and consistent with local law);
(j)
unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Option Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(k)
the following provisions apply only if Participant is providing services outside the United States:
(i)
the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purpose;
(ii)
Participant acknowledges and agrees that none of the Company, the Service Recipient, or any Parent or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Participant pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercise; and
(iii)
no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from the termination of Participant’s engagement as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participant’s employment or service agreement, if any), and in consideration of the grant of the Option to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any Parent, any Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
10.
No Advice Regarding Grant
. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
11.
Data Privacy
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Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Option Agreement and any other Option grant materials by and among, as applicable, the Employer or other Service Recipient, the Company and any Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company and the Employer may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country of operation (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Participant’s participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her engagement as a Service Provider and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant Options or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
12.
Address for Notices
. Any notice to be given to the Company under the terms of this Option Agreement will be addressed to the Company at Quantenna Communications, Inc., 3450 W. Warren Ave., Fremont, CA 94538, or at such other address as the Company may hereafter designate in writing.
13.
Non-Transferability of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant.
14.
Successors and Assigns
. The Company may assign any of its rights under this Option Agreement to single or multiple assignees, and this Option Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Option Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Option Agreement may only be assigned with the prior written consent of the Company.
15.
Additional Conditions to Issuance of Stock
. If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or foreign law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the purchase by, or issuance of Shares, to Participant (or his or her estate) hereunder, such purchase or issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Option Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience.
16.
Language
. If Participant has received this Option Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
17.
Interpretation
. The Administrator will have the power to interpret the Plan and this Option Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Option Agreement.
18.
Electronic Delivery and Acceptance
. The Company may, in its sole discretion, decide to deliver any documents related to the Option awarded under the Plan or future options that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
19.
Captions
. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Option Agreement.
20.
Agreement Severable
. In the event that any provision in this Option Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Option Agreement.
21.
Amendment, Suspension or Termination of the Plan
. By accepting this Option, Participant expressly warrants that he or she has received an Option under the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
22.
Governing Law and Venue
. This Option Agreement will be governed by the laws of California, without giving effect to the conflict of law principles thereof. For purposes of litigating any dispute that arises under this Option or this Option Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be conducted in the courts of Alameda County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Option is made and/or to be performed.
23.
Country Addendum
. Notwithstanding any provisions in this Option Agreement, this Option shall be subject to any special terms and conditions set forth in the appendix (if any) to this Option Agreement for Participant’s country (the “Country Addendum”). Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Option Agreement.
24.
Modifications to the Agreement
. This Option Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Option Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Option Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Option Agreement, the Company reserves the right to revise this Option Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection with the Option.
25.
No Waiver
. Either party’s failure to enforce any provision or provisions of this Option Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Option Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.
26.
Tax Consequences
. Participant has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Option Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Option Agreement.
EXHIBIT B
QUANTENNA COMMUNICATIONS, INC.
2016 OMNIBUS EQUITY INCENTIVE PLAN
EXERCISE NOTICE
Quantenna Communications, Inc.
3450 W. Warren Ave.
Fremont, CA 94538
Attention: Stock Administration
1.
Exercise of Option
. Effective as of today, ________________, _____, the undersigned (“Purchaser”) hereby elects to purchase ______________ shares (the “Shares”) of the Common Stock of Quantenna Communications, Inc. (the “Company”) under and pursuant to the 2016 Omnibus Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, dated ________ and including the Notice of Grant, the Terms and Conditions of Stock Option Grant, and exhibits attached thereto (the “Option Agreement”). The purchase price for the Shares will be $_____________, as required by the Option Agreement.
2.
Delivery of Payment
. Purchaser herewith delivers to the Company the full purchase price of the Shares and any Tax Obligations (as defined in Section 6(a) of the Option Agreement) to be paid in connection with the exercise of the Option.
3.
Representations of Purchaser
. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
4.
Rights as Stockholder
. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to the Option, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Purchaser as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan.
5.
Tax Consultation
. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
6.
Entire Agreement; Governing Law
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of California.
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Submitted by:
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Accepted by:
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PURCHASER
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QUANTENNA COMMUNICATIONS, INC.
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Signature
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Signature
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Date Received
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QUANTENNA COMMUNICATIONS, INC.
2016 OMNIBUS EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
NOTICE OF RESTRICTED STOCK UNIT GRANT
Unless otherwise defined herein, the terms defined in the Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan (the “Plan”) will have the same defined meanings in this Restricted Stock Unit Agreement which includes the Notice of Restricted Stock Unit Grant (the “Notice of Grant”), Terms and Conditions of Restricted Stock Unit Grant, attached hereto as
Exhibit A
, and all appendices and exhibits attached thereto (the “Award Agreement”).
Participant Name:
Address:
The undersigned Participant has been granted the right to receive an Award of Restricted Stock Units, subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Number:
Date of Grant:
Vesting Commencement Date:
Number of Restricted Stock Units:
Vesting Schedule
:
Subject to any acceleration provisions contained in the Plan or set forth below, the Restricted Stock Units will vest in accordance with the following schedule:
[
NOTE: INSERT VESTING SCHEDULE:] [1/6
th
of the Restricted Stock Units will vest every six (6) months on the 20
th
day of the applicable month from the Vesting Commencement Date (i.e., August 20th and February 20
th
assuming a Vesting Commencement Date of February 20th) over a 3-year period, subject to Participant continuing to be a Service Provider through each such date. Notwithstanding the foregoing, if a vest date would otherwise fall on a weekend or holiday in which the Nasdaq stock market is closed, the vest date instead will be the first business day in which the Nasdaq stock market is open following the relevant vest date.]
In the event Participant ceases to be a Service Provider for any or no reason before Participant vests in the Restricted Stock Units, the Restricted Stock Units and Participant’s right to acquire any Shares hereunder will immediately terminate.
By Participant’s signature and the signature of the representative of Quantenna Communications, Inc. (the “Company”) below, Participant and the Company agree that this Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including the Terms and Conditions of Restricted Stock Unit Grant, attached hereto as
Exhibit A
, all of which are made a part of this document.
By accepting this Award, Participant expressly consents to the sale of Shares to cover the Tax Withholding Obligations (and any associated broker or other fees) and agrees and acknowledges that Participant may not satisfy them by any means other than such sale of Shares, unless required to do so by the Administrator or pursuant to the Administrator’s express written
consent.
Participant acknowledges receipt of a copy of the Plan. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and this Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
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PARTICIPANT
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QUANTENNA COMMUNICATIONS, INC.
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Signature
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Print Name
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EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT GRANT
1.
Grant of Restricted Stock Units
. The Company hereby grants to the individual (the “Participant”) named in the Notice of Grant of Restricted Stock Units of this Award Agreement (the “Notice of Grant”) under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail.
2.
Company’s Obligation to Pay
. Each Restricted Stock Unit represents the right to receive a Share on the date it vests. Unless and until the Restricted Stock Units will have vested in the manner set forth in Section 3 or 4, Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
3.
Vesting Schedule
. Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units awarded by this Award Agreement will vest in accordance with the vesting schedule set forth in the Notice of Grant, subject to Participant continuing to be a Service Provider through each applicable vesting date.
4.
Payment after Vesting
.
(a)
General Rule
. Subject to Section 8, any Restricted Stock Units that vest will be paid to Participant (or in the event of Participant’s death, to his or her properly designated beneficiary or estate) in whole Shares. Subject to the provisions of Section 4(b), such vested Restricted Stock Units shall be paid in whole Shares as soon as practicable after vesting, but in each such case within sixty (60) days following the vesting date. In no event will Participant be permitted, directly or indirectly, to specify the taxable year of payment of any Restricted Stock Units payable under this Award Agreement.
(b)
Acceleration
.
(i)
Discretionary Acceleration
. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If Participant is a U.S. taxpayer, the payment of Shares vesting pursuant to this Section 4(b) shall in all cases be paid at a time or in a manner that is exempt from, or complies with, Section 409A. The prior sentence may be superseded in a future agreement or amendment to this Award Agreement only by direct and specific reference to such sentence.
(ii)
Notwithstanding anything in the Plan or this Award Agreement or any other agreement (whether entered into before, on or after the Date of Grant), if the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units is accelerated in connection with Participant’s termination as a Service Provider (provided that such termination is a “separation from service” within the meaning of Section 409A, as determined by the Company), other than due to Participant’s death, and if (x) Participant is a U.S. taxpayer and a “specified employee” within the meaning of Section 409A at the time of such termination as a Service Provider and (y) the payment of such accelerated Restricted Stock Units will result in the imposition of additional tax under Section 409A if paid to Participant on or within the six (6) month period following Participant’s termination as a Service Provider, then the payment of such accelerated
Restricted Stock Units will not be made until the date six (6) months and one (1) day following the date of Participant’s termination as a Service Provider, unless Participant dies following his or her termination as a Service Provider, in which case, the Restricted Stock Units will be paid in Shares to Participant’s estate as soon as practicable following his or her death.
(c)
Section 409A
. It is the intent of this Award Agreement that it and all payments and benefits to U.S. taxpayers hereunder be exempt from, or comply with, the requirements of Section 409A so that none of the Restricted Stock Units provided under this Award Agreement or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment payable under this Award Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). However, in no event will the Company reimburse Participant, or be otherwise responsible for, any taxes or costs that may be imposed on Participant as a result of Section 409A. For purposes of this Award Agreement, “Section 409A” means Section 409A of the Code, and any final Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.
5.
Forfeiture Upon Termination as a Service Provider
. Notwithstanding any contrary provision of this Award Agreement, if Participant ceases to be a Service Provider for any or no reason, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and Participant will have no further rights thereunder.
6.
Tax Consequences
. Participant has reviewed with his or her own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Award Agreement. With respect to such matters, Participant relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Award Agreement.
7.
Death of Participant
. Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participant’s designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
8.
Tax Obligations
(a)
Responsibility for Taxes
. Participant acknowledges that, regardless of any action taken by the Company or, if different, Participant’s employer (the “Employer”) or Parent or Subsidiary to which Participant is providing services (together, the Company, Employer and/or Parent or Subsidiary to which the Participant is providing services, the “Service Recipient”), the ultimate liability for any tax and/or social insurance liability obligations and requirements in connection with the Restricted Stock Units, including, without limitation, (i) all federal, state, and local taxes (including the Participant’s Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Employer or other payment of tax-related items related to Participant’s participation in the Plan and legally applicable to Participant, (ii) the Participant’s and, to the extent required by the Company (or Service Recipient), the Company’s (or Service Recipient’s) fringe benefit tax liability, if any, associated with the grant, vesting, or settlement of the Restricted Stock Units or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to the Restricted Stock Units (or settlement thereof or issuance of Shares thereunder) (collectively, the “Tax Obligations”), is
and remains Participant’s responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate Participant’s liability for Tax Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company and/or the Service Recipient (or former employer, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b)
Default Method of Tax Withholding
. When Shares are issued as payment for vested Restricted Stock Units, Participant generally will recognize immediate U.S. taxable income if Participant is a U.S. taxpayer. If Participant is a non-U.S. taxpayer, Participant will be subject to applicable taxes in his or her jurisdiction. The minimum amount of Tax Obligations which the Company determines must be withheld with respect to this Award (“Tax Withholding Obligation”) will be satisfied by Shares being sold on Participant’s behalf at the prevailing market price pursuant to such procedures as the Company may specify from time to time, including through a broker-assisted arrangement (it being understood that the Shares to be sold must have vested pursuant to the terms of this Agreement and the Plan). The proceeds from the sale will be used to satisfy Participant’s Tax Withholding Obligation (and any associated broker or other fees) arising with respect to this Award. Only whole Shares will be sold to satisfy any Tax Withholding Obligation. Any proceeds from the sale of Shares in excess of the Tax Withholding Obligation (and any associated broker or other fees) will be paid to Participant in accordance with procedures the Company may specify from time to time.
By accepting this Award, Participant expressly consents to the sale of Shares to cover the Tax Withholding Obligations (and any associated broker or other fees) and agrees and acknowledges that Participant may not satisfy them by any means other than such sale of Shares, unless required to do so by the Administrator or pursuant to the Administrator’s express written consent.
(c)
Administrator Discretion
. If the Administrator determines it is in the best interests of the Company for Participant to satisfy Participant’s Tax Withholding Obligation by a method other than through the default procedure described in Section 8(b)
, it may permit or require Participant to satisfy Participant’s Tax Withholding Obligation, in whole or in part (without limitation), if permissible by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a value equal to the minimum amount statutorily required to be withheld (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Service Recipient, (iv) delivering to the Company Shares that Participant owns and that have vested with a Fair Market Value equal to the amount required to be withheld (or such greater amount as Participant may elect if permitted by the Administrator, if such greater amount would not result in adverse financial accounting consequences), or (v) such other means as the Administrator deems appropriate.
(d)
Company’s Obligation to Deliver Shares
. For clarification purposes, in no event will the Company issue Participant any Shares unless and until arrangements satisfactory to the Administrator have been made for the payment of Participant’s Tax Withholding Obligation. If Participant fails to make
satisfactory arrangements for the payment of such Tax Withholding Obligations hereunder at the time any applicable Restricted Stock Units otherwise are scheduled to vest pursuant to Sections 3 or 4 or Participant’s Tax Withholding Obligations otherwise become due, Participant will permanently forfeit such Restricted Stock Units to which Participant’s Tax Withholding Obligation relates and any right to receive Shares thereunder and such Restricted Stock Units will be returned to the Company at no cost to the Company. Participant acknowledges and agrees that the Company may refuse to deliver the Shares if such Tax Obligations are not delivered at the time they are due.
9.
Rights as Stockholder
. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
10.
No Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RESTRICTED STOCK UNITS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER, WHICH UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK UNIT AWARD OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
11.
Grant is Not Transferable
. Except to the limited extent provided in Section 7, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
12.
Nature of Grant
. In accepting the grant, Participant acknowledges, understands and agrees that:
(a)
the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
(b)
all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
(c)
Participant is voluntarily participating in the Plan;
(d)
the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;
(e)
the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(f)
the future value of the underlying Shares is unknown, indeterminable and cannot be predicted;
(g)
for purposes of the Restricted Stock Units, Participant’s status as a Service Provider will be considered terminated as of the date Participant is no longer actively providing services to the Company or any Parent or Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participant’s employment or service agreement, if any), and unless otherwise expressly provided in this Award Agreement (including by reference in the Notice of Grant to other arrangements or contracts) or determined by the Administrator, Participant’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participant’s employment or service agreement, if any, unless Participant is providing bona fide services during such time); the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the Restricted Stock Units grant (including whether Participant may still be considered to be providing services while on a leave of absence);
(h)
unless otherwise provided in the Plan or by the Company in its discretion, the Restricted Stock Units and the benefits evidenced by this Award Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(i)
the following provisions apply only if Participant is providing services outside the United States:
(i)
the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not part of normal or expected compensation or salary for any purpose;
(ii)
Participant acknowledges and agrees that none of the Company, the Employer or any Parent or Subsidiary shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement; and
(iii)
no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units resulting from the termination of Participant’s status as a Service Provider (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is a Service Provider or the terms of Participant’s employment or service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, any
Parent or Subsidiary or the Service Recipient, waives his or her ability, if any, to bring any such claim, and releases the Company, any Parent or Subsidiary and the Service Recipient from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim.
13.
No Advice Regarding Grant
. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
14.
Data Privacy
. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Award Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, or other Service Recipient the Company and any Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company and the Service Recipient may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to a stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country of operation (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, any stock plan service provider selected by the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her status as a Service Provider and career with the Service Recipient will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the
consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
15.
Address for Notices
. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at Quantenna Communications, Inc., 3450 W. Warren Ave., Fremont, CA 94538, or at such other address as the Company may hereafter designate in writing.
16.
Electronic Delivery and Acceptance
. The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or a third party designated by the Company.
17.
No Waiver
. Either party’s failure to enforce any provision or provisions of this Award Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Award Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.
18.
Successors and Assigns
. The Company may assign any of its rights under this Award Agreement to single or multiple assignees, and this Award Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Award Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Award Agreement may only be assigned with the prior written consent of the Company.
19.
Additional Conditions to Issuance of Stock
. If at any time the Company will determine, in its discretion, that the listing, registration, qualification or rule compliance of the Shares upon any securities exchange or under any state, federal or foreign law, the tax code and related regulations or under the rulings or regulations of the United States Securities and Exchange Commission or any other governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his or her estate) hereunder, such issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval will have been completed, effected or obtained free of any conditions not acceptable to the Company. Subject to the terms of the Award Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time following the date of vesting of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.
20.
Language
. If Participant has received this Award Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
21.
Interpretation
. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the
Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.
22.
Captions
. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
23.
Amendment, Suspension or Termination of the Plan
. By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock Units under the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
24.
Modifications to the Award Agreement
. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A in connection to this Award of Restricted Stock Units.
25.
Governing Law; Venue; Severability
. This Award Agreement and the Restricted Stock Units are governed by the internal substantive laws, but not the choice of law rules, of California. For purposes of litigating any dispute that arises under these Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be conducted in the courts of Alameda County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Award Agreement is made and/or to be performed. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Award Agreement shall continue in full force and effect.
26.
Entire Agreement
. The Plan is incorporated herein by reference. The Plan and this Award Agreement (including the appendices and exhibits referenced herein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant.
27.
Country Addendum
. Notwithstanding any provisions in this Award Agreement, the Restricted Stock Unit grant shall be subject to any special terms and conditions set forth in the appendix (if any) to this Award Agreement for Participant’s country. Moreover, if Participant relocates to one of the countries included in the Country Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Award Agreement.
Rules of Quantenna Communications, Inc.
2016 Omnibus Equity Incentive Plan for the Grant of Qualified Free Shares for Participants in France Dated September 28, 2016
(French Sub Plan)
1.
Introduction
.
(a)
The stockholders of Quantenna Communications, Inc. (the “
Company
”) have approved, and ratified and authorized the Company’s Board of Directors approval of this French Sub Plan as of September 28, 2016 (the “
French Qualified Free Shares Plan
” or the
“French Sub Plan”
) under the Company’s 2016 Omnibus Equity Incentive Plan (the “
U.S. Plan
”). The authorization to be used for making grants under this French Sub Plan is delegated to the Company’s Board of Directors (or an authorized committee of the Board of Directors) for a duration which cannot exceed six years as of the date of the approval by the Company’s stockholders.
(b)
This French Sub Plan applies to Free Shares, a type of restricted stock unit under the U.S. Plan, granted in accordance with Section 4 of the U.S. Plan that specifically authorizes the Company’s Board of Directors or a duly authorized committee thereof such as the Compensation Committee (the “
Committee
”), to administer the U.S. Plan and adopt sub-plans applicable to specific Subsidiaries, affiliates or locations (including in France). The Free Shares granted under this French Sub Plan are intended to comply with Articles L. 225-197-1 et seq. of the French “Code de Commerce” (as amended by Article 135 of the law n°2015-990 dated 6 August 2015) and to qualify for the specific tax and social security regime applicable to Free Share awards in France. This French Sub Plan supplements the U.S. Plan to add terms and conditions meeting the requirements of the provisions of the French “Code de Commerce” referred to above.
(c)
The French Sub Plan applies to free shares granted for no consideration under the provisions of the French “Code de Commerce” referred to above, to qualifying participants who are resident in France for French tax purposes and/or subject to the French social security regime on a mandatory basis on the Date of Grant. The terms of the U.S. Plan, as set out in Appendix 1 hereto, shall, subject to the following additional rules, constitute the Rules of the U.S. Plan for the grant of Free Shares for Participants in France under this French Sub Plan. Under the French Free Shares Plan, qualifying participants will be granted only Free Shares as defined under Section 2(a) of this French Sub Plan. The provisions of the U.S. Plan permitting grants of Stock Options, Stock Appreciation Rights and Restricted Stock Awards are not applicable to participants in France under the French Qualified Free Shares Plan. The grant of Free Shares is authorized under the U.S. Plan, including Section 8 thereof.
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(d)
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In the event of an inconsistency between the U.S. Plan and the French Qualified Free
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Shares Plan, the provisions of the French Qualified Free Shares Plan shall govern.
2.
Definitions
. Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the U.S. Plan. The terms set forth below shall have the following meanings:
(a)
The term
“Free Share”
(a type of Restricted Stock Unit that qualifies under French rules for French qualified tax treatment) shall mean the promise by the Company to issue to the Participant one share of Common Stock for each unit held by the Participant, at a future date, at no consideration. The Free Shares shall be contingent upon the expiration of a specified Restriction Period and subject to such
additional restrictions as may be contained in the Award Agreement relating thereto. Any dividend and voting rights are attached only upon the issuance of the shares at the time of vesting of the Free Shares.
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(b)
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The term “
Date of Grant
” shall be the date on which the Committee both:
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(i)
designates the French Participant; and
(ii)
specifies the terms and conditions of the Free Shares, including the number of shares of Common Stock to be issued at a future date, the conditions for the vesting of the Free Shares, and the conditions of the transferability of the shares of Common Stock once issued.
(c)
The term “
Participant”
is defined as an employee granted Free Shares pursuant to the French Qualified Free Shares Plan.
(d)
The term “
Vesting Date
” shall mean the relevant date on which Free Shares are vested, as specified by the Committee and the French Participants are entitled to receive the shares of Common Stock of the Company underlying the Free Shares. To qualify for the French favorable tax and social security regime, such Vesting date shall not occur prior to the first anniversary of the Date of Grant, or such other period as is required to comply with the minimum mandatory vesting period applicable to French Qualified Free Shares under the Macron Law dated August 6, 2015.
(e)
The term “
Holding Period
” shall mean the period during which the shares are compulsorily held by the beneficiary and cannot be transferred or sold to qualify for the French favorable tax and social security regime. To qualify for the French favorable tax and social security regime, such Free Shares cannot be sold until at least two years after the Date of Grant, or such other period as is required to comply with the minimum mandatory holding period applicable to French Qualified Free Shares under the Macron Law dated August 6, 2015.
(f)
The term “
Closed Period
” is defined in Section L. 225-197-1 al.9 of the French Commercial Code as:
(i)
Ten quotation days preceding and three quotation days following the disclosure to the public of the consolidated financial statements or the annual statements of the Company; or
(ii)
Any period during which the corporate management of the Company possesses material information which could, if disclosed to the public, significantly impact the quotation of the shares of Common Stock, until ten quotation days after the day such information is disclosed to the public.
If the French Commercial Code is amended after adoption of this French Free Share Plan to modify the definition and/or the applicability of the Closed Periods to French-qualified Free Shares, such amendments shall become applicable to any French-qualified Free Shares granted under this French Qualified Free Shares Plan, to the extent required by French law.
(g)
the term “
Disability
” shall mean disability as determined in categories 2 and 3 under Section L. 341-4 of the French Social Security Code and subject to the fulfillment of related conditions; and
(h)
the term “
French Entity
” shall mean entities which are subsidiaries within the meaning of article L. 225-197-2 of the French Commercial Code or any provision substituted for same, whose registered office is located in France.
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3.
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Eligibility to Participate
.
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(a)
Notwithstanding any other term of this French Qualified Free Shares Plan, Free Shares may be granted only to employees or corporate directors of the French Entities who hold less than ten percent (10%) of the outstanding shares of Common Stock of the Company and who otherwise satisfy the eligibility conditions of Section 5 of the U.S. Plan. Also, no beneficiary may hold more than 10% of the outstanding shares of Common Stock of the Company on the day of the grant of Free Shares under this French Sub-Plan.
(b)
Subject to Section 3(c) below, any French Participant who, on the Date of Grant of the Free Shares, and to the extent required under French law, is employed under the terms and conditions of an employment contract (“
contrat de travail
”) by a French Entity or who is a corporate officer of a French Entity shall be eligible to receive, at the discretion of the Committee, Free Shares under this French Qualified Free Shares Plan, provided he or she also satisfies the eligibility conditions of Section 5 of the U.S. Plan.
(c)
Free Shares may not be issued to corporate executives of French Entities, other than the managing directors (
e.g.,
Président du Conseil d’Administration, Directeur Général, Directeurs Généraux Délégués, Membres du Directoire, Gérant d’une Société par actions) unless the corporate executive is an employee of a French Entity, as defined by French law.
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4.
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Conditions of the Qualified Free Shares
:
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(a)
Vesting of Qualified Free Shares.
Free Shares will not vest prior to the first anniversary of the Date of Grant in accordance with the Vesting Date defined under Section 2(d) above and provided any additional conditions that may be provided for in the Agreement relating thereto. However, notwithstanding the foregoing, in the event of the death of a French Participant, all of his or her outstanding Qualified Free Shares shall become vested under the conditions set forth in Section 5 of this French Qualified Free Shares Plan.
(b)
Sale or Transfer of Shares
. The sale or transfer of the shares of Common Stock issued pursuant to the Free Shares held by the French Participants shall not occur prior to two years after the Date of Grant to qualify for the French favorable tax and social security regime, or such other period as is required to comply with the minimum mandatory holding period applicable to shares underlying French-qualified Free Shares under the Macron Law dated August 6, 2015. This holding period applies even after the French Participant is no longer an employee or corporate director of a French Entity.
In addition, said shares of Common Stock may not be sold or transferred during certain Closed Periods as provided for by Section L. 225-197-1 of the French Commercial Code, to the extent Closed Periods are applicable to shares of Common Stock underlying Free Shares.
To the extent applicable to French-qualified Free Shares granted by the Company, a specific Holding Period for the Shares underlying the Free Shares shall be imposed and described in the Award Agreement relating thereto for any French Participant who qualifies as a managing director under French law, as defined in Section 3(c) above, or has comparable positions at the level of the Company.
(c)
French Participant’s Account
. The shares of Common Stock issued to a French Participant shall be recorded in an account in the name of the French Participant with the Company or a broker or in such other manner as the Company may otherwise determine to ensure compliance with applicable restrictions and holding periods provided under French law.
5.
Death
.
If a French Participant’s service to the Company or any Subsidiary of the Company terminates by reason of his or her death, the Free Shares held by the French Participant at the time of death become transferable to the French Participant’s heirs. The Company shall issue the shares of Common Stock underlying the Free Shares to the French Participant’s heirs, at their request, if such request occurs within six (6) months following the death of the French Participant and pursuant to the conditions provided for in the Agreement for French Participants. If the French Participant’s heirs do not request the issuance of the shares of Common Stock underlying the Free Shares within six (6) months following the French Participant’s death, the Free Shares will be forfeited.
If a French Participant has a termination of employment or service by reason of his or her Disability, the French Participant is no longer subject to the restriction on the sale of shares of Common Stock set forth in Section 4(b) above.
In the event of a transaction having an impact on the value or type of the Company’s Shares outstanding, such as (i) the redemption or reduction of shares, a change in the manner in which profit is appropriated, a capitalization issue set off by a reduction in reserves, retained earnings or other paid-in capital, a distribution of reserves or a rights issue of equity or of securities with a right to shares, or (ii) a merger, a de-merger, a reverse share split, a reduction of share capital, an exchange of shares, a sale of shares, the exchange or distribution of all the Company’s assets or a substantial portion thereof, or any other similar transaction (hereinafter, the “
Event
”), the Board of Directors will take all appropriate measures, subject to a decision of the Extraordinary Shareholders' Meeting, if necessary, to ensure that all Beneficiaries receive the same number of Shares, with the same characteristics, or the same value in cash or securities, as they would have received if they had held the Shares in accordance with the provisions of this French Sub-Plan immediately prior to the Event.
Should the Company perform a transaction substantially affecting its consolidated balance sheet structure, or in the event of a significant change in the Group’s economic circumstances or strategy, so that the ratios used are no longer relevant for measuring the Group’s performance target, the Board of Directors may adjust the said ratios or restate the consolidated financial statements, for the purpose of the Plan, so as to fully offset the above impact.
8.
Interpretation
.
It is intended that the Free Shares granted under this French Qualified Free Shares Plan shall qualify for the favorable tax and social security treatment applicable to Qualified Free Shares granted under the provision of articles L. 225-197-1 et seq. of the French “Code de Commerce” (as amended by Article 135 of the law n°2015-990 dated 6 August 2015). The terms of the French Qualified Free Shares Plan shall be interpreted accordingly and in accordance with the relevant provisions set forth by French tax and social security laws, as well as the French tax and social security administrations and the relevant guidelines released by the French tax and social security authorities and subject to the fulfillment of any applicable legal, tax and reporting obligations, if applicable.
9.
Employment Rights
.
The adoption of this French Qualified Free Shares Plan shall not confer upon the French Participants or any employees of a French Entity, any employment rights and shall not be construed as a part of any employment contracts that a French Entity has with its employees.
10.
Non-Transferability.
Notwithstanding any provision in the U.S. Plan to the contrary and, except in the case of death, the Qualified Free Shares shall not be transferred to any third party other the Participant’s heirs and shares of Common Stock shall be issued only to the French Participant during his or her lifetime.
11.
Adoption
.
The French Qualified Free Shares Plan was adopted by the Board of Directors on September 28, 2016, and by the Company’s stockholders on October 12, 2016.
12.
Governing law.
The U.S. law will be enforceable except to the extent such law violates French public policy provisions
Appendix 1
Quantenna Communications, Inc. 2016 Omnibus Equity Incentive Plan
Exhibit 10.3
QUANTENNA COMMUNICATIONS, INC.
2016 EMPLOYEE STOCK PURCHASE PLAN
1.
Purpose.
The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a Code Section 423 Component
(“423 Component”)
and a non-Code Section 423 Component
(“Non-423 Component”).
The Company’s intention is to have the 423 Component of the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code. The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes the grant of an option to purchase shares of Common Stock under the Non-423 Component that does not qualify as an “employee stock purchase plan” under Section 423 of the Code; such an option will be granted pursuant to rules, procedures or sub-plans adopted by the Administrator designed to achieve tax, securities laws or other objectives for Eligible Employees and the Company. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2.
Definitions.
(a)
“Administrator”
means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b)
“Affiliate”
means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c)
“Applicable Laws”
means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where options are, or will be, granted under the Plan.
(d)
“Board”
means the Board of Directors of the Company.
(e)
“Change in Control”
means the occurrence of any of the following events:
(i) A change in the ownership of the Company which occurs on the
date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company;
provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)
A change in the effective control of the Company which occurs on
the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)
A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection, the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this
subsection (iii)(B)(3). For purposes of this subsection, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final U.S. Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(f)
“Code”
means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder will include such section or regulation, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g)
“Committee”
means a committee of the Board appointed in accordance with Section 14 hereof.
(h)
“Common Stock”
means the common stock of the Company.
(i)
“Company”
means Quantenna Communications, Inc., a Delaware corporation, or any successor thereto.
(j)
“Compensation”
means an Eligible Employee’s base straight time gross earnings, bonuses (to the extent such bonuses are an integral, recurring part of compensation and not a special one-time or unusual bonus), commissions (to the extent such commissions are an integral, recurring part of compensation), and payments for overtime and shift premium, but exclusive of payments for equity compensation. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.
(k)
“Contributions”
means the payroll deductions and other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l)
“Designated Company”
means any Subsidiary or Affiliate that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided, however that at any given time, a Subsidiary that is a Designated Company under the 423 Component shall not be a Designated Company under the Non-423 Component.
(m)
“Director”
means a member of the Board.
(n)
“Eligible Employee”
means any individual who is a common law employee providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or for Eligible Employees participating in the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under Applicable Laws. Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (for each Offering under the 423 Component, on a uniform and nondiscriminatory basis or as otherwise permitted by Treasury Regulation Section 1.423-2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering under the 423 Component in an identical manner to all highly
compensated individuals of the Employer whose Employees are participating in that Offering. Each exclusion shall be applied with respect to an Offering under the 423 Component in a manner complying with U.S. Treasury Regulation Section 1.423-2(e)(2)(ii). Such exclusions may be applied with respect to an Offering under the Non- 423 Component without regard to the limitations of Treasury Regulation Section 1.423-2.
(o)
“Employer”
means the employer of the applicable Eligible Employee(s).
(p)
“Enrollment Date”
means the first Trading Day of each Offering Period.
(q)
“Exchange Act”
means the U.S. Securities Exchange Act of 1934, as
amended, including the rules and regulations promulgated thereunder.
(r)
“Exercise Date”
means the first Trading Day on or after May 15 and
November 15 of each Purchase Period. Notwithstanding the foregoing, the first Exercise Date under the Plan will be the first Trading Day on or after May 15, 2017.
(s)
“Fair Market Value”
means, as of any date and unless the Administrator
determines otherwise, the value of Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market of The NASDAQ Stock Market or the New York Stock Exchange, its Fair Market Value will be the closing sales price for such stock as quoted on such exchange or system on the date of determination (or the closing bid, if no sales were reported), as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii)
If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or if no bids and asks were reported on that date, as applicable, on the last Trading Day such bids and asks were reported), as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
(iii)
In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator; or
(iv)
For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value will be the initial price to the public as set forth in the
final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Common Stock (the “Registration Statement”).
(t)
“Fiscal Year”
means the fiscal year of the Company.
(u)
“New Exercise Date”
means a new Exercise Date if the Administrator
shortens any Offering Period then in progress.
(v)
“Offering”
means an offer under the Plan of an option that may be
exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by U.S. Treasury Regulation Section 1.423-2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.4232(a)(2) and (a)(3).
(w)
“Offering Periods”
means the consecutive, overlapping periods of approximately twelve (12) months during which an option granted pursuant to the Plan may be exercised, (i) commencing on the first Trading Day on or after May 15 and November 15 of each year and terminating on the first Trading Day on or after May 15 and November 15, approximately twelve (12) months later; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company’s Registration Statement effective and will end on the first Trading Day on or after November 15, 2017, and provided, further, that the second Offering Period under the Plan will commence on the first Trading Day on or after May 15, 2017, subject to Section 29. The duration and timing of Offering Periods may be changed pursuant to Sections 4 and 20.
(x)
“Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(y)
“Participant”
means an Eligible Employee that participates in the Plan.
(z)
“Plan”
means this Quantenna Communications, Inc. 2016 Employee Stock Purchase Plan.
(aa)
“Purchase Period”
means the period during an Offering Period and during which shares of Common Stock may be purchased on a Participant’s behalf in accordance with the terms of the Plan. Unless the Administrator provides otherwise, Purchase Periods will be the approximately six (6) month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period will commence on the Enrollment Date and end with the next Exercise Date.
(bb)
“Purchase Price”
means an amount equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by the Administrator subject to compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule) or pursuant to Section 19.
(cc)
“Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(dd)
“Trading Day”
means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.
(ee)
“U.S. Treasury Regulations”
means the Treasury regulations of the Code. Reference to a specific Treasury Regulation or Section of the Code shall include such Treasury Regulation or Section, any valid regulation promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such Section or regulation.
3.
Eligibility.
(a)
First Offering Period.
Any individual who is an Eligible Employee immediately prior to the first Offering Period will be automatically enrolled in the first Offering Period.
(b)
Subsequent Offering Periods.
Any Eligible Employee on a given Enrollment Date subsequent to the first Offering Period will be eligible to participate in the Plan, subject to the requirements of Section 5.
(c)
Non-U.S. Employees.
Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible
Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, an Eligible Employee may be excluded from participation in the Plan or an Offering if the Administrator has determined that participation of such Eligible Employee is not advisable or practicable.
(d)
Limitations.
Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate, which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4.
Offering Periods.
The Plan will be implemented by consecutive, overlapping
Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 15 and November 15 each year, or on such other date as the Administrator will determine; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the date upon which the Company’s Registration Statement is declared effective by the Securities and Exchange Commission and end on the first Trading Day on or after November 15, 2017, and provided, further, that the second Offering Period under the Plan will commence on the first Trading Day on or after May 15, 2017, subject to Section 29. The Administrator will have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future Offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter; provided, however, that no Offering Period may last more than twenty-seven (27) months.
5.
Participation.
(a)
First Offering Period.
An Eligible Employee will be entitled to continue to participate in the first Offering Period pursuant to Section 3(a) only if such individual submits a subscription agreement authorizing Contributions in a form determined by the Administrator
(which may be similar to the form attached hereto as
Exhibit A)
to the Company’s designated plan administrator (i) no earlier than the effective date of the Form S-8 registration statement with respect to the issuance of Common Stock under this Plan and (ii) no later than ten (10) business days following the effective date of such S-8 registration statement or such other period of time as the Administrator may determine (the
“Enrollment Window”).
An Eligible Employee’s failure to submit the subscription agreement during the Enrollment Window will result in the automatic termination of such individual’s participation in the first Offering Period.
(b)
Subsequent Offering Periods.
An Eligible Employee may participate in the Plan pursuant to Section 3(b) by (i) submitting to the Company’s stock administration office (or its designee), on or before a date determined by the Administrator prior to an applicable Enrollment Date, a properly completed subscription agreement authorizing Contributions in the form provided by the Administrator for such purpose, or (ii) following an electronic or other enrollment procedure determined by the Administrator.
6.
Contributions.
(a) At the time a Participant enrolls in the Plan pursuant to Section 5, he or
she will elect to have Contributions (in the form of payroll deductions or otherwise, to the extent permitted by the Administrator) made on each pay day during the Offering Period in an amount not exceeding twenty percent (20%) of the Compensation, which he or she receives on each pay day during the Offering Period; provided, however, that should a pay day occur on an Exercise Date, a Participant will have any payroll deductions made on such day applied to his or her account under the current (preceding) Purchase Period or Offering Period. The Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check or other means set forth in the subscription agreement prior to each Exercise Date of each Purchase Period. A Participant’s subscription agreement will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(b)
In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day on or prior to the Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof; provided, however, that for the first Offering Period, payroll deductions will commence on the first pay day on or following the end of the Enrollment Window.
(c)
All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole percentages only. A Participant may not make any additional payments into such account.
(d)
A Participant may discontinue his or her participation in the Plan as provided under Section 10. If and to the extent permitted by the Administrator, as determined in its sole discretion, for an Offering Period, a Participant may increase or decrease the rate of his or her Contributions during the Offering Period by (i) properly completing and submitting to the Company’s stock administration office (or its designee), on or before a date determined by the Administrator prior to an applicable Exercise Date, a new subscription agreement authorizing the change in Contribution rate in the form provided by the Administrator for such purpose, or (ii) following an electronic or other procedure prescribed by the Administrator. If a Participant has not followed such procedures to change the rate of Contributions, the rate of his or her Contributions will continue at the originally elected rate throughout the Purchase Period and Offering Period and future Purchase Periods and Offering Periods (unless terminated as provided in Section 10). The Administrator may, in its sole discretion, limit the nature and/or number of Contribution rate changes that may be made by Participants during any Purchase Period or Offering Period, and may establish such other conditions or limitations as it deems appropriate for Plan administration. Any change in payroll deduction rate made pursuant to this Section 6(d) will be effective as of the first full payroll period following five (5) business days after the date on which the change is made by the Participant (unless the Administrator, in its sole discretion, elects to process a given change in payroll deduction rate more quickly).
(e)
Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(d), a Participant’s Contributions may be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section 423(b)(8) of the Code and Section 3(d) hereof, Contributions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.
(f)
Notwithstanding any provisions to the contrary in the Plan, the Administrator may allow Eligible Employees to participate in the Plan via cash contributions instead of payroll deductions if (i) payroll deductions are not permitted under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code and/or (iii) for Participants participating in the Non-423 Component.
(g)
At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or at any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the
Company’s or Employer’s federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participant’s compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
7.
Grant of Option.
On the Enrollment Date of each Offering Period, each Eligible
Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Eligible Employee’s Contributions accumulated prior to such Exercise Date and retained in the Eligible Employee’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Purchase Period more than 5,000 shares of Common Stock (subject to any adjustment pursuant to Section 18) and provided further that such purchase will be subject to the limitations set forth in Sections 3(d) and 13. The Eligible Employee may accept the grant of such option (i) with respect to the first Offering Period by submitting a properly completed subscription agreement in accordance with the requirements of Section 5 on or before the last day of the Enrollment Window, and (ii) with respect to any subsequent Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period of an Offering Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.
8.
Exercise of Option.
(a)
Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No fractional shares of Common Stock will be
purchased; any Contributions accumulated in a Participant’s account, which are not sufficient to purchase a full share will be retained in the Participant’s account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the Participant as provided in Section 10. Any other funds left over in a Participant’s account after the Exercise Date will be returned to the Participant. During a Participant’s lifetime, a Participant’s option to purchase shares hereunder is exercisable only by him or her.
(b)
If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 19. The Company may make a pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.
9.
Delivery.
As soon as reasonably practicable after each Exercise Date on which a
purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by the Company or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10.
Withdrawal.
(a)
A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Company’s stock administration office (or its designee) a written notice of withdrawal in the form determined by the Administrator for such purpose (which may be similar to the form attached hereto as
Exhibit
B), or (ii) following an electronic or other withdrawal procedure determined by the Administrator. All of the Participant’s Contributions credited to his or her account will be paid to such Participant promptly after receipt of notice of withdrawal and such Participant’s option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
(b)
A Participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
11.
Termination of Employment.
Upon a Participant’s ceasing to be an Eligible
Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant, or, in the case of his or her death, to the person or persons entitled thereto, and such Participant’s option will be automatically terminated. Unless determined otherwise by the Administrator in a manner that, with respect to an Offering under the 423 Component, is permitted by, and compliant with, Section 423 of the Code, a Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company shall not be treated as terminated under the Plan; however, no Participant shall be deemed to switch from an Offering under the Non-423 Component to an Offering under the 423 Component or vice versa unless (and then only to the extent) such switch would not cause the 423 Component or any Option thereunder to fail to comply with Section 423 of the Code.
12.
Interest.
No interest will accrue on the Contributions of a participant in the Plan,
except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, shall, with respect to Offerings under the 423
Component, apply to all Participants in the relevant Offering, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f).
13.
Stock.
(a)
Subject to adjustment upon changes in capitalization of the Company as provided in Section 18 hereof, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be 2,000,000 shares of Common Stock, plus an annual increase to be added on the first day of each Fiscal Year beginning with the 2018 Fiscal Year equal to the least of (i) 1,400,000 shares of Common Stock, (ii) two percent (2%) of the outstanding shares of Common Stock on the last day of immediately preceding Fiscal Year, or (iii) an amount determined by the Administrator.
(b)
Until the shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will only have the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(c)
Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse.
14.
Administration.
The Plan will be administered by the Board or a Committee
appointed by the Board, which Committee will be constituted to comply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for the administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the U.S., the terms of which sub-plans may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan). Unless otherwise determined by the Administrator, the Employees eligible to participate in each sub-plan will participate in a separate Offering or in the Non-423 Component, unless such designation would cause the 423 Component to violate the requirements of Section 423 of the Code. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt
rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.4232(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15.
Transferability.
Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
16.
Use of Funds.
The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Company’s general corporate funds and/or deposited with an independent third party. Until shares of Common Stock are issued, Participants will only have the rights of an unsecured creditor with respect to such shares.
17.
Reports.
Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating Eligible Employees at least annually, which statements will set forth the amounts of Contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
18.
Adjustments, Dissolution, Liquidation, Merger or Change in Control.
(a)
Adjustments.
In the event that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the Administrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b)
Dissolution or Liquidation.
In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
(c)
Merger or Change in Control.
In the event of a merger or Change in Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period shall end. The New Exercise Date will occur before the date of the Company’s proposed merger or Change in Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
19.
Amendment or Termination.
(a)
The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the
Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 18). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants’ accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b)
Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
(c) In the event the Administrator determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i)
amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
(ii)
altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price;
(iii)
shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv)
reducing the maximum percentage of Compensation a Participant may elect to set aside as Contributions; and
(v)
reducing the maximum number of Shares a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Plan Participants.
20.
Notices.
All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21.
Conditions Upon Issuance of Shares.
Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
22.
Code Section 409A.
The Plan is intended to be exempt from the application of Code Section 409A, and, to the extent not exempt, is intended to comply with Code Section 409A and any ambiguities herein will be interpreted to so be exempt from, or comply with, Code Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Code Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Code Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Code Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Code Section 409A. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from
or compliant with Code Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Code Section 409A.
23.
Term of Plan.
The Plan will become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It will continue in effect for a term of twenty (20) years, unless sooner terminated under Section 19.
24.
Stockholder Approval.
The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
25.
Governing Law.
The Plan shall be governed by, and construed in accordance with, the laws of the State of California (except its choice-of-law provisions).
26.
No Right to Employment.
Participation in the Plan by a Participant shall not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate, as applicable. Furthermore, the Company or a Subsidiary or Affiliate may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
27.
Severability.
If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
28.
Compliance with Applicable Laws.
The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.
29.
Automatic Transfer to Low Price Offering Period.
To the extent permitted by Applicable Laws, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period will be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.
EXHIBIT A
QUANTENNA COMMUNICATIONS, INC.
2016 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Offering Date:_____________________
_____ Change in Payroll Deduction Rate
1. _____________ hereby elects to participate in the Quantenna Communications, Inc. 2016 Employee Stock Purchase Plan (the “
Plan
”) and subscribes to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan.
2. I hereby authorize and consent to payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 0 to 20%) during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option and purchase Common Stock under the Plan. I further understand that if I am outside of the U.S., my payroll deductions will be converted to U.S. dollars at an exchange rate selected by the Company on the purchase date.
4. I have received a copy of the complete Plan and its accompanying prospectus. I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
5. Shares of Common Stock purchased for me under the Plan should be issued in the name(s) of ____________________ (Eligible Employee or Eligible Employee and Spouse only).
6. If I am a U.S. taxpayer, I understand that if I dispose of any shares received by me pursuant to the Plan within two (2) years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or one (1) year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price that I paid for the shares.
I hereby agree to notify the Company in writing within thirty (30) days after the date of any disposition of my shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock.
The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the two (2)-year and one (1)-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (b) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
7. For employees that may be subject to tax in non U.S. jurisdictions, I acknowledge and agree that, regardless of any action taken by the Company or any Subsidiary with respect to any or all income tax, social security, social insurances, National Insurance Contributions, payroll tax, fringe benefit, or other tax-related items related to my participation in the Plan and legally applicable to me including, without limitation, in connection with the grant of such options, the purchase or sale of shares of Stock acquired under the Plan and/or the receipt of any dividends on such shares (“
Tax-Related Items
”), the ultimate liability for all Tax-Related Items is and remains my responsibility and may exceed the amount actually withheld by the Company or a Subsidiary. Furthermore, I acknowledge that the Company and/or the Subsidiary (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the options under the Plan and (2) do not commit to and are under no obligation to structure the terms of the grant of options or any aspect of my participation in the Plan to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax result. Further, if I have become subject to tax in more than one jurisdiction between the date of my enrollment and the date of any relevant taxable or tax withholding event, as applicable, I acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the purchase of shares of Stock under the Plan or any other relevant taxable or tax withholding event, as applicable, I agree to make adequate arrangements satisfactory to the Company and/or the Subsidiary to satisfy all Tax-Related Items. In this regard, I authorize the Company and/or the Subsidiary, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (1) withholding from my wages or Compensation paid to me by the Company and/or the Subsidiary; or (2) withholding from proceeds of the sale of the shares of Stock purchased under the Plan either through a voluntary sale or through a mandatory sale arranged by the Company (on my behalf pursuant to this authorization). Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable maximum applicable withholding rates, in which case I will receive a refund of any over-withheld amount in cash and will have no entitlement to the Stock equivalent.
Finally, I agree to pay to the Company or the Subsidiary any amount of Tax-Related Items that the Company or the Subsidiary may be required to withhold as a result of my participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to purchase shares of Stock under the Plan on my behalf and/or refuse to issue or deliver the shares or the proceeds of the sale of shares if I fail to comply with my obligations in connection with the Tax-Related Items.
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8.
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By electing to participate in the Plan, I acknowledge, understand and agree that:
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(a)
the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent provided for in the Plan;
(b)
all decisions with respect to future grants under the Plan, if applicable, will be at the sole discretion of the Company;
(c)
the grant of purchase rights under the Plan shall not create a right to employment or be interpreted as forming an employment or service contract with the Company, or any Subsidiary of the Company, and shall not interfere with the ability of the Company or the Subsidiary, as applicable, to terminate my employment (if any);
(d)
I am voluntarily participating in the Plan;
(e)
the purchase rights granted under the Plan and the shares of Common Stock underlying such purchase rights, and the income and value of same, are not intended to replace any pension rights or compensation;
(f)
the purchase rights granted under the Plan and the shares of Common Stock underlying such purchase rights, and the income and value of same, are not part of my normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(g)
the future value of the shares of Common Stock offered under the Plan is unknown, indeterminable and cannot be predicted with certainty;
(h)
the shares of Common Stock that I acquire under the Plan may increase or decrease in value, even below the Purchase Price;
(i)
no claim or entitlement to compensation or damages shall arise from the forfeiture of purchase rights granted to me under the Plan as a result of the termination of my status as an
eligible employee (for any reason whatsoever, and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any) and, in consideration of the grant of purchase rights under the Plan to which I am otherwise not entitled, I irrevocably agree never to institute a claim against the Company, or any Subsidiary, waive my ability, if any, to bring such claim, and release the Company, and any Subsidiary from any such claim that may arise; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, I shall be deemed irrevocably to have agreed to not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim; and
(j)
in the event of the termination of my status as an eligible employee (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any), my right to participate in the Plan and any options granted to me under the Plan, if any, will terminate effective as of the date that I am no longer actively employed by the Company or one of its Participating Companies and, in any event, will not be extended by any notice period mandated under the employment laws in the jurisdiction in which I am employed or the terms of my employment agreement, if any (
e.g
., active employment would not include a period of “garden leave” or similar period pursuant to the employment laws in the jurisdiction in which I am employed or the terms of my employment agreement, if any); the Company shall have the exclusive discretion to determine when I am no longer actively employed for purposes of my participation in the Plan (including whether I may still be considered to be actively employed while on a leave of absence).
9. I understand that the Company and the Subsidiary may collect, where permissible under applicable law certain personal information about me, including, but not limited to, my name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all options granted under the Plan or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in my favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan. I understand that Company may transfer my Data to the United States, which is not considered by the European Commission to have data protection laws equivalent to the laws in my country. I understand that the Company will transfer my Data to its designated broker, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. I understand that the recipients of the Data may be located in the United States or elsewhere, and that a recipient’s country of operation (e.g., the United States) may have different, including less stringent, data privacy laws that the European Commission or my jurisdiction does not consider
to be equivalent to the protections in my country. I understand that I may request a list with the names and addresses of any potential recipients of the Data by contacting my local human resources representative. I authorize the Company, the Company's designated broker and any other possible recipients which may assist the Company with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing my participation in the Plan. I understand that Data will be held only as long as is necessary to implement, administer and manage my participation in the Plan. I understand that that I may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing my local human resources representative. Further, I understand that I am providing the consents herein on a purely voluntary basis. If I do not consent, or if I later seek to revoke my consent, my employment status or career with the Company or the Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing my consent is that the Company would not be able to grant me options under the Plan or other equity awards, or administer or maintain such awards. Therefore, I understand that refusing or withdrawing my consent may affect my ability to participate in the Plan. For more information on the consequences of my refusal to consent or withdrawal of consent, I understand that I may contact my local human resources representative.
For employees outside the U.S., I understand that I have the right to access, and to request a copy of, the Data held about me. I also understand that I have the right to discontinue the collection, processing, or use of my Data, or supplement, correct, or request deletion of my Data. To exercise my rights, I may contact my local human resources representative.
I hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of my personal data as described herein and any other Plan materials by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing my participation in the Plan. I understand that my consent will be sought and obtained for any processing or transfer of my data for any purpose other than as described in the enrollment form and any other plan materials.
10. If I have received the Subscription Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control, subject to applicable laws.
11. The provisions of the Subscription Agreement and these appendices are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12. Notwithstanding any provisions in this Subscription Agreement, I understand that if I am working or resident in a country other than the United States, my participation in the Plan shall also be subject to the additional terms and conditions set forth on Appendix A and any special terms and conditions for my country set forth on Appendix A. Moreover, if I relocate to one of the countries included in Appendix A, the special terms and conditions for such country will apply to me to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix A constitutes part of this Subscription Agreement and the provisions of this Subscription Agreement govern each Appendix (to the extent not superseded or supplemented by the terms and conditions set forth in the applicable Appendix).
13. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
Employee’s Social Security Number (for U.S. based employees):
Employee’s Address:
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
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Dated:
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Signature of Employee
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EXHIBIT B
QUANTENNA COMMUNICATIONS, INC.
2016 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Quantenna Communications,
Inc. 2016 Employee Stock Purchase Plan that began on
, (the “Offering Date”) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
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Signature:
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Print Name:
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Date:
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QUANTENNA COMMUNICATIONS, INC.
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE AGREEMENT
This Amended and Restated Change of Control and Severance Agreement (the “
Agreement
”) is made between Quantenna Communications, Inc. (the “
Company
”) and David Carroll (the “
Executive
”), effective as of December 22, 2016 (the “
Effective Date
”)
and amends and restates in its entirety the Change of Control and Severance Agreement entered into between the Company and the Executive effective as of October 1, 2016 (the “
Original Agreement
”).
The Agreement provides certain protections to the Executive in connection with the involuntary termination of the Executive’s employment under the circumstances described in the Agreement.
The Company and the Executive agree as follows:
1.
Term of Agreement
. This Agreement will have an initial term of 5 years commencing on the Effective Date (the “
Initial Term
”). On the 5
th
anniversary of the Effective Date and each one year anniversary thereafter, this Agreement will renew automatically for additional, one (1) year terms (each, an “
Additional Term
”) unless either party provides the other party with written notice of nonrenewal at least six (6) months prior to the date of automatic renewal. For the avoidance of doubt, neither the lapse of this Agreement by its terms nor non-renewal of this Agreement will by itself constitute termination of employment nor grounds for resignation for Good Reason. Notwithstanding the foregoing, if a Change of Control occurs (a) when there are fewer than 12 months remaining during the Initial Term or (b) during an Additional Term, the term of this Agreement will extend automatically through the date that is 12 months following the date of the Change of Control. Further, notwithstanding the foregoing, if during the term of this Agreement, an initial occurrence of an act or omission by the company constituting the grounds for “Good Reason” in accordance with Section 7(j) has occurred (the “
Initial Grounds
”), and the expiration date of the Cure Period (as such term is used in Section 7(j)) with respect to such Initial Grounds could occur following the expiration of the Initial Term or the Additional Term then in effect, as applicable, the term of this Agreement will extend automatically through the date that is 30 days following the expiration of the Cure Period, but such extension of the term will only apply with respect to the Initial Grounds. Notwithstanding anything herein to the contrary, if the Executive becomes entitled to the benefits under Section 3 of this Agreement, then the Agreement will not terminate until all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2.
At-Will Employment
. The Company and the Executive acknowledge that the Executive’s employment is and will continue to be at-will, as defined under applicable law.
3.
Severance Benefits
.
(a)
Qualified Termination
. On a Qualified Termination, the Executive will be eligible to receive the following payment and benefits from the Company, subject to Section 5 of this Agreement:
(i)
Salary Severance
. A lump-sum payment equal to 100% of the Executive’s Base Salary.
(ii)
Bonus Severance
. A lump-sum payment equal to 100% of the Executive’s target annual bonus as in effect for the fiscal year in which the Qualified Termination occurs.
(iii)
COBRA
. If the Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“
COBRA
”), within the time period prescribed pursuant to COBRA for the Executive and the Executive’s eligible dependents, the Company will reimburse the Executive for the premiums necessary to continue group health insurance benefits under COBRA for the Executive and the Executive’s eligible dependents until the earliest of (A) the 12‑month anniversary of the date of the Executive’s Qualified Termination, (B) the date upon which the Executive, and the Executive’s eligible dependents becomes covered under similar plans, or (C) the date upon which the Executive and the Executive’s eligible dependents, as applicable, ceases to be eligible for coverage under COBRA (such reimbursements, the “
COBRA Reimbursements
”). However, if the Company determines in its sole discretion that it cannot pay the COBRA Reimbursements without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will in lieu thereof provide to the Executive a taxable lump-sum payment in an amount equal to the monthly COBRA premium that the Executive would be required to pay to continue the Executive’s group health coverage in effect on the date of the Executive’s Qualified Termination (which amount will be based on the premium for the first month of COBRA coverage), multiplied by twelve (12), which payments will be made regardless of whether the Executive elects COBRA continuation coverage and will commence on the month following the Executive’s Qualified Termination. For the avoidance of doubt, the taxable payment in lieu of COBRA Reimbursements may be used for any purpose, including, but not limited to continuation coverage under COBRA, and will be subject to all applicable tax withholdings. Notwithstanding anything to the contrary under this Agreement, if at any time the Company determines in its sole discretion that it cannot provide the payment contemplated by the preceding sentence without violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Executive will not receive such payment or any further reimbursements for COBRA Reimbursements.
(iv)
Equity Vesting
. 100% of the then-unvested shares subject to each of the Executive’s then-outstanding equity awards will immediately vest and, in the case of options and stock appreciation rights, will become exercisable (for avoidance of doubt, no more than 100% of the shares subject to the then-outstanding portion of an equity award may vest and become exercisable under this provision). In the case of equity awards with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at the greater of actual performance or 100% of target levels.
(b)
Termination Outside of the Change of Control Period; Termination Other than a Qualified Termination
. Except as required by applicable law, if Executive’s employment with the Company Group terminates (i) for any reason outside of the Change of Control Period, or (ii) during the Change of Control Period in a manner that is not a Qualified Termination, then the Executive will be entitled to receive severance and any other benefits only as may then be established under the then-existing written severance and benefits plans and practices of the Company or pursuant to other written agreements with the Company, including, without limitation, any applicable offer letter or other employment agreement between the Executive and the Company entered into prior to the date of this Agreement (the “
Employment Agreement
”), and subject to the provisions of Section (c) below. As described in (c) below, for a termination that occurs during the Change of Control Period but in the 3-month period before the Change of Control, unless otherwise expressly set forth in writing in the applicable Employment Agreement or other agreement between the Executive and the Company to be supplemental to the rights or remedies set forth herein without offset, the severance pursuant to the Employment Agreement or other agreement will apply (including the definitions of Cause/Good Reason set forth therein; provided, however, that Section 5(b) of this Agreement will apply in all cases), but any amounts paid will offset any amounts later determined to be due under this Agreement.
(c)
Exclusive Remedy; Non-Duplication of Payment or Benefits
.
In the event of a termination of Executive’s employment with the Company Group during the Post-COC Period, the provisions
of this Section 3 are intended to be and are exclusive and in lieu of any other severance rights or remedies to which Executive may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement, including under Executive’s Employment Agreement, other than such rights or remedies under contracts between the Company Group and Executive entered into after the Effective Date, except to the extent expressly set forth in writing between the Company and Executive to be supplemental to the rights or remedies set forth herein. Except as may be provided under contracts between the Company Group and Executive entered into after the Effective Date or otherwise expressly agreed in writing between the Company and Executive to be supplemental to the rights or remedies set forth herein, Executive will not be entitled to any severance or other benefits upon termination of employment during the Post-COC Period other than those payments or benefits expressly set forth in Section 3(a). If (i) the Executive’s employment with the Employer terminates in a manner that would have resulted in a Qualified Termination but for the fact that such termination occurs prior to a Change of Control or that would be classified as a Qualified Termination if a Change of Control occurs within the 3-month period following such termination (each such termination event, an “
Other Termination
”); (ii) as a result of such Other Termination, the Executive is receiving or has received severance payments or benefits under the Executive’s Employment Agreement or other agreement between the Executive and the Company; and (iii) a Change of Control occurs within the 3-month period following such Other Termination that qualifies the Executive for the superior severance payments and benefits payable on a Qualified Termination under this Agreement, then (x) the Executive will cease receiving any further payments or benefits under the Employment Agreement or other agreement between the Executive and the Company in connection with the Executive’s Other Termination and (y) the payments and benefits under Section 3(a) of this Agreement, otherwise payable upon a Qualified Termination under this Agreement each will be offset by the corresponding payments or benefits, as applicable, the Executive already received under the Employment Agreement or other agreement between the Executive and the Company in connection with the Executive’s Other Termination, except to the extent expressly set forth in writing between the Company and Executive that the payments or benefits under the Employment Agreement or other applicable agreement shall not cease and shall be supplemental to the rights or remedies set forth herein without offset.
(d)
Death of the Executive
. If the Executive dies before all payments or benefits the Executive is entitled to receive under the Agreement have been paid, such unpaid amounts will be paid to the Executive’s designated beneficiary, if living, or otherwise to the Executive’s personal representative in a lump-sum payment as soon as possible following the Executive’s death.
(e)
Transfer between the Company Group
. For purposes of the Agreement, if the Executive is involuntarily transferred from one member of the Company Group to another, such transfer will not be a termination without Cause but may give the Executive the ability to resign for Good Reason.
4.
Accrued Compensation
. On any termination of the Executive’s employment with the Company Group, the Executive will be entitled to receive all accrued but unpaid vacation, expense reimbursements, wages, and other benefits due to the Executive under any Company Group-provided plans, policies, and arrangements.
5.
Conditions to Receipt of Severance
.
(a)
Separation Agreement and Release of Claims
. The Executive’s receipt of any severance payments or benefits upon the Executive’s Qualified Termination under Section 3 is subject to the Executive signing and not revoking the Company’s then-standard separation agreement and release of claims (which may include an agreement not to disparage any member of the Company Group, non-solicit provisions, and other standard terms and conditions, in each case consistent with applicable law) (the “
Release
” and such requirement, the “
Release Requirement
”), which must become effective and irrevocable no later than the 60th day following
the Executive’s Qualified Termination (the “
Release Deadline
”). If the Release does not become effective and irrevocable by the Release Deadline, the Executive will forfeit any right to severance payments or benefits under Section 3. In no event will severance payments or benefits under Section 3 be paid or provided until the Release actually becomes effective and irrevocable. Except as provided by the following sentence, upon the Release becoming effective, any severance payments or benefits under this Agreement otherwise payable to the Executive during the period from the date of the Executive’s Qualified Termination through the effective date of the Release will be payable in a lump sum without interest as soon as administratively practicable after the Release becomes effective and irrevocable but not later than 61 days following the Executive’s Qualified Termination or, if later (i) if the Executive’s termination date occurs during the Pre-COC Period, on the date of the closing of the Change of Control or (ii) the Delayed Payment Date if and as required by Section 5(b), and all additional severance payments and benefits (if any) will be payable in accordance with the payment schedules applicable to each payment or benefit. Notwithstanding the foregoing, if the Release Deadline is in the calendar year following the calendar year in which the Qualified Termination occurs, then any severance payments or benefits under this Agreement that would constitute Deferred Payments (as defined below) will be paid on, or in the case of installments, will not commence until the 61
st
day after the Executive’s Qualified Termination, or if later, (i) if the Executive’s termination date occurs during the Pre-COC Period, on the date of the closing of the Change of Control or (ii) the Delayed Payment Date if and as required by Section 5(b). Any severance payments or benefits otherwise payable to the Executive during the period from the date of the Executive’s Qualified Termination through the first date severance payments become payable under this paragraph (such date, the “
Severance Start Date
”) will be paid in a lump sum to the Executive on the Severance Start Date, with any remaining payments to be made as provided in this Agreement.
(b)
Section 409A
. The Company intends that all payments and benefits provided under the Agreement or otherwise are exempt from, or comply with, the requirements of 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 in accordance with this intent. No Deferred Payments will be paid or otherwise provided until the 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 paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A. If, at the time of the Executive’s termination of employment, the Executive is a “specified employee” within the meaning of Section 409A, then the payment of the Deferred Payments will be delayed to the extent necessary to avoid the imposition of the additional tax imposed under Section 409A, which means that the Executive will receive payment on the date that is 6 months and 1 day following the Executive’s separation from service, or, if earlier, the Executive’s death (such date, the “
Delayed Payment Date”
). All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
The Company reserves the right to amend the Agreement as it considers necessary or advisable, in its sole discretion and without the consent of the Executive or any other individual, to comply with any provision required to avoid the imposition of the additional tax imposed under Section 409A or to otherwise avoid income recognition under Section 409A prior to the actual payment of any benefits or imposition of any additional tax. Each payment, installment, and benefit payable under the Agreement is intended to constitute a separate payment for purposes of U.S. Treasury Regulation Section 1.409A-2(b)(2). In no event will any member of the Company Group be obligated to reimburse the Executive for any taxes that may be imposed on the Executive as a result of Section 409A.
6.
Limitation on Payments
.
(a)
Reduction of Severance Benefits
.
If any payment or benefit that the Executive would receive from any Company Group member or any other party whether in connection with the provisions herein
or otherwise (the “
Payment
”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “
Excise Tax
”), then such Payment will be equal to the Best Results Amount. The “
Best Results Amount
” will be either (x) the full amount of such Payment or (y) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in the Executive’s receipt, on an after-tax basis, of the greater amount. If a reduction in payments or benefits constituting parachute payments is necessary so that the Payment equals the Best Results Amount, reduction will occur in the following order: (i) reduction of cash payments, which shall occur in reverse chronological order such that the cash payment owed on the latest date following the occurrence of the event triggering such excise tax will be the first cash payment to be reduced; (ii) reduction of acceleration of vesting of equity awards, which shall occur in the reverse order of the date of grant for such stock awards (i.e., the vesting of the most recently granted stock awards will be reduced first); and (iii) reduction of other benefits paid or provided to the Executive, which shall occur in reverse chronological order such that the benefit owed on the latest date following the occurrence of the event triggering such excise tax will be the first benefit to be reduced. If more than one equity award was made to the Executive on the same date of grant, all such awards shall have their acceleration of vesting reduced pro rata. In no event shall the Executive have any discretion with respect to the ordering of payment reductions. The Executive will be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under the Agreement, and the Executive will not be reimbursed by any member of the Company Group for any such payments.
(b)
Determination of Excise Tax Liability
.
The Company will select a professional services firm to make all of the determinations required to be made under these paragraphs relating to parachute payments. The Company will request that such firm provide detailed supporting calculations both to the Company and the Executive prior to the date on which the event that triggers the Payment occurs if administratively feasible, or subsequent to such date if events occur that result in parachute payments to the Executive at that time. For purposes of making the calculations required under these paragraphs relating to parachute payments, the firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith determinations concerning the application of the Code. The Company and the Executive will furnish to the firm such information and documents as the firm may reasonably request in order to make a determination under these paragraphs relating to parachute payments. The Company will bear all costs the firm may reasonably incur in connection with any calculations contemplated by these paragraphs relating to parachute payments. Any such determination by the firm will be binding upon the Company and the Executive, and the Company will have no liability to the Executive for the determinations of the firm.
7.
Definitions
. The following terms referred to in the Agreement will have the following meanings:
(a)
“
Base Salary
” means the Executive’s annual base salary as in effect immediately prior to the Executive’s Qualified Termination (or if the termination is due to a resignation for Good Reason based on a material reduction in base salary, then the Executive’s annual base salary in effect immediately prior to such reduction) or, if such amount is greater, at the level in effect immediately prior to the Change of Control.
(b)
“
Cause
” means the occurrence of any of the following: (i) an act of material dishonesty made by the Executive in connection with the Executive’s responsibilities as an employee, (ii) the 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) the Executive’s violation of any federal, state, or securities law or regulation in a manner detrimental to the business of any member of the Company Group or of any federal, state, or securities law or regulation applicable to the business of any member of the Company Group, (iv) the Executive’s material
unauthorized use or disclosure of any proprietary information or trade secrets of the Company Group or any other party to whom the Executive owes an obligation of nondisclosure as a result of the Executive’s relationship with the Company Group, (v) the Executive’s willful and gross misconduct that is or could be materially injurious to any member of the Company Group, (vi) a material breach of any confidentiality agreement or invention assignment agreement between Executive and any member of the Company Group, or (vii) the Executive’s continued failure to perform the Executive’s employment duties (other than a failure resulting from the Executive’s “Disability”) after the Executive has received a written demand of performance from the Employer which specifically sets forth the factual basis for the Employer’s belief that the Executive has not substantially performed the Executive’s duties and has failed to cure such non-performance to the Employer’s reasonable satisfaction within 30 days after receiving such notice.
(c)
“
Change of Control
” means the occurrence of any of the following events:
(i)
Change in Ownership of the Company
. A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“
Person
”), acquires ownership of the stock of the Company that, with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, that for this subsection (i), the acquisition of additional stock by any one Person, who prior to such acquisition is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change of Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of 50% or more of the total voting power of the stock of the Company or the ultimate parent entity of the Company, such event shall not be considered a Change of Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)
Change in Effective Control of the Company
. If the Company has a class of securities registered under Section 12 of the Securities and Exchange Act of 1934, as amended, a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change of Control; or
(iii)
Change in Ownership of a Substantial Portion of the Company’s Assets
. A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this clause (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the then-outstanding stock of the Company, or (4) an entity, at least 50% of the total
value or voting power of which is owned, directly or indirectly, by a Person
described in this subsection (iii)(B)(3).
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
For this definition, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
A transaction will not be a Change of Control unless the transaction qualifies as a change in control event within the meaning of Section 409A (as defined above).
Further and for the avoidance of doubt, a transaction will not constitute a Change of Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(d)
“
Change of Control Period
” means the period beginning three months prior to and ending 12 months following the Change of Control.
(e)
“
COBRA
” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(f)
“
Code
” means the Internal Revenue Code of 1986, as amended. Any reference to specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g)
“
Company Group
” means the Company and its subsidiaries and any parent of the Company.
(h)
“
Deferred Payments
” means any severance pay or benefits to be paid or provided to Executive (or Executive’s estate or beneficiaries) pursuant to this Agreement and any other severance payments or separation benefits to be paid or provided to the Executive (or the Executive’s estate or beneficiaries), that in each case, when considered together, are considered deferred compensation under Section 409A.
(i)
“
Disability
” means the Executive is, 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 12 months, either (i) unable to engage in any substantial gainful activity or (ii) receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company Group member that is employing the Executive.
(j)
“
Good Reason
” means the Executive’s resignation within 30 days following the expiration of any Cure Period (discussed below) following the occurrence of one or more of the following, without the Executive’s express written consent: (i) a material reduction in the aggregate of Executive’s Base Salary and target bonus opportunity (except where a substantially similar reduction is applicable to the management team generally and for bona fide business needs); or (ii) a material adverse change in the geographic location of Executive’s primary work location. The Executive will not resign for Good Reason without first
providing the Employer with written notice of the acts or omissions constituting the grounds for “Good Reason” within 45 days of the initial existence of the grounds for “Good Reason” and a cure period of 30 days following the date the Employer receives such notice (the “
Cure Period
”) during which such condition must not have been cured; provided, however, that Employer will be deemed to have waived the Cure Period if the Employer has communicated that it does not intend to cure such condition.
(k)
“
Post-COC Period
” means the portion of the Change of Control Period that is on or after the date of the closing of the Change of Control.
(l)
“
Pre-COC Period
” means the portion of the Change of Control Period that is prior to the date of the closing of the Change of Control.
(m)
“
Qualified Termination
” means a termination of the Executive’s employment (i) by the Employer without Cause; (ii) due to the Executive’s death or by the Employer due to the Executive’s Disability); or (iii) by the Executive for Good Reason, in either case, during the Change of Control Period.
(n)
“
Section 409A
”
means Section 409A of the Code and any final regulations and guidance thereunder and any applicable state law equivalent, as each may be amended or promulgated from time to time.
8.
Successors
.
(a)
The Company’s Successors
. Any successor (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company Group’s business and/or assets must assume the obligations under the Agreement and agree expressly to perform the obligations under the 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 the Agreement, the terms “Company,” “Company Group,” and “Employer” will include any successor to their business and/or assets which executes and delivers the assumption agreement described in this Section 8(a) or which becomes bound by the terms of the Agreement by operation of law.
(b)
The Executive’s Successors
. The terms of the Agreement and all rights of the Executive under the Agreement will inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.
9.
Notice
.
(a)
General
. All notices and other communications required or permitted under the Agreement shall be in writing and will be effectively given (i) upon actual delivery to the party to be notified, (ii) 24 hours after confirmed facsimile transmission, (iii) 1 business day after deposit with a recognized overnight courier or (iv) 3 business days after deposit with the U.S. Postal Service by first class certified or registered mail, return receipt requested, postage prepaid, addressed (A) if to the Executive, at the address the Executive shall have most recently furnished to the Company in writing, (B) if to the Company, at the following address:
Quantenna Communications, Inc.
3450 W. Warren Avenue
Fremont, CA 94538
Attention: General Counsel
Phone: (510) 743-2260
(b)
Notice of Termination
. Any termination by a Company Group member for Cause will be communicated by a notice of termination to the Executive, and any termination by the Executive for Good Reason will be communicated by a notice of termination to the Company, in each case given in accordance with Section 9(a) of the Agreement. Such notice will indicate the specific termination provision in the 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 30 days after the later of (i) the giving of such notice or (ii) the end of any applicable cure period). The failure by the Executive to include in the notice any fact or circumstance that contributes to a showing of Good Reason will not waive any right of the Executive under the Agreement or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights under the Agreement.
10.
Resignation
. The termination of the Executive’s employment for any reason will also constitute, without any further required action by the Executive, the Executive’s voluntary resignation from all officer and/or director positions held at any member of the Company Group, and at the Board’s request, the Executive will execute any documents reasonably necessary to reflect such resignation.
11.
Arbitration
.
(a)
Generally
. The Company and the Executive each agree that any and all disputes arising out of the terms of this Agreement, the Executive’s employment by the Company, the Executive’s service as an officer or director of the Company, or the Executive’s compensation and benefits, their interpretation and any of the matters herein released, will be subject to binding arbitration under the arbitration rules set forth in California Code of Civil Procedure Sections 1280 through 1294.2, including Section 1281.8 (the “
Act
”), and pursuant to California law. Disputes that the Company and the Executive agree to arbitrate, and thereby agree to waive any right to a trial by jury, include any statutory claims under local, state, or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes-Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims. The Company and the Executive further understand that this agreement to arbitrate also applies to any disputes that the Company may have with the Executive.
(b)
Procedure
. The Company and the Executive agree that any arbitration will be administered by Judicial Arbitration & Mediation Services, Inc. (“
JAMS
”), pursuant to its Employment Arbitration Rules & Procedures (the “
JAMS Rules
”). The Arbitrator will have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing. The Arbitrator will have the power to award any remedies available under applicable law, and the Arbitrator will award attorneys’ fees and costs to the prevailing party, except as prohibited by law. The Company will pay for any administrative or hearing fees charged by the Arbitrator or JAMS except that the Executive will pay any filing fees associated with any arbitration that the Executive initiates, but only so much of the filing fees as the Executive would have instead paid had he filed a complaint in a court of law. The Arbitrator will administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure, and the Arbitrator will apply substantive and procedural California law to any dispute or claim, without reference to rules of conflict of law. To the extent that the JAMS Rules conflict with California law, California law will take precedence. The decision of the Arbitrator will be in writing. Any arbitration under this Agreement will be conducted in Santa Clara County, California.
(c)
Remedy
. Except as provided by the Act and this Agreement, arbitration will be the sole, exclusive, and final remedy for any dispute between the Executive and the Company. Accordingly, except as provided for by the Act and this Agreement, neither the Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration.
(d)
Administrative Relief
. The Executive understands that this Agreement does not prohibit him or her from pursuing any administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the
Equal
Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board. This Agreement does, however, preclude the Executive from pursuing court action regarding any such claim, except as permitted by law.
12.
Voluntary Nature of Agreement
. Each of the Company and the Executive acknowledges and agrees that such party is executing this Agreement voluntarily and without any duress or undue influence by anyone. The Executive further acknowledges and agrees that he or she has carefully read this Agreement and has asked any questions needed for him or her to understand the terms, consequences, and binding effect of this Agreement and fully understand it, including that the Executive is waiving his or her right to a jury trial. Finally, the Executive agrees that he or she has been provided an opportunity to seek the advice of an attorney of his or her choice before signing this Agreement.
13.
Miscellaneous Provisions
.
(a)
No Duty to Mitigate
. The Executive will not be required to mitigate the amount of any payment contemplated by the Agreement, nor will any such payment be reduced by any earnings that the Executive may receive from any other source.
(b)
Waiver; Amendment
. No provision of the Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by an authorized officer of the Company (other than the Executive) and by the Executive. No waiver by either party of any breach of, or of compliance with, any condition or provision of the 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 the Agreement are for convenient reference only and do not form a part of the Agreement.
(d)
Entire Agreement
. The Agreement, together with the terms of the Employment Agreement (except as expressly superseded by this Agreement, as noted below), constitutes 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, including the Original Agreement. For the avoidance of doubt, this Agreement supersedes the Employment Agreement in its entirety with respect to the severance provided thereunder, except for (i) the right to receive the severance benefits as set forth therein with respect to a termination of employment that occurs outside of the Change of Control Period or during the Pre-COC Period, which provisions remain in effect, subject to Section 3(c) of this Agreement.
(e)
Choice of Law
. This Agreement will be governed by the laws of the State of California without regard to California’s conflicts of law rules that may result in the application of the laws of any jurisdiction other than California. To the extent that any lawsuit is permitted under this Agreement, the Executive hereby
expressly consents to the personal and exclusive jurisdiction and venue of the state and federal courts located in California for any lawsuit filed against the Executive by the Company.
(f)
Severability
. The invalidity or unenforceability of any provision or provisions of the 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 and benefits under the Agreement will be paid less applicable withholding taxes. The Company is authorized to withhold from any payments or benefits all federal, state, local and/or foreign taxes required to be withheld from such payments or benefits and make any other required payroll deductions. No member of the Company Group will pay the Executive’s taxes arising from or relating to any payments or benefits under the Agreement.
(h)
Counterparts
. The 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.
By its signature below, each of the parties signifies its acceptance of the terms of the Agreement, in the case of the Company by its duly authorized officer.
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COMPANY
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QUANTENNA COMMUNICATIONS, INC.
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Signature:
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/s/ Tom MacMitchell
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Print Name:
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Tom MacMitchell
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Title:
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General Counsel
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EXECUTIVE
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Signature:
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/s/ David Carroll
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Print Name:
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David Carroll
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[Signature page to Change of Control and Severance Agreement]
QUANTENNA COMMUNICATIONS, INC.
AMENDED AND RESTATED CHANGE OF CONTROL AND SEVERANCE AGREEMENT
This Amended and Restated Change of Control and Severance Agreement (the “
Agreement
”) is made between Quantenna Communications, Inc. (the “
Company
”) and Sean Sobers (the “
Executive
”), effective as of December 22, 2016 (the “
Effective Date
”)
and amends and restates in its entirety the Change of Control and Severance Agreement entered into between the Company and the Executive effective as of October 1, 2016 (the “
Original Agreement
”).
The Agreement provides certain protections to the Executive in connection with the involuntary termination of the Executive’s employment under the circumstances described in the Agreement.
The Company and the Executive agree as follows:
1.
Term of Agreement
. This Agreement will have an initial term of 5 years commencing on the Effective Date (the “
Initial Term
”). On the 5
th
anniversary of the Effective Date and each one year anniversary thereafter, this Agreement will renew automatically for additional, one (1) year terms (each, an “
Additional Term
”) unless either party provides the other party with written notice of nonrenewal at least six (6) months prior to the date of automatic renewal. For the avoidance of doubt, neither the lapse of this Agreement by its terms nor non-renewal of this Agreement will by itself constitute termination of employment nor grounds for resignation for Good Reason. Notwithstanding the foregoing, if a Change of Control occurs (a) when there are fewer than 12 months remaining during the Initial Term or (b) during an Additional Term, the term of this Agreement will extend automatically through the date that is 12 months following the date of the Change of Control. Further, notwithstanding the foregoing, if during the term of this Agreement, an initial occurrence of an act or omission by the company constituting the grounds for “Good Reason” in accordance with Section 7(j) has occurred (the “
Initial Grounds
”), and the expiration date of the Cure Period (as such term is used in Section 7(j)) with respect to such Initial Grounds could occur following the expiration of the Initial Term or the Additional Term then in effect, as applicable, the term of this Agreement will extend automatically through the date that is 30 days following the expiration of the Cure Period, but such extension of the term will only apply with respect to the Initial Grounds. Notwithstanding anything herein to the contrary, if the Executive becomes entitled to the benefits under Section 3 of this Agreement, then the Agreement will not terminate until all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2.
At-Will Employment
. The Company and the Executive acknowledge that the Executive’s employment is and will continue to be at-will, as defined under applicable law.
3.
Severance Benefits
.
(a)
Qualified Termination
. On a Qualified Termination, the Executive will be eligible to receive the following payment and benefits from the Company, subject to Section 5 of this Agreement:
(i)
Salary Severance
. A lump-sum payment equal to 100% of the Executive’s Base Salary.
(ii)
Bonus Severance
. A lump-sum payment equal to 100% of the Executive’s target annual bonus as in effect for the fiscal year in which the Qualified Termination occurs.
(iii)
COBRA
. If the Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“
COBRA
”), within the time period prescribed pursuant to COBRA for the Executive and the Executive’s eligible dependents, the Company will reimburse the Executive for the premiums necessary to continue group health insurance benefits under COBRA for the Executive and the Executive’s eligible dependents until the earliest of (A) the 12‑month anniversary of the date of the Executive’s Qualified Termination, (B) the date upon which the Executive, and the Executive’s eligible dependents becomes covered under similar plans, or (C) the date upon which the Executive and the Executive’s eligible dependents, as applicable, ceases to be eligible for coverage under COBRA (such reimbursements, the “
COBRA Reimbursements
”). However, if the Company determines in its sole discretion that it cannot pay the COBRA Reimbursements without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will in lieu thereof provide to the Executive a taxable lump-sum payment in an amount equal to the monthly COBRA premium that the Executive would be required to pay to continue the Executive’s group health coverage in effect on the date of the Executive’s Qualified Termination (which amount will be based on the premium for the first month of COBRA coverage), multiplied by twelve (12), which payments will be made regardless of whether the Executive elects COBRA continuation coverage and will commence on the month following the Executive’s Qualified Termination. For the avoidance of doubt, the taxable payment in lieu of COBRA Reimbursements may be used for any purpose, including, but not limited to continuation coverage under COBRA, and will be subject to all applicable tax withholdings. Notwithstanding anything to the contrary under this Agreement, if at any time the Company determines in its sole discretion that it cannot provide the payment contemplated by the preceding sentence without violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Executive will not receive such payment or any further reimbursements for COBRA Reimbursements.
(iv)
Equity Vesting
. 100% of the then-unvested shares subject to each of the Executive’s then-outstanding equity awards will immediately vest and, in the case of options and stock appreciation rights, will become exercisable (for avoidance of doubt, no more than 100% of the shares subject to the then-outstanding portion of an equity award may vest and become exercisable under this provision). In the case of equity awards with performance-based vesting, all performance goals and other vesting criteria will be deemed achieved at the greater of actual performance or 100% of target levels.
(b)
Termination Outside of the Change of Control Period; Termination Other than a Qualified Termination
. Except as required by applicable law, if Executive’s employment with the Company Group terminates (i) for any reason outside of the Change of Control Period, or (ii) during the Change of Control Period in a manner that is not a Qualified Termination, then the Executive will be entitled to receive severance and any other benefits only as may then be established under the then-existing written severance and benefits plans and practices of the Company or pursuant to other written agreements with the Company, including, without limitation, any applicable offer letter or other employment agreement between the Executive and the Company entered into prior to the date of this Agreement (the “
Employment Agreement
”), and subject to the provisions of Section (c) below. As described in (c) below, for a termination that occurs during the Change of Control Period but in the 3-month period before the Change of Control, unless otherwise expressly set forth in writing in the applicable Employment Agreement or other agreement between the Executive and the Company to be supplemental to the rights or remedies set forth herein without offset, the severance pursuant to the Employment Agreement or other agreement will apply (including the definitions of Cause/Good Reason set forth therein; provided, however, that Section 5(b) of this Agreement will apply in all cases), but any amounts paid will offset any amounts later determined to be due under this Agreement.
(c)
Exclusive Remedy; Non-Duplication of Payment or Benefits
.
In the event of a termination of Executive’s employment with the Company Group during the Post-COC Period, the provisions
of this Section 3 are intended to be and are exclusive and in lieu of any other severance rights or remedies to which Executive may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement, including under Executive’s Employment Agreement, other than such rights or remedies under contracts between the Company Group and Executive entered into after the Effective Date, except to the extent expressly set forth in writing between the Company and Executive to be supplemental to the rights or remedies set forth herein. Except as may be provided under contracts between the Company Group and Executive entered into after the Effective Date or otherwise expressly agreed in writing between the Company and Executive to be supplemental to the rights or remedies set forth herein, Executive will not be entitled to any severance or other benefits upon termination of employment during the Post-COC Period other than those payments or benefits expressly set forth in Section 3(a). If (i) the Executive’s employment with the Employer terminates in a manner that would have resulted in a Qualified Termination but for the fact that such termination occurs prior to a Change of Control or that would be classified as a Qualified Termination if a Change of Control occurs within the 3-month period following such termination (each such termination event, an “
Other Termination
”); (ii) as a result of such Other Termination, the Executive is receiving or has received severance payments or benefits under the Executive’s Employment Agreement or other agreement between the Executive and the Company; and (iii) a Change of Control occurs within the 3-month period following such Other Termination that qualifies the Executive for the superior severance payments and benefits payable on a Qualified Termination under this Agreement, then (x) the Executive will cease receiving any further payments or benefits under the Employment Agreement or other agreement between the Executive and the Company in connection with the Executive’s Other Termination and (y) the payments and benefits under Section 3(a) of this Agreement, otherwise payable upon a Qualified Termination under this Agreement each will be offset by the corresponding payments or benefits, as applicable, the Executive already received under the Employment Agreement or other agreement between the Executive and the Company in connection with the Executive’s Other Termination, except to the extent expressly set forth in writing between the Company and Executive that the payments or benefits under the Employment Agreement or other applicable agreement shall not cease and shall be supplemental to the rights or remedies set forth herein without offset.
(d)
Death of the Executive
. If the Executive dies before all payments or benefits the Executive is entitled to receive under the Agreement have been paid, such unpaid amounts will be paid to the Executive’s designated beneficiary, if living, or otherwise to the Executive’s personal representative in a lump-sum payment as soon as possible following the Executive’s death.
(e)
Transfer between the Company Group
. For purposes of the Agreement, if the Executive is involuntarily transferred from one member of the Company Group to another, such transfer will not be a termination without Cause but may give the Executive the ability to resign for Good Reason.
4.
Accrued Compensation
. On any termination of the Executive’s employment with the Company Group, the Executive will be entitled to receive all accrued but unpaid vacation, expense reimbursements, wages, and other benefits due to the Executive under any Company Group-provided plans, policies, and arrangements.
5.
Conditions to Receipt of Severance
.
(a)
Separation Agreement and Release of Claims
. The Executive’s receipt of any severance payments or benefits upon the Executive’s Qualified Termination under Section 3 is subject to the Executive signing and not revoking the Company’s then-standard separation agreement and release of claims (which may include an agreement not to disparage any member of the Company Group, non-solicit provisions, and other standard terms and conditions, in each case consistent with applicable law) (the “
Release
” and such requirement, the “
Release Requirement
”), which must become effective and irrevocable no later than the 60th day following
the Executive’s Qualified Termination (the “
Release Deadline
”). If the Release does not become effective and irrevocable by the Release Deadline, the Executive will forfeit any right to severance payments or benefits under Section 3. In no event will severance payments or benefits under Section 3 be paid or provided until the Release actually becomes effective and irrevocable. Except as provided by the following sentence, upon the Release becoming effective, any severance payments or benefits under this Agreement otherwise payable to the Executive during the period from the date of the Executive’s Qualified Termination through the effective date of the Release will be payable in a lump sum without interest as soon as administratively practicable after the Release becomes effective and irrevocable but not later than 61 days following the Executive’s Qualified Termination or, if later (i) if the Executive’s termination date occurs during the Pre-COC Period, on the date of the closing of the Change of Control or (ii) the Delayed Payment Date if and as required by Section 5(b), and all additional severance payments and benefits (if any) will be payable in accordance with the payment schedules applicable to each payment or benefit. Notwithstanding the foregoing, if the Release Deadline is in the calendar year following the calendar year in which the Qualified Termination occurs, then any severance payments or benefits under this Agreement that would constitute Deferred Payments (as defined below) will be paid on, or in the case of installments, will not commence until the 61
st
day after the Executive’s Qualified Termination, or if later, (i) if the Executive’s termination date occurs during the Pre-COC Period, on the date of the closing of the Change of Control or (ii) the Delayed Payment Date if and as required by Section 5(b). Any severance payments or benefits otherwise payable to the Executive during the period from the date of the Executive’s Qualified Termination through the first date severance payments become payable under this paragraph (such date, the “
Severance Start Date
”) will be paid in a lump sum to the Executive on the Severance Start Date, with any remaining payments to be made as provided in this Agreement.
(b)
Section 409A
. The Company intends that all payments and benefits provided under the Agreement or otherwise are exempt from, or comply with, the requirements of 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 in accordance with this intent. No Deferred Payments will be paid or otherwise provided until the 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 paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A. If, at the time of the Executive’s termination of employment, the Executive is a “specified employee” within the meaning of Section 409A, then the payment of the Deferred Payments will be delayed to the extent necessary to avoid the imposition of the additional tax imposed under Section 409A, which means that the Executive will receive payment on the date that is 6 months and 1 day following the Executive’s separation from service, or, if earlier, the Executive’s death (such date, the “
Delayed Payment Date”
). All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.
The Company reserves the right to amend the Agreement as it considers necessary or advisable, in its sole discretion and without the consent of the Executive or any other individual, to comply with any provision required to avoid the imposition of the additional tax imposed under Section 409A or to otherwise avoid income recognition under Section 409A prior to the actual payment of any benefits or imposition of any additional tax. Each payment, installment, and benefit payable under the Agreement is intended to constitute a separate payment for purposes of U.S. Treasury Regulation Section 1.409A-2(b)(2). In no event will any member of the Company Group be obligated to reimburse the Executive for any taxes that may be imposed on the Executive as a result of Section 409A.
6.
Limitation on Payments
.
(a)
Reduction of Severance Benefits
.
If any payment or benefit that the Executive would receive from any Company Group member or any other party whether in connection with the provisions herein
or otherwise (the “
Payment
”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “
Excise Tax
”), then such Payment will be equal to the Best Results Amount. The “
Best Results Amount
” will be either (x) the full amount of such Payment or (y) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employment taxes, income taxes and the Excise Tax, results in the Executive’s receipt, on an after-tax basis, of the greater amount. If a reduction in payments or benefits constituting parachute payments is necessary so that the Payment equals the Best Results Amount, reduction will occur in the following order: (i) reduction of cash payments, which shall occur in reverse chronological order such that the cash payment owed on the latest date following the occurrence of the event triggering such excise tax will be the first cash payment to be reduced; (ii) reduction of acceleration of vesting of equity awards, which shall occur in the reverse order of the date of grant for such stock awards (i.e., the vesting of the most recently granted stock awards will be reduced first); and (iii) reduction of other benefits paid or provided to the Executive, which shall occur in reverse chronological order such that the benefit owed on the latest date following the occurrence of the event triggering such excise tax will be the first benefit to be reduced. If more than one equity award was made to the Executive on the same date of grant, all such awards shall have their acceleration of vesting reduced pro rata. In no event shall the Executive have any discretion with respect to the ordering of payment reductions. The Executive will be solely responsible for the payment of all personal tax liability that is incurred as a result of the payments and benefits received under the Agreement, and the Executive will not be reimbursed by any member of the Company Group for any such payments.
(b)
Determination of Excise Tax Liability
.
The Company will select a professional services firm to make all of the determinations required to be made under these paragraphs relating to parachute payments. The Company will request that such firm provide detailed supporting calculations both to the Company and the Executive prior to the date on which the event that triggers the Payment occurs if administratively feasible, or subsequent to such date if events occur that result in parachute payments to the Executive at that time. For purposes of making the calculations required under these paragraphs relating to parachute payments, the firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith determinations concerning the application of the Code. The Company and the Executive will furnish to the firm such information and documents as the firm may reasonably request in order to make a determination under these paragraphs relating to parachute payments. The Company will bear all costs the firm may reasonably incur in connection with any calculations contemplated by these paragraphs relating to parachute payments. Any such determination by the firm will be binding upon the Company and the Executive, and the Company will have no liability to the Executive for the determinations of the firm.
7.
Definitions
. The following terms referred to in the Agreement will have the following meanings:
(a)
“
Base Salary
” means the Executive’s annual base salary as in effect immediately prior to the Executive’s Qualified Termination (or if the termination is due to a resignation for Good Reason based on a material reduction in base salary, then the Executive’s annual base salary in effect immediately prior to such reduction) or, if such amount is greater, at the level in effect immediately prior to the Change of Control.
(b)
“
Cause
” means the occurrence of any of the following: (i) an act of material dishonesty made by the Executive in connection with the Executive’s responsibilities as an employee, (ii) the 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) the Executive’s violation of any federal, state, or securities law or regulation in a manner detrimental to the business of any member of the Company Group or of any federal, state, or securities law or regulation applicable to the business of any member of the Company Group, (iv) the Executive’s material
unauthorized use or disclosure of any proprietary information or trade secrets of the Company Group or any other party to whom the Executive owes an obligation of nondisclosure as a result of the Executive’s relationship with the Company Group, (v) the Executive’s willful and gross misconduct that is or could be materially injurious to any member of the Company Group, (vi) a material breach of any confidentiality agreement or invention assignment agreement between Executive and any member of the Company Group, or (vii) the Executive’s continued failure to perform the Executive’s employment duties (other than a failure resulting from the Executive’s “Disability”) after the Executive has received a written demand of performance from the Employer which specifically sets forth the factual basis for the Employer’s belief that the Executive has not substantially performed the Executive’s duties and has failed to cure such non-performance to the Employer’s reasonable satisfaction within 30 days after receiving such notice.
(c)
“
Change of Control
” means the occurrence of any of the following events:
(i)
Change in Ownership of the Company
. A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“
Person
”), acquires ownership of the stock of the Company that, with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, that for this subsection (i), the acquisition of additional stock by any one Person, who prior to such acquisition is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change of Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of 50% or more of the total voting power of the stock of the Company or the ultimate parent entity of the Company, such event shall not be considered a Change of Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)
Change in Effective Control of the Company
. If the Company has a class of securities registered under Section 12 of the Securities and Exchange Act of 1934, as amended, a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change of Control; or
(iii)
Change in Ownership of a Substantial Portion of the Company’s Assets
. A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this clause (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the then-outstanding stock of the Company, or (4) an entity, at least 50% of the total
value or voting power of which is owned, directly or indirectly, by a Person
described in this subsection (iii)(B)(3).
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
For this definition, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
A transaction will not be a Change of Control unless the transaction qualifies as a change in control event within the meaning of Section 409A (as defined above).
Further and for the avoidance of doubt, a transaction will not constitute a Change of Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(d)
“
Change of Control Period
” means the period beginning three months prior to and ending 12 months following the Change of Control.
(e)
“
COBRA
” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(f)
“
Code
” means the Internal Revenue Code of 1986, as amended. Any reference to specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g)
“
Company Group
” means the Company and its subsidiaries and any parent of the Company.
(h)
“
Deferred Payments
” means any severance pay or benefits to be paid or provided to Executive (or Executive’s estate or beneficiaries) pursuant to this Agreement and any other severance payments or separation benefits to be paid or provided to the Executive (or the Executive’s estate or beneficiaries), that in each case, when considered together, are considered deferred compensation under Section 409A.
(i)
“
Disability
” means the Executive is, 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 12 months, either (i) unable to engage in any substantial gainful activity or (ii) receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company Group member that is employing the Executive.
(j)
“
Good Reason
” means the Executive’s resignation within 30 days following the expiration of any Cure Period (discussed below) following the occurrence of one or more of the following, without the Executive’s express written consent: (i) a material reduction of the Executive’s duties, position or responsibilities, or the removal of the Executive from such position and responsibilities, either of which results in a material diminution of the Executive’s authority, duties or responsibilities; (ii) a material reduction in the Executive’s Base Salary or target bonus opportunity (except where a substantially similar reduction is applicable
to the management team generally and for bona fide business needs); (iii) a material adverse change in the geographic location of Executive’s primary work location; or (iv) a material and adverse change in the Executive’s reporting structure (
e.g.
, Executive no longer reports directly to the Chief Executive Officer). The Executive will not resign for Good Reason without first providing the Employer with written notice of the acts or omissions constituting the grounds for “Good Reason” within 45 days of the initial existence of the grounds for “Good Reason” and a cure period of 30 days following the date the Employer receives such notice (the “
Cure Period
”) during which such condition must not have been cured; provided, however, that Employer will be deemed to have waived the Cure Period if the Employer has communicated that it does not intend to cure such condition.
(k)
“
Post-COC Period
” means the portion of the Change of Control Period that is on or after the date of the closing of the Change of Control.
(l)
“
Pre-COC Period
” means the portion of the Change of Control Period that is prior to the date of the closing of the Change of Control.
(m)
“
Qualified Termination
” means a termination of the Executive’s employment (i) by the Employer without Cause; (ii) due to the Executive’s death or by the Employer due to the Executive’s Disability); or (iii) by the Executive for Good Reason, in either case, during the Change of Control Period.
(n)
“
Section 409A
”
means Section 409A of the Code and any final regulations and guidance thereunder and any applicable state law equivalent, as each may be amended or promulgated from time to time.
8.
Successors
.
(a)
The Company’s Successors
. Any successor (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company Group’s business and/or assets must assume the obligations under the Agreement and agree expressly to perform the obligations under the 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 the Agreement, the terms “Company,” “Company Group,” and “Employer” will include any successor to their business and/or assets which executes and delivers the assumption agreement described in this Section 8(a) or which becomes bound by the terms of the Agreement by operation of law.
(b)
The Executive’s Successors
. The terms of the Agreement and all rights of the Executive under the Agreement will inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.
9.
Notice
.
(a)
General
. All notices and other communications required or permitted under the Agreement shall be in writing and will be effectively given (i) upon actual delivery to the party to be notified, (ii) 24 hours after confirmed facsimile transmission, (iii) 1 business day after deposit with a recognized overnight courier or (iv) 3 business days after deposit with the U.S. Postal Service by first class certified or registered mail, return receipt requested, postage prepaid, addressed (A) if to the Executive, at the address the Executive shall have most recently furnished to the Company in writing, (B) if to the Company, at the following address:
Quantenna Communications, Inc.
3450 W. Warren Avenue
Fremont, CA 94538
Attention: General Counsel
Phone: (510) 743-2260
(b)
Notice of Termination
. Any termination by a Company Group member for Cause will be communicated by a notice of termination to the Executive, and any termination by the Executive for Good Reason will be communicated by a notice of termination to the Company, in each case given in accordance with Section 9(a) of the Agreement. Such notice will indicate the specific termination provision in the 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 30 days after the later of (i) the giving of such notice or (ii) the end of any applicable cure period). The failure by the Executive to include in the notice any fact or circumstance that contributes to a showing of Good Reason will not waive any right of the Executive under the Agreement or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights under the Agreement.
10.
Resignation
. The termination of the Executive’s employment for any reason will also constitute, without any further required action by the Executive, the Executive’s voluntary resignation from all officer and/or director positions held at any member of the Company Group, and at the Board’s request, the Executive will execute any documents reasonably necessary to reflect such resignation.
11.
Arbitration
.
(a)
Generally
. The Company and the Executive each agree that any and all disputes arising out of the terms of this Agreement, the Executive’s employment by the Company, the Executive’s service as an officer or director of the Company, or the Executive’s compensation and benefits, their interpretation and any of the matters herein released, will be subject to binding arbitration under the arbitration rules set forth in California Code of Civil Procedure Sections 1280 through 1294.2, including Section 1281.8 (the “
Act
”), and pursuant to California law. Disputes that the Company and the Executive agree to arbitrate, and thereby agree to waive any right to a trial by jury, include any statutory claims under local, state, or federal law, including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes-Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims. The Company and the Executive further understand that this agreement to arbitrate also applies to any disputes that the Company may have with the Executive.
(b)
Procedure
. The Company and the Executive agree that any arbitration will be administered by Judicial Arbitration & Mediation Services, Inc. (“
JAMS
”), pursuant to its Employment Arbitration Rules & Procedures (the “
JAMS Rules
”). The Arbitrator will have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing. The Arbitrator will have the power to award any remedies available under applicable law, and the Arbitrator will award attorneys’ fees and costs to the prevailing party, except as prohibited by law. The Company will pay for any administrative or hearing fees charged by the Arbitrator or JAMS except that the Executive will pay any filing fees associated with any arbitration that the Executive initiates, but only so much of the filing fees as the Executive would have
instead paid had he filed a complaint in a court of law. The Arbitrator will administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure, and the Arbitrator will apply substantive and procedural California law to any dispute or claim, without reference to rules of conflict of law. To the extent that the JAMS Rules conflict with California law, California law will take precedence. The decision of the Arbitrator will be in writing. Any arbitration under this Agreement will be conducted in Santa Clara County, California.
(c)
Remedy
. Except as provided by the Act and this Agreement, arbitration will be the sole, exclusive, and final remedy for any dispute between the Executive and the Company. Accordingly, except as provided for by the Act and this Agreement, neither the Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration.
(d)
Administrative Relief
. The Executive understands that this Agreement does not prohibit him or her from pursuing any administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the
Equal
Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board. This Agreement does, however, preclude the Executive from pursuing court action regarding any such claim, except as permitted by law.
12.
Voluntary Nature of Agreement
. Each of the Company and the Executive acknowledges and agrees that such party is executing this Agreement voluntarily and without any duress or undue influence by anyone. The Executive further acknowledges and agrees that he or she has carefully read this Agreement and has asked any questions needed for him or her to understand the terms, consequences, and binding effect of this Agreement and fully understand it, including that the Executive is waiving his or her right to a jury trial. Finally, the Executive agrees that he or she has been provided an opportunity to seek the advice of an attorney of his or her choice before signing this Agreement.
13.
Miscellaneous Provisions
.
(a)
No Duty to Mitigate
. The Executive will not be required to mitigate the amount of any payment contemplated by the Agreement, nor will any such payment be reduced by any earnings that the Executive may receive from any other source.
(b)
Waiver; Amendment
. No provision of the Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by an authorized officer of the Company (other than the Executive) and by the Executive. No waiver by either party of any breach of, or of compliance with, any condition or provision of the 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 the Agreement are for convenient reference only and do not form a part of the Agreement.
(d)
Entire Agreement
. The Agreement, together with the terms of the Employment Agreement (except as expressly superseded by this Agreement, as noted below), constitutes 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, including the Original Agreement. For the avoidance of doubt, this Agreement supersedes the Employment Agreement in its entirety with respect to the severance provided thereunder, except for (i) the right
to receive the severance benefits as set forth therein with respect to a termination of employment that occurs outside of the Change of Control Period or during the Pre-COC Period, which provisions remain in effect, subject to Section 3(c) of this Agreement.
(e)
Choice of Law
. This Agreement will be governed by the laws of the State of California without regard to California’s conflicts of law rules that may result in the application of the laws of any jurisdiction other than California. To the extent that any lawsuit is permitted under this Agreement, the Executive hereby expressly consents to the personal and exclusive jurisdiction and venue of the state and federal courts located in California for any lawsuit filed against the Executive by the Company.
(f)
Severability
. The invalidity or unenforceability of any provision or provisions of the 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 and benefits under the Agreement will be paid less applicable withholding taxes. The Company is authorized to withhold from any payments or benefits all federal, state, local and/or foreign taxes required to be withheld from such payments or benefits and make any other required payroll deductions. No member of the Company Group will pay the Executive’s taxes arising from or relating to any payments or benefits under the Agreement.
(h)
Counterparts
. The 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.
By its signature below, each of the parties signifies its acceptance of the terms of the Agreement, in the case of the Company by its duly authorized officer.
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COMPANY
|
QUANTENNA COMMUNICATIONS, INC.
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Signature:
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/s/ Tom MacMitchell
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Print Name:
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Tom MacMitchell
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Title:
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General Counsel
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EXECUTIVE
|
Signature:
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/s/ Sean Sobers
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Print Name:
|
Sean Sobers
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[Signature page to Change of Control and Severance Agreement]
AUTOMATION PARKWAY
OFFICE LEASE
AUTOMATION PARKWAY OWNER LLC
,
a Delaware limited liability company
as Landlord,
and
QUANTENNA COMMUNICATIONS, INC.
,
a Delaware corporation
as Tenant
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Page
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SUMMARY OF BASIC LEASE INFORMATION
|
BLI-i
|
OFFICE LEASE
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ARTICLE 1 PROJECT, BUILDING AND PREMISES
|
1
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ARTICLE 2 LEASE TERM
|
2
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ARTICLE 3 BASE RENT
|
2
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ARTICLE 4 ADDITIONAL RENT
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2
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|
ARTICLE 5 USE OF PREMISES
|
7
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|
ARTICLE 6 SERVICES AND UTILITIES
|
7
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ARTICLE 7 REPAIRS
|
8
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ARTICLE 8 ADDITIONS AND ALTERATIONS
|
9
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ARTICLE 9 COVENANT AGAINST LIENS
|
10
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ARTICLE 10 INDEMNIFICATION AND INSURANCE
|
10
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ARTICLE 11 DAMAGE AND DESTRUCTION
|
12
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ARTICLE 12 CONDEMNATION
|
13
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ARTICLE 13 COVENANT OF QUIET ENJOYMENT
|
14
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ARTICLE 14 ASSIGNMENT AND SUBLETTING
|
14
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ARTICLE 15 SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES
|
16
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ARTICLE 16 HOLDING OVER
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16
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ARTICLE 17 ESTOPPEL CERTIFICATES
|
16
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ARTICLE 18 SUBORDINATION
|
17
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ARTICLE 19 TENANT'S DEFAULTS; LANDLORD'S REMEDIES
|
17
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ARTICLE 20 SECURITY DEPOSIT
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19
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ARTICLE 21 COMPLIANCE WITH LAW
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19
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ARTICLE 22 ENTRY BY LANDLORD
|
19
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ARTICLE 23 TENANT PARKING
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20
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ARTICLE 24 MISCELLANEOUS PROVISIONS
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20
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EXHIBITS AND RIDERS
|
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Exhibit A
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OUTLINE OF PREMISES
|
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Exhibit B
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WORK LETTER
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Exhibit C
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AMENDMENT TO LEASE
|
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Exhibit D
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RULES AND REGULATIONS
|
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Exhibit E
|
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FORM OF SNDA
|
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Rider 1
|
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EXTENSION OPTION
|
SUMMARY OF BASIC LEASE INFORMATION
This Summary of Basic Lease Information ("
Summary
") is hereby incorporated into and made a part of the attached Office Lease. Each reference in the Office Lease to any term of this Summary shall have the meaning as set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Office Lease.
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TERMS OF LEASE
(References are to the Office Lease)
|
DESCRIPTION
|
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1. Date:
|
February 21, 2017
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2. Landlord:
|
AUTOMATION PARKWAY OWNER LLC
,
a Delaware limited liability company
|
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3. Address of Landlord (
Section 24.19
):
|
Automation Parkway Owner LLC,
c/o Soma Capital Partners LLC
55 New Montgomery Street, Suite 615
San Francisco, CA 94105
Attn: David Smith
Phone: 415-233-9979
Email:
dsmith@soma-capital.com
and
jcaspari@soma-capital.com
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with a copy to:
Automation Parkway Owner LLC
c/o Atlas Real Estate Partners
226 Fifth Ave., 2nd Floor
New York, NY 10001
Attn: Arvind Chary
Email:
achary@atlasrep.com
|
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4. Tenant:
|
QUANTENNA COMMUNICATIONS, INC.
,
a Delaware corporation
|
|
5. Address of Tenant (
Section 24.19
):
|
Quantenna Communications, Inc.
3450 West Warren Avenue
Fremont, CA 94538
Attn: Tom MacMitchell, General Counsel
(Prior to Lease Commencement Date)
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and
Quantenna Communications, Inc.
1704 Automation Parkway
San Jose, California 95131
Attention: General Counsel
(After Lease Commencement Date)
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6. Premises (
Article 1
):
|
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6.1 Premises:
|
84,208 rentable square feet of space constituting all of the Building (as defined below), as depicted on
Exhibit A
attached hereto.
|
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6.2 Building:
|
The Premises are located in that certain building (sometimes referred to herein as the "
Building
"), whose address is 1704 Automation Parkway, San Jose, California 95131.
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7. Term (
Article 2
):
|
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7.1 Lease Term:
|
Seventy-six (76) full calendar months plus any partial calendar month at the commencement of the Lease Term.
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7.2 Lease Commencement Date:
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The earlier of (i) the date Tenant commences business operations in the Premises, or (ii) the later of: (a) October 1, 2017 or (b) the date the Premises are Ready for Occupancy (as defined in the Tenant Work Letter attached hereto as
Exhibit B
).
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TERMS OF LEASE
(References are to the Office Lease)
|
DESCRIPTION
|
|
7.3 Lease Expiration Date:
|
The last day of the seventy-sixth (76
th
) full calendar month following the Lease Commencement Date.
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7.4 Amendment to Lease:
|
Landlord and Tenant may confirm the Lease Commencement Date and Lease Expiration Date in an Amendment to Lease (
Exhibit C
) to be executed pursuant to
Article 2
of the Office Lease.
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8. Base Rent (
Article 3
):
|
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Months of
Lease Term
|
Annual
Base Rent
|
Monthly
Installment
of Base Rent
|
Monthly Rental
Rate per Rentable
Square Foot
|
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1 – 12
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$1,414,694.40
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$117,891.20*
|
$1.40
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13 – 24
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$1,465,219.20
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$122,101.60
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$1.45
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25 – 36
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$1,515,744.00
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$126,312.00
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$1.50
|
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37 – 48
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$1,566,268.80
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$130,522.40
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$1.55
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49 – 60
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$1,616,793.60
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$134,732.80
|
$1.60
|
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61 – 72
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$1,667,318.40
|
$138,943.20
|
$1.65
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73 – 76
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$1,717,843.20
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$143,153.60
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$1.70
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*Tenant shall not be obligated to pay monthly Base Rent for the first (1st) through fourth (4
th
) full calendar months the Lease Term (the "
Excused Base Rent
") so long as Tenant is not in default under the Lease, as more particularly described in the immediately following sentence. If, at any time, Tenant is in default of any term, condition or provision of this Lease beyond applicable notice and grace periods, and the lease is terminated as a result thereof, then to the fullest extent permitted by law, the Pro-Rated Excused Base Rent shall no longer be excused and shall become an obligation of Tenant hereunder, and Tenant shall be entitled to seek recovery of the Pro-Rated Excused Base Rent as part of the damages to which Lessor is entitled pursuant to the terms of this Lease. As used herein, the term "
Pro-Rated Excused Base Rent
" shall mean an amount computed by dividing the Excused Base Rent by seventy-six (76) and then multiplying the resulting quotient by the number of months which would have remained in the Term as of the month that Tenant defaults hereunder beyond any applicable notice and cure period.
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9. Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs (
Article 4
):
|
100%
|
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10. Security Deposit (
Article 20
):
|
$166,731.84.
|
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11. Parking (
Article 23
):
|
All of the parking spaces dedicated to the Building in the parking areas shown on
Exhibit A
attached hereto (i.e., 3.6/1,000 rsf).
|
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12. Brokers (
Section 24.25
):
|
CBRE representing Landlord, and Colliers International representing Tenant.
|
OFFICE LEASE
This Office Lease, which includes the preceding Summary and the exhibits attached hereto and incorporated herein by this reference (the Office Lease, the Summary and the exhibits to be known sometimes collectively hereafter as the "
Lease
"), dated as of the date set forth in
Section 1
of the Summary, is made by and between
AUTOMATION PARKWAY OWNER LLC
, a Delaware limited liability company ("
Landlord
"), and
QUANTENNA COMMUNICATIONS, INC.
, a Delaware corporation ("
Tenant
").
ARTICLE I
PROJECT, BUILDING AND PREMISES
1.1
Project, Building and Premises
.
1.1.1
Premises
. Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 6.1 of the Summary (the "
Premises
"), which Premises are located in the Building defined in Section 6.2 of the Summary and located within the Project (as defined below). The outline of the floor plan of the Premises is set forth in
Exhibit A
attached hereto. For all purposes under this Lease, the Premises shall mean the entirety of the Building.
1.1.2
Building and Project
. The Building is part of a multi-building commercial project known as "Automation Parkway". The term "
Project
" as used in this Lease, shall mean, collectively: (i) the Building; (ii) the other existing building within Automation Parkway (the "
Other Existing Building
"); (iii) the surface parking areas servicing the Building and the Other Existing Building (the "
Parking Facilities
"); (iv) any outside plaza areas, walkways, driveways, courtyards, public and private streets, transportation facilitation areas and other improvements and facilities now or hereafter constructed surrounding and/or servicing the Building and/or the Other Existing Building, which are designated from time to time by Landlord as common areas appurtenant to or servicing the Building, the Other Existing Building and any such other improvements; (v) any additional buildings, improvements, facilities and common areas which Landlord (and/or any common area association formed by Landlord, Landlord's predecessor-in-interest and/or Landlord's assignee for the Project) may add thereto from time to time within or as part of the Project; and (vi) the land upon which any of the foregoing are situated. Notwithstanding the foregoing or anything contained in this Lease to the contrary, (1) Landlord has no obligation to expand or otherwise make any improvements within the Project, including, without limitation, any of the outside plaza areas, walkways, driveways, courtyards, public and private streets, transportation facilitation areas and other improvements and facilities which comprise the Project (as the same may be modified by Landlord from time to time without notice to Tenant), other than Landlord's obligations (if any) specifically set forth in the Tenant Work Letter, and (2) Landlord shall have the right from time to time to include or exclude any improvements or facilities within the Project, at such party's reasonable election, as more particularly set forth in Section 1.1.3 below, provided that Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s access, parking, and other rights under this Lease.
1.1.3
Tenant's and Landlord's Rights
. Tenant is hereby granted the right to the exclusive use of the common corridors and hallways, stairwells, elevators, restrooms and other public or common areas located within the Building, and the non-exclusive use of those areas located on the Project that are designated by Landlord from time to time as common areas for the Building and/or Project (the "
Common Areas
"); provided, however, that (i) the manner in which such public and Common Areas are maintained and operated shall be at the reasonable discretion of Landlord, (ii) Tenant's use thereof shall be subject to (A) the provisions of any covenants, conditions and restrictions regarding the use thereof now or hereafter recorded against the Project, and (B) such reasonable, non-discriminatory rules, regulations and restrictions as Landlord may make from time to time, and (iii) Tenant may not go on the roof of the Other Existing Building without Landlord's prior consent (which may be withheld in Landlord's reasonable discretion) and without otherwise being accompanied by a representative of Landlord. Landlord reserves the right from time to time to use any of the Common Areas, and the roof, risers and conduits of the Building and the Other Existing Building for telecommunications and/or any other purposes, and to do any of the following: (1) make any changes, additions, improvements, repairs and/or replacements in or to the Project or any portion or elements thereof, including, without limitation, (x) changes in the location, size, shape and number of driveways, entrances, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways, public and private streets, plazas, courtyards, transportation facilitation areas and common areas, and (y) expanding or decreasing the size of the Project and any Common Areas and other elements thereof, including adding, deleting and/or excluding buildings (including the Other Existing Building) thereon and therefrom; (2) close temporarily any of the Common Areas while engaged in making repairs, improvements or alterations to the Project; (3) retain and/or form a common area association or associations under covenants, conditions and restrictions to own, manage, operate, maintain, repair and/or replace all or any portion of the landscaping, driveways, walkways, public and private streets, plazas, courtyards, transportation facilitation areas and/or other Common Areas located outside of the Building and the Other Existing Building and, subject to Article 4 below, include the Common Area assessments, fees and taxes charged by the association(s) and the cost of maintaining, managing, administering and operating the association(s), in Operating Expenses or Tax Expenses; and (4) perform such other acts and make such other changes with respect to the Project as Landlord may, in the exercise of good faith business judgment, deem to be appropriate. In connection with any work by Landlord in, and alterations or improvements to the common areas for the Building and/or Project, Landlord shall use commercially reasonable efforts to minimize any material adverse interference with Tenant's business at the Premises, and any unreasonable interference with Tenant's access to the Premises, as a result thereof.
1.2
Condition of Premises
. Except as expressly set forth in this Lease and in the Tenant Work Letter attached hereto as
Exhibit B
, Landlord shall not be obligated to provide or pay for any improvement, remodeling or refurbishment work or services related to the improvement, remodeling or refurbishment of the Premises, and Tenant shall accept the Premises in its "
AS IS
" condition on the Lease Commencement Date, provided that without limiting Landlord’s obligations under the Work Letter, Landlord shall, at Landlord’s own expense, cause the Premises to be in a broom clean condition on the Lease Commencement Date. On the Lease Commencement Date, Landlord shall deliver the Premises with the existing Systems and Equipment in good working condition and Tenant shall have a review period of ninety (90) days from the Lease Commencement Date (the "
Review Period
") to confirm such condition. In the event that Tenant notifies Landlord during the Review Period, in writing, of any of the foregoing items that are not in good working condition, Landlord shall use commercially reasonable efforts to cause such items to be promptly repaired, at Landlord’s own expense, to the extent that any deficiencies to such systems are not caused by the acts or omissions of Tenant or any of Tenant's Representatives (as defined below), or any Alterations performed by or on behalf of Tenant. If Tenant fails to timely deliver to Landlord such written notice of Systems or Equipment not in good working condition within the Review Period, Landlord shall have no obligation to perform any such work thereafter, except as otherwise expressly provided in the Lease.
1.3
Rentable Square Feet
. The rentable square feet for the Premises are approximately as set forth in
Section 6.1
of the Summary. Landlord and Tenant agree that such approximation is reasonable, and that for purposes of this Lease, the "
rentable square feet
" of the Premises and the Building are deemed to be as set forth in
Section 6.1
of the Summary, and no economic terms based thereon shall be subject to revision whether or not the actual square footage is more or less.
ARTICLE 2
LEASE TERM
This Lease shall be effective as of the date of this Lease. The term of this Lease (the "
Lease Term
") shall be as set forth in
Section 7.1
of the Summary and shall commence on the date (the "
Lease Commencement Date
") set forth in
Section 7.2
of the Summary (subject, however, to the terms of the Tenant Work Letter), and shall terminate on the date (the "
Lease Expiration Date
") set forth in
Section 7.3
of the Summary, unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term "
Lease Year
" shall mean each consecutive twelve (12) month period during the Lease Term, provided that the last Lease Year shall end on the Lease Expiration Date. If Landlord does not deliver possession of the Premises to Tenant Ready for Occupancy on or before October 1, 2017, Landlord shall not be subject to any liability nor shall the validity of this Lease nor the obligations of Tenant hereunder be affected. Within a reasonable period of time after the Lease Commencement Date, Landlord shall deliver to Tenant an amendment to lease in the form attached hereto as
Exhibit C
, setting forth the Lease Commencement Date and the Lease Expiration Date, which amendment Tenant shall execute (or reasonably object to) and return to Landlord within five (5) business days after Tenant's receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's agent at the management office of the Project, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ("
Base Rent
") as set forth in
Section 8
of the Summary, payable in equal monthly installments as set forth in
Section 8
of the Summary in advance on or before the first day of each and every month during the Lease Term, without any setoff or deduction whatsoever (except to the extent otherwise expressly provided for in this Lease). The Base Rent and estimated Additional Rent for the first full month of the Lease Term (in the aggregate amount of $141,469.44) shall be paid at the time of Tenant's execution of this Lease. If any rental payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any rental payment is for a period which is shorter than one month, then the rental for any such fractional month shall be a proportionate amount of a full calendar month's rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1
Additional Rent
. In addition to paying the Base Rent specified in
Article 3
of this Lease, Tenant shall pay as additional rent the sum of the following: (i) Tenant's Share (as such term is defined below) of the annual Operating Expenses allocated to the Building (pursuant to Section 4.3.4 below); plus (ii) Tenant's Share of the annual Tax Expenses allocated to the Building (pursuant to Section 4.3.4 below); plus (iii) Tenant's Share of the annual Utilities Costs allocated to the Building (pursuant to Section 4.3.4 below). Such additional rent, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease (including, without limitation, pursuant to
Article 6
), shall be hereinafter collectively referred to as the "
Additional Rent
." The Base Rent and Additional Rent are herein collectively referred to as the "
Rent
." All amounts due under this
Article 4
as Additional Rent shall be payable for the same periods and in the same manner, time and place as the Base Rent. Without limitation on other obligations of Tenant which shall survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent
provided for in this
Article 4
which has accrued during the Lease Term shall survive the expiration of the Lease Term. Landlord and Tenant intend that this Lease be a "triple net lease."
4.2
Definitions
. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:
4.2.1 "
Operating Expenses
"
shall mean the total amounts paid or payable by Landlord in connection with the ownership, management, maintenance, repair, replacement and operation of the Premises and Project (but only to the extent Landlord actually expends such costs pursuant to this Lease), including, without limitation, Landlord's cost of: (i) repairs to, and maintenance of, the Building, including, without limitation, the roof and roof membrane; (ii) maintaining the Common Areas; (iii) annual insurance premium(s) for any and all insurance Landlord elects to obtain, including without limitation, "all risk" or "special purpose" coverage, earthquake and flood for the Project, rental value insurance, and any deductible; (iv) (a) modifications and/or new improvements to any portion of the Project as required by applicable government laws or regulations; (b) reasonably necessary replacement improvements to any portion of the Project on a “like-kind” basis; and (c) new improvements to the Project that are intended to reduce operating costs or improve life/safety conditions or Conservation Costs (as defined below), all of the foregoing as reasonably determined by Landlord; provided, if such costs are of a capital nature, then such costs or allocable portions thereof shall be amortized over their useful life, together with reasonable interest on the unamortized balance in accordance with reasonable real estate accounting and management principles, consistently applied; (v) the management and administration of the Project, including, without limitation, a property management fee (not to exceed three percent (3%) of aggregate gross Rent), accounting, auditing, billing, postage, salaries and benefits for employees at or below the level of Senior Property Manager, whether located on the Project or off-site, payroll taxes and accounting costs and all fees, licenses and permits related to the ownership, operation and management of the Project and any common area amenities; (vi) preventative maintenance and repair contracts including, but not limited to, contracts for elevator systems (if any), heating, ventilation and air conditioning systems (to the extent maintained by Landlord) and lifts for disabled persons; (vii) security and fire protection services for any portion of the Project, if and to the extent, in Landlord's sole discretion, such services are provided; (viii) the creation and modification of any licenses, easements or other similar undertakings with respect to the Project, including, without limitation, the cost of the creation, management and operation of an owner's association to manage and operate the Project at any time and from time to time (the "Association"); (ix) supplies, materials, equipment, rental equipment and other similar items used in the operation and/or maintenance of the Project and any reasonable reserves established for replacement or repair of any Common Area improvements or equipment; (x) any and all levies, charges, fees and/or assessments payable to the Association or any other applicable owner's association or similar body; (xi) any barrier removal work or other required improvements, alterations or work to any portion of the Project generally required under the ADA (defined below) (the "ADA Work"); provided, if such ADA Work is required under the ADA due to Tenant's particular use of the Premises or any Alteration (defined below) made to the Premises by or on behalf of Tenant, then the cost of such ADA Work shall be borne solely by Tenant and shall not be included as part of the Operating Expenses; (xii) the repairs and maintenance items set forth in Section 7.2 below; and (xiii) costs for workers' compensation insurance, wages, withholding taxes, personal property taxes, fees for required licenses and permits, supplies, charges for management of the Building and common areas, and the costs and expenses of complying with, or participating in, conservation, recycling, sustainability, energy efficiency, waste reduction or other programs or practices implemented or enacted from time to time at the Building, including without limitation, in connection with any LEED (Leadership in Energy and Environmental Design) rating or compliance system or program, including that currently coordinated through the U.S. Green Building Council or Energy Star rating and/or compliance system or program (collectively "Conservation Costs"). If any of (x) the Building, (y) the Other Existing Building (but only during the period of time the same are included by Landlord within the Project) and (z) any additional buildings are added to the Project pursuant to Section 1.1.3 above (but only during the period of time after such additional buildings have been fully constructed and ready for occupancy and are included by Landlord within the Project) are less than ninety-five percent (95%) occupied, Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year or applicable portion thereof, employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Building, the Other Existing Building and such additional buildings (if any) been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year, or applicable portion thereof.
Subject to the provisions of Section 4.3.4 below, Landlord shall have the right, from time to time, to equitably allocate some or all of the Operating Expenses (and/or Tax Expenses and Utilities Costs) between the Building and the Other Existing Building and/or among different tenants of the Project and/or among different buildings of the Project as and when such different buildings are constructed and added to (and/or excluded from) the Project or otherwise (the "
Cost Pools
") in accordance with reasonable real estate accounting and management principles, consistently applied. Such Cost Pools may include, without limitation, the office space tenants and other tenants of the Project or of a building or buildings within the Project. Such Cost Pools may also include an allocation of certain Operating Expenses (and/or Tax Expenses and Utilities Costs) within or under covenants, conditions and restrictions affecting the Project. In addition, Landlord shall have the right from time to time, in its reasonable discretion, to include or exclude existing or future buildings in the Project for purposes of determining Operating Expenses, Tax Expenses and Utilities Costs and/or the provision of various services and amenities thereto, including allocation of Operating Expenses, Tax Expenses and Utilities Costs in any such Cost Pools in accordance with reasonable real estate accounting and management principles, consistently applied.
Notwithstanding the foregoing, Operating Expenses shall not, however, include: (A) costs of leasing commissions, attorneys' fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Project; (B) costs (including permit, license and inspection costs) incurred in renovating or otherwise improving, decorating or redecorating rentable space for other tenants or
vacant rentable space; (C) costs incurred due to the violation by Landlord of the terms and conditions of any lease of space in the Project; (D) costs of overhead or profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for services in or in connection with the Project to the extent the same exceeds the costs of overhead and profit increment included in the costs of such services which could be obtained from third parties on a competitive basis; (E) except as otherwise specifically provided in this
Section 4.2.1
, costs of interest on debt or amortization on any mortgages, encumbering the Project; (F) Utilities Costs; (G) Tax Expenses; (H) costs directly necessitated by or directly resulting from the gross negligence of Landlord, its agents or employees; (I) costs associated with the investigation and/or remediation of Hazardous Materials (hereafter defined) present in, on or about the Building, unless such costs and expenses are the responsibility of Tenant as provided in this Lease, in which event all such costs and expenses shall be paid solely by Tenant in accordance with the provisions of the Lease; (J) except as otherwise provided in Section 4.2.1(iv) of this Lease, the cost of any capital improvements; (K) the costs of repairs to the Building, if the costs of such repairs are reimbursed by the insurance carried by Landlord or subject to award under any eminent domain proceeding; (L) depreciation, amortization and interest payments, except as specifically permitted herein or except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation, amortization or interest payments would otherwise have been included in the charge for such third party’s services (in such circumstance, the inclusion of all depreciation, amortization and interest payments shall be determined in a manner consistent with generally accepted commercial office building accounting practices, consistently applied, amortized over the reasonably anticipated useful life of the capital item for which such amortization, depreciation or interest was calculated, as reasonably determined by Landlord); (M) costs associated with operating the entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, costs (including attorneys’ fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitration pertaining to Landlord’s ownership of the Building; (N) advertising and promotional expenditures; (O) electric, gas or other power costs for which Landlord has been directly reimbursed by another tenant or occupant of the Building, or for which any tenant directly contracts with the local public service company; (P) costs to correct defects in the initial design or construction of the Building; (Q) any charitable or political contributions; (R) the purchase or rental price of any sculpture, paintings or other object of fine art, whether or not installed in, on or upon the Building; and (S) insurance deductibles to the extent Tenant’s Share of the same would exceed the equivalent of one month of Base Rent.
4.2.2 "
Systems and Equipment
" shall mean any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Building.
4.2.3 "
Tax Expenses
" shall mean all federal, state, county, or local governmental or municipal taxes, fees, assessments, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit assessments, fees and taxes, child care subsidies, fees and/or assessments, job training subsidies, fees and/or assessments, open space fees and/or assessments, housing subsidies and/or housing fund fees or assessments, public art fees and/or assessments, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project), which Landlord shall pay because of or in connection with the ownership, leasing and operation of the Project or Landlord's interest therein.
4.2.3.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or other income from the Project or as against Landlord's business of leasing any of the Project;
(ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("
Proposition 13
") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and
(v) Any reasonable expenses incurred by Landlord in attempting to protest, reduce or minimize Tax Expenses.
4.2.3.2 Notwithstanding anything to the contrary contained in this
Section 4.2.3
, there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, documentary transfer taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state net income taxes, and other taxes to the extent applicable to Landlord's net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses or Utilities Costs or expressly excluded therefrom, (iii) any items paid by Tenant under
Section 4.4
of this Lease, and (iv) penalties incurred as a result of Landlord’s negligent failure to make payments of, and/or to file any tax or informational returns with respect to, any Tax Expenses, when due.
4.2.4 "
Tenant's Share
" shall mean the percentage set forth in
Section 9
of the Summary. Tenant's Share was calculated by dividing the number of rentable square feet of the Premises by the total rentable square feet in the Building (as set forth in
Section 9
of the Summary), and stating such amount as a percentage; provided that Tenant's Share may be subject to adjustment as necessary, in Landlord's discretion, for the implementation of any Cost Pools as referenced above in
Section 4.2.1
. Landlord shall have the right from time to time to redetermine the rentable square feet of the Premises and/or Building, including as may be necessary for the implementation of Cost Pools, and Tenant's Share shall be appropriately adjusted to reflect any such redetermination, provided that such redetermination shall not result in any increase in Base Rent payable by Tenant hereunder. If Tenant's Share is adjusted pursuant to the foregoing, as to the year in which such adjustment occurs, Tenant's Share for such year shall be determined on the basis of the number of days during such year that each such Tenant's Share was in effect.
4.2.5 "
Utilities Costs
" shall mean all actual charges for utilities for the Common Areas of Project which Landlord shall pay during any year, including, but not limited to, the costs of water, sewer and electricity and other utilities as well as related fees, assessments, measurement meters and devices and surcharges. Utilities Costs shall include any costs of utilities which are allocated to the Project under any declaration, restrictive covenant, or other instrument pertaining to the sharing of costs by the Project or any portion thereof, including any covenants, conditions or restrictions now or hereafter recorded against or affecting the Project. Tenant shall timely pay the cost of all water, sewer use, sewer discharge fees and sewer connection fees, gas, electricity, telephone, telecommunications, cabling and other utilities billed or metered separately to the Premises.
4.3
Calculation and Payment of Additional Rent
.
4.3.1
Payment of Operating Expenses, Tax Expenses and Utilities Costs
. For each year ending or commencing within the Lease Term, Tenant shall pay to Landlord, as Additional Rent, the following, which payment shall be made in the manner set forth in
Section 4.3.2
below: (i) Tenant's Share of Operating Expenses allocated to the Building pursuant to Section 4.3.4 below; plus (ii) Tenant's Share of Tax Expenses allocated to the Building pursuant to Section 4.3.4 below; plus (iii) Tenant's Share of Utilities Costs allocated to the Building pursuant to Section 4.3.4 below.
4.3.2
Statement of Actual Operating Expenses, Tax Expenses and Utilities Costs and Payment by Tenant
. Landlord shall endeavor to give to Tenant on or before the thirtieth (30
th
) day of June following the end of each calendar year, a statement (the "
Statement
") which shall state the Operating Expenses, Tax Expenses and Utilities Costs incurred or accrued for such preceding calendar year that are allocated to the Building pursuant to Section 4.3.4 below, and which shall indicate therein Tenant's Share thereof. Upon receipt of the Statement for each calendar year ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs for such year, less the amounts, if any, paid during such year as "Estimated Expenses," as that term is defined in
Section 4.3.3
of this Lease. The failure of Landlord to timely furnish the Statement for any year shall not prejudice Landlord from enforcing its rights under this
Article 4
. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of the Operating Expenses, Tax Expenses and Utilities Costs for the year in which this Lease terminates, Tenant shall pay to Landlord an amount as calculated pursuant to the provisions of
Section 4.3.1
of this Lease within thirty (30) days after receipt of a written invoice. The provisions of this
Section 4.3.2
shall survive the expiration or earlier termination of the Lease Term.
4.3.3
Statement of Estimated Operating Expenses, Tax Expenses and Utilities Costs
. In addition, Landlord shall endeavor to give Tenant a yearly expense estimate statement (the "
Estimate Statement
") which shall set forth Landlord's reasonable estimate (the "
Estimate
") of what the total amount of Operating Expenses, Tax Expenses and Utilities Costs allocated to the Building pursuant to Section 4.3.4 below for the then-current calendar year shall be, and which shall indicate therein Tenant's Share thereof (the "
Estimated Expenses
"). The failure of Landlord to timely furnish the Estimate Statement for any year shall not preclude Landlord from enforcing its rights to collect any Estimated Expenses under this
Article 4
. Following Landlord's delivery of the Estimate Statement, Tenant shall pay within thirty (30) days after receipt of the Estimate Statement, and thereafter with each installment of Base Rent due, a fraction of the Estimated Expenses for the then-current year (reduced by any amounts paid pursuant to the last sentence of this
Section 4.3.3
). Such fraction shall have as its numerator the number of months which have elapsed in such current year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator. Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.
4.3.4
Allocation of Operating Expenses, Tax Expenses and Utilities Costs to Building
. The parties acknowledge that the Building is part of a multi-building commercial project consisting of the Building, the Other Existing Building and such other buildings as Landlord may elect to construct and include as part of the Project from time to time (the Other Existing Building and any such other buildings are sometimes referred to herein, collectively, as the "
Other Buildings
"), and that certain of the costs and expenses incurred in connection with the Project (i.e. the Operating Expenses, Tax Expenses and Utilities Costs) shall be shared among the Building and/or such Other Buildings, while certain other costs and expenses which are solely attributable to the Building and such Other Buildings, as applicable, shall be allocated directly to the Building and the Other Buildings, respectively in accordance with reasonable real estate accounting and management principles, consistently applied. Accordingly, as set forth in Sections 4.1 and 4.2 above, Operating Expenses, Tax Expenses and Utilities Costs are determined annually for the Project as a whole, and a portion of the Operating Expenses, Tax Expenses and Utilities Costs, which portion shall be determined by Landlord in accordance with reasonable real estate accounting and management principles, consistently applied, shall be allocated to the Building (as opposed to the tenants of the Other Buildings), and such portion so allocated shall be the amount of Operating Expenses, Tax Expenses and Utilities Costs payable with respect to the Building upon which Tenant's Share shall be calculated. Such portion of the Operating Expenses, Tax Expenses and Utilities Costs allocated to the Building shall include all Operating Expenses, Tax Expenses and Utilities Costs which are attributable solely to the Building, and an equitable portion of the Operating Expenses, Tax Expenses and Utilities Costs attributable to the Project as a whole. As an example of such allocation with respect to Tax Expenses, it is anticipated that Landlord may receive separate tax bills which separately assess the improvements component of Tax Expenses for each building in the Project, and such separately assessed Tax Expenses shall be calculated for and allocated separately to each such applicable building. In addition, in the event Landlord elect to subdivide certain common area portions of the Project such as landscaping, public and private streets, driveways, walkways, courtyards, plazas, transportation facilitation areas and/or accessways into a separate parcel or parcels of land (and/or separately convey all or any of such parcels to a common area association to own, operate and/or maintain same), the Operating Expenses, Tax Expenses and Utilities Costs for such common area parcels of land may be aggregated and then reasonably allocated by Landlord to the Building and such Other Buildings on an equitable basis as Landlord (and/or any applicable covenants, conditions and restrictions for any such common area association) shall provide from time to time in accordance with reasonable real estate accounting and management principles, consistently applied.
4.4
Taxes and Other Charges for Which Tenant Is Directly Responsible
. Tenant shall reimburse Landlord within thirty (30) days after receipt of written invoice for any and all taxes or assessments required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord) and chargeable to Tenant hereunder, excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when:
4.4.1 said taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord;
4.4.2 said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project (including the Parking Facilities); or
4.4.3 said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.
4.5
Late Charges
. If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee by the due date therefor, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount due plus any attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid by the date that they are due shall thereafter bear interest until paid at a rate (the "
Interest Rate
") equal to the lesser of (i) the "Prime Rate" or "Reference Rate" announced from time to time by the Bank of America (or such reasonable comparable national banking institution as selected by Landlord in the event Bank of America ceases to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or (ii) the highest rate permitted by applicable law. Notwithstanding the foregoing, in the first instance each calendar year wherein Tenant is late in making a payment to Landlord of Rent or any other sums payable by Tenant hereunder, the foregoing late charge shall not be assessed until five (5) days after such Rent or other amount is past due.
4.6
Audit
. After delivery to Landlord of at least thirty (30) days' prior written notice delivered no later than one hundred twenty (120) days after receipt of a Statement, Tenant, at its sole cost and expense through any accountant designated by it, shall have the right to examine and/or audit the books and records evidencing such costs and expenses for the previous one (1) calendar year, during Landlord's reasonable business hours but not more frequently than once during any calendar year. Any such accounting firm designated by Tenant may not be compensated on a contingency fee basis. The results of any such audit (and any negotiations between the parties related thereto) shall be maintained strictly confidential by Tenant and its accounting firm and shall not be disclosed, published or otherwise disseminated to any other party other than to Landlord and its authorized agents. Landlord and Tenant each shall use
its best efforts to cooperate in such negotiations and to promptly resolve any discrepancies between Landlord and Tenant in the accounting of such costs and expenses. If Tenant fails to timely deliver written notice of Tenant's desire to audit a Statement pursuant to this Section 4.6 or Tenant fails to commence and complete such audit within six (6) months after Landlord’s delivery of the Statement in question, then Tenant shall be deemed to have approved of such Statement and such Statement shall be final and binding upon Tenant.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for general office and R&D purposes consistent with the character of the Building, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever. Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of
Exhibit D
, attached hereto, or in violation of the laws of the United States of America, the state in which the Project is located, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project. Tenant shall not violate the terms of any recorded covenants, conditions, and restrictions, and the provisions of all ground or underlying leases, now or hereafter affecting the Project. Tenant shall not use or allow another person or entity to use any part of the Premises for the storage, use, treatment, manufacture or sale of "Hazardous Material," as that term is defined below, other than reasonable quantities typically associated with normal office activities. As used herein, the term "
Hazardous Material
" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the state in which the Project is located or the United States Government. 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 spills, releases or discharges of Hazardous Materials arising from or related to the acts or omissions of Tenant or Tenant's agents, employees, contractors, invitees or licensees such that the affected portions of the Project and any adjacent property are returned to the condition existing prior to the spill, release or discharge of such Hazardous Materials as required by applicable laws relating to Hazardous Material. Tenant acknowledges that Landlord has advised Tenant that the Building contains or, because of its age, is likely to contain, asbestos. Upon Tenant's request, Landlord will make available for review by Tenant at the Project during normal business hours (without warranty) copies of any current asbestos management plans, inspection reports, test results or other similar documents in Landlord's possession relating to the presence of asbestos at the Building. To the extent such reports or documents indicate the presence of asbestos at the Building, this provision shall constitute notice to Tenant as required by the California Health & Safety Code. In connection with performing any work that may disturb asbestos at the Building, Tenant shall comply, at its cost, with any applicable laws or asbestos management plans relating to the Building. Tenant shall also comply with all applicable laws, rules and regulations requiring disclosure to employees or invitees of the presence of asbestos or other hazardous materials at or around the Premises or the Building. Landlord has no special knowledge of the general procedures or handling restrictions to minimize or prevent the disturbance, release or exposure to asbestos or of the potential health risks that may result from any exposure to asbestos. Tenant is encouraged to contact local or state public health agencies for further information.
ARTICLE 6
SERVICES AND UTILITIES
6.1
Tenant Services
. Tenant shall be solely responsible, at its sole cost and expense, for the furnishing of all services and utilities to the Premises, including, but not limited to HVAC, electricity, water, telephone, telecommunications (subject to Section 8.3 below) janitorial, cleaning, pest control, trash removal, security services, and replacement of all light bulbs, lamps, starters and ballasts for lighting fixtures within the Premises (as well as maintenance and repairs of the Premises in accordance with the provisions of Section 7.1 below). In connection with the foregoing, Tenant hereby agrees that (i) Landlord shall have absolutely no obligation to provide any such or other services or utilities to the Premises, it being agreed that this Lease is in the nature of a "net" lease (although, as part of Operating Expenses, Landlord shall maintain and keep in service the existing utility connections located outside the Building and connected to the exterior of the Building as necessary for distribution of such utilities to the Premises by Tenant), (ii) Tenant shall contract directly with the applicable utility providers to provide all such utilities to the Premises, which utilities shall be separately metered, at Tenant's cost, and (iii) Tenant shall pay for the cost of such utilities supplied to the Premises (and for all services provided to the Premises) directly to the applicable provider thereof. All such services and utilities for the Premises shall be provided in such a manner so as to maintain the Premises and Building in first-class condition consistent with the first-class nature of the Project, and if Tenant fails to do so, and such failure shall continue for ten (10) business days after notice from Landlord (which notice shall not be required in the event of an emergency), Landlord shall have the right to provide such services and/or such utilities and any charges or costs incurred by Landlord in connection therewith shall be deemed Additional Rent due and payable by Tenant upon receipt by Tenant of a written statement thereof from Landlord.
6.2
Overstandard Tenant Use
. If Tenant shall use, or desire to use, electricity, water, HVAC or any other utilities for the Premises in quantities that exceed the capacity of the equipment supplying the same to the Building or that are in excess of the quantities normally required for ordinary uses
then, (i) subject to applicable laws, and subject to Landlord's approval, which shall not be unreasonably withheld, conditioned or delayed, Tenant shall, at Tenant's sole cost and expense, install such supplemental equipment as may be reasonably required to provide such excess capacity, and (ii) Tenant shall pay for the costs of any increased wear and tear on existing Systems and Equipment (and repair and replacement of any such Systems and Equipment in accordance with Section 7.1 below) caused by such excess use.
6.3
Interruption of Use
. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, 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 a failure to furnish any of the services or utilities as set forth in this
Article 6
.
6.4
Janitorial Service
. Landlord shall not be obligated to provide any janitorial services to the Premises or replace any light bulbs, lamps, starters and ballasts for lighting fixtures within the Premises. Tenant shall be solely responsible, at Tenant’s sole cost and expense, for (i) performing all janitorial services, trash removal and other cleaning of the Premises, and (ii) replacement of all light bulbs, lamps, starters and ballasts for lighting fixtures within the Premises, all as appropriate to maintain the Premises in a first-class manner consistent with the first-class nature of the Building and Project. Such services to be provided by Tenant shall be performed by contractors and pursuant to service contracts reasonably approved by Landlord. Landlord shall have the right to inspect the Premises upon reasonable notice to Tenant and to require Tenant to provide additional cleaning, if necessary. In the event Tenant shall fail to provide any of the services described in this Section 6.4 to be performed by Tenant within five (5) days after notice from Landlord, which notice shall not be required in the event of an emergency, Landlord shall have the right to provide such services and any charge or cost incurred by Landlord in connection therewith shall be deemed Additional Rent due and payable by Tenant upon receipt by Tenant of a written statement of cost from Landlord.
6.5
Compliance with Energy Regulations
. Tenant acknowledges that Landlord and/or Tenant may from time to time be requested or required to obtain, report and/or disclose certain energy consumption information with regard to the Premises, which may include, without limitation, benchmarking data for the U.S. Environmental Protection Agency's ENERGY STAR® Portfolio Manager and information relating to compliance with "green building" initiatives, including, if applicable, the Leadership in Energy & Environmental Design (LEED) certification program. Tenant shall throughout the Term of this Lease, comply with all Federal, State or local laws, rules and regulations relating to consumption of utilities, energy or energy efficiency (as they may be in enacted or in effect from time to time, “
Energy Regulations
”), and Tenant shall, upon request by Landlord or Landlord’s lender, deliver and/or disclose such information regarding the consumption of utilities at the Premises as may be required to comply with applicable Energy Regulations. Further, Tenant authorizes Landlord to disclose such information and data regarding the Premises as may be requested or required from time to time to comply with Energy Regulations.
6.6
Access
. Subject to the terms of Sections 1.1.3 and 24.30, Tenant shall have access to the Premises and parking areas serving the Building twenty-four hours a day, seven days a week.
ARTICLE 7
REPAIRS
7.1
Tenant's Repairs
. Subject to Landlord's repair obligations in Sections 7.2, 7.3 and Articles 11 and 12 below, Tenant shall, at Tenant's own expense, and with contractors reasonably acceptable to Landlord and subject to Tenant's compliance with the following provisions of this Section 7.1 and the provisions of Section 8.2 below, keep the Building and every part thereof, including, without limitation, all tenant improvements, Alterations, additions, equipment, restrooms, fixtures and furnishings therein (including all of the Building's Systems and Equipment located within the Building and the HVAC equipment on the roof of the Building all walls and wall coverings, doors, windows, glass, plate glass and ceilings in first-class order, repair and condition at all times following the date Landlord delivers possession of the Premises to Tenant and throughout the Lease Term. Such repair obligations shall include, without limitation, replacement of items as may be necessary to keep same in the condition required hereinabove, notwithstanding that such replacements may be considered capital expenditures in accordance with accounting practices, and shall also include repairs of items above the ceiling, repairs of items below the floors (but not the floor slabs), and/or repairs of items within walls, such as, but not limited to, all plumbing and pipes for restrooms, the equipment providing distribution within the Building of the HVAC from the HVAC equipment on the roof, and the equipment providing distribution within the Building of all electricity and all other utilities required for the Premises (including all electrical panels in equipment rooms or elsewhere within the Building). Landlord shall have approval rights with respect to repairs and/or replacements which: (i) may affect the roof, the HVAC equipment thereon and/or the elevators; (ii) may affect or consist of any of the structural components of the Building; (iii) which may adversely affect or consist of any of the Building's Systems and Equipment; and/or (iv) which may affect the exterior of the Building or any portion of the Project located outside of the Building, or can be seen from outside the Building. Tenant's repair obligations set forth hereinabove shall include, without limitation, the obligation to promptly and adequately repair all damage to the Building and replace or repair all damaged or broken fixtures and appurtenances (subject, however, to the provisions of Article 11 below regarding casualty damage to the Building); provided however, that, at Landlord's option, or if Tenant fails to make any such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof upon being billed for same. Tenant shall, at its own cost and expense, enter into regularly scheduled preventive maintenance/service contracts (and with maintenance contractors) approved by Landlord for the maintenance and service of the HVAC, elevators and fire/life safety systems which Tenant is obligated to maintain. Tenant shall deliver to Landlord full and complete copies of all such HVAC, elevator and fire/life safety
service contracts entered into by Tenant and copies of all renewals of any such approved maintenance contracts. Tenant shall also deliver to Landlord, within thirty (30) days after the end of each calendar quarter, quarterly reports of all service provided under such maintenance contracts. Notwithstanding the foregoing, if the HVAC, elevator, exterior glass storefront system, and/or fire/life safety equipment require capital repairs (which repair exceeds $50,000) or capital replacements (as reasonably determined by Landlord), then Landlord shall repair or replace the applicable HVAC, elevator, exterior glass storefront system and/or fire/life safety equipment, and the costs thereof shall be amortized over their useful life in accordance with reasonable real estate accounting and management principles, consistently applied, and such amortized amounts shall be included in Operating Expenses payable by Tenant. Tenant shall allow Landlord and its representatives and agents reasonable access to the Premises to enable Landlord to evaluate the need for any replacements and to perform such replacements.
7.2
Landlord's Reimbursable Repairs
. Anything contained in Section 7.1 above to the contrary notwithstanding, and subject to Articles 11 and 12 of this Lease, Landlord shall maintain in good repair and condition as part of Operating Expenses the roof (including roof membrane and skylights). Landlord shall not be liable for any failure to make any such repairs, or to perform any such maintenance. There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from Landlord's making of, or failure to make, any repairs, alterations or improvements in or to any portion of the Project, Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code; or under any similar law, statute, or ordinance now or hereafter in effect. Notwithstanding anything to the contrary contained in this Lease, if Landlord shall fail to perform any of the terms, provisions, covenants or conditions to be performed or complied with by Landlord under this Section 7.2 (such terms, provisions, covenants or conditions are referred to herein, collectively as “
Landlord Repair Obligations
”) after expiration of all applicable notice and cure periods for Landlord’s and any mortgagee’s benefit as set forth in this Lease or any SNDA (as defined below) , then Tenant may, at Tenant’s option and risk, but without any obligations to do so, after delivery of an additional twenty (20) days prior written notice to Landlord, perform such Landlord Repair Obligations on Landlord’s behalf. If Tenant so performs any of such Landlord’s Repair Obligations hereunder, then Tenant will perform such Landlord’ Repair Obligations (1) in compliance with all applicable Laws, regulations and requirements to which Landlord would be subject under this Lease (if Landlord were performing Landlord Repair Obligations), (2) in a good workmanlike manner using materials of a quality and grade at least equal to that in place as of the date of delivery of the Premises to Tenant, if applicable, (3) without interfering with the rights of other tenants of the Park, and (4) in compliance with the terms and provisions of Article 8 hereof, as applicable. Tenant will promptly assign to Landlord any warranties or guaranties in respect of any Landlord Repair Obligations. If Tenant so performs any of Landlord's Repair Obligations hereunder, the full amount of the fair and reasonable costs and expenses incurred by Tenant shall be owing by Landlord to Tenant, and Landlord shall pay to Tenant the full undisputed amount thereof within sixty (60) days of Landlord’s receipt of Tenant’s written demand therefor together with reasonable evidence verifying the amount of such costs and expenses.
7.3
Landlord's Other Repairs
. Anything contained in Section 7.1 above to the contrary notwithstanding, and subject to Articles 11 and 12 of this Lease, except for repairs rendered necessary by any Alterations or the intentional or negligent acts or omissions of Tenant or any of Tenant's Representatives (in which event(s), subject to the terms of Section 10.4, Tenant shall be responsible for the cost of any such repairs or replacements), Landlord shall, at Landlord's sole cost and expense (and not reimbursed as a component of Operating Expenses), keep in good repair and condition the structural portions of the Building (including floors and foundations) and exterior perimeter walls of the Building (exclusive of glass [except as provided in Section 7.1 above with respect to capital replacements of the exterior glass storefront system] and exterior doors).
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1
Landlord's Consent to Alterations
. Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the "
Alterations
") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld or delayed by Landlord; provided, however, Landlord may withhold its consent in its sole and absolute discretion with respect to any Alterations which may affect the structural components of the Building or materially adversely affect the Systems and Equipment or which can be seen from outside the Premises. Notwithstanding the foregoing, the installation by Tenant of a Wi-Fi Network shall be governed by the terms of
Section 8.3
below. Tenant shall pay for all overhead, general conditions, fees and other costs and expenses of the Alterations, and shall pay to Landlord a Landlord supervision fee of five percent (5%) of the cost of the Alterations. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this
Article 8
. Notwithstanding the foregoing to the contrary, Tenant may, at its sole cost and expense and without Landlord's written consent, perform interior, non-structural alterations or additions to the Premises provided such alterations or additions do not affect the structural components of the Building or Systems and Equipment or require any permit or roof penetrations and the cost of which does not exceed $75,000 in the aggregate over a 12 month period (the "
Permitted Alterations
"). Tenant shall first notify Landlord at least fifteen (15) days prior to commencing any Permitted Alterations so that Landlord may post a Notice of Non-Responsibility on the Premises.
8.2
Manner of Construction
. Landlord may impose, as a condition of its consent to all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen approved by Landlord; provided, however, Landlord may impose such requirements as Landlord may determine, in its good faith business judgment, with respect to any work affecting the structural
components of the Building or Systems and Equipment (including designating specific contractors to perform such work). Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance (including California Energy Code, Title 24) and pursuant to a valid building permit, issued by the city in which the Project is located, and in conformance with Landlord's construction rules and regulations. In the event that any proposed Alterations trigger the need for repairs, maintenance, improvements or alterations outside of the Premises for any reason, Tenant shall be solely responsible for the performance of all such work at Tenant's sole cost and expense. Landlord's approval of the plans, specifications and working drawings for Tenant's Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner as not to obstruct access to the Building or Project or the Common Areas for any other tenant of the Project, and as not to obstruct the business of Landlord or other tenants of the Project, or interfere with the labor force working at the Project. If Tenant makes any Alterations, Tenant agrees to carry "Builder's All Risk" insurance covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to
Article 10
of this Lease immediately upon completion thereof. In addition, for Alterations anticipated to cost in excess of $250,000 Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. Upon completion of any Alterations, Tenant shall (i) cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Project is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, (ii) deliver to the management office of the Project a reproducible copy of the "as built" drawings of the Alterations, and (iii) deliver to Landlord evidence of payment, contractors' affidavits and full and final waivers of all liens for labor, services or materials.
8.3
Landlord's Property
. All Alterations, improvements, and/or fixtures which may be installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord. Furthermore, Landlord may require that Tenant remove any improvement or Alteration (including any data cabling and wiring) upon the expiration or early termination of the Lease Term, and repair any damage to the Premises and Building caused by such removal; provided, however, that Landlord shall have no right to require Tenant to remove any Alteration unless it notifies Tenant at the time it consents to such Alteration that it shall require the same to be removed. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations (including any data cabling and wiring), Landlord may do so and may charge the cost thereof to Tenant (together with a five percent (5%) supervision/administration fee), and Tenant shall pay such cost to Landlord within thirty (30) days of being billed for the same. Tenant’s moveable trade fixtures, furniture, equipment and other personal property installed in the Premises (“Tenant’s Property”) shall at all times be and remain Tenant’s Property. Tenant may remove Tenant’s Property from the Premises, provided that Tenant repairs all damage caused by such removal. Landlord shall have no lien or other interest in any item of Tenant’s Property.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Project, Building or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant's interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Project, the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be promptly released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, if any such lien is not released and removed within ten (10) days of notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant.
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1
Indemnification and Waiver
. Tenant hereby assumes all risk of damage to property and injury to persons, in, on, or about the Premises and/or Parking Facilities from any cause whatsoever and agrees that Landlord, and its partners and subpartners, and their respective officers, agents, property managers, servants, employees, and independent contractors (collectively, "
Landlord Parties
") shall not be liable for, and are hereby released from any responsibility for, any damage to property or injury to persons or resulting from the loss of use thereof, which damage or injury is sustained by Tenant, Tenant's employees, agents, contractors, invitees or by other persons claiming through Tenant; provided, however, that the terms of the foregoing waiver shall not apply to the gross negligence or willful misconduct of any Landlord Parties. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) incurred in connection with or arising from any cause in, on or about the Premises (including, without
limitation, Tenant's installation, placement and removal of Alterations, improvements, fixtures and/or equipment in, on or about the Premises), and any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, licensees or invitees of Tenant or any such person, in, on or about the Premises, the Building and Project; provided, however, that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord. The provisions of this
Section 10.1
shall survive the expiration or sooner termination of this Lease.
10.2
Tenant's Compliance with Landlord's Fire and Casualty Insurance
. Tenant shall, at Tenant's expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.
10.3
Tenant's Insurance
. Tenant shall maintain the following coverages in the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, including a Broad Form Commercial General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in
Section 10.1
of this Lease, (and with owned and non-owned automobile liability coverage, and liquor liability coverage in the event alcoholic beverages are served on the Premises) for limits of liability not less than:
|
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Bodily Injury and
Property Damage Liability
|
$5,000,000 each occurrence
$5,000,000 annual aggregate
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Personal Injury Liability
|
$5,000,000 each occurrence
$5,000,000 annual aggregate
0% Insured's participation
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10.3.2 Physical Damage Insurance covering (i) all furniture, trade fixtures, equipment, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, and (ii) all improvements, alterations and additions made by Tenant to the Premises or which are installed at Tenant's request above the ceiling of the Premises or below the floor of the Premises. Such insurance shall be written on a "physical loss or damage" basis under a "special form" policy, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage.
10.3.3 Workers' compensation insurance as required by law.
10.3.4 Loss-of-income, business interruption and extra-expense insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of loss of access to the Premises or to the Building as a result of such perils.
10.3.5 Tenant shall carry comprehensive automobile liability insurance having a combined single limit of not less than Two Million Dollars ($2,000,000.00) per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance or use of any owned, hired or non-owned automobiles.
10.3.6 The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall: (i) with respect to liability coverage, name Landlord, and any other party with an insurable interest it so specifies, as an additional insured and with respect to property policies of insurance, such parties shall be named a loss payee; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under
Section 10.1
of this Lease; (iii) be issued by an insurance company having a rating of not less than A-VII in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the state in which the Project is located; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord; and (vii) with respect to the insurance required in
Sections 10.3.1
and
10.3.2
above, have commercially reasonable deductible amounts. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and at least ten (10) days before the expiration dates thereof. If Tenant shall fail to procure such insurance, or to deliver such policies or certificate, within such time periods, Landlord may, at its option, in addition to all of its other rights and remedies under this Lease, and without regard to any notice and cure periods set forth in
Section 19.1
, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within ten (10) days after delivery of bills therefor.
10.4
Subrogation
. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be. Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance.
10.5
Additional Insurance Obligations
. Tenant shall carry and maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this
Article 10
, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord, provided such additional insurance is consistent with the amounts and types of insurance then being required by reasonably prudent landlords of comparable buildings in the vicinity of the Building or as otherwise required by Landlord's lenders.
10.6
Landlord's Insurance
. Landlord shall maintain in full force and effect during the Lease Term, subject to reimbursement as provided in Article 4, policies of insurance which afford such coverages as are commercially reasonable and as are consistent with other properties in Landlord's portfolio. Notwithstanding the foregoing, Landlord shall obtain and keep in force during the Lease Term, as an item of Operating Expenses, a policy or policies in the name of Landlord, with loss payable to Landlord and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Building, including all improvements, fixtures (other than trade fixtures) and permanent additions. However, all alterations, additions and improvements made to the Premises by Tenant shall be insured by Tenant rather than by Landlord as provided in Section 10.3.2(ii) above. The amount of such insurance procured by Landlord shall be equal to at least eighty percent (80%) of the full replacement cost of the Building, including all improvements and permanent additions as the same shall exist from time to time, or the amount required by Lenders. At Landlord's option, such policy or policies shall insure against all risks of direct physical loss or damage (including, without limitation, the perils of flood and earthquake), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. If any such insurance coverage procured by Landlord has a deductible clause, the deductible shall not exceed commercially reasonable amounts, and in the event of any casualty, the amount of such deductible shall be an item of Operating Expenses as so limited. Notwithstanding anything to the contrary contained herein, to the extent the cost of maintaining insurance with respect to the Building and/or any other buildings within the Project is increased as a result of Tenant's acts, omissions, use or occupancy of the Premises, Tenant shall pay one hundred percent (100%) of, and for, such increase(s) as Additional Rent.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1
Repair of Damage to Premises by Landlord
. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this
Article 11
, restore the Premises and such Common Areas of the Project for which Landlord is obligated to maintain pursuant to this Lease. Such restoration shall be to substantially the same condition of the Premises and Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building and/or Project, or the lessor of a ground or underlying lease with respect to the Project and/or the Building, or any other modifications to the Common Areas deemed desirable by Landlord, provided access to the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under
Section 10.3.2(ii)
of this Lease, and Landlord shall repair any injury or damage to the tenant improvements and alterations installed in the Premises by Tenant and shall return such tenant improvements and alterations to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's repair of the damage. Notwithstanding anything to the contrary herein, in no event shall Landlord be obligated to repair or restore any specialized or dedicated equipment serving Tenant, such as any cabling, wiring, supplemental utility system, telephone system or wireless/Wi-Fi Network. In connection with such repairs and replacements to the tenant improvements and alterations installed in the Premises by Tenant, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord's review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, Landlord shall allow Tenant a proportionate abatement of Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.
11.2
Landlord's Option to Repair
. Notwithstanding the terms of
Section 11.1
of this Lease, Landlord may elect not to rebuild and/or restore the Premises, the Building and/or any other portion of the Project and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within one hundred eighty (180) days of the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Project or ground or underlying lessor with respect to the Project and/or the Building shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; or (iii) the damage is not fully covered, except for
deductible amounts, by Landlord's insurance policies. In addition, if the Premises or the Building is destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term, then notwithstanding anything contained in this
Article 11
, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. Upon any such termination of this Lease pursuant to this
Section 11.2
, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination (subject to abatement as set forth herein), and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. Landlord shall not have the right to terminate the Lease if the damage to the Building is relatively minor (e.g., repair or restoration would cost less than five percent (5%) of the replacement cost of the Building).
11.3
Tenant's Termination Option
. If (i) Landlord does not elect to terminate this Lease pursuant to Landlord's termination right as provided in Section 11.2 above, (ii) the damage is not the result of Tenant's negligence or willful misconduct, (iii) the damage substantially interferes with Tenant's access to or usage of the Premises and Tenant does not thereafter use the Premises, and (iv) Landlord's restoration work cannot, in the reasonable opinion of Landlord's licensed contractor, be substantially completed within two hundred seventy (270) days after the date of damage, then Tenant may elect to terminate this Lease by delivering written notice thereof to Landlord within thirty (30) days after Tenant's receipt of Landlord's Damage Notice, which termination shall be effective as of the date which is ninety (90) days after the date such termination notice is delivered to Landlord. In addition, if the Premises is destroyed or materially damaged during the last twelve (12) months of the Lease Term such that restoration work cannot, in the reasonable opinion of Landlord’s licensed contractor, be substantially completed with ninety (90) days after the date of damage and such damage is not the result of the negligence or willful misconduct of Tenant or Tenant’s agents, employees or contractors, then Tenant shall have the option to terminate this Lease by giving written notice to Landlord of the exercise of such option within thirty (30) days after receipt of notice from Landlord as to the anticipated time necessary to substantially complete repairs thereto, in which event this Lease shall cease and terminate as of the date of such notice.
11.4
Waiver of Statutory Provisions
. The provisions of this Lease, including this
Article 11
, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Project, and any statute or regulation of the state in which the Project is located, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Project.
ARTICLE 12
CONDEMNATION
12.1
Permanent Taking
. If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking. Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Landlord, its ground lessor with respect to the Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure.
12.2
Temporary Taking
. Notwithstanding anything to the contrary contained in this
Article 12
, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and Tenant's Share of Operating Expenses, Tax Expenses and Utilities Costs shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.
ARTICLE 13
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1
Transfers
. Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as "
Transfers
" and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "
Transferee
"). If Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "
Transfer Notice
") shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "
Subject Space
"), (iii) all of the terms of the proposed Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and (v) such other information as Landlord may reasonably require. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease. Each time Tenant requests Landlord's consent to a proposed Transfer, whether or not Landlord shall grant consent, within thirty (30) days after written request by Landlord, as Additional Rent hereunder, Tenant shall pay to Landlord One Thousand Five Hundred Dollars ($1,500.00) to reimburse Landlord for its review and processing fees, and Tenant shall also reimburse Landlord for any reasonable legal fees incurred by Landlord in connection with Tenant's proposed Transfer. Notwithstanding anything to the contrary contained in this Section 14.1, so long as Tenant delivers to Landlord (i) at least fifteen (15) calendar days prior written notice of its intention to assign or sublease the Premises to any Permitted Transferee, which notice shall set forth the name of the Permitted Transferee, (ii) a copy of the proposed agreement pursuant to which such assignment or sublease shall be effectuated, and (iii) such other information concerning the Permitted Transferee as Landlord may reasonably require, including without limitation, information regarding any change in the proposed use of any portion of the Premises and any financial information with respect to such Permitted Transferee, and so long as (a) any change in the proposed use of the subject portion of the Premises is in conformance with the uses permitted to be made under this Lease and do not involve the use or storage of any Hazardous Materials (other than nominal amounts of ordinary household cleaners, office supplies and janitorial supplies which are not regulated by any environmental laws), and (b) the Permitted Transferee has a tangible net worth and net income, in the aggregate, computed in accordance with standard commercial real estate accounting practices (but excluding goodwill as an asset), which is equal to or greater than Tenant as of the date of this Lease, then Tenant may assign this Lease or sublease any portion of the Premises (1) to any Related Entity, or (2) in connection with any merger, consolidation or sale of substantially all of the assets of Tenant, without having to obtain the prior written consent of Landlord thereto (each such transfer shall be referred to herein as a "
Permitted Transfer
" and each transferee pursuant to a Permitted Transfer shall be referred to herein as a "
Permitted Transferee
"). Any Permitted Transfer shall in no way relieve Tenant of any liability Tenant may have under this Lease and such assignee or sublessee shall be jointly and severally liable with Tenant hereunder. For purposes of this Section 14.1, the term "Related Entity" shall mean any entity controlled by, under control with, or in control of Tenant. The term "control" as used in the immediately preceding sentence shall mean having direct ownership of fifty percent (50%) or more of the ownership interests of an entity and having the ability to direct the management and policies of such entity.
14.2
Landlord's Consent
. Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or Project;
14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or instrumentality thereof;
14.2.4 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space;
14.2.5 The Transferee is not a party of reasonable financial worth and/or financial stability that has and will continue to have sufficient financial strength to perform all of the remaining obligations of Tenant under the Lease (or under the sublease in the case of a sublease) from and after the date of transfer, as reasonably determined by Landlord taking into account all relevant facts and circumstances;
14.2.6 The proposed Transfer would cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Project a right to cancel its lease;
14.2.7 The terms of the proposed Transfer will allow the Transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the Transferee to occupy space leased by Tenant pursuant to any such right); or
14.2.8 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, and Landlord has vacant space in the Project that is reasonably comparable, (ii) is negotiating with Landlord to lease space in the Project at such time, or (iii) has negotiated with Landlord during the nine (9) month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2
(and does not exercise any recapture rights Landlord may have under
Section 14.4
of this Lease), Tenant may within six (6) months after Landlord's consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to
Section 14.1
of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this
Section 14.2
, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this
Article 14
(including Landlord's right of recapture, if any, under
Section 14.4
of this Lease).
14.3
Transfer Premium
. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this
Section 14.3
, received by Tenant from such Transferee. "
Transfer Premium
" shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Rent and Additional Rent payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any reasonable changes, alterations and improvements to the Premises in connection with the Transfer (but only to the extent approved by Landlord), and (ii) any reasonable brokerage commissions and legal fees in connection with the Transfer. "Transfer Premium" shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. This Section 14.3 shall not apply to any Permitted Transfer.
14.4
Landlord's Option as to Subject Space
. Notwithstanding anything to the contrary contained in this Article 14, in connection with any proposed sublease for fifty percent (50%) or more of the Premises for fifty percent (50%) or more of the remainder of the Term or in connection with a proposed assignment, Landlord shall have the option, by giving written notice ("
Landlord’s Recapture Notice
") to Tenant within thirty (30) days after receipt of any Transfer Notice or any other written notice of Tenant's intent to enter into a Transfer, to recapture the Subject Space or the entirety of the Premises, as determined in Landlord's sole discretion. If, within five (5) days of Landlord’s delivery to Tenant of Landlord’s Recapture Notice, Tenant does not deliver to Landlord written notice that Tenant has elected (i) not to consummate such proposed assignment or sublease, and (ii) to rescind the request to enter into such proposed assignment or sublease, then delivery of Landlord’s Recapture Notice shall serve to cancel and terminate this Lease with respect to either the Subject Space or entire Premises, as applicable, as of the date stated in the Transfer Notice as the effective date of the proposed Transfer (with respect to Landlord's recapture following receipt of a Transfer Notice), and otherwise, such termination shall be effective on the date that is sixty (60) days after Landlord's delivery of a recapture notice. If this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord notifies Tenant of its election to recapture the Premises, Tenant may revoke its Transfer Notice within five (5) days and this Lease shall continue in full force and effect. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space or Premises under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of the last paragraph of Section 14.2 of this Lease. This Section 14.4 shall not apply to any Permitted Transfer.
14.5
Effect of Transfer
. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant directly relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer
shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and Landlord's costs of such audit.
14.6
Additional Transfers
. For purposes of this Lease, the term "Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of twenty-five percent or more of partnership interests, within a twelve (12) month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant, (B) the sale or other transfer of more than an aggregate of fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12) month period.
ARTICLE 15
SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES
15.1
Surrender of Premises
. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises.
15.2
Removal of Tenant Property by Tenant
. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this
Article 15
, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear, casualty, condemnation, and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and cabling, wiring or conduit (including any such cabling or wiring associated with the Wi-Fi Network, if any) which may have been placed at the Project or within the Building by or on behalf of Tenant (including any cabling or wiring installed above the ceiling of the Premises or below the floor of the Premises), and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be a tenancy at sufferance only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease for the first two (2) months of such holdover and one hundred seventy-five percent (175%) of such Base Rent amount thereafter. Such tenancy shall be subject to every other term, covenant and agreement contained herein. Landlord hereby expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this
Article 16
shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, provided that Landlord has delivered reasonable prior notice that Landlord has leased the Premises to a succeeding tenant, then Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within fifteen (15) days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be in a commercially reasonable form as may be required by any prospective mortgagee or purchaser of the Project (or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other factual information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee respecting the Lease. Tenant shall execute and deliver whatever other commercially reasonable instruments may be reasonably required for such purposes. Failure of Tenant to timely execute and deliver such estoppel certificate shall constitute an acceptance of the Premises and an acknowledgment by
Tenant that statements included in the estoppel certificate are true and correct, without exception. Failure by Tenant to so deliver such estoppel certificate, which failure continues for five (5) days following notice of such failure, shall be a material default of the provisions of this Lease, and, in such event, , without waiving any other rights or remedies, Landlord may charge Tenant an administrative fee of Five Hundred Dollars ($500.00) for each day that Tenant is thereafter delinquent in delivering an estoppel certificate.
ARTICLE 18
SUBORDINATION
18.1
Subordination
. This Lease is subject and subordinate to all present and future ground or underlying leases of the Project and to the lien of any mortgages or trust deeds, now or hereafter in force against the Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage, or if any ground or underlying lease is terminated, to attorn, without any deductions or set-offs whatsoever (except as expressly provided in this Lease), to the purchaser upon any such foreclosure sale, or to the lessor of such ground or underlying lease, as the case may be, if so requested to do so by such purchaser or lessor and to recognize such purchaser or lessor as the lessor under this Lease. Tenant shall, within fifteen (15) days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale. Notwithstanding any provision of this Lease to the contrary, Tenant’s obligation to subordinate its rights under this Lease to any future ground or underlying leases of the Project and to the lien of any mortgages or trust deeds which hereafter encumber the Premises, the Building or the Project shall be conditioned upon Tenant’s receipt of a commercially reasonable non-disturbance agreement from the holder of each such instrument.
18.2
Existing Agreement
. Tenant hereby acknowledges that as of the date on which Landlord and Tenant execute this Lease there is a deed of trust encumbering, and in force against, the Project in favor of the lender(s) set forth on Exhibit E attached hereto (the "
Current Lender
"). Promptly following Tenant's execution of this Lease, Tenant shall sign, notarize and deliver a subordination, non-disturbance and attornment agreement substantially in the form of Exhibit E attached hereto ("
SNDA
"). If Landlord at any time during the Lease Term causes the Project to be encumbered by a new deed of trust or mortgage pursuant to which the beneficiary of such deed of trust or mortgage is a party or entity other than the Current Lender, and/or if any party which acquires, or otherwise succeeds to, Landlord's interest in the Project (including, without limitation, any ground lessee) encumbers or places a lien against the Project with a mortgage, deed of trust or similar security instrument and the beneficiary thereof requires this Lease to be subordinated to such encumbrance or lien, Landlord or the successor of Landlord will use commercially reasonable efforts to provide to Tenant a subordination, non-disturbance and attornment agreement in form reasonably acceptable to Landlord or such successor of Landlord, the subject beneficiary and Tenant. If said SNDA is required and agreed upon by the aforesaid parties, Landlord or the successor of Landlord, the subject beneficiary and Tenant shall cause any such subordination, non-disturbance and attornment agreement to be executed, acknowledged and recorded concurrently with, or as soon as practicable after, the execution and recordation of any such lien, deed of trust or mortgage. In addition to the foregoing, if Landlord enters into a ground lease with regard to the Project and such ground lessee requires this Lease to be subordinated to such ground lease, the ground lessee and ground lessor will use commercially reasonable efforts to provide to Tenant a subordination, non-disturbance and attornment agreement in form reasonably acceptable to such ground lessee, ground lessor, any beneficiary of ground lessee, and to Tenant. Notwithstanding the foregoing, Landlord shall not be in default under this Lease and shall have no liability to Tenant whatsoever if Landlord is unable to obtain and deliver to Tenant a subordination, non-disturbance and attornment agreement executed by the Current Lender or any subsequent lender, beneficiary under deed of trust or ground lessor. Should Tenant have any requested changes to the SNDA attached to the initial draft of this Lease, Tenant covenants and agrees to pay all fees, costs and expenses incurred by Landlord in connection with the negotiation or issuance of the SNDA.
ARTICLE 19
TENANT'S DEFAULTS; LANDLORD'S REMEDIES
19.1
Events of Default by Tenant
. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent. The occurrence of any of the following shall constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due where such failure continues for three (3) days after written notice thereof from Landlord to Tenant; provided however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law; or
19.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as possible; or
19.1.3 Abandonment of the Premises by Tenant as defined in the California Civil Code.
19.2
Landlord's Remedies Upon Default
. Upon the occurrence of any such default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant, including, without limitation, any rent abatement; and
(v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.
The term "rent" as used in this
Section 19.2
shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in
Sections 19.2.1(i)
and
(ii)
, above, the "worth at the time of award" shall be computed by allowing interest at the Interest Rate set forth in
Section 4.5
of this Lease. As used in
Section 19.2.1(iii)
above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.
19.2.3 Landlord may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Tenant's part to be observed or performed (and may enter the Premises for such purposes). In the event of Tenant's failure to perform any of its obligations or covenants under this Lease, and such failure to perform poses a material risk of injury or harm to persons or damage to or loss of property, then Landlord shall have the right to cure or otherwise perform such covenant or obligation at any time after such failure to perform by Tenant, whether or not any such notice or cure period set forth in
Section 19.1
above has expired. Any such actions undertaken by Landlord pursuant to the foregoing provisions of this
Section 19.2.3
shall not be deemed a waiver of Landlord's rights and remedies as a result of Tenant's failure to perform and shall not release Tenant from any of its obligations under this Lease.
19.3
Payment by Tenant
. Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with Landlord's performance or cure of any of Tenant's obligations pursuant to the provisions of
Section 19.2.3
above; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this
Section 19.3
shall survive the expiration or sooner termination of the Lease Term.
19.4
Sublessees of Tenant
. If Landlord terminates this Lease on account of any default by Tenant, as set forth in this
Article 19
, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole
discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.
19.5
Waiver of Default
. No waiver by Landlord of any violation or breach by Tenant of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach by Tenant of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon a default by Tenant shall not be deemed or construed to constitute a waiver of such default. The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.
19.6
Efforts to Relet
. For the purposes of this
Article 19
, Tenant's right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession.
ARTICLE 20
SECURITY DEPOSIT
Concurrent with Tenant's execution of this Lease, Tenant shall deposit with Landlord a security deposit (the "
Security Deposit
") in the amount set forth in
Section 10
of the Summary. The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Lease Term. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or for the payment of any amount that Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) business days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant's failure to do so shall be a default under this Lease. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof, shall be returned to Tenant, or, at Landlord's option, to the last assignee of Tenant's interest hereunder, within forty-five (45) days following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other provisions of law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant.
ARTICLE 21
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (“Applicable Laws”). At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws, without limitation, the making of structural changes or changes to the Building's life safety system to the extent required due to Tenant's Alterations or Tenant’s particular manner of use of the Premises for other than general office use. Landlord shall promptly comply with all other Applicable Laws relating to the Building and/or the Common Area of the Project. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist (CASp). A CASp can inspect the subject Premises and determine whether the subject Premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject Premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject Premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the Premises. Tenant shall not conduct or arrange for any CASp inspection without first obtaining Landlord’s written consent of the scope of any inspection or report to be issued.
ARTICLE 22
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable notice to Tenant to enter the Premises upon at least twenty-four (24) hours advance notice to Tenant to: (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees or tenants, or to the ground or underlying lessors; (iii) to post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building, or as Landlord may otherwise reasonably desire or deem necessary. Notwithstanding anything to the contrary contained in this
Article 22
, Landlord may enter the Premises at any time, without notice to Tenant, in emergency situations and/or to perform other services required of Landlord pursuant to this Lease. Any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes; provided, however, Landlord shall use commercially reasonable efforts to minimize any unreasonable interference with Tenant's use and occupancy of the Premises as a result of any entry by Landlord permitted under this Article 22. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to enter without notice and use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.
ARTICLE 23
TENANT PARKING
Tenant may use the number of non-designated and non-exclusive parking spaces specified in Section 11 of the Summary. Landlord shall exercise reasonable efforts to ensure that such spaces are available to Tenant for its use, but Landlord shall not be required to enforce Tenant's right to use the same. Tenant shall not park or permit any parking of vehicles overnight.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1
Terms; Captions
. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.
24.2
Binding Effect
. Each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of
Article 14
of this Lease.
24.3
No Waiver
. No waiver of any provision of this Lease shall be implied by any failure of a party to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by a party of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.
24.4
Modification of Lease; Financials
. Should any current or prospective mortgagee or ground lessor for the Project require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and deliver the same to Landlord within fifteen (15) days following the request therefor. Should Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term, Tenant agrees to execute such short form of Lease and to deliver the same to Landlord within fifteen (15) days following the request therefor. In addition, upon request from time to time, Tenant agrees to provide to Landlord, within fifteen (15) days of written request unless Tenant’s stock is then publicly traded on a national stock exchange based in the United States of America, current financial statements for Tenant, dated no earlier than one (1) year prior to such request, certified as accurate by Tenant or, if available, audited financial statements prepared by an independent certified public accountant with copies of the auditor's statement. All such financial statements will be delivered to Landlord and any such lender or purchaser in confidence and shall only be used for purposes of evaluating the financial strength of Tenant or of Guarantor, as applicable.
24.5
Transfer of Landlord's Interest
. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project, the Building and/or in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer. Without limiting the generality of the foregoing, it is acknowledged and agreed that the liability of Landlord under this Lease is limited to matters accruing during its actual period of ownership of title to the Building. The liability of any transferee of Landlord shall be limited to the interest of such transferee in the Building and such transferee shall be without personal liability under this Lease, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.
24.6
Prohibition Against Recording
. Except as provided in
Section 24.4
of this Lease, neither this 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, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election. This section is not applicable to securities law notice and reporting requirements.
24.7
Landlord's Title; Air Rights
. Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.
24.8
Tenant's Signs
. Subject to the approval of all applicable governmental entities, Landlord, and subject to all applicable governmental laws, rules, regulations and codes, Tenant shall have the exclusive right to have Tenant's name and logo (but no other markings) displayed on the existing monument sign for the Building (the "
Signage Monument
"). Tenant shall be responsible, at Tenant's sole cost, for all costs attributable to the insurance, lighting (if applicable), maintenance and repair of the Signage Monument. The signage rights granted to Tenant under this Section 24.8 are personal to the Tenant named herein and any Permitted Transferee, and may not be otherwise assigned or exercised by or to, or used by, any person or entity other than the Tenant named herein (and any Permitted Transferee). Upon termination or expiration of this Lease, or upon the earlier termination of Tenant's signage rights under this Section 24.8, Landlord shall have the right to permanently remove Tenant's name from the Signage Monument and to restore and repair all damage to the Signage Monument resulting from such removal, and Tenant shall pay to Landlord, within ten (10) days after demand, all costs incurred in connection with such removal, restoration and repair. The location, quality, design, style, lighting and size of such signs shall be subject to Landlord's prior written approval, in its reasonable discretion. Upon the expiration or earlier termination of this Lease, Tenant shall be responsible, at its sole cost and expense, for the removal of such signage and the repair of all damage to the Building caused by such removal. Except as set forth in Section 24.8.1 below, Tenant may not install any signs on the exterior or roof of the Building, the Other Existing Building or the Common Areas. Any signs, window coverings, or blinds (even if the same are located behind the Landlord approved window coverings for the Building), or other items visible from the exterior of the Building are subject to the prior approval of Landlord, in its reasonable discretion.
24.8.1
Building Exterior Sign
. Subject to the approval of all applicable governmental authorities and Landlord, and compliance with all applicable governmental laws and ordinances, all recorded covenants, conditions and restrictions affecting the Building and/or Project, and the terms of this Section 24.8.1, Tenant shall have the exclusive right to install, at Tenant's cost, Tenant identification signage, but no other markings, on the exterior of the Building in up to three (3) locations reasonably approved by Landlord (the "
Building Exterior Sign
"). Tenant shall pay for all costs and expenses related to the Building Exterior Sign, including, without limitation, costs of the construction, installation, maintenance, insurance, utilities, repair and replacement thereof. Tenant shall maintain the Building Exterior Sign in compliance with all laws and subject to the applicable provisions of Articles 7 and 8 above.
24.8.1.1
Transferability
. The rights to the Building Exterior Sign are personal to the original Tenant executing this Lease and any Permitted Transferee (hereafter "
Original Tenant
") and may not be otherwise transferred by the Tenant or used by anyone else.
24.8.1.2
Insurance/Maintenance/Removal
. Tenant shall be responsible, at its sole cost and expense, for (i) maintaining insurance on the Building Exterior Sign as part of the insurance required to be carried by Tenant pursuant to Article 10 above, and (ii) the repair, maintenance and replacement, in first-class order and condition, of the Building Exterior Sign. Should Tenant fail to perform such maintenance, repairs and/or replacement, Landlord may, but need not, perform such maintenance, repairs and/or replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof sufficient to reimburse Landlord for all overhead, general conditions, fees and other reasonable out-of-pocket costs or expenses arising from Landlord's involvement with such maintenance, repairs and/or replacements forthwith within thirty (30) days of being billed for same. Upon the expiration or earlier termination of this Lease (or prior to such expiration or earlier termination, upon Tenant's loss of its rights to the Building Exterior Sign pursuant to Section 24.8.1.1 above), Tenant shall, at Tenant's sole cost and expense, cause to be removed the Building Exterior Sign, and Tenant shall repair all damage occasioned thereby and restore the portion of the Building and/or Project where the Building Exterior Sign was located to its original condition prior to the installation thereof. If Tenant fails to timely remove the Building Exterior Sign and repair and restore the Building and/or Project as provided in the immediately preceding sentence, Landlord may perform such work, and all reasonable costs and expenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within thirty (30) days after Tenant's receipt of invoice therefor. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease.
24.9
Relationship of Parties
. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant.
24.10
Application of Payments
. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.
24.11
Time of Essence
. Time is of the essence of this Lease and each of its provisions.
24.12
Partial Invalidity
. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.
24.13
No Warranty
. In executing and delivering this Lease, Tenant has not relied on any representation, including, but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the Exhibits attached hereto.
24.14
Landlord Exculpation
. It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord and the Landlord Parties hereunder (including any successor landlord) and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the ownership interest of Landlord in the Building (including any rents, profits and proceeds thereof), and neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.
24.15
Entire Agreement
. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease.
24.16
Right to Lease
. Landlord reserves the absolute right to effect such other tenancies in the Building, the Other Existing Building and/or in any other buildings and/or any other portions of the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building, the Other Existing Building or Project.
24.17
Force Majeure
. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except with respect to Tenant's obligations under the Tenant Work Letter (collectively, the "
Force Majeure
"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.
24.18
Waiver of Redemption by Tenant
. Tenant hereby waives for Tenant and for all those claiming under Tenant all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.
24.19
Notices
. All notices, demands, statements or communications (collectively, "
Notices
") given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant at the appropriate address set forth in
Section 5
of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in
Section 3
of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given on the date it is mailed as provided in this
Section 24.19
or upon the date personal delivery is made. If Tenant
is notified of the identity and address of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant's exercising any remedy available to Tenant.
24.20
Joint and Several
. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.
24.21
Authority
. If Tenant is a corporation or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the state in which the Project is located and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. Tenant confirms that it is not in violation of any executive order or similar governmental regulation or law, which prohibits terrorism or transactions with suspected or confirmed terrorists or terrorist entities or with persons or organizations that are associated with, or that provide any form of support to, terrorists. Tenant further confirms that it will comply throughout the Term of this Lease, with all governmental laws, rules or regulations governing transactions or business dealings with any suspected or confirmed terrorists or terrorist entities, as identified from time to time by the U.S. Treasury Department's Office of Foreign Assets Control or any other applicable governmental entity.
24.22
Jury Trial; Attorneys' Fees
. IF EITHER PARTY COMMENCES LITIGATION AGAINST THE OTHER FOR THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR THE BREACH HEREOF OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER, THE PARTIES HERETO AGREE TO AND HEREBY DO WAIVE ANY RIGHT TO A TRIAL BY JURY. In the event of any such commencement of litigation, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment.
24.23
Governing Law
. This Lease shall be construed and enforced in accordance with the laws of the state in which the Project is located.
24.24
Submission of Lease
. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant and Landlord's lender holding a lien with respect to the Building has approved this Lease and the terms and conditions hereof.
24.25
Brokers
. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in
Section 12
of the Summary (the "
Brokers
"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party's dealings with any real estate broker or agent other than the Brokers. Tenant further represents and warrants to Landlord that Tenant will not receive (i) any portion of any potential brokerage commission or finder's fee payable to the Broker in connection with this Lease, or (ii) any other form of compensation or incentive from the Broker with respect to this transaction.
24.26
Independent Covenants
. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Project or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.
24.27
Building Name and Signage
. Landlord shall have the right at any time to change the name of the Other Existing Building and/or Project (but shall not name or change the name of the Building) and to install, affix and maintain any and all signs on the exterior of the Other Existing Building and/or Project and any portion of the Project as Landlord may, in Landlord's sole discretion, desire. Tenant shall not use the names of the Other Existing Building and/or Project or use pictures or illustrations of the Other Existing Building and/or Project in advertising or other publicity, without the prior written consent of Landlord.
24.28
Approvals
. Whenever the Lease requires an approval, consent, determination, selection or judgment by either Landlord or Tenant, unless another standard is expressly set forth, such approval, consent, 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.
24.29
Landlord's Construction
. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, the Other Existing Building, Project, or any part thereof and that no representations or warranties respecting the condition of the Premises, the Building, the Other Existing Building, and/or Project have been made by Landlord to Tenant, except as
specifically set forth in this Lease. However, Tenant acknowledges that Landlord may from time to time, at Landlord's sole option, renovate, improve, alter, or modify (collectively, the "
Renovations
") the Building, Premises, the Other Existing Building, and/or Project, including without limitation the Parking Facilities, Common Areas, systems and equipment, roof, and structural portions of the same, which Renovations may include, without limitation, (i) modifying the Common Areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (ii) installing new carpeting, lighting, and wall coverings in the Building Common Areas, and in connection with such Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, the Other Existing Building and/or Project, limit or eliminate access to portions of the Project, including portions of the Common Areas, or perform work in the Building, the Other Existing Building and/or Project, which work may create noise, dust or leave debris in the Building, the Other Existing Building and/or Project. Tenant hereby agrees that such Renovations and Landlord's actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Renovations or Landlord's actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord's actions in connection with such Renovations. Landlord shall use commercially reasonable efforts to minimize any unreasonable interference with Tenant's use and occupancy of the Premises as a result of any Renovations by Landlord permitted under this Section 24.29.
24.30
Financing Contingency
. Landlord and Tenant acknowledge and agree that the effectiveness of this Lease is expressly conditioned and contingent on Landlord's receipt of written approval of the Lease from its lenders. Landlord shall diligently pursue such approvals but Landlord shall not be subject to any liability in the event Landlord is unable to obtain all such approvals.
///continued on next page///
IN WITNESS WHEREOF
, Landlord and Tenant have caused this Lease to be executed the day and date first above written.
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"
LANDLORD":
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AUTOMATION PARKWAY OWNER LLC,
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a Delaware limited liability company,
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By:
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/s/ Arvind Chary
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Name: Arvind Chary
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Its: Authorized Signatory
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"
TENANT
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QUANTENNA COMMUNICATIONS, INC.,
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a Delaware limited liability company,
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By:
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/s/ Tom MacMitchell
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Name:
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Tom MacMitchell
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Its:
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General Counsel
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By:
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/s/ Sean Sobers
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Name:
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Sean Sobers
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Its:
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CFO
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*** If Tenant is a CORPORATION, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing. The Lease must be executed by the chairman of the board, president or vice president
and
the chief financial officer, secretary, assistant treasurer or assistant secretary, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event, the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.
EXHIBIT B
TENANT WORK LETTER
This Work Letter ("
Work Letter
") sets forth the terms and conditions relating to the construction of improvements for the Premises. All references in this Work Letter to the "Lease" shall mean the relevant portions of the Lease to which this Work Letter is attached as
Exhibit B
.
SECTION 1
BASE, SHELL AND CORE
Tenant hereby accepts the base, shell and core (i) of the Premises and (ii) of the floor(s) of the Building on which the Premises are located (collectively, the “
Base, Shell and Core
”), in its current “
AS-IS
” condition existing as of the date of the Lease and the Lease Commencement Date. Except for the Tenant Improvement Allowance set forth below, Landlord shall not be obligated to make or pay for any alterations or improvements to the Premises, the Building, the Project or the Real Property.
SECTION 2
TENANT IMPROVEMENTS
2.1
Tenant Improvement Allowance
. Tenant shall be entitled to a one-time tenant improvement allowance (the "
Tenant Improvement Allowance
") in the amount of up to, but not exceeding $12.00 per rentable square foot of the Premises (
i.e.
, up to $1,010,496.00, based on 84,208 rentable square feet in the Premises), for the costs relating to the initial design and construction of Tenant's improvements which are permanently affixed to the Premises (the "
Tenant Improvements
"). In no event shall Landlord be obligated to make disbursements pursuant to this Work Letter in a total amount which exceeds the Tenant Improvement Allowance. Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as such term is defined below). Notwithstanding the foregoing, following completion of the Tenant Improvements, in the event a portion of the Tenant Improvement Allowance remains unused, then up to $252,624.00 (i.e., 25% of the Tenant Improvement Allowance) of such unused portion of the Tenant Improvement Allowance may be utilized by Tenant for furniture, fixtures, equipment, moving expenses, and telecommunications or other cabling.
2.2
Disbursement of the Tenant Improvement Allowance
. Except as otherwise set forth in this Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursement shall be made pursuant to Landlord's standard disbursement process), only for the following items and costs (collectively, the "
Tenant Improvement Allowance Items
"):
2.2.1 payment of the fees of the "Architect" and the "Engineers", as those terms are defined in
Section 3.1
of this Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord's consultants in connection with the preparation and review of the "Construction Drawings", as that term is defined in
Section 3.1
of this Work Letter;
2.2.2 the payment of plan check, permit and license fees relating to construction of the Tenant Improvements;
2.2.3 the cost of construction of the Tenant Improvements, including, without limitation, contractors' fees and general conditions, testing and inspection costs, costs of utilities, trash removal, parking and hoists, and the costs of after-hours freight elevator usage;
2.2.4 the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;
2.2.5 the cost of any changes to the Construction Drawings or Tenant Improvements required by Code or any other applicable laws;
2.2.6 sales and use taxes and Title 24 fees;
2.2.7 the costs and expenses associated with complying with all national, state and local codes, including California Energy Code, Title 24, including, without limitation, all costs associated with any lighting or HVAC retrofits required thereby;
2.2.8 the "Landlord Supervision Fee", as that term is defined in S
ection 4.3.2
of this Work Letter; and
2.2.9 all other costs to be expended by Landlord in connection with the construction of the Tenant Improvements.
2.3
Specifications for Building Standard Components
. Landlord has established specifications (the "
Specifications
") for the Building standard components to be used in the construction of the Tenant Improvements in the Premises, which Specifications have been received by Tenant. Unless otherwise agreed to by Landlord, the Tenant Improvements shall comply with the Specifications. Landlord may make changes to the Specifications from time to time.
SECTION 3
CONSTRUCTION DRAWINGS
3.1
Selection of Architect/Construction Drawings
. Landlord shall retain an architect/space planner (the "
Architect
") to prepare the "Construction Drawings", as that term is defined in this
Section 3.1
. Landlord shall retain Landlord's engineering consultants (the "
Engineers
") to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "
Construction Drawings
". Notwithstanding that any Construction Drawings are reviewed by Landlord or prepared by its Architect, Engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's Architect, Engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.
3.2
Final Space Plan
. Within five (5) business days of the full execution and delivery of the Lease by Landlord and Tenant, Tenant shall meet with Landlord's Architect and provide Landlord's Architect with information regarding the preliminary layout and designation of all proposed offices, rooms and other partitioning, and their intended use and equipment to be contained therein (the "
Information
"). Landlord and Architect shall, based on such Information (subject to changes reasonably required by Landlord), prepare the final space plan for Tenant Improvements in the Premises (collectively, the "
Final Space Plan
"), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Tenant for Tenant's approval. Tenant shall approve or reasonably disapprove the Final Space Plan or any revisions thereto within five (5) business days after Landlord delivers the Final Space Plan or such revisions to Tenant;
provided
,
however
, that Tenant may only disapprove the Final Space Plan to the extent the same is not (subject to changes reasonably required by Landlord) in substantial conformance with the Information provided by Tenant to Architect ("
Space Plan Design Problem
"). Tenant's failure to disapprove the Final Space Plan for any Space Plan Design Problem or any revisions thereto by written notice to Landlord (which notice shall specify in detail the reasonable reasons for Tenant's disapproval pertaining to any Space Plan Design Problem) within said five (5) business day period shall be deemed to constitute Tenant's approval of the Final Space Plan or such revisions.
3.3
Final Working Drawings
. Based on the Final Space Plan, Landlord shall cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the "
Final Working Drawings
") and shall submit the same to Tenant for Tenant's approval. The Final Working Drawings shall incorporate modifications to the Final Space Plan as necessary to comply with the floor load and other structural and system requirements of the Building. To the extent that the finishes and specifications are not completely set forth in the Final Space Plan for any portion of the Tenant Improvements depicted thereon, the actual specifications and finish work shall be in accordance with the Specifications. Tenant shall approve or reasonably disapprove the Final Working Drawings or any revisions thereto within five (5) business days after Landlord delivers the Final Working Drawings or any revisions thereto to Tenant;
provided
,
however
, that Tenant may only disapprove the Final Working Drawings to the extent the same are not (subject to changes reasonably required by Landlord) in substantial conformance with the Final Space Plan ("
Working Drawing Design Problem
"). Tenant's failure to reasonably disapprove the Final Working Drawings or any revisions thereto by written notice to Landlord (which notice shall specify in detail the reasonable reasons for Tenant's disapproval pertaining to any Working Drawing Design Problem) within said five (5) business day period shall be deemed to constitute Tenant's approval of the Final Working Drawings or such revisions.
3.4
Approved Working Drawings
. The Final Working Drawings shall be approved or deemed approved by Tenant (the "
Approved Working Drawings
") prior to the commencement of the construction of the Tenant Improvements. Landlord shall cause the Architect to submit the Approved Working Drawing to the applicable local governmental agency for all applicable building permits necessary to allow "Contractor", as that term is defined in
Section 4.1
of this Work Letter, to commence and fully complete the construction of the Tenant Improvements (the "
Permits
"). No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord,
provided
that Landlord may withhold its consent, in its sole discretion, to any change in the Approved Working Drawings, if such change would directly or indirectly delay the Substantial Completion of the Premises (unless Tenant agrees in writing that any such delays resulting from the changes and requested changes constitute Tenant Delays).
3.5
Time Deadlines
. Tenant shall use its best efforts to cooperate with Architect, the Engineers, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the Permits, and with Contractor, for approval of the "Cost Proposal", as that term is defined in
Section 4.2
below as soon as possible after the execution of the Lease and, in this regard, to the extent Landlord considers such meeting(s) to be reasonably necessary, Tenant shall meet with Landlord on a weekly basis to discuss Tenant's progress in connection with the same.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1
Contractor
. Landlord shall select and retain a general contractor to construct the Tenant Improvements in Landlord’s sole discretion. Landlord shall deliver to Tenant notice of its selection of the contractor upon such selection, which contractor shall thereafter be the "
Contractor
" hereunder.
4.2
Cost Proposal
. After the Approved Working Drawings are signed by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the construction of the Tenant Improvements (the "
Cost Proposal
"). Notwithstanding the foregoing, portions of the cost of the Tenant Improvements may be delivered to Tenant as such portions of the Tenant Improvements are priced by Contractor (on an individual item-by-item or trade-by-trade basis), even before the Approved Working Drawings are completed (the "
Partial Cost Proposal
"). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of the same (or, as to a Partial Cost Proposal, within two (2) business days of receipt of the same). The date by which Tenant must approve and deliver the Cost Proposal, or the last Partial Cost Proposal to Landlord, as the case may be, shall be known hereafter as the "
Cost Proposal Delivery Date
". The total of all Partial Cost Proposals, if any, shall be known as the Cost Proposal.
4.3
Construction of Tenant Improvements by Landlord's Contractor under the Supervision of Landlord
.
4.3.1
Over-Allowance Amount
. On the Cost Proposal Delivery Date, Tenant shall deliver to Landlord cash in an amount (the "
Over-Allowance Amount
") equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions shall be added to the Cost Proposal and shall be paid by Tenant to Landlord immediately upon Landlord's request to the extent such additional costs increase any existing Over-Allowance Amount or result in an Over-Allowance Amount. Following completion of the Tenant Improvements, Landlord shall deliver to Tenant a final cost statement which shall indicate the final costs of the Tenant Improvement Allowance Items, and if such cost statement indicates that Tenant has underpaid or overpaid the Over-Allowance Amount, then within ten (10) business days after receipt of such statement, Tenant shall deliver to Landlord the amount of such underpayment or Landlord shall return to Tenant the amount of such overpayment, as the case may be.
4.3.2
Landlord Supervision
. After Landlord selects the Contractor, Landlord shall independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the "
Landlord Supervision Fee
") to Landlord in an amount equal to the product of (i) five percent (5%) and (ii) an amount equal to the Tenant Improvement Allowance plus the Over-Allowance Amount (as such Over-Allowance Amount may increase pursuant to the terms of this Work Letter).
4.3.3
Contractor's Warranties and Guarantees
. Landlord shall cause the Contractor performing the Tenant Improvements to warrant that the Tenant Improvements will be free from any defects for a period of one year following completion. Landlord hereby assigns to Tenant all warranties and guarantees by Contractor relating to the Tenant Improvements, which assignment shall be on a non‑exclusive basis such that the warranties and guarantees may be enforced by Landlord and/or Tenant, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements.
SECTION 5
SUBSTANTIAL COMPLETION; LEASE COMMENCEMENT DATE
5.1
Substantial Completion
. For purposes of the Lease, including for purposes of determining the Lease Commencement Date (as set forth in
Section 7.2
of the Summary), the Premises shall be "
Ready for Occupancy
" upon Substantial Completion of the Premises. For purposes of the Lease, "
Substantial Completion
" of the Premises shall occur upon (i) the completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punchlist items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Contractor, and (ii) Landlord has obtained from the appropriate governmental authority a temporary, conditional or final certificate of occupancy or signed building permit (or equivalent), if one is required, for the Tenant Improvements permitting occupancy of the Premises by Tenant.
5.2
Tenant Delays
. If there shall be a delay or there are delays in the Substantial Completion of the Premises as a direct, indirect, partial, or total result of any of the following (collectively, "
Tenant Delays
"):
5.2.1 Tenant's failure to timely approve any matter requiring Tenant's approval, including a Partial Cost Proposal or the Cost Proposal and/or Tenant's failure to timely perform any other obligation or act required of Tenant hereunder;
5.2.2 a breach by Tenant of the terms of this Work Letter or the Lease (including, without limitation, any anticipatory breach by Tenant described in
Section 6.5
below);
5.2.3 Tenant's request for changes in the Construction Drawings;
5.2.4 Tenant's requirement for materials, components, finishes or improvements which are not available in a reasonable time (based upon the anticipated date of the Lease Commencement Date) or which are different from, or not included in, the Specifications;
5.2.5 changes to the Base, Shell and Core required by the Approved Working Drawings;
5.2.6 any changes in the Construction Drawings and/or the Tenant Improvements required by (i) applicable laws if such changes are directly attributable to Tenant's use of the Premises or Tenant's specialized tenant improvement(s) (as reasonably determined by Landlord), and/or (ii) Landlord pursuant to
Section 4.2
above; or
5.2.7 any other acts or omissions of Tenant, or its agents, or employees;
then, notwithstanding anything to the contrary set forth in the Lease and regardless of the actual date of the Substantial Completion of the Premises, the Lease Commencement Date (as set forth in
Section 7.2
of the Summary) shall be deemed to be the date the Lease Commencement Date would have occurred if no Tenant Delay or Delays, as set forth above, had occurred.
SECTION 6
MISCELLANEOUS
6.1
Tenant's Entry Into the Premises Prior to Substantial Completion
. Subject to the terms hereof and
provided
that Tenant and its agents do not interfere with, or delay, Contractor's work in the Building and the Premises, at Landlord's reasonable discretion, Contractor shall allow Tenant access to the Premises prior to the Substantial Completion of the Premises for the purpose of Tenant installing Tenant’s furniture, fixtures and equipment (including Tenant's data and telephone equipment) and otherwise readying the Premises for Tenant’s occupancy. Prior to Tenant's entry into the Premises as permitted by the terms of this
Section 6.1
, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant's entry. In connection with any such entry, Tenant acknowledges and agrees that Tenant's employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, interfere with Landlord or Landlord's Contractor, agents or representatives in performing work in the Project, the Building and the Premises, or interfere with the general operation of the Building and/or the Project. If at any time any such person representing Tenant shall not be cooperative or shall otherwise cause or threaten to cause any such disharmony or interference, including, without limitation, labor disharmony, and Tenant fails to immediately institute and maintain corrective actions as directed by Landlord, then Landlord may revoke Tenant's entry rights upon twenty-four (24) hours' prior written notice to Tenant. Tenant acknowledges and agrees that any such entry into and occupancy of the Premises or any portion thereof by Tenant or any person or entity working for or on behalf of Tenant shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, excluding only the covenant to pay Rent (until the occurrence of the Lease Commencement Date). Tenant further acknowledges and agrees that Landlord shall not be liable for any injury, loss or damage which may occur to any of Tenant's work made in or about the Premises in connection with such entry or to any property placed therein prior to the Lease Commencement Date, the same being at Tenant's sole risk and liability. Tenant shall be liable to Landlord for any damage to any portion of the Premises, including the Tenant Improvement work, caused by Tenant or any of Tenant's employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In the event that the performance of Tenant's work in connection with such entry causes extra costs to be incurred by Landlord or requires the use of any Building services, Tenant shall promptly reimburse Landlord for such extra costs and/or shall pay Landlord for such Building services at Landlord's standard rates then in effect. In addition, Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant's actions pursuant to this
Section 6.1
.
6.2
Tenant's Representative
. Tenant has designated ________________
_________
as its sole representative with respect to the matters set forth in this Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.
6.3
Landlord's Representative
. Landlord has designated Vanessa Reyes as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.
6.4
Time of the Essence in This Work Letter
. Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord's sole option, at the end of said period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.
6.5
Tenant's Lease Default
. Notwithstanding any provision to the contrary contained in the Lease, if an event of default by Tenant as described in
Section 19.1
of the Lease or any default by Tenant under this Work Letter (which, for purposes hereof, shall include, without limitation, the delivery by Tenant to Landlord of any oral or written
notice instructing Landlord to cease the design and/or construction of the Tenant Improvements and/or that Tenant does not intend to occupy the Premises, and/or any other anticipatory breach of the Lease) has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law and/or in equity, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in
Section 5.2
of this Work Letter), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such inaction by Landlord). In addition, if the Lease is terminated prior to the Lease Commencement Date, for any reason due to a default by Tenant as described in
Section 19.1
of the Lease or under this Work Letter (including, without limitation, any anticipatory breach described above in this
Section 6.5
), then (A) Tenant shall be liable to Landlord for all damages available to Landlord pursuant to the Lease and otherwise available to Landlord at law and/or in equity by reason of a default by Tenant under the Lease or this Work Letter (including, without limitation, the remedies available to Landlord pursuant to California Civil Code Section 1951.2), and (B) Tenant shall pay to Landlord, as Additional Rent under the Lease, within five (5) days of receipt of a statement therefor, any and all costs incurred by Landlord (including any portion of the Tenant Improvement Allowance disbursed by Landlord) and not reimbursed or otherwise paid by Tenant through the date of such termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Tenant Improvements and restoration costs related thereto. For purposes of calculating the damages available to Landlord under California Civil Code 1951.2, the Lease Commencement Date shall be deemed to be the date which the Lease Commencement Date would have otherwise occurred but for such default by Tenant.
6.6
Termination
. Notwithstanding anything in the Lease (including this Work Letter) to the contrary, Tenant acknowledges and agrees that Landlord shall have the right to terminate the Lease by giving Tenant written notice of the exercise of such option (in which event the Lease shall cease and terminate as of the date of such notice) in the event Landlord is unable to obtain the Permits for the Tenant Improvements within one hundred eighty (180) days from the date of the full execution and delivery of the Lease by Landlord and Tenant. Upon such termination, the parties shall be relieved of all further obligations under the Lease except for those obligations under the Lease which expressly survive the expiration or sooner termination of the Lease.
EXHIBIT C
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE
("
Amendment
") is made and entered into effective as of _________________, 20__, by and between
AUTOMATION PARKWAY OWNER LLC
, a Delaware limited liability company ("
Landlord
") and
QUANTENNA COMMUNICATIONS, INC.
, a Delaware corporation ("
Tenant
").
R E C I T A L S
:
A. Landlord and Tenant entered into that certain Office Lease dated as of February __, 2017 (the "
Lease
") pursuant to which Landlord leased to Tenant and Tenant leased from Landlord certain "Premises", as described in the Lease, in that certain Building located at 1704 Automation Parkway, San Jose, California 95131.
B. Except as otherwise set forth herein, all capitalized terms used in this Amendment shall have the same meaning as such terms have in the Lease.
C. Landlord and Tenant desire to amend the Lease to confirm the commencement and expiration dates of the term, as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
Confirmation of Dates
. The parties hereby confirm that (a) the Premises are Ready for Occupancy, and (b) the term of the Lease commenced as of ____________________ (the "
Lease Commencement Date
") for a term of _________________________ ending on _______________________ (unless sooner terminated as provided in the Lease).
2.
No Further Modification
. Except as set forth in this Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day and year first above written.
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"
LANDLORD":
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AUTOMATION PARKWAY OWNER LLC,
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a Delaware limited liability company,
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By:
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DO NOT SIGN
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Name:
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"
TENANT
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QUANTENNA COMMUNICATIONS, INC.,
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a Delaware limited liability company,
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By:
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DO NOT SIGN
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Name:
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Its:
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By:
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EXHIBIT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building or Real Property.
1.
Tenant shall not place any lock(s) on any door, or install any security system (including, without limitation, card key systems, alarms or security cameras), in the Premises or Building without Landlord's prior written consent, which consent shall not be unreasonably withheld, and Landlord shall have the right to retain at all times and to use keys or other access codes or devices to all locks and/or security system within and into the Premises. All keys shall be returned to Landlord at the expiration or early termination of this Lease. Further, if and to the extent Tenant re-keys, re-programs or otherwise changes any locks at the Project, Tenant shall be obligated to restore all such locks and key systems to be consistent with the master lock and key system at the Building, all at Tenant's sole cost and expense.
2.
All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises, unless electrical hold backs have been installed. Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises.
3.
Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building.
4.
Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. All damage done to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Tenant and any expense of said damage or injury shall be borne by Tenant.
5.
Landlord shall have the right to control and operate the public portions of the Project, the public facilities, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building.
6.
No signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building, except those of such color, size, style and in such places as are first approved in writing by Landlord.
7.
The requirements of Tenant will be attended to only upon application at the management office of the Real Property or at such office location designated by Landlord.
8.
Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord or Landlord's agents to prevent same.
9.
The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it.
10.
Tenant shall not overload the floor of the Premises. Tenant shall not mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord's consent first had and obtained; provided, however, Landlord's prior consent shall not be required with respect to Tenant's placement of pictures and other normal office wall hangings on the interior walls of the Premises (but at the end of the Term, Tenant shall repair any holes and other damage to the Premises resulting therefrom).
11.
Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine. Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord.
12.
Tenant shall not use any method of heating or air conditioning other than that which meet federal, state and local code.
13.
No inflammable, explosive or dangerous fluids or substances shall be used or kept by Tenant in the Premises, Building or about the Property, except for those substances as are typically found in similar premises used for general office purposes and are being used by Tenant in a safe manner and in accordance with all applicable Laws, rules and regulations. Tenant shall not, without Landlord's prior written consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Property, any asbestos-containing materials or any solid, liquid or gaseous material now or subsequently considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable environmental Laws which may now or later be in effect. Tenant shall
comply with all Laws pertaining to and governing the use of these materials by Tenant, and shall remain solely liable for the costs of abatement and removal.
14.
Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner reasonably offensive or objectionable other occupants of the Project by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therewith.
15.
Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises or the Building. Tenant shall not use, or permit any part of the Premises to be used, for lodging, sleeping or for any illegal purpose.
16.
The Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Underwriters' laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.
17.
Landlord will approve where and how telephone and telegraph wires and other cabling are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone, call boxes and other office equipment and/or systems affixed to the Premises shall be subject to the approval of Landlord. Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building.
18.
Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations or cause harm to Building occupants and/or property.
19.
All contractors, contractor's representatives and installation technicians performing work in the Building shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, and shall be required to comply with Landlord's standard rules, regulations, policies and procedures, which may be revised from time to time.
20.
Tenant, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use the same only as a means of ingress and egress for the Premises.
21.
Tenant at all times shall maintain the entire Premises in a neat and clean, first class condition, free of debris. Tenant shall not place items, including, without limitation, any boxes, files, trash receptacles or loose cabling or wiring, in or near any window to the Premises which would be visible anywhere from the exterior of the Premises.
22.
Tenant shall comply with and participate in any program for metering or otherwise measuring the use of utilities and services, including, without limitation, programs requiring the disclosure or reporting of the use of any utilities or services. Tenant shall also cooperate and comply with, participate in, and assist in the implementation of (and take no action that is inconsistent with, or which would result in Landlord, the Building and/or the Real Property failing to comply with the requirements of) any conservation, sustainability, recycling, energy efficiency, and waste reduction programs, environmental protection efforts and/or other programs that are in place and/or implemented from time to time at the Building and/or the Real Property, including, without limitation, any required reporting, disclosure, rating or compliance system or program (including, but not limited to any LEED [Leadership in Energy and Environmental Design] rating or compliance system, including those currently coordinated through the U.S. Green Building Council).
23.
Tenant shall comply with all safety, fire protection and evacuation procedures and regulations reasonably established by Landlord or any governmental agency.
24.
Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, when the Premises are not occupied, or when the Premises' entry is not manned by Tenant on a regular basis.
25.
No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.
26.
The washing and/or detailing of or, the installation of windshields, radios, telephones in or general work on, automobiles shall not be allowed on the Real Property, except under specific arrangement with Landlord.
27.
Food vendors shall be allowed in the Building upon receipt of a written request from the Tenant. The food vendor shall service only the tenants that have a written request on file in the management office of the Real Property. Under no circumstance shall the food vendor display their products in a public or Common Area including corridors and elevator lobbies. Any failure to comply with this rule shall result in immediate permanent withdrawal of the vendor
from the Building. Tenants shall obtain ice, drinking water, linen, barbering, shoe polishing, floor polishing, cleaning, janitorial, plant care or other similar services only from vendors who have registered with the Building office and who have been approved by Landlord for provision of such services in the Premises.
28.
Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.
29.
Tenant shall comply with any non-smoking ordinance adopted by any applicable governmental authority. Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Common Areas, unless the Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building. Landlord shall have the right to designate the Building (including the Premises) as a non-smoking building.
30.
Tenant shall not take any action which would violate Landlord's labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute, or interfere with Landlord's or any other tenant's or occupant's business or with the rights and privileges of any person lawfully in the Building ("
Labor Disruption
"). Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume. Tenant shall have no claim for damages against Landlord or and its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagees, or agents.
31.
No tents, shacks, temporary or permanent structures of any kind shall be allowed on the Real Property. No personal belongings may be left unattended in any Common Areas.
32.
Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant that in Landlord's sole opinion may impair the reputation of the Building or its desirability. Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately.
33.
Landlord shall have the right to designate and approve standard window coverings for the Premises and to establish rules to assure that the Building presents a uniform exterior appearance. Tenant shall ensure, to the extent reasonably practicable, that window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun.
PARKING RULES AND REGULATIONS
(i) Landlord reserves the right to establish and reasonably change the hours for the parking areas, on a non-discriminatory basis, from time to time. Tenant shall not store or permit its employees to store any automobiles in the parking areas without the prior written consent of the operator. Except for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the parking areas, or on the Property. The Parking Facilities may not be used by Tenant or its agents for overnight parking of vehicles. If it is necessary for Tenant or its employees to leave an automobile in the Parking Facility overnight, Tenant shall provide the operator with prior notice thereof designating the license plate number and model of such automobile.
(ii) Tenant (including Tenant's agents) will use the parking spaces solely for the purpose of parking passenger model cars, small vans and small trucks and will comply in all respects with any reasonable rules and regulations that may be promulgated by Landlord from time to time with respect to the Parking Facilities.
(iii) Cars must be parked entirely within the stall lines painted on the floor, and only small cars may be parked in areas reserved for small cars.
(iv) All directional signs and arrows must be observed.
(v) The speed limit shall be 5 miles per hour.
(vi) Parking spaces reserved for handicapped persons must be used only by vehicles properly designated.
(vii) Parking is prohibited in all areas not expressly designated for parking, including without limitation:
(a) areas not striped for parking;
(b) aisles;
(c) where "no parking" signs are posted;
(d) ramps; and
(e) loading zones.
(viii) Neither Landlord nor any operator of the Parking Facilities within the Project, as the same are designated and modified by Landlord, in its sole discretion, from time to time will be liable for loss of or damage to any vehicle or any contents of such vehicle or accessories to any such vehicle, or any property left in any of the Parking Facilities, resulting from fire, theft, vandalism, accident, conduct of other users of the Parking Facilities and other persons, or any other casualty or cause. Further, Tenant understands and agrees that: (i) Landlord will not be obligated to provide any traffic control, security protection or operator for the Parking Facilities; (ii) Tenant uses the Parking Facilities at its own risk; and (iii) Landlord will not be liable for personal injury or death, or theft, loss of or damage to property. Tenant indemnifies and agrees to hold Landlord, any operator of the Parking Facilities and their respective agents harmless
from and against any and all claims, demands, and actions arising out of the use of the Parking Facilities by Tenant and its agents, whether brought by any of such persons or any other person.
(ix) Tenant will ensure that any vehicle parked in any of the parking spaces will be kept in proper repair and will not leak excessive amounts of oil or grease or any amount of gasoline. If any of the parking spaces are at any time used: (i) for any purpose other than parking as provided above; (ii) in any way or manner reasonably objectionable to Landlord; or (iii) by Tenant after default by Tenant under the Lease, Landlord, in addition to any other rights otherwise available to Landlord, may consider such default an event of default under the Lease.
(x) Tenant's right to use the Parking Facilities will be in common with other tenants of the Project and with other parties permitted by Landlord to use the Parking Facilities. Landlord reserves the right to assign and reassign, from time to time, particular parking spaces for use by persons selected by Landlord, provided that Tenant's rights under the Lease are preserved. Landlord will not be liable to Tenant for any unavailability of Tenant's designated spaces, if any, nor will any unavailability entitle Tenant to any refund, deduction, or allowance. Tenant will not park in any numbered space or any space designated as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME PARKING (or similar designation).
(xi) If the Parking Facilities are damaged or destroyed, or if the use of the Parking Facilities is limited or prohibited by any governmental authority, or the use or operation of the Parking Facilities is limited or prevented by strikes or other labor difficulties or other causes beyond Landlord's control, Tenant's inability to use the parking spaces will not subject Landlord or any operator of the Parking Facilities to any liability to Tenant and will not relieve Tenant of any of its obligations under the Lease and the Lease will remain in full force and effect. Tenant will pay to Landlord upon demand, and subject to Section 10.4, Tenant shall be responsible for any damage to the Parking Facilities, or any equipment, fixtures, or signs used in connection with the Parking Facilities and any adjoining buildings or structures that is caused by Tenant or any of its agents.
(xii) Tenant has no right to assign or sublicense any of its rights in the parking passes, except as part of a permitted assignment or sublease of the Lease; however, Tenant may allocate the parking passes among its employees.
(xiii) Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees or guests. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Building and/or Real Property. Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building and Real Property, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord shall not be responsible to Tenant or to any other person for the nonobservance of the Rules and Regulations by another tenant or other person. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.
EXHIBIT E
FORM OF SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
(this “
Agreement
”) is entered into as of ________________, 201__ (the “
Effective Date
”) by and between [
STARWOOD PROPERTY MORTGAGE, L.L.C.
, a Delaware limited liability company] (together with its successors and assigns, the “
Lender
”), and ___________________________, a __________________ (together with its permitted successors and assigns, the “
Tenant
”), with reference to the following facts:
A. _______________________, a ___________________, whose address is ______________________________ (the “
Landlord
”) owns fee simple title or a leasehold interest in the real property described in Exhibit “A” attached hereto (the “
Property
”).
B. Lender is the current holder of
a loan to Landlord in the original principal amount of ______________________ Dollars ($______________) (the “
Loan
”).
C. The Loan is secured by, among other things, that certain [Mortgage and Assignment of Leases
and Rents and Security Agreement]
dated _________, 20__ in favor of Lender, recorded on __________, 20__ in the _________ County Clerk’s Office as Instrument Number _____________ in Book _______, Page _______ (as may be further amended, increased, renewed, extended, spread, consolidated, severed, restated, or otherwise changed from time to time, the “
Mortgage
”).
D. Pursuant to that certain [Lease] effective ______________, (the “
Lease
”) [as amended by _________], Landlord demised to Tenant a portion
of the Property consisting of the following (the “
Leased Premises
”): ________________________________________.
E. Tenant and Lender desire to agree upon the relative priorities of their interests in the Property and their rights and obligations if certain events occur.
NOW, THEREFORE, for good and sufficient consideration, Tenant and Lender agree:
Definitions
. The following terms shall have the following meanings for purposes of this Agreement.
Foreclosure Event
. A “
Foreclosure Event
” means: (i) foreclosure under the Mortgage; (ii) any other exercise by Lender of rights and remedies (whether under the Mortgage or under applicable law, including bankruptcy law) as holder of the Loan and/or the Mortgage, as a result of which a Successor Landlord becomes owner of the Property; or (iii) delivery by Landlord to Lender (or its designee or nominee) of a deed or other conveyance of Landlord’s interest in the Property in lieu of any of the foregoing.
Former Landlord
. A “
Former Landlord
” means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.
Offset Right
. An “
Offset Right
” means any right or alleged right of Tenant to any offset, defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim, reduction, deduction, or abatement against Tenant’s payment of Rent or performance of Tenant’s other obligations under the Lease, arising (whether under the Lease or under applicable law) from Landlord’s breach or default under the Lease.
Rent
. The “
Rent
” means any fixed rent, base rent or additional rent under the Lease.
Successor Landlord
. A “
Successor Landlord
” means any party that becomes owner of the Property as the result of a Foreclosure Event.
Termination Right
. A “
Termination Right
” means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlord’s breach or default under the Lease; provided, however, that Termination Right shall not include the exercise of any express contractual rights under the Lease, including those relating to any fire, casualty or condemnation..
Other Capitalized Terms
.
If any capitalized term is used in this Agreement and no separate definition is contained in this Agreement, then such term shall have the same respective definition as set forth in the Lease.
Subordination
. The Lease, as the same may hereafter be modified, amended or extended, shall be, and shall at all times remain, subject and subordinate to the terms conditions and provisions of the Mortgage, the lien imposed by the Mortgage, and all advances made under the Mortgage.
Nondisturbance, Recognition and Attornment
.
No Exercise of Mortgage Remedies Against Tenant
. So long as the Tenant is not in default under this Agreement or under the Lease beyond any applicable grace or cure periods (an “
Event of Default
”), Lender (i) shall not terminate or disturb Tenant’s possession of the Leased Premises under the Lease, except in accordance with the terms of the Lease and this Agreement and (ii) shall not name or join Tenant as a defendant in any exercise of Lender’s rights and remedies arising upon a default under the Mortgage unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies. In the latter case, Lender may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenant’s rights under the Lease or this Agreement in such action.
Recognition and Attornment
. Upon Successor Landlord taking title to the Property (i) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (ii) Tenant shall recognize and attorn to Successor Landlord as Tenant’s direct landlord under the Lease as affected by this Agreement; and (iii) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant. Tenant hereby acknowledges notice that pursuant to the Mortgage and assignment of rents, leases and profits, Landlord has granted to the Lender an absolute, present assignment of the Lease and Rents which provides that Tenant continue making payments of Rents and other amounts owed by Tenant under the Lease to or at the direction of the Landlord and to recognize the rights of Landlord under the Lease until notified otherwise in writing by the Lender. After receipt of such notice from Lender, the Tenant shall thereafter make all such payments directly to the Lender or as the Lender may otherwise direct, without any further inquiry on the part of the Tenant. Landlord consents to the foregoing and waives any right, claim or demand which Landlord may have against Tenant by reason of such payments to Lender or as Lender directs.
Further Documentation
. The provisions of this
Article 3
shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents. Tenant and Successor Landlord shall, however, confirm the provisions of this
Article 3
in writing upon request by either of them within ten (10) days of such request.
Protection of Successor Landlord
. Notwithstanding anything to the contrary in the Lease or the Mortgage, Successor Landlord shall not be liable for or bound by any of the following matters:
Claims Against Former Landlord
. Any Offset Right that Tenant may have against any Former Landlord relating to any event or occurrence before the date of attornment, including any claim for damages of any kind whatsoever as the result of any breach by Former Landlord that occurred before the date of attornment. The foregoing shall not limit either (i) Tenant’s right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of attornment or (ii) Successor Landlord’s obligation to correct any conditions that existed as of the date of attornment and violate Successor Landlord’s continuing obligations as landlord under the Lease.
Prepayments
. Any payment of Rent that Tenant may have made to Former Landlord more than thirty (30) days before the date such Rent was first due and payable under the Lease with respect to any period after the date of attornment other than, and only to the extent that, the Lease expressly required such a prepayment.
Payment; Security Deposit; Work
. Any obligation: (i) to pay Tenant any sum(s) that any Former Landlord owed to Tenant unless such sums, if any, shall have been actually delivered to Lender by way of an assumption of escrow accounts or otherwise; (ii) with respect to any security deposited with Former Landlord, unless such security deposit was actually delivered to Lender; (iii) to commence or complete any initial construction of improvements in the Leased Premises or any expansion or rehabilitation of existing improvements thereon; (iv) to reconstruct or repair improvements following a fire, casualty or condemnation; or (v) arising from representations and warranties related to Former Landlord.
Modification, Amendment or Waiver
. Any modification or amendment of the Lease, or any waiver of the terms of the Lease, made without Lender’s prior written consent.
Exculpation of Successor Landlord
. Notwithstanding anything to the contrary in this Agreement or the Lease, Successor Landlord’s obligations and liability under the Lease shall never extend beyond Successor Landlord’s (or its successors’ or assigns’) interest, if any, in the Leased Premises from time to time, including insurance and condemnation proceeds, security deposits, escrows, Successor Landlord’s interest in the Lease, and the proceeds from any sale, lease or other disposition of the Property (or any portion thereof) by Successor Landlord (collectively, the “
Successor Landlord’s Interest
”). Tenant shall look exclusively to Successor Landlord’s Interest (or that of its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement. If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlord’s Interest (or that of its successors and assigns) to collect such judgment. Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord.
Lender’s Right to Cure
. Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Offset Right or Termination Right:
Notice to Lender
. Tenant shall provide Lender with notice of the breach or default by Landlord giving rise to same (the “
Default Notice
”) and, thereafter, the opportunity to cure such breach or default as provided for below.
Lender’s Cure Period
. After Lender receives a Default Notice, Lender shall have a period of thirty (30) days beyond the time available to Landlord under the Lease in which to cure the breach or default by Landlord. Lender shall have no obligation to cure (and shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Lender agrees or undertakes otherwise in writing. In addition, as to any breach or default by Landlord the cure of which requires possession and control of the Property, provided that Lender undertakes by written notice to Tenant to exercise reasonable efforts to cure or cause to be cured by a receiver such breach or default within the period permitted by this paragraph, Lender’s cure period shall continue for such additional time (the “
Extended Cure Period
”) as Lender may reasonably require to either: (i) obtain possession and control of the Property with due diligence and thereafter cure the breach or default with reasonable diligence and continuity; or (ii) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default.
Miscellaneous
.
Notices
. Any notice or request given or demand made under this Agreement by one party to the other shall be in writing, and may be given or served by hand-delivered personal service, or by depositing the same with a reliable overnight courier service or by deposit in the United States mail, postpaid, registered or certified mail, and addressed to the party to be notified, with return receipt requested or by telefax transmission, with the original machine- generated transmit confirmation report as evidence of transmission. Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) days after it is so deposited;
provided
,
however
, delivery by overnight courier service shall be deemed effective on
the next succeeding business day after it is so deposited and notice by personal service or telefax transmission shall be deemed effective when delivered to its addressee or within two (2) hours after its transmission unless given after 3:00 p.m. on a business day, in which case it shall be deemed effective at 9:00 a.m. on the next business day. For purposes of notice, the addresses and telefax number of the parties shall, until changed as herein provided, be as follows:
If to the Lender, at:
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[Starwood Property Mortgage, L.L.C.]
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591 W. Putnam Avenue
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Greenwich, CT 06830
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Attention: Mary Anne Carlin
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Telecopy No.: (203) 485-51
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If to the Tenant, at:
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Attention:
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Telecopy No.: (___)
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Successors and Assigns
. This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns. If Lender assigns the Mortgage, then upon delivery to Tenant of written notice thereof accompanied by the assignee’s written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.
Entire Agreement
. This Agreement constitutes the entire agreement between Lender and Tenant regarding the subordination of the Lease to the Mortgage and the rights and obligations of Tenant and Lender as to the subject matter of this Agreement.
Interaction with Lease and with Mortgage
. If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement. This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Mortgage.
Lender’s Rights and Obligations
. Except as expressly provided for in this Agreement, Lender shall have no obligations to Tenant with respect to the Lease. If an attornment occurs pursuant to this Agreement, then all rights and obligations of Lender under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement.
Interpretation; Governing Law
. The interpretation, validity and enforcement of this Agreement shall be governed by and construed under the internal laws of the State in which the Leased Premises are located, excluding such State’s principles of conflict of laws.
Amendments
. This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.
Due Authorization
. Tenant represents to Lender that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions. Lender represents to Tenant that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.
Execution
. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Lender and Tenant have caused this Agreement to be executed as of the date first above written.
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LENDER:
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[STARWOOD PROPERTY MORTGAGE, L.L.C.
, a Delaware limited liability company]
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By:
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Name:
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Title:
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TENANT:
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[___________________________________]
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a____________________________________
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By:
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Name:
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Title:
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LANDLORD’S CONSENT
Landlord consents and agrees to the foregoing Agreement, which was entered into at Landlord’s request. The foregoing Agreement shall not alter, waive or diminish any of Landlord’s obligations under the Mortgage or the Lease. The above Agreement discharges any obligations of Lender under the Mortgage and related loan documents to enter into a nondisturbance agreement with Tenant. Landlord is not a party to the above Agreement.
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LANDLORD:
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[___________________________________]
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a____________________________________
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By:
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Name:
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Title:
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Dated:
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______________, 201_
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LENDER’S ACKNOWLEDGMENT
STATE OF _____________ )
) ss.
COUNTY OF ___________ )
On the ___ day of _______ in the year _______ before me, the undersigned, a Notary Public in and for said state, personally appeared ________________________, proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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Signature of Notary Public
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TENANT’S ACKNOWLEDGMENT
STATE OF _____________ )
) ss.
COUNTY OF ___________ )
On the ___ day of _______ in the year _______ before me, the undersigned, a Notary Public in and for said state, personally appeared ________________________, proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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Signature of Notary Public
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LANDLORD’S ACKNOWLEDGMENT
STATE OF _____________ )
) ss.
COUNTY OF ___________ )
On the ___ day of _______ in the year _______ before me, the undersigned, a Notary Public in and for said state, personally appeared ________________________, proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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Signature of Notary Public
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LIST OF EXHIBITS
If any exhibit is not attached hereto at the time of execution of this Agreement, it may thereafter be attached by written agreement of the parties, evidenced by initialing said exhibit.
Exhibit “A” - Legal Description of the Land
RIDER 1
EXTENSION OPTION
This
Rider 1
(the "
Rider
") is incorporated as a part of that certain Office Lease dated February __, 2017, (the "
Lease
"), by and between
AUTOMATION PARKWAY OWNER LLC,
a Delaware limited liability company ("
Landlord
"), and
QUANTENNA COMMUNICATIONS, INC.
, a Delaware corporation ("
Tenant
"), for the leasing of those certain premises located at 1704 Automation Parkway, San Jose, California, as more particularly described in the Lease (the "
Premises
"). Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease.
1.
Grant of Extension Option
. Subject to the provisions, limitations and conditions set forth in this Rider, Tenant shall have one (1) option (the "
Extension Option
") to extend the initial Lease Term for six (6) years (the "
Extension Term
").
2.
Tenant's Extension Option Notice
. Tenant shall have the right to deliver written notice to Landlord of its intent to exercise this Extension Option (the "
Extension Option Notice
"). If Landlord does not receive the Extension Option Notice from Tenant on a date which is no earlier than twenty-one (21) months and no less than eighteen (18) months prior to the expiration of the initial Lease Term, all rights under this Extension Option shall automatically terminate and shall be of no further force or effect. Upon the proper exercise of this Extension Option, subject to the provisions, limitations and conditions set forth in this Rider, the Lease Term shall be extended for the Extension Term.
3.
Establishing the Initial Base Rent for the Extension Term
. The initial Base Rent for the Extension Term shall be equal to the then Fair Market Rental Rate, as hereinafter defined. As used herein, the "
Fair Market Rental Rate
" payable by Tenant for the Extension Term shall mean the Base Rent for non-equity office and R&D tenants, as of the commencement of the lease term for the Extension Term, comparable in size, location and quality to the Premises for a comparable term, which comparable space is located in other comparable first-class buildings in the vicinity of the Building, taking into consideration all out-of-pocket concessions generally being granted at such time for such comparable space, including the condition and value of existing tenant improvements in the Premises. The Fair Market Rental Rate shall include the periodic rental increases that would be included for space leased for the period of the Extension Term.
If Landlord and Tenant are unable to agree on the Fair Market Rental Rate for the Extension Term within ten (10) days of receipt by Landlord of the Extension Option Notice for the Extension Term, Landlord and Tenant each, at its cost and by giving notice to the other party, shall appoint a competent and impartial commercial real estate broker (hereinafter "
broker
") with at least ten (10) years' full-time commercial real estate brokerage experience in the geographical area of the Premises to set the Fair Market Rental Rate for the space and term at issue. If either Landlord or Tenant does not appoint a broker within ten (10) days after the other party has given notice of the name of its broker, the single broker appointed shall be the sole broker and shall conclusively determine the Fair Market Rental Rate for the Extension Term. If two (2) brokers are appointed by Landlord and Tenant as stated in this paragraph, they shall meet promptly and attempt to set the Fair Market Rental Rate. In addition, if either of the first two (2) brokers fails to submit their opinion of the Fair Market Rental Rate within the time frames set forth below, then the single Fair Market Rental Rate submitted shall automatically be the initial monthly Base Rent for the Extension Term and shall be binding upon Landlord and Tenant. If the two (2) brokers are unable to agree within ten (10) days after the second broker has been appointed, they shall attempt to select a third broker, meeting the qualifications stated in this paragraph within ten (10) days after the last day the two (2) brokers are given to set the Fair Market Rental Rate. If the two (2) brokers are unable to agree on the third broker, either Landlord or Tenant by giving ten (10) days' written notice to the other party, can apply to the Presiding Judge of the Superior Court of the county in which the Premises is located for the selection of a third broker who meets the qualifications stated in this paragraph. Landlord and Tenant each shall bear one-half (½) of the cost of appointing the third broker and of paying the third broker's fee. The third broker, however selected, shall be a person who has not previously acted in any capacity for either Landlord or Tenant. Within fifteen (15) days after the selection of the third broker, the third broker shall select one of the two Fair Market Rental Rates submitted by the first two brokers as the Fair Market Rental Rate for the space and term at issue. The determination of the Fair Market Rental Rate by the third broker shall be conclusive and binding upon Landlord and Tenant.
In no event shall the monthly Base Rent for any period of the Extension Term as determined pursuant to this Rider, be less than the highest monthly Base Rent charged during the initial term of the Lease plus an escalation amount equal to the last escalation amount of Base Rent charged during the preceding term of the Lease. Upon determination of the initial monthly Base Rent for the Extension Term in accordance with the terms outlined above, Landlord and Tenant shall immediately execute, at Landlord's sole option, either the standard lease agreement then in use by Landlord, or an amendment to the Lease. Such new lease agreement or amendment, as the case may be, shall set forth among other things, the initial monthly Base Rent for the Extension Term and the actual commencement date and expiration date of the Extension Term. Tenant shall have no other right to extend the Lease Term under this Rider unless Landlord and Tenant otherwise agree in writing.
4.
Condition of Premises for the Extension Term
. If Tenant timely and properly exercises this Extension Option, in strict accordance with the terms contained herein Tenant shall accept the Premises in its then "
AS-IS
" condition and, accordingly, Landlord shall not be required to perform any additional improvements to the Premises.
5.
Limitations On, and Conditions To, Extension Option
. This Extension Option is personal to Tenant (and any Permitted Transferee) and may not be otherwise assigned separate from or as part of the Lease. At Landlord's option, all rights of Tenant under this Extension Option shall terminate and be of no force or effect if any of the following individual events occur or any combination thereof occur: (1) Tenant has been in monetary or other material default beyond any applicable cure period at any time during the Lease Term, or is in monetary or other material default beyond any applicable cure period of any provision of the Lease on the date Landlord receives the Extension Option Notice; and/or (2) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased all or part of the Premises in a transfer (other than pursuant to a Permitted Transfer); and/or (3) Tenant's financial condition is unacceptable to Landlord at the time the Extension Option Notice is delivered to Landlord; provided, however, that if Landlord determines that Tenant's financial condition is unacceptable, such determination must be based on good faith, taking into consideration all relevant factors; and/or (4) Tenant has failed to exercise properly this Extension Option in a timely manner in strict accordance with the provisions of this Rider; and/or (5) Tenant no longer has possession of the entire Premises pursuant to the Lease, or if the Lease has been terminated earlier, pursuant to the terms and provisions of the Lease.
6.
Time is of the Essence
. Time is of the essence with respect to each and every time period described in this Rider.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S‑8 (No. 333-214300) of Quantenna Communications, Inc. of our report
dated March 1, 2017 relating to the financial statements, which appears in this Form 10‑K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 1, 2017
Exhibit 31.1
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sam Heidari, certify that:
1. I have reviewed this Annual Report on Form 10-K of Quantenna Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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.
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Date:
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March 1, 2017
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By:
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/s/ Sam Heidari
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Name:
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Sam Heidari
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Title:
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Chief Executive Officer
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sean Sobers, certify that:
1. I have reviewed this Annual Report on Form 10-K of Quantenna Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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.
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Date:
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March 1, 2017
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By:
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/s/ Sean Sobers
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Name:
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Sean Sobers
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Title:
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Chief Financial Officer
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Sam Heidari, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Quantenna Communications, Inc. for the fiscal year ended January 1, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Quantenna Communications, Inc.
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Date: March 1, 2017
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By:
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/s/ Sam Heidari
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Name:
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Sam Heidari
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Title:
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Chief Executive Officer
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I, Sean Sobers, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Box, Inc. for the fiscal year ended January 1, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Quantenna Communications, Inc.
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Date: March 1, 2017
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By:
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/s/ Sean Sobers
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Name:
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Sean Sobers
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Title:
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Chief Financial Officer
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