Delaware
|
38-4061754
|
|
(State or other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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|
3030 Orchard Parkway
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|
|
San Jose,
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California
|
95134
|
(Address of principal executive offices)
|
(Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
|
||||
|
|
|
|
|
Title of Each Class
|
|
Trading Symbol(s)
|
|
Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
|
|
ARLO
|
|
New York Stock Exchange
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Item
|
PART I
|
Page
|
Item 1.
|
||
Item 1A.
|
||
Item 1B.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
PART II
|
||
Item 5.
|
||
Item 6.
|
||
Item 7.
|
||
Item 7A.
|
||
Item 8.
|
||
Item 9.
|
||
Item 9A.
|
||
Item 9B.
|
||
PART III
|
||
Item 10.
|
||
Item 11.
|
||
Item 12.
|
||
Item 13.
|
||
Item 14.
|
||
PART IV
|
||
Item 15.
|
||
Item 16.
|
||
|
Item 1.
|
Business
|
•
|
The Devices screen provides a quick at-a-glance dashboard of the user’s devices linked to their account, with valuable status icons like device battery life, and actionable buttons to live stream from their Arlo camera, call e911, activate a siren, or access the device’s settings.
|
•
|
The Library screen delivers a timeline view of recorded video clips in the user’s Arlo Smart account, with additional tagging of clips that contain subject matter identified by Arlo Smart’s AI- and CV-based object detection, such as person, package, vehicle or even animal.
|
•
|
The Mode screen enables users to quickly Arm or Disarm their Arlo system.
|
•
|
The Settings screen provides access to additional device or account level information and features, including customization of Arlo Smart notifications and detection capabilities.
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Name
|
Age
|
Position(s)
|
Matthew McRae
|
46
|
Chief Executive Officer and Director
|
Christine M. Gorjanc
|
63
|
Chief Financial Officer
|
Brian Busse
|
51
|
General Counsel and Corporate Secretary
|
Item 1A.
|
Risk Factors
|
•
|
changes in the pricing policies of, or the introduction of new products by, us or our competitors;
|
•
|
delays in the introduction of new products by us or market acceptance of these products;
|
•
|
health epidemics and other outbreaks, including the COVID-19, which could significantly disrupt our operations
|
•
|
introductions of new technologies and changes in consumer preferences that result in either unanticipated or unexpectedly rapid product category shifts;
|
•
|
competition with greater resources may cause us to lower prices and in turn could result in reduced margins and loss of market share;
|
•
|
epidemic or widespread product failure, or unanticipated safety issues, in one or more of our products;
|
•
|
slow or negative growth in the connected lifestyle, home electronics, and related technology markets;
|
•
|
seasonal shifts in end-market demand for our products;
|
•
|
unanticipated decreases or delays in purchases of our products by our significant retailers, distributors, and other channel partners;
|
•
|
component supply constraints from our vendors;
|
•
|
unanticipated increases in costs, including air freight, associated with shipping and delivery of our products;
|
•
|
the inability to maintain stable operations by our suppliers and other parties with whom we have commercial relationships;
|
•
|
discovery of security vulnerabilities in our products, services or systems, leading to negative publicity, decreased demand, or potential liability;
|
•
|
foreign currency exchange rate fluctuations in the jurisdictions where we transact sales and expenditures in local currency;
|
•
|
excess levels of inventory and low turns;
|
•
|
changes in or consolidation of our sales channels and wholesale distributor relationships or failure to manage our sales channel inventory and warehousing requirements;
|
•
|
delay or failure to fulfill orders for our products on a timely basis;
|
•
|
delay or failure of our retailers, distributors, and other channel partners to purchase at their historic volumes or at the volumes that they or we forecast;
|
•
|
changes in tax rates or adverse changes in tax laws that expose us to additional income tax liabilities;
|
•
|
changes in U.S. and international tax policy, including changes that adversely affect customs, tax or duty rates (such as the tariffs on products imported from China enacted by the Trump administration), as well as income tax legislation and regulations that affect the countries where we conduct business;
|
•
|
operational disruptions, such as transportation delays or failure of our order processing system, particularly if they occur at the end of a fiscal quarter;
|
•
|
disruptions or delays related to our financial and enterprise resource planning systems;
|
•
|
our inability to accurately forecast product demand, resulting in increased inventory exposure;
|
•
|
allowance for doubtful accounts exposure with our existing retailers, distributors and other channel partners and new retailers, distributors and other channel partners, particularly as we expand into new international markets;
|
•
|
geopolitical disruption, including sudden changes in immigration policies, leading to disruption in our workforce or delay or even stoppage of our operations in manufacturing, transportation, technical support, and research and development;
|
•
|
terms of our contracts with channel partners or suppliers that cause us to incur additional expenses or assume additional liabilities;
|
•
|
an increase in price protection claims, redemptions of marketing rebates, product warranty and stock rotation returns or allowance for doubtful accounts;
|
•
|
litigation involving alleged patent infringement;
|
•
|
failure to effectively manage our third-party customer support partners, which may result in customer complaints and/or harm to the Arlo brand;
|
•
|
our inability to monitor and ensure compliance with our code of ethics, our anti-corruption compliance program, and domestic and international anti-corruption laws and regulations, whether in relation to our employees or with our suppliers or retailers, distributors, or other channel partners;
|
•
|
labor unrest at facilities managed by our third-party manufacturers;
|
•
|
workplace or human rights violations in certain countries in which our third-party manufacturers or suppliers operate, which may affect the Arlo brand and negatively affect our products’ acceptance by consumers;
|
•
|
unanticipated shifts or declines in profit by geographical region that would adversely impact our tax rate;
|
•
|
failure to implement and maintain the appropriate internal controls over financial reporting, which may result in restatements of our financial statements; and
|
•
|
any changes in accounting rules.
|
•
|
loss of or delay in revenue and loss of market share;
|
•
|
negative publicity and damage to our reputation and brand;
|
•
|
a decline in the average selling price of our products and services;
|
•
|
adverse reactions in our sales channels, such as reduced shelf space, reduced online product visibility, or loss of sales channels; and
|
•
|
increased levels of product returns.
|
•
|
our channel partner agreements generally do not require minimum purchases;
|
•
|
our retailers, distributors, and other channel partners can stop purchasing and stop marketing our products at any time; and
|
•
|
our channel partner agreements generally are not exclusive.
|
•
|
actual or anticipated fluctuations in our results of operations or our competitors’ operating results;
|
•
|
actual or anticipated changes in the growth rate of the connected lifestyle market, our growth rate or our competitors’ growth rates;
|
•
|
delays in the introduction of new products by us or market acceptance of these products;
|
•
|
conditions in the financial markets in general or changes in general economic conditions;
|
•
|
changes in governmental regulation, including taxation and tariff policies;
|
•
|
interest rate or currency exchange rate fluctuations;
|
•
|
our ability to forecast or report accurate financial results; and
|
•
|
changes in stock market analyst recommendations regarding our common stock, other comparable companies, or our industry generally.
|
•
|
unexpected increases in manufacturing and repair costs;
|
•
|
inability to control the quality and reliability of finished products;
|
•
|
inability to control delivery schedules;
|
•
|
potential liability for expenses incurred by third-party manufacturers in reliance on our forecasts that later prove to be inaccurate;
|
•
|
potential lack of adequate capacity to manufacture all or a part of the products we require; and
|
•
|
potential labor unrest affecting the ability of the third-party manufacturers to produce our products.
|
•
|
exchange rate fluctuations;
|
•
|
political and economic instability, international terrorism, and anti-American sentiment, particularly in emerging markets;
|
•
|
potential for violations of anti-corruption laws and regulations, such as those related to bribery and fraud;
|
•
|
preference for locally branded products, and laws and business practices favoring local competition;
|
•
|
potential consequences of, and uncertainty related to, the “Brexit” process in the United Kingdom, which could lead to additional expense and complexity in doing business there;
|
•
|
increased difficulty in managing inventory;
|
•
|
delayed revenue recognition;
|
•
|
less effective protection of intellectual property;
|
•
|
stringent consumer protection and product compliance regulations, including but not limited to General Data Protection Regulation in the European Union, European competition law, the Restriction of Hazardous Substances directive, the Waste Electrical and Electronic Equipment directive and the European Ecodesign directive, that are costly to comply with and may vary from country to country;
|
•
|
difficulties and costs of staffing and managing foreign operations;
|
•
|
business difficulties, including potential bankruptcy or liquidation, of any of our worldwide third-party logistics providers; and
|
•
|
changes in local tax and customs duty laws or changes in the enforcement, application, or interpretation of such laws.
|
•
|
changes in tax laws or the regulatory environment;
|
•
|
changes in accounting and tax standards or practices;
|
•
|
changes in the composition of operating income by tax jurisdiction; and
|
•
|
our operating results before taxes.
|
•
|
the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
|
•
|
the inability to meet the financial estimates of securities analysts who follow our common stock or changes in earnings estimates by analysts;
|
•
|
strategic actions by us or our competitors;
|
•
|
announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
|
•
|
our quarterly or annual earnings, or those of other companies in our industry;
|
•
|
actual or anticipated fluctuations in our operating results and those of our competitors;
|
•
|
general economic and stock market conditions;
|
•
|
the public reaction to our press releases, our other public announcements and our filings with the SEC;
|
•
|
risks related to our business and our industry, including those discussed above;
|
•
|
changes in conditions or trends in our industry, markets or customers;
|
•
|
the trading volume of our common stock;
|
•
|
future sales of our common stock or other securities; and
|
•
|
investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.
|
•
|
the inability of our stockholders to call a special meeting;
|
•
|
the inability of our stockholders to act without a meeting of stockholders;
|
•
|
rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
|
•
|
the right of our board of directors to issue preferred stock without stockholder approval;
|
•
|
the division of our board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;
|
•
|
a provision that stockholders may only remove directors with cause while the board of directors is classified; and
|
•
|
the ability of our directors, and not stockholders, to fill vacancies on our board of directors.
|
Item 1B.
|
Unresolved Staff Comments
|
Item 2.
|
Properties
|
Item 3.
|
Legal Proceedings
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
Item 6.
|
Selected Financial Data
|
|
Year Ended December 31,
|
||||||||||||||
|
2019
|
|
2018
|
|
2017
|
|
2016
|
||||||||
|
(In thousands, except per share data)
|
||||||||||||||
Revenue (1)
|
$
|
370,007
|
|
|
$
|
464,918
|
|
|
$
|
370,658
|
|
|
$
|
184,604
|
|
Cost of revenue (2)
|
334,203
|
|
|
372,843
|
|
|
279,424
|
|
|
146,570
|
|
||||
Gross profit
|
35,804
|
|
|
92,075
|
|
|
91,234
|
|
|
38,034
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development (2)
|
69,384
|
|
|
58,794
|
|
|
34,683
|
|
|
24,438
|
|
||||
Sales and marketing (2)
|
56,985
|
|
|
52,593
|
|
|
34,340
|
|
|
18,455
|
|
||||
General and administrative (2)
|
47,624
|
|
|
28,209
|
|
|
15,096
|
|
|
8,289
|
|
||||
Separation expense
|
1,913
|
|
|
27,252
|
|
|
1,384
|
|
|
—
|
|
||||
Gain on sale of business (3)
|
(54,881
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total operating expenses
|
121,025
|
|
|
166,848
|
|
|
85,503
|
|
|
51,182
|
|
||||
Income (loss) from operations
|
(85,221
|
)
|
|
(74,773
|
)
|
|
5,731
|
|
|
(13,148
|
)
|
||||
Interest income
|
2,737
|
|
|
1,239
|
|
|
—
|
|
|
—
|
|
||||
Other income (expense), net
|
913
|
|
|
(1,177
|
)
|
|
1,946
|
|
|
(512
|
)
|
||||
Income (loss) before income taxes
|
(81,571
|
)
|
|
(74,711
|
)
|
|
7,677
|
|
|
(13,660
|
)
|
||||
Provision for income taxes
|
4,380
|
|
|
772
|
|
|
1,128
|
|
|
83
|
|
||||
Net income (loss)
|
$
|
(85,951
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
|
$
|
(13,743
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
||||||||
Basic (4)
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.22
|
)
|
Diluted (4)
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.22
|
)
|
(1)
|
On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASC 606”) and applied this guidance to those contracts which were not completed at the date of adoption using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods (“ASC 605”). The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of Net parent investment.
|
(2)
|
Stock-based compensation expense was allocated as follows:
|
|
Year Ended December 31,
|
||||||||||||||||||||||||||||||||||||||
|
2019
|
|
2018
|
|
2017
|
|
2016
|
||||||||||||||||||||||||||||||||
|
Total
|
|
Direct
|
|
Indirect
|
|
Total
|
|
Direct
|
|
Indirect
|
|
Total
|
|
Direct
|
|
Indirect
|
|
Total
|
||||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||||||||||
Cost of revenue
|
$
|
2,013
|
|
|
$
|
608
|
|
|
$
|
583
|
|
|
$
|
1,191
|
|
|
$
|
102
|
|
|
$
|
599
|
|
|
$
|
701
|
|
|
$
|
61
|
|
|
$
|
266
|
|
|
$
|
327
|
|
Research and development
|
6,868
|
|
|
3,078
|
|
|
396
|
|
|
3,474
|
|
|
1,959
|
|
|
455
|
|
|
2,414
|
|
|
1,349
|
|
|
195
|
|
|
1,544
|
|
||||||||||
Sales and marketing
|
3,859
|
|
|
1,992
|
|
|
969
|
|
|
2,961
|
|
|
390
|
|
|
866
|
|
|
1,256
|
|
|
110
|
|
|
407
|
|
|
517
|
|
||||||||||
General and administrative
|
10,154
|
|
|
3,153
|
|
|
2,100
|
|
|
5,253
|
|
|
—
|
|
|
2,547
|
|
|
2,547
|
|
|
—
|
|
|
1,216
|
|
|
1,216
|
|
||||||||||
Total
|
$
|
22,894
|
|
|
$
|
8,831
|
|
|
$
|
4,048
|
|
|
$
|
12,879
|
|
|
$
|
2,451
|
|
|
$
|
4,467
|
|
|
$
|
6,918
|
|
|
$
|
1,520
|
|
|
$
|
2,084
|
|
|
$
|
3,604
|
|
(3)
|
Relates to the sale of our commercial operations in Europe in the fourth quarter of 2019. Refer to Note 4, Disposal of business, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a complete discussion of this disposal.
|
|
As of December 31,
|
||||||||||||||
|
2019
|
|
2018
|
|
2017
|
|
2016
|
||||||||
|
(In thousands)
|
||||||||||||||
Cash, cash equivalents and short-term investments (1)
|
$
|
256,670
|
|
|
$
|
201,027
|
|
|
$
|
108
|
|
|
$
|
220
|
|
Working capital
|
$
|
175,668
|
|
|
$
|
233,484
|
|
|
$
|
112,878
|
|
|
$
|
54,967
|
|
Total assets (2)
|
$
|
542,712
|
|
|
$
|
595,946
|
|
|
$
|
269,820
|
|
|
$
|
158,581
|
|
Deferred revenue (current and non-current)
|
$
|
66,098
|
|
|
$
|
49,991
|
|
|
$
|
47,404
|
|
|
$
|
23,393
|
|
Non-current operating lease liabilities (2)
|
$
|
29,001
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-current financing lease obligation (3)
|
$
|
—
|
|
|
$
|
19,978
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
339,336
|
|
|
$
|
326,444
|
|
|
$
|
144,401
|
|
|
$
|
85,407
|
|
Stockholders’ equity
|
$
|
203,376
|
|
|
$
|
269,502
|
|
|
$
|
125,419
|
|
|
$
|
73,174
|
|
(1)
|
In fiscal year 2018, reflects $70.9 million in cash contributed by NETGEAR prior to the completion of the IPO in 2018, and the net proceeds of $173.4 million raised from the IPO, net of the portion of the offering cost paid by Arlo, which portion was $1.4 million. Our total offering cost is $4.6 million, of which $3.2 million was paid by NETGEAR. In fiscal year 2019, reflects $75.2 million from Verisure related to sale of the Company's commercial operations in Europe and advance payment on the product purchase and NRE services under the Supply Agreement.
|
(2)
|
On January 1, 2019, the Company adopted ASU 2016-12, "Leases" (Topic 842) and applied this guidance utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of the first fiscal quarter of 2019. Refer to Note 11, Commitments and Contingencies in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further information about our leases.
|
(3)
|
The Company was deemed to be the accounting owner of its build-to-suit lease arrangement for its San Jose corporate headquarters and the construction was in progress at adoption date. As such, the Company reevaluated its build-to-suit lease arrangement under ASU 2016-02 to ascertain whether it meets the criteria as the accounting owner of the build-to-suit lease arrangement through control of the underlying leased asset. The Company concluded that it did not have control over the underlying leased asset. As a result, the Company de-recognized the build to suit asset and liability as of January 1, 2019. Refer to Note 11, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details.
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Year Ended December 31,
|
|||||||||||||||||||
|
2019
|
|
2018
|
|
2017
|
|||||||||||||||
|
(In thousands, except percentage data)
|
|||||||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
323,242
|
|
|
87.4
|
%
|
|
$
|
427,113
|
|
|
91.9
|
%
|
|
$
|
341,581
|
|
|
92.2
|
%
|
Services
|
46,765
|
|
|
12.6
|
%
|
|
37,805
|
|
|
8.1
|
%
|
|
29,077
|
|
|
7.8
|
%
|
|||
Total revenue
|
370,007
|
|
|
100.0
|
%
|
|
464,918
|
|
|
100.0
|
%
|
|
370,658
|
|
|
100.0
|
%
|
|||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
307,348
|
|
|
83.1
|
%
|
|
354,023
|
|
|
76.1
|
%
|
|
270,382
|
|
|
72.9
|
%
|
|||
Services
|
26,855
|
|
|
7.3
|
%
|
|
18,820
|
|
|
4.0
|
%
|
|
9,042
|
|
|
2.4
|
%
|
|||
Total cost of revenue
|
334,203
|
|
|
90.3
|
%
|
|
372,843
|
|
|
80.2
|
%
|
|
279,424
|
|
|
75.4
|
%
|
|||
Gross profit
|
35,804
|
|
|
9.7
|
%
|
|
92,075
|
|
|
19.8
|
%
|
|
91,234
|
|
|
24.6
|
%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Research and development
|
69,384
|
|
|
18.8
|
%
|
|
58,794
|
|
|
12.6
|
%
|
|
34,683
|
|
|
9.4
|
%
|
|||
Sales and marketing
|
56,985
|
|
|
15.4
|
%
|
|
52,593
|
|
|
11.3
|
%
|
|
34,340
|
|
|
9.3
|
%
|
|||
General and administrative
|
47,624
|
|
|
12.9
|
%
|
|
28,209
|
|
|
6.1
|
%
|
|
15,096
|
|
|
4.1
|
%
|
|||
Separation expense
|
1,913
|
|
|
0.5
|
%
|
|
27,252
|
|
|
5.9
|
%
|
|
1,384
|
|
|
0.4
|
%
|
|||
Gain on sale of business
|
(54,881
|
)
|
|
(14.8
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Total operating expenses
|
121,025
|
|
|
32.7
|
%
|
|
166,848
|
|
|
35.9
|
%
|
|
85,503
|
|
|
23.1
|
%
|
|||
Income (loss) from operations
|
(85,221
|
)
|
|
(23.0
|
)%
|
|
(74,773
|
)
|
|
(16.1
|
)%
|
|
5,731
|
|
|
1.5
|
%
|
|||
Interest income
|
2,737
|
|
|
0.7
|
%
|
|
1,239
|
|
|
0.3
|
%
|
|
—
|
|
|
—
|
%
|
|||
Other income (expense), net
|
913
|
|
|
0.3
|
%
|
|
(1,177
|
)
|
|
(0.3
|
)%
|
|
1,946
|
|
|
0.5
|
%
|
|||
Income (loss) before income taxes
|
(81,571
|
)
|
|
(22.0
|
)%
|
|
(74,711
|
)
|
|
(16.1
|
)%
|
|
7,677
|
|
|
2.1
|
%
|
|||
Provision for income taxes
|
4,380
|
|
|
1.2
|
%
|
|
772
|
|
|
0.1
|
%
|
|
1,128
|
|
|
0.3
|
%
|
|||
Net income (loss)
|
$
|
(85,951
|
)
|
|
(23.2
|
)%
|
|
$
|
(75,483
|
)
|
|
(16.2
|
)%
|
|
$
|
6,549
|
|
|
1.8
|
%
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
Americas
|
$
|
289,160
|
|
|
(23.3
|
)%
|
|
$
|
376,805
|
|
|
28.7
|
%
|
|
$
|
292,671
|
|
Percentage of revenue
|
78.1
|
%
|
|
|
|
81.0
|
%
|
|
|
|
79.0
|
%
|
|||||
EMEA
|
$
|
57,232
|
|
|
(12.6
|
)%
|
|
$
|
65,462
|
|
|
11.3
|
%
|
|
$
|
58,795
|
|
Percentage of revenue
|
15.5
|
%
|
|
|
|
14.1
|
%
|
|
|
|
15.9
|
%
|
|||||
APAC
|
$
|
23,615
|
|
|
4.3
|
%
|
|
$
|
22,651
|
|
|
18.0
|
%
|
|
$
|
19,192
|
|
Percentage of revenue
|
6.4
|
%
|
|
|
|
4.8
|
%
|
|
|
|
5.1
|
%
|
|||||
Total revenue
|
$
|
370,007
|
|
|
(20.4
|
)%
|
|
$
|
464,918
|
|
|
25.4
|
%
|
|
$
|
370,658
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
||||||||
Products
|
$
|
307,348
|
|
|
(13.2
|
)%
|
|
$
|
354,023
|
|
|
30.9
|
%
|
|
$
|
270,382
|
|
Services
|
26,855
|
|
|
42.7
|
%
|
|
18,820
|
|
|
108.1
|
%
|
|
9,042
|
|
|||
Total cost of revenue
|
$
|
334,203
|
|
|
(10.4
|
)%
|
|
$
|
372,843
|
|
|
33.4
|
%
|
|
$
|
279,424
|
|
Gross margin
|
9.7
|
%
|
|
|
|
19.8
|
%
|
|
|
|
24.6
|
%
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
Research and development expense
|
$
|
69,384
|
|
|
18.0
|
%
|
|
$
|
58,794
|
|
|
69.5
|
%
|
|
$
|
34,683
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
Sales and marketing expense
|
$
|
56,985
|
|
|
8.4
|
%
|
|
$
|
52,593
|
|
|
53.2
|
%
|
|
$
|
34,340
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
General and administrative expense
|
$
|
47,624
|
|
|
68.8
|
%
|
|
$
|
28,209
|
|
|
86.9
|
%
|
|
$
|
15,096
|
|
|
Year Ended December 31,
|
|||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||||||
|
(In thousands, except percentage data)
|
|||||||||||||||
Separation expense
|
$
|
1,913
|
|
|
(93.0
|
)%
|
|
$
|
27,252
|
|
|
**
|
|
$
|
1,384
|
|
|
Year Ended December 31,
|
||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||
|
(In thousands, except percentage data)
|
||||||||||||||
Gain on sale of business
|
$
|
(54,881
|
)
|
|
**
|
|
$
|
—
|
|
|
**
|
|
$
|
—
|
|
|
Year Ended December 31,
|
|||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||
|
(In thousands, except percentage data)
|
|||||||||||
Interest income
|
2,737
|
|
|
**
|
|
1,239
|
|
|
**
|
|
—
|
|
Other income (expense), net
|
913
|
|
|
**
|
|
(1,177
|
)
|
|
**
|
|
1,946
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||
|
(In thousands, except percentage data)
|
||||||||||||||||
Provision for income taxes
|
$
|
4,380
|
|
|
467.4
|
%
|
|
$
|
772
|
|
|
(31.6
|
)%
|
|
$
|
1,128
|
|
Effective tax rate
|
(5.4
|
)%
|
|
|
|
(1.0
|
)%
|
|
|
|
14.7
|
%
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Net cash provided by (used in) operating activities
|
$
|
9,171
|
|
|
$
|
(17,686
|
)
|
|
$
|
(38,985
|
)
|
Net cash provided by (used in) investing activities
|
76,262
|
|
|
(71,285
|
)
|
|
(4,315
|
)
|
|||
Net cash provided by (used in) financing activities
|
(38
|
)
|
|
244,287
|
|
|
43,188
|
|
|||
Net increase (decrease) in cash and cash equivalents and restricted cash
|
$
|
85,395
|
|
|
$
|
155,316
|
|
|
$
|
(112
|
)
|
|
Payments due by period
|
||||||||||||||||||
|
|
|
Less Than
|
|
1-3
|
|
3-5
|
|
More Than
|
||||||||||
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
||||||||||
|
(In thousands)
|
||||||||||||||||||
Operating leases
|
$
|
41,011
|
|
|
$
|
5,660
|
|
|
$
|
11,324
|
|
|
$
|
9,358
|
|
|
$
|
14,669
|
|
Purchase obligations
|
29,615
|
|
|
29,615
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
$
|
70,626
|
|
|
$
|
35,275
|
|
|
$
|
11,324
|
|
|
$
|
9,358
|
|
|
$
|
14,669
|
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
236,680
|
|
|
$
|
151,290
|
|
Short-term investments
|
19,990
|
|
|
49,737
|
|
||
Accounts receivable, net
|
127,317
|
|
|
166,045
|
|
||
Inventories
|
68,624
|
|
|
124,791
|
|
||
Prepaid expenses and other current assets
|
16,958
|
|
|
23,611
|
|
||
Total current assets
|
469,569
|
|
|
515,474
|
|
||
Property and equipment, net
|
21,352
|
|
|
49,428
|
|
||
Operating lease right-of-use assets, net
|
31,300
|
|
|
—
|
|
||
Intangibles, net
|
1,306
|
|
|
2,823
|
|
||
Goodwill
|
11,038
|
|
|
15,638
|
|
||
Restricted cash
|
4,139
|
|
|
4,134
|
|
||
Other non-current assets
|
4,008
|
|
|
8,449
|
|
||
Total assets
|
$
|
542,712
|
|
|
$
|
595,946
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
111,650
|
|
|
$
|
82,542
|
|
Deferred revenue
|
50,362
|
|
|
26,678
|
|
||
Accrued liabilities
|
127,400
|
|
|
172,036
|
|
||
Income tax payable
|
4,489
|
|
|
734
|
|
||
Total current liabilities
|
293,901
|
|
|
281,990
|
|
||
Non-current deferred revenue
|
15,736
|
|
|
23,313
|
|
||
Non-current operating lease liabilities
|
29,001
|
|
|
—
|
|
||
Non-current financing lease obligation
|
—
|
|
|
19,978
|
|
||
Non-current income taxes payable
|
92
|
|
|
22
|
|
||
Other non-current liabilities
|
606
|
|
|
1,141
|
|
||
Total liabilities
|
339,336
|
|
|
326,444
|
|
||
Commitments and contingencies (Note 11)
|
|
|
|
|
|
||
Stockholders’ Equity:
|
|
|
|
||||
Preferred stock: $0.001 par value; 50,000,000 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock: $0.001 par value; 500,000,000 shares authorized; shares issued and outstanding: 75,785,952 at December 31, 2019 and 74,247,250 at December 31, 2018
|
76
|
|
|
74
|
|
||
Additional paid-in capital
|
334,821
|
|
|
315,277
|
|
||
Accumulated other comprehensive income (loss)
|
(2
|
)
|
|
—
|
|
||
Accumulated deficit
|
(131,519
|
)
|
|
(45,849
|
)
|
||
Total stockholders’ equity
|
203,376
|
|
|
269,502
|
|
||
Total liabilities and stockholders’ equity
|
$
|
542,712
|
|
|
$
|
595,946
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands, except per share data)
|
||||||||||
Revenue:
|
|
|
|
|
|
||||||
Products
|
$
|
323,242
|
|
|
$
|
427,113
|
|
|
$
|
341,581
|
|
Services
|
46,765
|
|
|
37,805
|
|
|
29,077
|
|
|||
Total revenue
|
370,007
|
|
|
464,918
|
|
|
370,658
|
|
|||
Cost of revenue:
|
|
|
|
|
|
||||||
Products
|
307,348
|
|
|
354,023
|
|
|
270,382
|
|
|||
Services
|
26,855
|
|
|
18,820
|
|
|
9,042
|
|
|||
Total cost of revenue
|
334,203
|
|
|
372,843
|
|
|
279,424
|
|
|||
Gross profit
|
35,804
|
|
|
92,075
|
|
|
91,234
|
|
|||
|
|
|
|
|
|
||||||
Operating expenses:
|
|
|
|
|
|
||||||
Research and development
|
69,384
|
|
|
58,794
|
|
|
34,683
|
|
|||
Sales and marketing
|
56,985
|
|
|
52,593
|
|
|
34,340
|
|
|||
General and administrative
|
47,624
|
|
|
28,209
|
|
|
15,096
|
|
|||
Separation expense
|
1,913
|
|
|
27,252
|
|
|
1,384
|
|
|||
Gain on sale of business
|
(54,881
|
)
|
|
—
|
|
|
—
|
|
|||
Total operating expenses
|
121,025
|
|
|
166,848
|
|
|
85,503
|
|
|||
|
|
|
|
|
|
||||||
Income (loss) from operations
|
(85,221
|
)
|
|
(74,773
|
)
|
|
5,731
|
|
|||
Interest income
|
2,737
|
|
|
1,239
|
|
|
—
|
|
|||
Other income (expense), net
|
913
|
|
|
(1,177
|
)
|
|
1,946
|
|
|||
Income (loss) before income taxes
|
(81,571
|
)
|
|
(74,711
|
)
|
|
7,677
|
|
|||
Provision for income taxes
|
4,380
|
|
|
772
|
|
|
1,128
|
|
|||
Net income (loss)
|
$
|
(85,951
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
|
|
|
|
|
|
||||||
Net income (loss) per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
Diluted
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
Weighted average shares used to compute net income (loss) per share:
|
|
|
|
|
|
||||||
Basic
|
75,074
|
|
|
67,231
|
|
|
62,250
|
|
|||
Diluted
|
75,074
|
|
|
67,231
|
|
|
62,250
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Net income (loss)
|
$
|
(85,951
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
Other comprehensive income (loss), before and after tax:
|
|
|
|
|
|
||||||
Unrealized gain (loss) on derivative instruments
|
(27
|
)
|
|
2
|
|
|
—
|
|
|||
Unrealized gain (loss) on available-for-sale securities
|
25
|
|
|
(2
|
)
|
|
—
|
|
|||
Total other comprehensive income (loss), before tax
|
(2
|
)
|
|
—
|
|
|
—
|
|
|||
Tax provision related to derivative instruments
|
—
|
|
|
—
|
|
|
—
|
|
|||
Tax benefit related to available-for-sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|||
Total other comprehensive income (loss), net of tax
|
(2
|
)
|
|
—
|
|
|
—
|
|
|||
Comprehensive income (loss)
|
$
|
(85,953
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Shares
|
|
Amount
|
|
Additional Paid-In Capital
|
|
Net Parent Investment
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Deficit
|
|
Total
|
|||||||||||||
|
(In thousands)
|
|||||||||||||||||||||||||
Balance as of December 31, 2016
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,174
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,174
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
6,549
|
|
|
—
|
|
|
—
|
|
|
6,549
|
|
||||||
Net transfer from Parent
|
—
|
|
|
—
|
|
|
—
|
|
|
43,245
|
|
|
—
|
|
|
—
|
|
|
43,245
|
|
||||||
Stock-based compensation expense funded by Parent
|
—
|
|
|
—
|
|
|
—
|
|
|
2,451
|
|
|
—
|
|
|
—
|
|
|
2,451
|
|
||||||
Balance as of December 31, 2017
|
—
|
|
|
—
|
|
|
—
|
|
|
125,419
|
|
|
—
|
|
|
—
|
|
|
125,419
|
|
||||||
Cumulative impact from adoption of ASC 606, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,061
|
)
|
|
—
|
|
|
—
|
|
|
(3,061
|
)
|
||||||
Net loss, prior to the completion of the Contribution
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,634
|
)
|
|
—
|
|
|
—
|
|
|
(29,634
|
)
|
||||||
Net loss, after the completion of the Contribution
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,849
|
)
|
|
(45,849
|
)
|
||||||
Issuance of common stock from initial public offering
|
11,747
|
|
|
12
|
|
|
174,725
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174,737
|
|
||||||
Initial public offering costs paid by the Company
|
—
|
|
|
—
|
|
|
(1,404
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,404
|
)
|
||||||
Initial public offering costs paid by Parent
|
—
|
|
|
—
|
|
|
(3,148
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,148
|
)
|
||||||
Net transfer from Parent
|
—
|
|
|
—
|
|
|
—
|
|
|
43,549
|
|
|
—
|
|
|
—
|
|
|
43,549
|
|
||||||
Conversion of Net parent investment into common stock
|
62,500
|
|
|
62
|
|
|
139,030
|
|
|
(139,030
|
)
|
|
—
|
|
|
—
|
|
|
62
|
|
||||||
Stock-based compensation expense funded by Parent
|
—
|
|
|
—
|
|
|
—
|
|
|
2,757
|
|
|
—
|
|
|
—
|
|
|
2,757
|
|
||||||
Stock-based compensation expense post-initial public offering
|
—
|
|
|
—
|
|
|
6,074
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,074
|
|
||||||
Change in unrealized gains and losses on available-for-sale securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
||||||
Change in unrealized gains and losses on derivatives, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||||
Balance as of December 31, 2018
|
74,247
|
|
|
74
|
|
|
315,277
|
|
|
—
|
|
|
—
|
|
|
(45,849
|
)
|
|
269,502
|
|
||||||
Cumulative-effect adjustment from adoption of ASC 842, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
281
|
|
||||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(85,951
|
)
|
|
(85,951
|
)
|
||||||
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
19,582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,582
|
|
||||||
Issuance of common stock under stock-based compensation plans
|
1,152
|
|
|
1
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
||||||
Issuance of common stock under Employee Stock Purchase Plan
|
767
|
|
|
1
|
|
|
1,825
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,826
|
|
||||||
Restricted stock unit withholdings
|
(380
|
)
|
|
—
|
|
|
(1,875
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,875
|
)
|
||||||
Change in unrealized gains and losses on available-for-sale securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
||||||
Change in unrealized gains and losses on derivatives, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
(27
|
)
|
||||||
Balance as of December 31, 2019
|
75,786
|
|
|
$
|
76
|
|
|
$
|
334,821
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(131,519
|
)
|
|
$
|
203,376
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(85,951
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
10,681
|
|
|
5,307
|
|
|
3,740
|
|
|||
Stock-based compensation expense
|
22,894
|
|
|
8,831
|
|
|
2,451
|
|
|||
Provision for (release of) bad debts and inventory
|
(2,921
|
)
|
|
6,739
|
|
|
404
|
|
|||
Gain on sale of business
|
(54,881
|
)
|
|
—
|
|
|
—
|
|
|||
Deferred income taxes
|
(210
|
)
|
|
(1,108
|
)
|
|
(388
|
)
|
|||
Premium amortization/discount accretion on investments, net
|
(461
|
)
|
|
(120
|
)
|
|
—
|
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
Accounts receivable, net
|
38,247
|
|
|
(118,778
|
)
|
|
(75,838
|
)
|
|||
Inventories
|
53,604
|
|
|
(48,934
|
)
|
|
(35,639
|
)
|
|||
Prepaid expenses and other assets
|
11,525
|
|
|
(16,592
|
)
|
|
62
|
|
|||
Accounts payable
|
28,791
|
|
|
87,307
|
|
|
(350
|
)
|
|||
Deferred revenue
|
22,567
|
|
|
11,253
|
|
|
24,011
|
|
|||
Accrued liabilities
|
(34,714
|
)
|
|
123,892
|
|
|
36,013
|
|
|||
Net cash provided by (used in) operating activities
|
9,171
|
|
|
(17,686
|
)
|
|
(38,985
|
)
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Purchases of property and equipment
|
(6,664
|
)
|
|
(21,666
|
)
|
|
(3,578
|
)
|
|||
Proceeds from sale of business
|
52,694
|
|
|
—
|
|
|
—
|
|
|||
Purchases of short-term investments
|
(29,768
|
)
|
|
(54,619
|
)
|
|
—
|
|
|||
Proceeds from maturities of short-term investments
|
60,000
|
|
|
5,000
|
|
|
—
|
|
|||
Payments made in connection with business acquisition, net of cash acquired
|
—
|
|
|
—
|
|
|
(737
|
)
|
|||
Net cash provided by (used in) investing activities
|
76,262
|
|
|
(71,285
|
)
|
|
(4,315
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Proceeds from initial public offering, net of offering costs
|
—
|
|
|
173,395
|
|
|
—
|
|
|||
Restricted stock unit withholdings
|
(1,875
|
)
|
|
—
|
|
|
|
||||
Proceeds related to employee benefit plans
|
1,837
|
|
|
—
|
|
|
—
|
|
|||
Net investment from NETGEAR
|
—
|
|
|
70,892
|
|
|
43,188
|
|
|||
Net cash provided by (used in) financing activities
|
(38
|
)
|
|
244,287
|
|
|
43,188
|
|
|||
Net increase (decrease) in cash and cash equivalents and restricted cash
|
85,395
|
|
|
155,316
|
|
|
(112
|
)
|
|||
Cash and cash equivalents and restricted cash, at beginning of period
|
155,424
|
|
|
108
|
|
|
220
|
|
|||
Cash and cash equivalents and restricted cash, at end of period
|
$
|
240,819
|
|
|
$
|
155,424
|
|
|
$
|
108
|
|
|
|
|
|
|
|
||||||
Non-cash investing and financing activities:
|
|
|
|
|
|
||||||
Purchases of property and equipment included in accounts payable and accrued liabilities
|
$
|
1,086
|
|
|
$
|
16,003
|
|
|
$
|
81
|
|
De-recognized fair value of build-to-suit lease
|
$
|
(21,610
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Estimated fair value of a facility under build-to-suit lease including tenant improvements
|
$
|
—
|
|
|
$
|
28,357
|
|
|
$
|
—
|
|
Supplemental cash flow information:
|
|
|
|
|
|
||||||
Cash paid for income taxes, net
|
$
|
960
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
As of December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Cash and cash equivalents
|
$
|
236,680
|
|
|
$
|
151,290
|
|
|
$
|
108
|
|
Restricted cash
|
4,139
|
|
|
4,134
|
|
|
—
|
|
|||
Total as presented on the consolidated statements of cash flows
|
$
|
240,819
|
|
|
$
|
155,424
|
|
|
$
|
108
|
|
Asset Category:
|
|
Range of Useful Lives
|
Computer equipment
|
|
2 years
|
Furniture and fixtures
|
|
5 years
|
Software
|
|
2-5 years
|
Machinery and equipment
|
|
2-3 years
|
Leasehold improvements
|
|
Shorter of remaining lease term or 7 years
|
•
|
The time-based vesting RSUs will vest in three equal annual installments during the period that begins on the RSU grant date.
|
•
|
The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ending December 31, 2019 is achieved.
|
•
|
The MPSUs will vest on the three-year anniversary of the MPSU grant date based on the performance of the Company's common stock relative to the Russell 2000 Index (“the Benchmark”) during the three-year period from grant date. A positive 3.3x or negative 2.5x multiplier will be applied to the total shareholder returns (“TSR”), such that the number of shares vested will increase by 3.3% or decrease by 2.5% of the target numbers, for each 1% of positive or negative relative TSR relative to the Benchmark. In the event the Company's common stock performance is below negative 30% relative to the Benchmark, no shares will vest. In no event will the number of shares vested in each tranche exceed 200% of the target for that tranche.
|
|
|
1 year
|
|
2 years
|
|
Greater than 2 years
|
|
Total
|
||||||||
|
|
(In thousands)
|
||||||||||||||
Performance obligations
|
|
$
|
58,441
|
|
|
$
|
12,108
|
|
|
$
|
3,915
|
|
|
$
|
74,464
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2019
|
|||||||||
|
Balance Sheet Location
|
|
December 31, 2019
|
|
December 31, 2018
|
|
January 1, 2018
|
|
$ change
|
|
% change
|
|||||||||
|
|
|
(In thousands)
|
|
|
|||||||||||||||
Accounts receivable, net
|
Accounts receivable, net
|
|
$
|
127,317
|
|
|
$
|
166,045
|
|
|
$
|
158,507
|
|
|
$
|
(38,728
|
)
|
|
(23.3
|
)%
|
Contract liabilities - current
|
Deferred revenue
|
|
$
|
50,362
|
|
|
$
|
26,678
|
|
|
$
|
24,746
|
|
|
$
|
23,684
|
|
|
88.8
|
%
|
Contract liabilities - non-current
|
Non-current deferred revenue
|
|
$
|
15,736
|
|
|
$
|
23,313
|
|
|
$
|
13,091
|
|
|
$
|
(7,577
|
)
|
|
(32.5
|
)%
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||||||||||
|
Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
|
Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||||||||||
U.S. treasuries
|
$
|
19,967
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
19,990
|
|
|
$
|
49,739
|
|
|
$
|
2
|
|
|
$
|
(4
|
)
|
|
$
|
49,737
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Gross accounts receivable
|
$
|
127,926
|
|
|
$
|
166,172
|
|
Allowance for doubtful accounts
|
(609
|
)
|
|
(127
|
)
|
||
Total accounts receivable, net
|
$
|
127,317
|
|
|
$
|
166,045
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Balance at the beginning of the period
|
$
|
127
|
|
|
$
|
207
|
|
|
$
|
206
|
|
Additions
|
482
|
|
|
—
|
|
|
1
|
|
|||
Deductions
|
—
|
|
|
(80
|
)
|
|
—
|
|
|||
Balance at the end of the period
|
$
|
609
|
|
|
$
|
127
|
|
|
$
|
207
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Machinery and equipment
|
$
|
13,402
|
|
|
$
|
11,415
|
|
Software
|
11,945
|
|
|
10,624
|
|
||
Computer equipment
|
4,047
|
|
|
4,342
|
|
||
Leasehold improvements
|
8,087
|
|
|
3,007
|
|
||
Furniture and fixtures
|
4,075
|
|
|
2,698
|
|
||
Construction in progress (1)
|
—
|
|
|
28,357
|
|
||
Total property and equipment, gross
|
41,556
|
|
|
60,443
|
|
||
Accumulated depreciation
|
(20,204
|
)
|
|
(11,015
|
)
|
||
Total property and equipment, net
|
$
|
21,352
|
|
|
$
|
49,428
|
|
(1)
|
The Company had a build-to-suit lease arrangement under its corporate headquarters lease in San Jose, California. Upon the adoption of ASU 2016-02, the Company concluded that it did not have control over the underlying leased asset and de-recognized $21.6 million of construction in progress. Refer to Note 11, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for further details.
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
Technology
|
$
|
9,800
|
|
|
$
|
(8,540
|
)
|
|
$
|
1,260
|
|
|
$
|
9,800
|
|
|
$
|
(7,165
|
)
|
|
$
|
2,635
|
|
Other
|
500
|
|
|
(454
|
)
|
|
46
|
|
|
800
|
|
|
(612
|
)
|
|
188
|
|
||||||
Total intangibles, net
|
$
|
10,300
|
|
|
$
|
(8,994
|
)
|
|
$
|
1,306
|
|
|
$
|
10,600
|
|
|
$
|
(7,777
|
)
|
|
$
|
2,823
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Goodwill
|
$
|
11,038
|
|
|
$
|
15,638
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Non-current deferred income taxes
|
$
|
1,318
|
|
|
$
|
1,108
|
|
Deposits
|
764
|
|
|
4,084
|
|
||
Other
|
1,926
|
|
|
3,257
|
|
||
Total other non-current assets
|
$
|
4,008
|
|
|
$
|
8,449
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Sales and marketing
|
$
|
53,974
|
|
|
75,863
|
|
|
Sales returns
|
28,817
|
|
|
49,247
|
|
||
Warranty obligation
|
3,169
|
|
|
3,712
|
|
||
Accrued employee compensation
|
11,795
|
|
|
11,897
|
|
||
Operating lease liabilities
|
3,912
|
|
|
—
|
|
||
Freight
|
2,690
|
|
|
3,913
|
|
||
Current financing lease obligation
|
—
|
|
|
1,632
|
|
||
Other
|
23,043
|
|
|
25,772
|
|
||
Total accrued liabilities
|
$
|
127,400
|
|
|
$
|
172,036
|
|
|
As of December 31, 2019
|
||||||||||
|
Total
|
|
Quoted market
prices in active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
||||||
|
(In thousands)
|
||||||||||
Assets:
|
|
|
|
|
|
||||||
Cash equivalents: money-market funds (<90 days)
|
$
|
31,472
|
|
|
$
|
31,472
|
|
|
$
|
—
|
|
Available-for-sale securities: U.S. treasuries (1)
|
19,990
|
|
|
19,990
|
|
|
—
|
|
|||
Foreign currency forward contracts (2)
|
27
|
|
|
—
|
|
|
27
|
|
|||
Total assets measured at fair value
|
$
|
51,489
|
|
|
$
|
51,462
|
|
|
$
|
27
|
|
Liabilities:
|
|
|
|
|
|
||||||
Foreign currency forward contracts (3)
|
$
|
375
|
|
|
$
|
—
|
|
|
$
|
375
|
|
Total liabilities measured at fair value
|
$
|
375
|
|
|
$
|
—
|
|
|
$
|
375
|
|
|
December 31, 2018
|
||||||||||
|
Total
|
|
Quoted market
prices in active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
||||||
|
(In thousands)
|
||||||||||
Assets:
|
|
|
|
|
|
||||||
Cash equivalents: U.S. treasuries (<90 days)
|
$
|
438
|
|
|
$
|
438
|
|
|
$
|
—
|
|
Available-for-sale securities: U.S. treasuries (1)
|
49,737
|
|
|
49,737
|
|
|
—
|
|
|||
Foreign currency forward contracts (2)
|
322
|
|
|
—
|
|
|
322
|
|
|||
Total assets measured at fair value
|
$
|
50,497
|
|
|
$
|
50,175
|
|
|
$
|
322
|
|
Liabilities:
|
|
|
|
|
|
||||||
Foreign currency forward contracts (3)
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Total liabilities measured at fair value
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
71
|
|
(1)
|
Included in Short-term investments on the Company’s consolidated balance sheets.
|
(2)
|
Included in Prepaid expenses and other current assets on the Company’s consolidated balance sheets.
|
(3)
|
Included in Accrued liabilities on the Company’s consolidated balance sheets.
|
|
|
|
|
December 31,
|
|
|
|
December 31,
|
||||||||||||
Derivative Assets
|
|
Balance Sheet
Location
|
|
2019
|
|
2018
|
|
Balance Sheet
Location
|
|
2019
|
|
2018
|
||||||||
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
||||||||||||
Derivative assets not designated as hedging instruments
|
|
Prepaid expenses and other current assets
|
|
$
|
27
|
|
|
$
|
293
|
|
|
Other accrued liabilities
|
|
$
|
347
|
|
|
$
|
46
|
|
Derivative assets designated as hedging instruments
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
29
|
|
|
Other accrued liabilities
|
|
28
|
|
|
25
|
|
||||
Total
|
|
|
|
$
|
27
|
|
|
$
|
322
|
|
|
|
|
$
|
375
|
|
|
$
|
71
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||||||
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Amounts Of Assets Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Pledged
|
|
Net Amount
|
|||||||||||||
|
|
(In thousands)
|
||||||||||||||||||||||
HSBC
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Wells Fargo Bank
|
|
21
|
|
|
—
|
|
|
21
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
||||||
Total
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||||||
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Amounts Of Liabilities Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Pledged
|
|
Net Amount
|
|||||||||||||
|
|
(In thousands)
|
||||||||||||||||||||||
HSBC
|
|
$
|
83
|
|
|
$
|
—
|
|
|
$
|
83
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
77
|
|
Wells Fargo Bank
|
|
292
|
|
|
—
|
|
|
292
|
|
|
(21
|
)
|
|
—
|
|
|
271
|
|
||||||
Total
|
|
$
|
375
|
|
|
$
|
—
|
|
|
$
|
375
|
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
348
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||||||
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Amounts Of Assets Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Pledged
|
|
Net Amount
|
|||||||||||||
|
|
(In thousands)
|
||||||||||||||||||||||
HSBC
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Wells Fargo Bank
|
|
222
|
|
|
—
|
|
|
222
|
|
|
(68
|
)
|
|
—
|
|
|
154
|
|
||||||
Total
|
|
$
|
322
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
254
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets
|
|
|
||||||||||||||
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
|
Net Amounts Of Assets Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Pledged
|
|
Net Amount
|
|||||||||||||
|
|
(In thousands)
|
||||||||||||||||||||||
JP Morgan
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Wells Fargo Bank
|
|
68
|
|
|
—
|
|
|
68
|
|
|
(68
|
)
|
|
—
|
|
|
—
|
|
||||||
Total
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
71
|
|
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
|
||||||||||||||||||
Year Ended December 31, 2019
|
|
Revenue
|
|
Cost of revenue
|
|
Research and development
|
|
Sales and marketing
|
|
General and administrative
|
||||||||||
|
|
(In thousands)
|
||||||||||||||||||
Statements of operations
|
|
$
|
370,007
|
|
|
$
|
334,203
|
|
|
$
|
69,384
|
|
|
$
|
56,985
|
|
|
$
|
47,624
|
|
Gains (losses) on cash flow hedge
|
|
$
|
390
|
|
|
$
|
(3
|
)
|
|
$
|
(28
|
)
|
|
$
|
(44
|
)
|
|
$
|
(13
|
)
|
|
|
Location and Amount of Gains (Losses) Recognized in Income on Cash Flow Hedges
|
||||||||||||||||||
Year Ended December 31, 2018
|
|
Revenue
|
|
Cost of revenue
|
|
Research and development
|
|
Sales and marketing
|
|
General and administrative
|
||||||||||
|
|
(In thousands)
|
||||||||||||||||||
Statements of operations
|
|
$
|
464,918
|
|
|
$
|
372,843
|
|
|
$
|
58,794
|
|
|
$
|
52,593
|
|
|
$
|
28,209
|
|
Gains (losses) on cash flow hedge
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(28
|
)
|
|
$
|
(11
|
)
|
|
|
|
|
December 31,
|
||||||
Derivatives Not Designated as
Hedging Instruments
|
|
Location of Gains (Losses)
Recognized in Income on Derivative
|
|
2019
|
|
2018
|
||||
|
|
|
|
(In thousands)
|
||||||
Foreign currency forward contracts
|
|
Other income (expense), net
|
|
$
|
(24
|
)
|
|
$
|
589
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
Unrealized gains (losses) on derivatives
|
|
Estimated tax benefit (provision)
|
|
Total
|
||||||||
|
(In thousands)
|
||||||||||||||
Balance as of December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive income (loss) before reclassifications
|
(2
|
)
|
|
276
|
|
|
—
|
|
|
274
|
|
||||
Less: Amount reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
274
|
|
|
—
|
|
|
274
|
|
||||
Net current period other comprehensive income (loss)
|
(2
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
||||
Balance as of December 31, 2018
|
(2
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
||||
Other comprehensive income (loss) before reclassifications
|
25
|
|
|
275
|
|
|
—
|
|
|
300
|
|
||||
Less: Amount reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
302
|
|
|
—
|
|
|
302
|
|
||||
Net current period other comprehensive income (loss)
|
25
|
|
|
(27
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Balance as of December 31, 2019
|
$
|
23
|
|
|
$
|
(25
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
|
||||||||||||
|
|
Gains (Losses) Recognized in OCI - Effective Portion
|
|
Gains (Losses) Reclassified from OCI to Income - Effective Portion
|
|
Gains (Losses) Recognized in OCI - Effective Portion
|
|
Gains (Losses) Reclassified from OCI to Income - Effective Portion
|
|
Affected Line Item in the Statements of Operations
|
||||||||
|
|
(In thousands)
|
|
|
|
|
|
|
||||||||||
Gains (losses) on cash flow hedge:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
|
$
|
275
|
|
|
$
|
390
|
|
|
$
|
276
|
|
|
$
|
315
|
|
|
Revenue
|
Foreign currency contracts
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
Cost of revenue
|
||||
Foreign currency contracts
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
(2
|
)
|
|
Research and development
|
||||
Foreign currency contracts
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
(28
|
)
|
|
Sales and marketing
|
||||
Foreign currency contracts
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(11
|
)
|
|
General and administrative
|
||||
|
|
$
|
275
|
|
|
$
|
302
|
|
|
$
|
276
|
|
|
$
|
274
|
|
|
Total *
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
United States
|
$
|
(103,836
|
)
|
|
$
|
(79,581
|
)
|
|
$
|
3,318
|
|
International
|
22,265
|
|
|
4,870
|
|
|
4,359
|
|
|||
Total
|
$
|
(81,571
|
)
|
|
$
|
(74,711
|
)
|
|
$
|
7,677
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Current:
|
|
|
|
|
|
||||||
U.S. Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
58
|
|
|
16
|
|
|
260
|
|
|||
Foreign
|
4,524
|
|
|
1,425
|
|
|
1,255
|
|
|||
|
4,582
|
|
|
1,441
|
|
|
1,515
|
|
|||
Deferred:
|
|
|
|
|
|
||||||
U.S. Federal
|
—
|
|
|
—
|
|
|
(66
|
)
|
|||
State
|
—
|
|
|
—
|
|
|
—
|
|
|||
Foreign
|
(202
|
)
|
|
(669
|
)
|
|
(321
|
)
|
|||
|
(202
|
)
|
|
(669
|
)
|
|
(387
|
)
|
|||
Total
|
$
|
4,380
|
|
|
$
|
772
|
|
|
$
|
1,128
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Deferred Tax Assets:
|
|
|
|
||||
Accruals and allowances
|
$
|
11,334
|
|
|
$
|
17,974
|
|
Net operating loss carryforwards
|
14,355
|
|
|
2,946
|
|
||
Stock-based compensation
|
3,228
|
|
|
1,927
|
|
||
Lease liabilities
|
8,212
|
|
|
—
|
|
||
Deferred revenue
|
4,417
|
|
|
2,573
|
|
||
Tax credit carryforwards
|
3,262
|
|
|
—
|
|
||
Depreciation and amortization
|
7,877
|
|
|
567
|
|
||
Deferred rent
|
—
|
|
|
373
|
|
||
Total deferred tax assets
|
52,685
|
|
|
26,360
|
|
||
Deferred Tax Liabilities:
|
|
|
|
||||
Depreciation and amortization
|
—
|
|
|
(775
|
)
|
||
Lease assets
|
(7,450
|
)
|
|
—
|
|
||
Total deferred tax liabilities
|
(7,450
|
)
|
|
(775
|
)
|
||
Valuation Allowance
|
(43,917
|
)
|
|
(24,477
|
)
|
||
Net deferred tax assets
|
$
|
1,318
|
|
|
$
|
1,108
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Balance at the beginning of the period
|
$
|
24,477
|
|
|
$
|
15,611
|
|
|
$
|
22,155
|
|
Additions
|
38,336
|
|
|
13,760
|
|
|
10,896
|
|
|||
Deductions
|
(18,896
|
)
|
|
(4,894
|
)
|
|
(17,440
|
)
|
|||
Balance at the end of the period
|
$
|
43,917
|
|
|
$
|
24,477
|
|
|
$
|
15,611
|
|
|
|
Amount
|
|
Beginning Year of Expiration
|
||
|
|
(in thousands)
|
|
|
||
U.S. Federal (1)
|
|
$
|
14,028
|
|
|
2031
|
U.S. Federal
|
|
47,059
|
|
|
Indefinite
|
|
California
|
|
44,613
|
|
|
2039
|
|
Other State (tax effected, net of federal benefit)
|
|
836
|
|
|
2024
|
(1)
|
All of the losses are subject to annual usage limitations under Internal Revenue Code Section 382.
|
|
|
Amount
|
|
Beginning Year of Expiration
|
||
|
|
(in thousands)
|
|
|
||
U.S. Federal
|
|
$
|
1,664
|
|
|
2039
|
California
|
|
1,395
|
|
|
Indefinite
|
|
Foreign
|
|
814
|
|
|
2038
|
|
Year Ended December 31,
|
|||||||
|
2019
|
|
2018
|
|
2017
|
|||
Tax at federal statutory rate (1)
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
State, net of federal benefit
|
3.0
|
%
|
|
5.9
|
%
|
|
(8.7
|
)%
|
Impact of international operations
|
1.4
|
%
|
|
0.4
|
%
|
|
(6.2
|
)%
|
U.S. Taxes on Foreign Entities
|
(3.6
|
)%
|
|
(1.8
|
)%
|
|
—
|
%
|
Stock-based compensation
|
(2.6
|
)%
|
|
(0.1
|
)%
|
|
(5.0
|
)%
|
Tax credits
|
1.6
|
%
|
|
1.5
|
%
|
|
(6.8
|
)%
|
Change in valuation allowance
|
(23.8
|
)%
|
|
(25.2
|
)%
|
|
(105.1
|
)%
|
Impact of the Tax Act
|
—
|
%
|
|
—
|
%
|
|
115.6
|
%
|
Non-deductible transaction costs
|
(0.7
|
)%
|
|
(2.6
|
)%
|
|
—
|
%
|
Goodwill derecognition
|
(1.2
|
)%
|
|
—
|
%
|
|
—
|
%
|
Others
|
(0.5
|
)%
|
|
(0.1
|
)%
|
|
(4.1
|
)%
|
Provision for income taxes
|
(5.4
|
)%
|
|
(1.0
|
)%
|
|
14.7
|
%
|
|
Federal, State, and Foreign Tax
|
||
|
(In thousands)
|
||
Balance as of December 31, 2016
|
$
|
676
|
|
Additions based on tax positions related to the current year
|
361
|
|
|
Additions for tax positions of prior years
|
30
|
|
|
Reductions for tax positions of prior years
|
(45
|
)
|
|
Balance as of December 31, 2017
|
1,022
|
|
|
Additions based on tax positions related to the current year
|
338
|
|
|
Adjustments to Net parent investments
|
(1,338
|
)
|
|
Balance as of December 31, 2018
|
22
|
|
|
Additions based on tax positions related to the current year
|
674
|
|
|
Additions for tax positions of prior years
|
8
|
|
|
Balance as of December 31, 2019
|
$
|
704
|
|
Leases
|
|
Balance Sheet Location
|
|
December 31, 2019
|
|
January 1, 2019
|
|
December 31, 2018
|
||||||
|
|
|
|
(In thousands)
|
||||||||||
Build-to-suit lease (1)
|
|
Property and equipment, net
|
|
$
|
—
|
|
|
$
|
(21,610
|
)
|
|
$
|
21,610
|
|
Build-to-suit lease (1)
|
|
Accrued liabilities
|
|
—
|
|
|
(281
|
)
|
|
281
|
|
|||
Build-to-suit lease (1)
|
|
Accrued liabilities
|
|
—
|
|
|
(1,632
|
)
|
|
1,632
|
|
|||
Build-to-suit lease (1)
|
|
Non-current financing lease obligation
|
|
—
|
|
|
(19,978
|
)
|
|
19,978
|
|
|||
Build-to-suit lease (1)
|
|
Retained earnings (Accumulated deficit)
|
|
281
|
|
|
281
|
|
|
—
|
|
|||
|
|
|
|
|
|
|
|
|
||||||
Operating leases (2)
|
|
Operating lease right-of-use assets, net
|
|
31,300
|
|
|
14,400
|
|
|
—
|
|
|||
Operating leases (2)
|
|
Accrued liabilities
|
|
—
|
|
|
(107
|
)
|
|
107
|
|
|||
Operating leases (2)
|
|
Accrued liabilities
|
|
3,912
|
|
|
2,356
|
|
|
—
|
|
|||
Operating leases (2)
|
|
Non-current deferred rent
|
|
—
|
|
|
(1,141
|
)
|
|
1,141
|
|
|||
Operating leases (2)
|
|
Non-current operating lease liabilities
|
|
29,001
|
|
|
12,044
|
|
|
—
|
|
(1)
|
The Company was deemed to be the accounting owner of its build-to-suit lease arrangement for its San Jose corporate headquarters and the construction was in progress at adoption date. As such, the Company reevaluated its build-to-suit lease arrangement under ASU 2016-02 to ascertain whether it meets the criteria as the accounting owner of the build-to-suit lease arrangement through control of the underlying leased asset. The Company concluded that it did not have control over the underlying leased asset. As a result, the Company de-recognized the build to suit asset and liability as of adoption date of $21.6 million of Property and equipment and $21.9 million of financing lease obligations. The difference of $0.3 million between the de-recognized assets and the associated financing lease obligations was recorded as an adjustment to Accumulated deficit as of the adoption date.
|
(2)
|
The Company adopted ASU 2016-02 on January 1, 2019 which resulted in the recognition of ROU assets and lease liabilities for operating leases of $14.4 million on its consolidated balance sheets. The ROU assets were reduced by $0.1 million current deferred rent and $1.1 million non-current deferred rent which were de-recognized along with the adoption. As of March 31, 2019, the construction of the Company’s leasehold improvements for its San Jose corporate headquarters was partially completed and partially occupied by the Company, resulting in lease commencement inception for the portion that was completed and occupied by the Company. Therefore, the Company proportionally recorded ROU assets and lease liabilities of $14.3 million, representing two thirds of the total value of the ROU assets and lease liabilities. As of June 30, 2019, upon the completion of the leasehold improvements and full occupation of the entire building, the Company recognized the remaining value of ROU assets and lease liabilities of $7.2 million. As of September 29, 2019, the Company received $3.1 million reimbursement for leasehold improvements that the Company de-recognized during the quarter.
|
|
|
Year Ended December 31,
|
||
|
|
2019
|
||
|
|
(in thousands)
|
||
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
||
Operating cash flows from operating leases
|
|
$
|
4,888
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
|
||
Operating leases
|
|
$
|
21,742
|
|
Other non-cash increases in operating right of use assets
|
|
$
|
788
|
|
Weighted average remaining lease term
|
|
7.7 years
|
|
Weighted average discount rate
|
|
5.67
|
%
|
2020
|
$
|
5,660
|
|
2021
|
5,735
|
|
|
2022
|
5,589
|
|
|
2023
|
4,908
|
|
|
2024
|
4,450
|
|
|
Thereafter
|
14,669
|
|
|
Total lease payments
|
41,011
|
|
|
Less: interest (1)
|
(8,098
|
)
|
|
Total
|
$
|
32,913
|
|
|
|
||
Accrued liabilities
|
$
|
3,912
|
|
Non-current operating lease liabilities
|
29,001
|
|
|
Total
|
$
|
32,913
|
|
(1)
|
Calculated using the Company’s incremental borrowing rate on a collateralized basis plus LIBOR rate that closely matches contractual term of most leases on adoption date.
|
|
Leases (1)
|
||
2019
|
$
|
4,634
|
|
2020
|
5,813
|
|
|
2021
|
5,678
|
|
|
2022
|
5,580
|
|
|
2023
|
4,903
|
|
|
Thereafter
|
19,252
|
|
|
Total
|
$
|
45,860
|
|
(1)
|
Amounts are based on ASC 840, Leases that was superseded upon the adoption of ASC 842, Leases on January 1, 2019.
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Balance at the beginning of the period
|
$
|
3,712
|
|
|
$
|
31,756
|
|
|
$
|
15,949
|
|
Reclassified to sales returns upon adoption of ASC 606 (1)
|
—
|
|
|
(28,713
|
)
|
|
—
|
|
|||
Provision for warranty obligation made during the period
|
260
|
|
|
1,477
|
|
|
51,709
|
|
|||
Settlements made during the period
|
(803
|
)
|
|
(808
|
)
|
|
(35,902
|
)
|
|||
Balance at the end of the period
|
$
|
3,169
|
|
|
$
|
3,712
|
|
|
$
|
31,756
|
|
|
|
Year Ended December 31, 2019
|
||
|
|
(In thousands)
|
||
Cost of revenue
|
|
$
|
69
|
|
Research and development
|
|
262
|
|
|
Sales and marketing
|
|
198
|
|
|
General and administrative
|
|
102
|
|
|
Total
|
|
$
|
631
|
|
|
|
Year Ended December 31, 2019
|
||
|
|
(In thousands)
|
||
Balance at the beginning of the period
|
|
$
|
—
|
|
Additions
|
|
631
|
|
|
Cash payments
|
|
(511
|
)
|
|
Balance at the end of the period
|
|
$
|
120
|
|
•
|
NETGEAR stock options granted prior to August 3, 2018 (the “cutoff date”) were converted into both an adjusted NETGEAR stock option and an Arlo stock option. The formulas applicable to the adjustment are set forth in the employee matters agreement and, in each case, the exercise price and number of shares subject to each option was adjusted to preserve the aggregate intrinsic value of the original NETGEAR stock option as measured immediately prior to and immediately following the Distribution, subject to rounding. Following the Distribution, the NETGEAR
|
•
|
NETGEAR restricted stock units granted prior to the cutoff date were converted into both an adjusted NETGEAR restricted stock unit covering the same number of shares of NETGEAR common stock subject to the award prior to the distribution and an Arlo restricted stock unit covering a number of shares of Arlo common stock equal to the number of shares of NETGEAR common stock subject to the award prior to the distribution multiplied by 1.980295, subject to rounding, which is the number of shares of Arlo common stock that was distributed in respect of each share of NETGEAR common stock in the Distribution. The formulas applicable to the foregoing NETGEAR restricted stock unit adjustment are set forth in the employee matters agreement. Following the Distribution, the NETGEAR restricted stock units and Arlo restricted stock units are subject to substantially the same terms and vesting conditions that applied to the original NETGEAR restricted stock units immediately prior to the Distribution.
|
•
|
NETGEAR stock options and NETGEAR restricted stock units held by non-U.S. holders: NETGEAR, in its sole discretion, determined to treat certain NETGEAR stock options and NETGEAR restricted stock unit awards that were outstanding as of the effective time of the Distribution and held by current and former service providers of Arlo and NETGEAR in jurisdictions other than the United States in a manner inconsistent with the immediately preceding two paragraphs, which, in certain jurisdiction, resulted in the issuance of additional Arlo stock options and/or Arlo restricted stock units.
|
|
Number of Shares
|
|
|
(In thousands)
|
|
Shares reserved as of August 2, 2018
|
7,500
|
|
Granted at IPO (1)
|
(3,403
|
)
|
Granted during the period
|
(137
|
)
|
Additional authorized shares in the Distribution
|
6,823
|
|
Converted in the Distribution (2)
|
(6,823
|
)
|
Cancelled
|
9
|
|
Shares available for grants as of December 31, 2018
|
3,969
|
|
Additional authorized shares
|
2,970
|
|
Granted (4)
|
(6,700
|
)
|
Forfeited/ cancelled (3)
|
2,011
|
|
Shares traded for taxes
|
380
|
|
Shares available for grants as of December 31, 2019
|
2,630
|
|
(1)
|
Includes Arlo IPO Options of 2.8 million shares granted to the Company’s NEOs with performance-based vesting criteria (in addition to service-based vesting criteria for any of such IPO Options that are deemed to have been earned). Each of the IPO Options will have a ten-year contractual term and an exercise price equal to the fair value of a share of Arlo common stock on the date of grant and will vest as follows:
|
•
|
The Tranche 1 Service Option will vest in equal monthly installments during the 24-month period that begins on the two-year anniversary of the option grant date;
|
•
|
The Tranche 2 Performance Option will vest on the later of (i) the date (prior to the four-year anniversary of the grant date) of satisfaction of a cumulative registered accounts milestone and (ii) if the milestone has been satisfied prior to the applicable date, then (a) with respect to 25% of the Tranche 2 Performance Option, on the first anniversary of the option grant date, (b) with respect to 25% of the Tranche 2 Performance Option, on the second anniversary of the option grant date, and (c) with respect to the remaining 50% of the Tranche 2 Performance Option, in equal monthly installments during the 24-month period on the first day of each month beginning on September 1, 2020;
|
•
|
The Tranche 3 Performance Option will vest on the later of (i) the date (prior to the four-year anniversary of the grant date) of satisfaction of a paid recurring revenue milestone and (ii) if the milestone has been satisfied prior to the applicable date, then (a) with respect to 25% of the Tranche 3 Performance Option, on the first anniversary of the option grant date, (b) with respect to 25% of the Tranche 3 Performance Option, on the second anniversary of the option grant date, and (c) with respect to the remaining 50% of the Tranche 3 Performance Option, in equal monthly installments during the 24-month period on the first day of each month beginning on September 1, 2020;
|
•
|
The Tranche 4 Performance Option will vest on the one-year anniversary of the grant date based on the extent to which the revenue and non-GAAP gross profit milestones for the second half of fiscal 2018 are achieved; and
|
•
|
The Tranche 5 Performance Option will vest on the two-year anniversary of the grant date based on the extent to which the revenue and non-GAAP gross profit milestones for the fiscal 2019 are achieved.
|
(2)
|
On December 31, 2018, in connection with the Distribution, certain NETGEAR equity awards held by Arlo non-employee directors and employees and NETGEAR non-employee directors and employees were adjusted into equity awards with respect to Arlo common stock and NETGEAR common stock as described in more detail in the employee matters agreement.
|
(3)
|
Includes 0.3 million shares subject to awards that were cancelled in connection with Mr. Collins’ separation from the Company, 0.5 million shares subject to the IPO Options that were voluntarily forfeited by the Chief Executive Officer as the performance metrics for Tranches 4 and 5 of the IPO Options were not achieved, 59 thousand shares subject to the IPO Options issued to the Chief Financial Officer were cancelled as the performance metrics for Tranches 4 were not achieved, and 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.
|
(4)
|
Includes $0.8 million shares consisting of RSUs (50% of the grant), PSUs (25% of the grant) and MPSUs (25% of the grant) granted to the Company's NEOs during the fiscal quarter ended September 29, 2019. The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date. The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ended December 31, 2019 is achieved. As of December 31, 2019, the revenue milestone was not achieved, hence the PSUs were pending cancellation. The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Russell 2000 Index (“the Benchmark”) during the three-year period from the grant date. This also includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.
|
|
|
Stock Options
|
|
ESPP
|
|||||
|
|
2019
|
|
2018
|
|
2019
|
|||
Expected life (in years)
|
|
6.3
|
|
|
6.3
|
|
|
0.5
|
|
Risk-free interest rate
|
|
2.28
|
%
|
|
2.86
|
%
|
|
2.49
|
%
|
Expected volatility
|
|
73.0
|
%
|
|
40.0
|
%
|
|
97.6
|
%
|
Dividend yield
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|||||
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
|||||
Outstanding as of December 31, 2018
|
7,209
|
|
|
$
|
12.08
|
|
|
|
|
|
||
Granted
|
10
|
|
|
3.90
|
|
|
|
|
|
|||
Exercised
|
(4
|
)
|
|
3.03
|
|
|
|
|
|
|||
Forfeited/ Cancelled (2)
|
(938
|
)
|
|
15.88
|
|
|
|
|
|
|||
Expired
|
(237
|
)
|
|
10.00
|
|
|
|
|
|
|||
Outstanding as of December 31, 2019
|
6,040
|
|
|
$
|
11.56
|
|
|
6.39
|
|
$
|
3,100
|
|
Vested and expected to vest as of December 31, 2019
|
6,040
|
|
|
$
|
11.56
|
|
|
6.39
|
|
$
|
3,100
|
|
Exercisable Options as of December 31, 2019
|
3,238
|
|
|
$
|
8.54
|
|
|
4.64
|
|
$
|
—
|
|
(1)
|
Representing the total pre-tax intrinsic values (the difference between the Company’s closing stock price on the last trading day of 2019 and the exercise price, multiplied by the number of shares underlying the in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2019. This amount changes based on the fair market value of the Company’s stock.
|
(2)
|
Includes 0.3 million shares subject to awards that were cancelled in connection with Mr. Collins’ separation from the Company. In addition, also includes 0.5 million shares subject to the IPO Options that were voluntarily forfeited by the Chief Executive Officer as the performance metrics for Tranches 4 and 5 of the IPO Options were not expected to be achieved.
|
|
Year Ended December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In millions, except per share data)
|
||||||
Total intrinsic value of options exercised
|
$
|
—
|
|
|
$
|
—
|
|
Total fair value of options vested
|
$
|
3.10
|
|
|
$
|
—
|
|
Weighted-average grant date fair value per share of options granted
|
$
|
2.59
|
|
|
$
|
7.02
|
|
|
Options Outstanding
|
|
Options Exercisable
|
||||||||||||
Range of Exercise Prices
|
Shares
Outstanding
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
Shares
Exercisable
|
|
Weighted-
Average
Exercise
Price Per
Share
|
||||||
|
(In thousands)
|
|
(In years)
|
|
(In dollars)
|
|
(In thousands)
|
|
(In dollars)
|
||||||
3.90 - 6.68
|
1,241
|
|
|
3.79
|
|
$
|
6.52
|
|
|
1,231
|
|
|
$
|
6.54
|
|
6.80 - 8.11
|
1,107
|
|
|
3.56
|
|
7.59
|
|
|
1,071
|
|
|
7.58
|
|
||
8.21 - 10.09
|
637
|
|
|
6.92
|
|
8.84
|
|
|
407
|
|
|
8.83
|
|
||
13.23 - 13.23
|
60
|
|
|
8.59
|
|
13.23
|
|
|
20
|
|
|
13.23
|
|
||
14.39 - 14.39
|
616
|
|
|
7.49
|
|
14.39
|
|
|
321
|
|
|
14.39
|
|
||
16.00 - 16.00
|
2,379
|
|
|
8.59
|
|
16.00
|
|
|
188
|
|
|
16.00
|
|
||
3.90 - 16.00
|
6,040
|
|
|
6.39
|
|
11.56
|
|
|
3,238
|
|
|
8.54
|
|
|
Stock Options
|
|
ESPP (1)
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Expected life (in years)
|
4.4
|
|
|
4.4
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate
|
2.32
|
%
|
|
1.66
|
%
|
|
1.81
|
%
|
|
0.93
|
%
|
Expected volatility
|
30.9
|
%
|
|
31.6
|
%
|
|
37.1
|
%
|
|
29.7
|
%
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
|
Arlo employees have completed their participation into NETGEAR’s ESPP by the end of the second quarter of fiscal 2018. As of December 31, 2018, no shares had been purchased under the 2018 ESPP by Arlo employees, as the program was suspended until the completion of the Distribution.
|
|
Number of Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|||||
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
|||||
Outstanding as of December 31, 2018
|
283
|
|
|
$
|
26.53
|
|
|
|
|
|
||
Exercised
|
(48
|
)
|
|
21.35
|
|
|
|
|
|
|||
Forfeited/cancelled
|
(16
|
)
|
|
36.27
|
|
|
|
|
|
|||
Expired
|
(14
|
)
|
|
41.67
|
|
|
|
|
|
|||
Outstanding as of December 31, 2019
|
205
|
|
|
25.94
|
|
|
5.76
|
|
$
|
427
|
|
|
Vested and expected to vest as of December 31, 2019
|
205
|
|
|
25.94
|
|
|
5.76
|
|
$
|
427
|
|
|
Exercisable options as of December 31, 2019
|
162
|
|
|
24.08
|
|
|
5.25
|
|
$
|
425
|
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In millions, except per share data)
|
||||||||||
Total intrinsic value of options exercised
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
Total fair value of options vested
|
$
|
0.8
|
|
|
$
|
1.1
|
|
|
$
|
0.2
|
|
Weighted-average grant date fair value per share of NETGEAR’s stock options granted to employees specifically identifiable to Arlo
|
NA
|
|
|
$
|
20.63
|
|
|
$
|
12.25
|
|
Range of Exercise Prices
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|||||
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
|||||
Outstanding as of December 31, 2018
|
3,141
|
|
|
$
|
12.22
|
|
|
|
|
|
||
Granted (1)
|
6,690
|
|
|
4.77
|
|
|
|
|
|
|||
Vested
|
(1,146
|
)
|
|
11.22
|
|
|
|
|
|
|
||
Cancelled (2)
|
(834
|
)
|
|
7.68
|
|
|
|
|
|
|||
Outstanding as of December 31, 2019
|
7,851
|
|
|
$
|
6.50
|
|
|
1.55
|
|
$
|
33,051
|
|
(1)
|
Includes 0.8 million shares consisting of RSUs (50% of the grant), PSUs (25% of the grant) and MPSUs (25% of the grant) granted to a group of NEOs during the fiscal quarter ended September 29, 2019. The RSUs will vest in three equal annual installments during the period that begins on the RSU grant date. The PSUs will vest in three equal annual installments during the period that begins on the PSU grant date based on the extent to which a revenue milestone for the fiscal year ended December 31, 2019 is achieved. As of December 31, 2019, the revenue milestone was not achieved, hence the PSUs were pending cancellation. The MPSUs will vest at the end of the three-year period that begins on the MPSU grant date based on performance of the Company's common stock relative to the Benchmark during the three-year period from the grant date. A positive 3.3x or negative 2.5x multiplier will be applied to the total shareholder returns (“TSR”), such that the number of shares vested will increase by 3.3% or decrease by 2.5% of the target numbers, for each 1% of positive or negative TSR relative to the Benchmark. In the event the Company's common stock performance is below negative 30% relative to the Benchmark, no shares will be vested. In no event will the number of shares vested exceed 200% of the target for that tranche. In addition, includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.
|
(2)
|
Includes 0.2 million shares as a result of modification for the employees transferred in the Verisure transaction.
|
|
Year Ended December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In millions, except per share data)
|
||||||
Total intrinsic value of RSUs vested (the release date fair value)
|
$
|
5.51
|
|
|
$
|
0.04
|
|
Total fair value of RSUs vested (the grant date fair value)
|
$
|
12.90
|
|
|
$
|
0.04
|
|
Weighted-average fair value of RSUs granted
|
$
|
4.77
|
|
|
$
|
14.46
|
|
|
Year Ended
|
|
|
||
Expected life
|
3.0
|
|
Risk-free interest rate
|
1.52
|
%
|
Expected volatility
|
65.1
|
%
|
Dividend yield
|
—
|
|
Stock Beta
|
0.30
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|||||
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
|||||
Outstanding as of December 31, 2018
|
522
|
|
|
$
|
34.89
|
|
|
|
|
|
||
Transferred (1)
|
2
|
|
|
|
|
|
|
|
||||
Vested
|
(175
|
)
|
|
32.04
|
|
|
|
|
|
|||
Forfeited
|
(71
|
)
|
|
36.98
|
|
|
|
|
|
|||
Outstanding as of December 31, 2019
|
278
|
|
|
36.14
|
|
|
1.08
|
|
$
|
6,804
|
|
(1)
|
Transferred RSUs are attributable to employees that transferred from NETGEAR’s in the fourth quarter of 2019.
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In millions, except per share data)
|
||||||||||
Total intrinsic value of RSUs vested (the release date fair value)
|
$
|
5.8
|
|
|
$
|
6.9
|
|
|
$
|
2.7
|
|
Total fair value of RSUs vested (the grant date fair value)
|
$
|
5.6
|
|
|
$
|
5.0
|
|
|
$
|
2.0
|
|
weighted-average fair value of RSUs granted
|
NA
|
|
|
$
|
67.24
|
|
|
$
|
52.89
|
|
|
Year Ended December 31,
|
||||||||||||||||||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||||||||||||||||||
|
Total
|
|
Direct (1)
|
|
Indirect
|
|
Total
|
|
Direct
|
|
Indirect
|
|
Total
|
||||||||||||||
|
|
||||||||||||||||||||||||||
Cost of revenue
|
$
|
2,013
|
|
|
$
|
608
|
|
|
$
|
583
|
|
|
$
|
1,191
|
|
|
$
|
102
|
|
|
$
|
599
|
|
|
$
|
701
|
|
Research and development
|
6,868
|
|
|
3,078
|
|
|
396
|
|
|
3,474
|
|
|
1,959
|
|
|
455
|
|
|
2,414
|
|
|||||||
Sales and marketing
|
3,859
|
|
|
1,992
|
|
|
969
|
|
|
2,961
|
|
|
390
|
|
|
866
|
|
|
1,256
|
|
|||||||
General and administrative
|
10,154
|
|
|
3,153
|
|
|
2,100
|
|
|
5,253
|
|
|
—
|
|
|
2,547
|
|
|
2,547
|
|
|||||||
Total stock-based compensation expense (2)
|
$
|
22,894
|
|
|
$
|
8,831
|
|
|
$
|
4,048
|
|
|
$
|
12,879
|
|
|
$
|
2,451
|
|
|
$
|
4,467
|
|
|
$
|
6,918
|
|
(1)
|
Reflecting expenses for those legacy NETGEAR stock-based plans that have converted to equivalent Arlo stock-based plans upon the spin-off transaction.
|
(2)
|
There was no tax benefit as a result of the Company's net operating loss position.
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands, except for per share data)
|
||||||||||
Numerator:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(85,951
|
)
|
|
$
|
(75,483
|
)
|
|
$
|
6,549
|
|
Denominator:
|
|
|
|
|
|
||||||
Weighted average common shares - basic
|
75,074
|
|
|
67,231
|
|
|
62,250
|
|
|||
Potentially dilutive common shares
|
—
|
|
|
—
|
|
|
—
|
|
|||
Stock option and RSU conversion (1)
|
—
|
|
|
—
|
|
|
—
|
|
|||
Weighted average common shares - dilutive
|
75,074
|
|
|
67,231
|
|
|
62,250
|
|
|||
|
|
|
|
|
|
||||||
Basic net income (loss) per share
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
Diluted net income (loss) per share
|
$
|
(1.14
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
||||||
Anti-dilutive employee stock-based awards, excluded
|
9,692
|
|
|
1,109
|
|
|
—
|
|
(1)
|
On December 31, 2018, 6.8 million of stock options and RSUs were added to the Company’s equity awards as issued and outstanding resulting from the adjustment of NETGEAR’s equity awards that were granted to both NETGEAR and Arlo employees and non-employee directors, a portion of which were converted as Arlo awards. The dilutive effect of these converted stock options and RSUs is reflected above per share by application of the treasury stock method and none are potentially dilutive.
|
|
Year Ended December 31,
|
||||||||||
|
2019
|
|
2018
|
|
2017
|
||||||
|
(In thousands)
|
||||||||||
Americas
|
|
|
|
|
|
||||||
United States (“U.S.”)
|
$
|
190,061
|
|
|
$
|
359,936
|
|
|
$
|
279,504
|
|
Americas (excluding U.S.)
|
99,099
|
|
|
16,869
|
|
|
13,167
|
|
|||
EMEA
|
57,232
|
|
|
65,462
|
|
|
58,795
|
|
|||
APAC
|
23,615
|
|
|
22,651
|
|
|
19,192
|
|
|||
Total revenue
|
$
|
370,007
|
|
|
$
|
464,918
|
|
|
$
|
370,658
|
|
|
As of December 31,
|
||||||
|
2019
|
|
2018
|
||||
|
(In thousands)
|
||||||
Americas
|
|
|
|
||||
United States (“U.S.”)
|
$
|
17,100
|
|
|
$
|
45,053
|
|
Americas (excluding U.S.)
|
904
|
|
|
218
|
|
||
EMEA
|
316
|
|
|
567
|
|
||
APAC
|
|
|
|
||||
China
|
2,089
|
|
|
3,040
|
|
||
APAC (excluding China)
|
943
|
|
|
550
|
|
||
Total property and equipment, net
|
$
|
21,352
|
|
|
$
|
49,428
|
|
•
|
a transition services agreement with NETGEAR, governing NETGEAR’s provision of various services to the Company, and the Company’s provision of various services to NETGEAR, on a transitional basis (the “transition services agreement”). During the year ended December 31, 2018, $6.3 million NETGEAR TSA related costs were incurred, which included $0.4 million for research and development, $1.6 million for sales and marketing, and $4.3 million for general and administrative expense. During the year ended December 31, 2019, $0.7 million NETGEAR TSA related costs were incurred, which included $0.1 million for cost of revenue, $0.3 million for research and development, $0.1 million for sales and marketing, and $0.2 million for general and administrative expense;
|
•
|
a tax matters agreement with NETGEAR that governs the respective rights, responsibilities and obligations of NETGEAR and Arlo after the completion of the IPO with respect to tax matters (including responsibility for taxes attributable to the Company and its subsidiaries, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other matters) (the “tax matters agreement”);
|
•
|
an employee matters agreement with NETGEAR that addresses employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to employees and compensation and benefit plans and programs in which the Company’s employees participate prior to the distribution, as well as other human resources, employment and employee benefit matters (the “employee matters agreement”);
|
•
|
an intellectual property rights cross-license agreement with NETGEAR, which governs the Company’s and NETGEAR’s rights, responsibilities and obligations to use NETGEAR and Arlo intellectual property, respectively (the “intellectual property rights cross-license agreement”); and
|
•
|
a registration rights agreement with NETGEAR, pursuant to which the Company granted NETGEAR and its affiliates certain registration rights with respect to Arlo’s common stock owned by them (the “registration rights agreement”).
|
|
December 31, 2019 (3)
|
|
September 29,
2019 |
|
June 30,
2019 |
|
March 31,
2019 |
||||||||
|
(In thousands, except per share amounts)
|
||||||||||||||
Revenue
|
$
|
122,413
|
|
|
$
|
106,116
|
|
|
$
|
83,598
|
|
|
$
|
57,880
|
|
Gross profit
|
$
|
13,706
|
|
|
$
|
10,503
|
|
|
$
|
9,650
|
|
|
$
|
1,945
|
|
Provision for (benefit from) income taxes
|
$
|
3,525
|
|
|
$
|
286
|
|
|
$
|
349
|
|
|
$
|
220
|
|
Net income (loss)
|
$
|
19,615
|
|
|
$
|
(30,590
|
)
|
|
$
|
(33,692
|
)
|
|
$
|
(41,284
|
)
|
Net income (loss) per share—basic (1)
|
$
|
0.26
|
|
|
$
|
(0.41
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.55
|
)
|
Net income (loss) per share—diluted
|
$
|
0.26
|
|
|
$
|
(0.41
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
||||||||
|
December 31,
2018 |
|
September 30,
2018 |
|
July 1,
2018 |
|
April 1,
2018 |
||||||||
|
(In thousands, except per share amounts)
|
||||||||||||||
Revenue
|
$
|
122,158
|
|
|
$
|
131,174
|
|
|
$
|
110,948
|
|
|
$
|
100,638
|
|
Gross profit
|
$
|
4,981
|
|
|
$
|
29,747
|
|
|
$
|
28,294
|
|
|
$
|
29,053
|
|
Provision for income taxes
|
$
|
(58
|
)
|
|
$
|
223
|
|
|
$
|
288
|
|
|
$
|
319
|
|
Net loss
|
$
|
(39,073
|
)
|
|
$
|
(13,225
|
)
|
|
$
|
(17,822
|
)
|
|
$
|
(5,363
|
)
|
Net loss per share—basic (1)
|
$
|
(0.53
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.09
|
)
|
Net loss per share—diluted (2)
|
$
|
(0.53
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.09
|
)
|
(1)
|
Net loss per share basic and diluted are computed independently for each quarters presented based on the weighted-average basic and fully diluted shares outstanding for each quarters. As a result, the sum of quarterly Net loss per share basic and diluted information may not equal annual Net loss per share basic and diluted.
|
(2)
|
On December 31, 2018, 6.8 million of stock options and RSUs were added to the Company’s equity awards as issued and outstanding resulting from the adjustment of NETGEAR’s equity awards that were granted to both NETGEAR and Arlo employees and non-employee directors, a portion of which were converted as Arlo awards. The dilutive effect of these converted stock options and RSUs is reflected above per share by application of the treasury stock method and none are potentially dilutive.
|
(3)
|
The Company disposed its commercial operations in Europe in the fourth quarter of 2019. Refer to Note 4, Disposal of business, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for a complete discussion of the disposal.
|
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accounting Fees and Services
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
Consolidated Statements of Operations for the three years ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2019, 2018 and 2017
|
|
Consolidated Statements of Cash Flows for the three years ended December 31, 2019, 2018 and 2017
|
|
Notes to Consolidated Financial Statements
|
|
Quarterly Financial Data (unaudited)
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Filed Herewith
|
|
|
8-K
|
|
8/7/2018
|
|
3.1
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
3.2
|
|
|
||
|
|
S-1/A
|
|
7/23/2018
|
|
4.1
|
|
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.1
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.2
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.3
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.4
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.5
|
|
|
||
|
|
8-K
|
|
8/7/2018
|
|
10.6
|
|
|
||
|
|
S-1
|
|
7/6/2018
|
|
10.7
|
|
|
||
10.8 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.7
|
|
|
|
10.9 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.8
|
|
|
|
10.10 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.9
|
|
|
|
10.11 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.10
|
|
|
|
10.12 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.11
|
|
|
|
10.13 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.12
|
|
|
|
10.14 *
|
|
|
10-K
|
|
2/22/2019
|
|
10.14
|
|
|
|
10.15 *
|
|
|
8-K
|
|
8/7/2018
|
|
10.14
|
|
|
|
10.16 *
|
|
|
S-1/A
|
|
7/23/2018
|
|
10.16
|
|
|
|
10.17 *
|
|
|
10-Q
|
|
8/27/2018
|
|
10.17
|
|
|
|
|
|
8-K
|
|
5/1/2019
|
|
10.1
|
|
|
||
10.19 *
|
|
|
10-Q
|
|
8/6/2019
|
|
10.2
|
|
|
|
10.20 *
|
|
|
10-Q
|
|
11/8/2019
|
|
10.1
|
|
|
|
10.21 *
|
|
|
10-Q
|
|
11/8/2019
|
|
10.2
|
|
|
|
10.22 *
|
|
|
10-Q
|
|
11/8/2019
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
||
|
|
|
|
|
|
|
|
X
|
Item 16.
|
Form 10-K Summary
|
|
ARLO TECHNOLOGIES, INC.
|
|||||||
|
Registrant
|
|||||||
|
|
|||||||
|
|
|||||||
|
/s/ MATTHEW MCRAE
|
|||||||
|
Matthew McRae
|
|||||||
|
Chief Executive Officer
|
|||||||
|
(Principal Executive Officer)
|
|||||||
|
|
|||||||
|
|
|||||||
|
/s/ CHRISTINE M. GORJANC
|
|||||||
|
Christine M. Gorjanc
|
|||||||
|
Chief Financial Officer
|
|||||||
|
(Principal Financial and Accounting Officer)
|
|||||||
|
|
|||||||
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ MATTHEW MCRAE
|
|
Chief Executive Officer
|
|
February 28, 2020
|
Matthew McRae
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ CHRISTINE M. GORJANC
|
|
Chief Financial Officer
|
|
February 28, 2020
|
Christine M. Gorjanc
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/ PRASHANT AGGARWAL
|
|
Director
|
|
February 28, 2020
|
Prashant Aggarwal
|
|
|
|
|
|
|
|
|
|
/s/ JOCELYN E. CARTER-MILLER
|
|
Director
|
|
February 28, 2020
|
Jocelyn E. Carter-Miller
|
|
|
|
|
|
|
|
|
|
/s/ RALPH E. FAISON
|
|
Director
|
|
February 28, 2020
|
Ralph E. Faison
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL W. POPE
|
|
Director
|
|
February 28, 2020
|
Michael W. Pope
|
|
|
|
|
|
|
|
|
|
/s/ AMY ROTHSTEIN
|
|
Director
|
|
February 28, 2020
|
Amy Rothstein
|
|
|
|
|
|
|
|
|
|
/s/ GRADY K. SUMMERS
|
|
Director
|
|
February 28, 2020
|
Grady K. Summers
|
|
|
|
|
1.1
|
Definitions 1
|
1.2
|
Rules of Construction 14
|
2.1
|
Purchase and Sale of the Transferred Assets 15
|
2.2
|
Transferred Liabilities; Retention by Seller of Excluded Liabilities 15
|
2.3
|
Consent to Assignment 15
|
2.4
|
Local Transfer Agreements 16
|
3.1
|
Purchase Price 17
|
3.2
|
Determination of Estimated Purchase Price 17
|
3.3
|
Post-Closing Adjustment of Estimated Purchase Price 18
|
3.4
|
Allocation of Estimated Purchase Price 20
|
3.5
|
Withholding 21
|
4.1
|
Corporate Existence 21
|
4.2
|
Corporate Authority 21
|
4.3
|
No Conflicts; Governmental Approvals and Consents 22
|
4.4
|
Financial Information. 22
|
4.5
|
Absence of Changes 23
|
4.6
|
Sufficiency of Assets 23
|
4.7
|
Title to Transferred Assets; Properties. 23
|
4.8
|
Transferred Business Contracts. 23
|
4.9
|
Litigation 24
|
4.10
|
Compliance with Laws 24
|
4.11
|
Anti-Corruption; International Trade 24
|
4.12
|
Intellectual Property 25
|
4.13
|
Privacy and Data Security. 26
|
4.14
|
Product Liability 27
|
4.15
|
Tax Matters 27
|
4.16
|
Benefit Plans 27
|
4.17
|
Labor Matters 28
|
4.18
|
Transferred Real Property 29
|
4.19
|
Environmental Matters 29
|
4.20
|
Affiliate Agreements 30
|
4.21
|
Distributors 30
|
4.22
|
Brokers and Other Advisors. 30
|
4.23
|
No Other Representations or Warranties 30
|
5.1
|
Corporate Existence 31
|
5.2
|
Corporate Authority 31
|
5.3
|
Governmental Approvals and Consents 32
|
5.4
|
Litigation 32
|
5.5
|
Financial Capacity 32
|
5.6
|
Brokers and Other Advisors 32
|
5.7
|
Employee Consultations 32
|
5.8
|
Acknowledgments by Purchaser. 33
|
6.1
|
Conduct of the Business 33
|
6.2
|
Investigation of Business 36
|
6.3
|
Necessary Efforts; No Inconsistent Action 36
|
6.4
|
Public Disclosures; Confidentiality 38
|
6.5
|
Access to Records 39
|
6.6
|
Employee Relations and Benefits 40
|
6.7
|
Non-Competition 45
|
6.8
|
Non-Solicitation; No-Hire 46
|
6.9
|
Non-Disparagement 47
|
6.10
|
Tax Matters 47
|
6.11
|
Mail Handling 49
|
6.12
|
Wrong Pockets 49
|
6.13
|
Release of Liens; Accounts Payable 50
|
6.14
|
Shared Contracts. 50
|
6.15
|
No Solicitation of Business Acquisition Proposals; Notice of Arlo Acquisition Transaction 51
|
6.16
|
Intellectual Property 51
|
6.17
|
Business Materials 52
|
6.18
|
Changes to the Transition Services Agreement. 52
|
6.19
|
Right of First Offer 53
|
6.20
|
Transaction Litigation. 54
|
6.21
|
Customer Notifications. 54
|
6.22
|
French Call Option. 55
|
6.23
|
Purchaser Replication of IT Infrastructure 56
|
6.24
|
Restricted Contracts 56
|
7.1
|
Conditions Precedent to Obligations of Purchaser and Seller and the Other Selling Entities 57
|
7.2
|
Conditions Precedent to Obligation of Purchaser 57
|
7.3
|
Conditions Precedent to Obligation of Seller and the Other Selling Entities 58
|
8.1
|
Closing Date 58
|
8.2
|
Purchaser Obligations 59
|
8.3
|
Seller Obligations 59
|
9.1
|
Survival 60
|
9.2
|
Indemnification by Seller 60
|
9.3
|
Indemnification by Purchaser 61
|
9.4
|
Limitations on Indemnification 61
|
9.5
|
Indemnification Procedures 63
|
9.6
|
Mitigation 66
|
9.7
|
Treatment of Indemnification Payments 66
|
10.1
|
Termination Events 66
|
10.2
|
Effect of Termination 67
|
11.1
|
Notices 67
|
11.2
|
Bulk Transfers 68
|
11.3
|
Severability 68
|
11.4
|
Further Assurances; Further Cooperation 68
|
11.5
|
Counterparts 68
|
11.6
|
Expenses 69
|
11.7
|
Assignment; Successors and Assigns 69
|
11.8
|
Amendment; Waiver 69
|
11.9
|
Remedies 69
|
11.10
|
Third Parties 70
|
11.11
|
Governing Law 70
|
11.12
|
Consent to Jurisdiction; Waiver of Jury Trial 70
|
11.13
|
Disclosure Schedules 71
|
11.14
|
Entire Agreement 71
|
11.15
|
Non-Recourse 72
|
11.16
|
No Joint Venture 72
|
11.17
|
Section Headings; Table of Contents 73
|
with a copy (which shall not constitute notice) to:
|
Cooley LLP 4401 Eastgate Mall San Diego, CA 92121 Attention: Barbara L. Borden Thomas A. Coll |
(b)
|
If to Purchaser: Verisure S.À.R.L.
Chemin Jean-Baptiste Vandelle 3, 1290 Versoix, |
with a copy (which shall not constitute notice) to:
|
Simpson Thacher & Bartlett LLP 2475 Hanover Street Palo Alto, CA 94304 Attention: Atif I. Azher Naveed Anwar Email: [***] [***] |
8
|
Certain Defined Terms 8
|
19
|
Arlo Catalog Products to be Provided 19
|
Volume Forecasts 20
|
Supply of Products 20
|
Purchase Orders 21
|
Acceptance 21
|
Purchase Order Cancellation 21
|
Purchase Order Product Fulfilment 22
|
Packaging and Handling 22
|
Surplus 22
|
Transfer of Title and Risk of Loss 22
|
Price List 23
|
Meeting Delivery Date 23
|
Delayed Delivery 23
|
Quality Standards; Inspections and Acceptance Testing 24
|
Products which are not Acceptable 24
|
Tooling; Refurbished Products 25
|
Product Requirements 25
|
Security and Data Privacy 25
|
Production and Technical Manufacturing Information Records 26
|
End Of Life Products 26
|
Product Recalls 27
|
Other Supply Chain Terms 27
|
Epidemic Product Defects 28
|
Consequences of Epidemic Products 29
|
Notification and Recovery Plan 29
|
Pass-Through Rights 30
|
30
|
Exclusivity in respect of Arlo Catalog Products 30
|
Exclusivity in respect of Verisure Developed Products 30
|
Exclusivity in respect of all Products 31
|
Supply Exclusivity 31
|
Development Services 31
|
Entering into Statements of Work 32
|
Replacement of Project Leaders 33
|
Subcontracting 33
|
Development Services Pricing 33
|
Dedicated Team 33
|
Key Personnel 34
|
EOL of Verisure Developed Products 34
|
34
|
Associated Services 34
|
Associated Services Pricing 36
|
Arlo Smart Services Invoicing 36
|
Key Personnel 36
|
Arlo Smart 36
|
Access; Training 36
|
Article VI RECORD KEEPING AND AUDIT
|
37
|
Record Keeping 37
|
Audit 37
|
38
|
Joint Roadmap 38
|
Relationship Managers 38
|
Development and Quality Control Committee 39
|
Governance Committee 40
|
Replacements 40
|
40
|
Prepayments 40
|
Product Payments 41
|
Minimum Annual Commitment 41
|
Cure Right 41
|
Base Margin 42
|
Invoicing 42
|
General 42
|
Taxes 43
|
43
|
Background IP 43
|
Customer IP 43
|
Customer License to Supplier 44
|
VDP License 44
|
Backstop License 45
|
Section 9.06
|
Additional Arlo Licenses 45
|
Registration of License 45
|
Prosecution 46
|
Enforcement 46
|
Branding 46
|
Arlo Brand License Outside the Territory 46
|
Covenants 47
|
Escrow 47
|
Third Party IP 48
|
Brexit 48
|
Reservation of Rights 48
|
48
|
End User Relationship 48
|
Other Reporting Obligations 48
|
User Experience Updates 49
|
Compliance with Law 49
|
49
|
Initial Term 49
|
Renewal 49
|
Termination 49
|
Survival 51
|
51
|
Triggering Events 51
|
Step-In Rights 53
|
Backstop Services 54
|
Backstop Arrangements 57
|
Insolvency Event 57
|
58
|
Representations of Both Parties 58
|
Supplier Representations 58
|
59
|
Definition of Confidential Information 59
|
Exclusions 59
|
Use and Disclosure Restrictions 59
|
60
|
Indemnification by Supplier 60
|
Indemnification by Customer 60
|
Indemnification Procedure 60
|
Limitations of Liability 62
|
63
|
Dispute Resolution 63
|
Specific Performance 64
|
No Joint Venture 65
|
Force Majeure 65
|
Further Assurances 65
|
Notices 65
|
Entire Agreement 66
|
No Third-Party Beneficiaries 66
|
Amendment; Waiver 66
|
Governing Law 66
|
Counterparts 66
|
Assignment 66
|
Rules of Construction 67
|
Non-Recourse 67
|
Export Law Compliance 67
|
No Conflict 67
|
(a)
|
The Volume Forecast will only be binding in respect of those components that require more than [***] to be delivered at the manufacturing facility, as certified by Supplier on a [***] basis (the “Long Lead Time Components”);
|
(b)
|
Supplier shall not allocate any Long Lead Time Components to any customer other than Customer until Customer places the relevant Purchase Order;
|
(c)
|
In the event Customer places a Purchase Order that is below the Volume Forecast, Customer will be liable for the Long Lead Time Components applicable to such Purchase Order; provided that Supplier takes all commercially reasonable steps to mitigate the effects of such long lead times, including, without limitation (i) using the components that were purchased by Supplier for, but are no longer required by, Customer, in products for other customers of Supplier; (ii) reselling the Long Lead Time Components to its own suppliers and (iii) allocating such Long Lead Time Components to future orders by Customer;
|
(d)
|
Provided that Supplier has taken the mitigating steps set forth above and such Long Lead Time Components remain unused or unsold, Customer will pay such unused or unsold Long Lead Time Components at cost within [***] of receiving the invoice from Supplier; and
|
(e)
|
Customer will be able to order up to [***] percent ([***]%) more of the Volume Forecast (“Increased Forecast”) and Supplier shall use commercially reasonable efforts to accommodate such increase.
|
(a)
|
be given in writing (whether air mail or electronic form);
|
(b)
|
where relevant specify:
|
(i)
|
the type, price, currency and quantity of any Products ordered; and
|
(ii)
|
the requested Delivery Date(s) and Delivery Location for such Products;
|
(c)
|
contain an order number; and
|
(d)
|
specify the registered name, tax identification number and address of the Customer Entity to be invoiced by the Supplier for the Fees.
|
Amount payable per week of delay after the Grace Period
|
[***]% of the value of order.
|
Section 3.01
|
Supply Exclusivity. During the term of this Agreement and subject to the terms and conditions hereunder, and subject to Supplier meeting its development, supply and material Escrow obligations, Customer will exclusively source Products from Supplier. Customer shall have the right to commercialize camera products, camera accessories and related services sourced from other suppliers, including Customer’s own developed devices and services, anywhere in the world. Solely in respect of the Verisure Security Business, if Customer is planning on sourcing camera products, camera accessories or related services from a third party, Customer will, if reasonable under the circumstances, offer such sourcing opportunity to Supplier prior to offering it to a third party. Notwithstanding the foregoing, Customer shall have discretion on whether to choose Supplier as the vendor for such sourcing and provided, further, that Supplier will not be required to provide Associated Services (as defined below) in respect of any products sourced from a third party.
|
By:
|
/s/ Matthew McRae
Name: Matthew McRae Title: Chief Executive Officer |
By:
|
/s/ Austin Lally
Name: Austin Lally Title: Chief Executive Officer |
By:
|
/s/ Marta Panzano Barbero
Name: Marta Panzano Barbero Title: Chief Human Resources Officer |
Borrower:
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ARLO TECHNOLOGIES, INC.
3030 Orchard Parkway
San Jose, CA 95134
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Lender:
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Western Alliance Bank, an Arizona corporation
55 Almaden Boulevard, Suite 100
San Jose, CA 95113
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1.
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REVOLVING CREDIT LINE.
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1.1
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Advances. Subject to the terms and conditions of this Agreement, from the Closing Date until the Maturity Date, Lender will make Advances to Borrower not exceeding the Credit Limit or the Borrowing Base, whichever is less; provided that in no event shall Lender be obligated to make any Advance that results in an Overadvance or while any Overadvance is outstanding. Amounts borrowed under this Section may be repaid and subject to the terms and conditions hereof reborrowed during the term of this Agreement. It shall be a condition to each Advance that (a) an Advance Request acceptable to Lender has been received by Lender, (b) all of the representations and warranties set forth in Section 3 are true and correct in all material respects on the date of such Advance as though made at and as of each such date, and (c) no Default has occurred and is continuing, or would result from such Advance. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, Lender shall not be obligated to make any Advances during any Clean-up Period (other than Advances made against Eligible Receivables for which the invoice relating to the Eligible Receivable was first sent to Best Buy between July 1 2019 and December 31 2019 and between July 1 2020 and December 31 2020, subject to the requirement that in respect of Advances after July 2020 Borrower will first provide Lender with 12 month forward-looking financial projections satisfactory to Lender prior to end of June 2020).
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1.2
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Advance Requests. Borrower may request that Lender make an Advance by delivering to Lender an Advance Request therefor and Lender shall be entitled to rely on all the information provided by Borrower to Lender on or with the Advance Request. Lender may honor Advance Requests, instructions or repayments given by any Authorized Person. So long as all of the conditions for an Advance set forth herein have been satisfied, Lender shall fund such Advance into Borrower’s Account within one business day of Lender's receipt of the applicable Advance Request.
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1.3
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Due Diligence. Lender may audit Borrower’s Receivables and any and all records pertaining to the Collateral, at Lender’s sole discretion and at Borrower’s expense. Borrower acknowledges that such an audit must be completed prior to the initial Advance hereunder and at least annually thereafter, or upon Lender’s request (or more frequently if an Event of Default has occurred and is continuing); provided that such an audit shall be required prior to the initial Advance following the last day of any Clean-up Period. Lender may at any time and from time to time contact Account Debtors and other Persons obligated or knowledgeable in respect of Eligible Receivables to confirm the Receivable Amount of such Receivables, to determine whether the Eligible Receivables constitute Eligible Receivables, and for any other purpose in connection with this Agreement. If any of the Collateral or Borrower's books or records pertaining to the Collateral are in the possession of a third party, Borrower authorizes that third party to permit Lender or its agents to have access to perform inspections or audits thereof and to respond to Lender's requests for information concerning such Collateral and records, in each case during reasonable business hours and upon prior written notice, unless an Event of Default has occurred and is continuing, in which case at any time and with no notice required.
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1.4
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Collections.
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(a)
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Lender shall have the exclusive right to receive all Collections on all Receivables. Borrower shall promptly notify, transfer and deliver to Lender all Collections Borrower receives for deposit into the Collection Account. Borrower shall instruct all Account Debtors to make payments directly to the Collection Account, or instruct them to deliver such payments to Lender by wire transfer, ACH, or other means as Lender may direct for deposit to the Collection Account.
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(b)
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At Lender’s option, Lender may either (i) transfer all Collections deposited into the Collection Account to Borrower’s Account, or (ii) apply the Collections deposited into the Collection Account to the outstanding Account Balance, in either case, within two business days of the date received; provided that upon the occurrence and during the continuance of any Default, Lender may apply all Collections to the Obligations in such order and manner as Lender may determine. Lender has no duty to do any act other than to apply such amounts as required above. If an item of Collections is not honored or Lender does not receive good funds for any reason, any amount previously transferred to Borrower’s Account or applied to the Account Balance shall be reversed as of the date transferred or applied, as applicable, and, if applied to the Account Balance, the Finance Charge will accrue as if the Collections had not been so applied. Lender shall have, with respect to any goods related to the Receivables, all the rights and remedies of an unpaid seller under the UCC and other applicable law, including the rights of replevin, claim and delivery, reclamation and stoppage in transit, in each case, in accordance with applicable law.
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1.5
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Receivables Activity Report. Within 5 business days after each Month End, Lender shall post a report on Lender’s online platform covering the transactions for the prior billing period, including the amount of all Advances, Collections, Adjustments, Finance Charges, and other fees and charges. The accounting shall be deemed correct and conclusive unless Borrower makes written objection to Lender within 30 days after Lender sends the accounting to Borrower.
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1.6
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Adjustments. In the event any Adjustment or dispute is asserted by any Account Debtor, Borrower shall promptly advise Lender and shall, subject to Lender’s approval, resolve such disputes and advise Lender of any Adjustments (other than any Best Buy Adjustments); provided that in no case will the aggregate write-offs made with respect to any Eligible Receivable exceed the greater of (i) Ten Thousand Dollars ($10,000) or (ii) two percent (2%) of its original Receivable Amount unless Borrower has obtained the prior written consent of Lender. So long as any Obligations are outstanding and after the occurrence and during the continuance of an Event of Default, Lender shall have the right, at any time, to take possession of any rejected, returned, or recovered personal property. If such possession is not taken by Lender, Borrower is to resell it for Lender’s account at Borrower’s expense with the proceeds made payable to Lender. While Borrower retains possession of any returned goods, Borrower shall segregate said goods and mark them as property of Lender.
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1.7
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Recourse; Maturity. Advances and the other Obligations shall be with full recourse against Borrower. On the Maturity Date or such earlier date as shall be herein provided, Borrower will pay all then outstanding Advances and other Obligations to Lender.
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1.8
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Letter of Credit Line. Subject to the terms and conditions of this Agreement, Lender hereby agrees to issue or cause an Affiliate to issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit") from time to time; provided that (a) the Letter of Credit Obligations shall not at any time exceed the International Sublimit less the FX Reserve Amount and (b) the Letter of Credit Obligations will be treated as Advances for purposes of determining availability under the Credit Limit and shall decrease, on a dollar-for-dollar basis, the amount available for other Advances. The form and substance of each Letter of Credit shall be subject to approval by Lender, in its sole discretion. Each Letter of Credit shall be subject to the additional terms of the Letter of Credit agreements, applications and any related documents required by Lender in connection with the issuance thereof (each, a "Letter of Credit Agreement"). Each draft paid under any Letter of Credit shall be repaid by Borrower in accordance with the provisions of the applicable Letter of Credit Agreement. No Letter of Credit shall be issued that results in an Overadvance or while any Overadvance is outstanding. Upon the Maturity Date, the amount of Letter of Credit Obligations shall be secured by unencumbered cash on terms acceptable to Lender if the term of this Agreement is not extended by Lender.
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1.9
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Credit Card Facility. Subject to the terms and conditions of this Agreement, Borrower may request Credit Card Services pursuant to the terms of such Credit Card Services Agreements as may be required by Lender in an aggregate amount not to exceed the Credit Card Limit.
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1.10
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Foreign Exchange Facility. Borrower may enter in foreign exchange forward contracts with Lender under which Borrower commits to purchase from or sell to Lender a set amount of foreign currency more than one business day after the contract date (the "FX Forward Contract"). The total FX Forward Contracts at any one time may not exceed (a) 10 times (b) the amount of (i) the International Sublimit minus (ii) any Letter of Credit Obligations. A percentage, to be determined by Lender in its reasonable discretion from time to time, of each outstanding FX Forward Contract (the “FX Reserve Amount”) shall be treated as an Advance for purposes of determining availability under the Credit Limit and shall decrease, on a dollar-for-dollar basis, the amount available for other Advances. Lender may terminate the FX Forward Contracts if an Event of Default occurs. Each FX Forward Contract shall be subject to additional terms set forth in the applicable FX Forward Contract or other agreements executed in connection with the foreign exchange facility. Upon the Maturity Date, the amount of Obligations with respect to FX Forward Contracts shall be repaid in full or secured by unencumbered cash on terms acceptable to Lender if the term of this Agreement is not extended by Lender.
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1.11
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Overadvances. Upon any occurrence of an Overadvance, Borrower shall immediately pay down the Advances such that, after giving effect to such payments, no Overadvance exists.
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1.12
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Notification and Verification. Lender may (i) verify invoices and (ii) notify Borrower’s Account Debtors of Lender’s security interest in the Eligible Receivables (or all Receivables upon the occurrence and during the continuance of an Event of Default), at its sole discretion from time to time. Lender shall endeavor to provide notice to and consult with Borrower with respect to such notices so long as no Event of Default has occurred and is continuing, but Lender’s failure to provide such notice and/or so consult with Borrower shall not be deemed a breach of this Agreement or otherwise give rise to any liability.
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2.
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FEES AND FINANCE CHARGES.
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2.1
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Finance Charges. Borrower agrees to pay to Lender the Finance Charges on the Account Balance. Lender may, but is not required to, deduct the amount of accrued Finance Charges from Collections received by Lender. The accrued and unpaid Finance Charges shall be due and payable within 10 calendar days after each Month End during the term hereof. Borrower hereby authorizes Lender to automatically deduct the amount of any loan payments from any deposit account(s) of Borrower held with Lender. If the funds in the account(s) are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment and Borrower agrees to pay any applicable fees for this service disclosed in the Schedule of Fees and Charges applicable to Borrower’s account(s). Subject to any terms and conditions in the Loan Documents, Borrower or Lender may voluntarily terminate automatic payments at any time for any reason.
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2.2
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Fees.
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(a)
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Facility Fee. Borrower shall pay the Facility Fee to Lender promptly upon the execution of this Agreement and annually thereafter.
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(b)
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Letter of Credit Fees. Borrower shall pay to Lender fees upon the issuance of each Letter of Credit, upon the payment or negotiation of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Lender's standard fees and charges then in effect for such activity.
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(c)
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Credit Card Facility and FX Forward Contract Fees. Borrower shall pay to Lender fees in connection with the Credit Card Facility and FX Forward Contracts as determined in accordance with Lender’s standard fees and charges then in effect for such activity.
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3.
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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants:
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3.1
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No representation, warranty or other statement of Borrower in any certificate or written statement given to Lender contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading in light of the circumstances under which such statements were made.
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3.2
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Borrower is duly existing and in good standing in its jurisdiction of formation and qualified and licensed to do business in, and in good standing in, any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to so qualify in such other jurisdiction could not reasonably be expected to have a material adverse effect on Borrower.
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3.3
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The execution, delivery and performance of this Agreement has been duly authorized, does not (a) conflict with Borrower’s organizational documents, (b) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (c) contravene, conflict with or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of Borrower’s property or assets may be bound or affected, (d) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), or (e) constitute an Event of Default under any material agreement by which Borrower is bound. Except as set forth in written notice to Lender, Borrower is not in default under any material agreement to which or by which it is bound in which the default could have a material adverse effect on Borrower’s business.
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3.4
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Borrower has not violated any laws, ordinances or rules, the violation of which could have a material adverse effect on Borrower’s business.
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3.5
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Borrower has good title to the Collateral and all inventory is in all material respects of good and marketable quality, free from material defects, but subject to ordinary wear and tear and except for used or returned inventory.
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3.6
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Borrower’s name, form of organization, chief executive office, and the place where the records concerning all Receivables and Collateral are kept is set forth at the beginning of this Agreement. Borrower’s chief executive office is located at its address for notices set forth in this Agreement.
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3.7
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If Borrower owns, holds or has any interest in, any copyrights (whether registered, or unregistered), patents or trademarks, and licenses of any of the foregoing, such interest has been specifically disclosed and identified to Lender in writing (including in any Compliance Certificate).
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3.8
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Borrower is the sole owner of the Intellectual Property, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business and Permitted Exclusive Licenses. To the best of Borrower’s knowledge, each of the patents is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and except as set forth in written notice to Lender, no claim has been made that any part of the Intellectual Property violates the rights of any third party, in each case, except to the extent such claim could not reasonably be expected to have a material adverse effect on Borrower’s business.
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3.9
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Borrower is solvent and able to pay its debts (including trade debts) as they mature.
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3.10
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The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise disclosed in writing to Lender. None of the Collateral is currently being maintained at locations other than as disclosed in writing to Lender or in transit in the ordinary course of business.
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3.11
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Except as disclosed in writing to Lender or in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower’s officers, threatened in writing by or against Borrower or any Subsidiary that could result in damages or costs to Borrower or any of its Subsidiaries in excess of, individually and in the aggregate, One Million Dollars ($1,000,000).
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3.12
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All consolidated financial statements for Borrower and its Subsidiaries delivered to Lender fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of the dates and periods covered thereby (and as to unaudited financial statements, subject to normal year-end adjustments and the absence of footnote disclosures). There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Lender.
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3.13
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Borrower does not own any stock, partnership interest, other ownership interest or other equity securities in any Person except for Permitted Investments.
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3.14
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Borrower and each Subsidiary have timely filed all required tax returns and reports, and Borrower and each Subsidiary have timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each Subsidiary, except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Two Hundred Fifty Thousand Dollars ($250,000).
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4.
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MISCELLANEOUS PROVISIONS. Borrower will:
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4.1
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Maintain its corporate existence and good standing in its jurisdiction of incorporation and maintain its qualification in each other jurisdiction necessary to Borrower's business or operations (unless failure to maintain such qualification could not reasonably be expected to result in a material adverse effect on Borrower) and not merge or consolidate with or into any other business organization (except that a Subsidiary may merge into Borrower), or acquire all or substantially all of the capital stock or other equity interests or property of a third party, unless (i) any such acquired entity becomes a “borrower” under this Agreement and Lender has previously consented to the applicable transaction in writing or (ii) such transaction is a Permitted Acquisition.
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4.2
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Comply with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business.
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4.3
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Give Lender at least twenty (20) days prior written notice of changes to its name, organization, chief executive office, location of records or otherwise add any new domestic business locations or any new domestic locations where Borrower intends to store Collateral in excess of One Million Dollars ($1,000,000), and, if requested by Lender, Borrower will cause the applicable landlord/bailee to enter into a landlord consent (or bailee agreement in the case of any bailee) in favor of Lender prior to the commencement of such new domestic office or domestic location where Collateral in excess of One Million Dollars ($1,000,000) is stored.
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4.4
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Pay all its taxes including gross payroll, withholding and sales taxes when due (except for deferred payment of any taxes contested pursuant to the terms of Section 3.14 hereof and taxes with respect to which the amount does not exceed the amount set forth in Section 3.14) and will deliver satisfactory evidence of payment to Lender if requested.
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4.5
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Maintain:
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(a)
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insurance satisfactory to Lender in its reasonable discretion as to amount, nature and carrier covering property damage to any of Borrower's properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers' compensation, and any other insurance which is usual for Borrower's business. Each such policy shall provide for at least twenty (20) days prior notice to Lender of any cancellation thereof (ten (10) days in the case of cancellation for nonpayment of premium).
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(b)
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all risk or special perils property damage insurance policies covering the tangible property comprising the collateral. Each insurance policy must be for the full replacement cost of the collateral and include a replacement cost endorsement, or in an amount acceptable to Lender. The insurance must be issued by an insurance company acceptable to Lender and must include a lender's loss payable endorsement with respect to property coverage and an additional insured endorsement with respect to liability coverage, in each case, in favor of Lender in a form acceptable to Lender in its reasonable discretion.
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4.6
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Promptly transfer and deliver to Lender all Collections Borrower receives.
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4.7
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Not create, incur, assume, or be liable for any indebtedness, other than Permitted Indebtedness.
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4.8
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Not convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), all or any part of its business or property, other than: (a) Transfers of inventory in the ordinary course of business; (b) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower in the ordinary course of business; (c) Transfers of worn-out, surplus or obsolete equipment which was not financed by Lender; (d) Transfers consisting of licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that (i) may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States or (ii) pertain to customized products for specific customers (collectively, “Permitted Exclusive Licenses”); (e) Transfers consisting of Permitted Liens and Permitted Investments; (f) Transfers consisting of the abandonment, cancellation, non-renewal, discontinuance of use or maintenance or other disposition in the ordinary course of business of any Intellectual Property (or rights thereto) that any Borrower determines in its good faith is no longer desirable in the conduct of its business and not materially disadvantageous to the interests of the Lender; (g) Transfers that consist of the sale, transfer, assignment or other disposition of accounts receivable (other than any Eligible Receivables) in connection with the collection, compromise or settlement thereof in the ordinary course of business and not as part of a financing transaction; (h) other Transfers in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) per fiscal year; (i) Transfers from a Borrower to another Borrower; and (j) Transfers contemplated in or related to the transactions described in Schedule 4.8 of the Disclosure Letter (as amended from time to time so long as Lender receives a copy of, and, with respect to any such amendment in connection with the Transfer of any domestic assets of Borrower outside of the United States, agrees to, such amendments) (“Permitted Transaction”).
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4.9
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Not make any investment in or to any Person, other than Permitted Investments.
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4.10
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Not pay any dividends or make any distributions or payment with respect to Borrower’s capital stock or redeem, retire or purchase any of Borrower’s capital stock other than Permitted Distributions.
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4.11
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Not directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
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4.12
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Not make any payment in respect of any Subordinated Debt or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of the applicable subordination agreement in favor of Lender, or amend any provision contained in any documentation relating to the Subordinated Debt without Lender’s prior written consent.
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4.13
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Without limiting any of the other covenants or restrictions contained in this Agreement or any other Loan Document, allow, permit or suffer any Dormant Subsidiary to (a) own or hold any assets or property with an aggregate fair market value above Five Hundred Thousand Dollars ($500,000) or other than as disclosed to Lender as of the Closing Date or (b) conduct, transact or otherwise engage in, or commit to conduct, transact or otherwise engage in, any material business or operations. Notwithstanding anything to the contrary in this Agreement or any other Loan Document (including, without limitation, in the definition of “Permitted Investments” herein), Borrower shall not invest or otherwise transfer assets to the Dormant Subsidiaries in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal quarter of Borrower.
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4.14
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Reserved.
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4.15
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Provide the following financial information and statements in form and content acceptable to Lender in its reasonable discretion, and such additional information as requested by Lender from time to time. Lender has the right to require Borrower to deliver financial information and statements to Lender more frequently than otherwise provided below, and to use such additional information and statements to measure any applicable financial covenants in this Agreement.
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(a)
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Within 180 days of the fiscal year end, the annual financial statements of Borrower, certified and dated by an authorized financial officer. These financial statements must be audited (with an opinion satisfactory to Lender) by PwC or other a Certified Public Accountant acceptable to Lender in its reasonable discretion. The statements shall be prepared on a consolidated basis.
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(b)
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No later than 30 days after the end of each fiscal month (including the last period in each fiscal year), monthly consolidated financial statements of Borrower, as well as a balance sheet and income statement reflecting U.S. operations, certified and dated by an authorized financial officer.
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(c)
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No later than 45 days after the end of each fiscal quarter (including the last quarter in each fiscal year), quarterly statement of consolidated cash flows of Borrower and its Subsidiaries for such quarter, certified and dated by an authorized financial officer.
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(d)
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If applicable, copies of the Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report for Borrower within 5 days of filing with the Securities and Exchange Commission.
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(e)
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Financial projections covering a time period acceptable to Lender and specifying the assumptions used in creating the projections. Preliminary/draft annual projections shall in any case be provided to Lender no later than February 15th of each fiscal year and annual board approved projections shall in any case be provided to Lender no later than March 30th of each fiscal year.
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(f)
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Within 30 days of the end of each month, a Compliance Certificate of Borrower, signed by an authorized financial officer and setting forth (i) the information and computations (in sufficient detail) to establish compliance with all financial covenants (set forth in Section 4.17 of this Agreement) at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action Borrower is taking and proposes to take with respect thereto.
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(g)
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Within 30 days of the end of each month (i) an inventory schedule and a sell-through report each with respect to Eligible Receivables, (ii) a general inventory report, and (iii) a detailed aging of Borrower’s Receivables by invoice or a summary aging by account debtor, together with payable aging, each in form and detail satisfactory to Lender.
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(h)
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Within 3 business days after the end of each week (or within 15 days of the end of each month during any Clean-up Period if no Advances are outstanding), a borrowing base certificate, in form and substance satisfactory to Lender, setting forth Eligible Receivables and Eligible Receivable Amounts thereof as of the last day of the preceding week.
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(i)
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Within 3 business days after the end of each week (or within 15 days of the end of each month during any Clean-up Period if no Advances are outstanding), a detailed aging of Borrower’s Eligible Receivables by invoice or a summary aging by account debtor, together with sales journal, cash receipts journal, and such other matters as Lender may request, each with respect to Eligible Receivables.
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(j)
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Promptly upon Lender's request, such other books, records, statements, lists of property and accounts, board approved budgets, board approved forecasts or reports as to Borrower and as to each guarantor of Borrower's obligations to Lender as Lender may request.
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(k)
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Upon Lender’s request, copies of invoices along with supporting purchase orders, proof-of-delivery and (if applicable) acceptance documentation.
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4.16
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On the Closing Date Borrower shall have at least Thirty Million Dollars ($30,000,000) in cash and Cash Equivalents in depository, operating and investment accounts with Lender. After the Closing Date, Borrower may make withdrawals and/or transfers for liabilities and expenses incurred in the ordinary course of business. In the case of any domestic accounts not maintained with Lender, grant to Lender a first priority perfected security interest in and “control” (within the meaning of Section 9104 of the UCC) of such account pursuant to documentation acceptable to Lender other than with respect to (i) the deposit accounts used exclusively for payroll, payroll taxes, and other employee wage and benefit payments, (ii) the Excluded Account, (iii) the Zero Balance Accounts, and (iv) payment processor accounts shown on the Perfection Certificate or similar payment processor accounts so long as the aggregate balance in such accounts does not exceed Three Million Dollars ($3,000,000) at any time; provided that Borrower shall have 30 days after the Closing Date to deliver the fully executed account control agreements, in form and substance satisfactory to Lender, with respect to Borrower’s accounts maintained with HSBC and Morgan Stanley. Without limiting the foregoing, from and at all times after the Closing Date, Borrower shall (i) may utilize Lender’s International Services Group for all foreign exchange, hedging and letter of credit activity to the extent Lender’s International Banking Division provides such services in the applicable foreign jurisdiction, and (ii) maintain cash in accounts maintained with Lender of not less than an amount equal to twenty percent (20%) of the aggregate outstanding amount of all Advances (including, for the avoidance of doubt, after giving effect to the requested Advance).
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4.17
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From and at all times after the Closing Date, Borrower shall maintain cash in accounts within the United States (including cash in accounts maintained with Lender and cash in accounts with third parties in the United States) of not less than Twenty Million Dollars ($20,000,000).
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4.18
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Provide to Lender promptly upon the execution hereof and as a condition to the effectiveness of this Agreement, the following documents which shall be in form satisfactory to Lender: (i) a duly executed account control agreement in favor of Lender with each financial institution (other than Lender, HSBC and Morgan Stanley), if any, at which Borrower maintains any domestic deposit or investment accounts to the extent required pursuant to Section 4.16, (ii) Corporate Resolutions to Borrow, duly executed by Borrower, and (iii) a duly executed opinion letter from Borrower’s counsel.
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4.19
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Promptly provide to Lender such additional information and documents regarding the finances, properties, business or books and records of Borrower or any guarantor or any other obligor as Lender may request.
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4.20
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Not make or contract to make, without Lender’s prior written consent, capital expenditures, including leasehold improvements, in any fiscal year in excess of Ten Million Dollars ($10,000,000).
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4.21
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Provide to Lender a prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result if in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Million Dollars ($1,000,000) or more.
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4.22
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Execute any further instruments and take further action as Lender requests in its reasonable discretion to perfect or continue Lender’s security interest in the Collateral or to affect the purposes of this Agreement.
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5.
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SECURITY INTEREST. To secure the prompt payment and performance to Lender of all of the Obligations, Borrower hereby grants to Lender a continuing security interest in the Collateral. Borrower is not authorized to sell, assign, transfer or otherwise convey any Collateral without Lender’s prior written consent, except for (a) the sale of finished inventory in Borrower’s usual course of business and (b) Transfers permitted under Section 4.8 hereunder. Borrower agrees to sign any instruments and documents requested by Lender to evidence, perfect, or protect the interests of Lender in the Collateral. Borrower agrees to deliver to Lender the originals of all instruments, chattel paper and documents evidencing or related to Receivables and Collateral. Borrower shall not grant or permit any lien or security in the Collateral or any interest therein other than Permitted Liens. Borrower shall not enter, and represents and warrants that it has not entered, into any agreement, document, instrument or other arrangement (except with or in favor of Lender) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s Intellectual Property in favor of Lender, except as is otherwise permitted in the definition of “Permitted Liens” herein.
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6.
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POWER OF ATTORNEY. Borrower irrevocably appoints Lender and its successors and as true and lawful attorney in fact, and authorizes Lender (a) to, whether or not there has been an Event of Default, (i) demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Receivables and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Receivables, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Lender’s name or Borrower’s name, as Lender may choose; (ii) prepare, file and sign Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics’ lien or similar document; (iii) notify all Account Debtors with respect to the Receivables to pay Lender directly; (iv) receive and open all mail addressed to Borrower for the purpose of collecting the Receivables; (v) endorse Borrower’s name on any checks or other forms of payment on the Receivables; (vi) execute on behalf of Borrower any and all instruments, documents, financing statements and the like to perfect Lender’s interests in the Receivables and Collateral; (vii) debit any Borrower’s deposit accounts maintained with Lender for any and all Obligations due under this Agreement; and (viii) do all acts and things necessary or expedient, in furtherance of any such purposes, and (b) to, upon the occurrence and during the continuance of an Event of Default, sell, assign, transfer, pledge, compromise, or discharge the whole or any part of the Receivables. Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Borrower to Lender hereunder shall be applicable with respect to all Receivables and all Collateral.
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7.
|
DEFAULT AND REMEDIES.
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7.1
|
Events of Default. The occurrence of any one or more of the following shall constitute an Event of Default hereunder.
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(a)
|
Failure to Pay. Borrower fails to make an interest or principal payment when due under this Agreement, or the failure to make any other payments within five (5) days after written notice by Lender to Borrowers that the same are due.
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(b)
|
Lien Priority. Lender fails to have an enforceable first lien (except for any prior liens to which Lender has consented in writing and Permitted Liens securing purchase money indebtedness under clause (c) of the definition of “Permitted Indebtedness” hereunder) on or security interest in the Collateral.
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(c)
|
False Information. Borrower (or any guarantor) has given Lender any materially false or misleading information or representations (as of the date made or deemed made) or has failed to disclose any material fact relating to the subject matter of this Agreement.
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(d)
|
Death. Any guarantor (if any) dies or becomes legally incompetent.
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(e)
|
Bankruptcy. (i) Borrower (or any guarantor) files a bankruptcy petition, (ii) a bankruptcy petition is filed against Borrower (or any guarantor) and is not dismissed or stayed within forty-five (45) days (but no Advances shall be made while any of the conditions described in clause (ii) exist and/or until any bankruptcy proceeding is dismissed) or (iii) Borrower (or any guarantor) makes a general assignment for the benefit of creditors.
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(f)
|
Receivers. A receiver or similar official is appointed for a substantial portion of Borrower’s (or any guarantor’s) business, or the business is terminated.
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(g)
|
Judgments. Any judgments or arbitration awards are entered against Borrower (or any guarantor), or Borrower (or any guarantor) enters into any settlement agreements with respect to any litigation or arbitration and the aggregate amount of all such judgments, awards, and agreements exceeds One Million Dollars ($1,000,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) and such judgments shall not have been satisfied, vacated, discharged, stayed or bonded pending appeal within 30 days after the entry thereof; provided, that no Advances will be made prior to such judgments being so satisfied, vacated, discharged, stayed or bonded.
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(h)
|
Material Adverse Change. A Material Adverse Change occurs.
|
(i)
|
Cross-default. Any default occurs under any agreement in connection with any credit in an amount individually or in the aggregate in excess of One Million Dollars ($1,000,000) that Borrower (or any guarantor) or any of Borrower’s Affiliates has obtained from anyone else or which Borrower (or any guarantor) or any of Borrower’s Affiliates has guaranteed (other than trade amounts payable incurred in the ordinary course of business and not more than 90 days past due); provided, however, that the Event of Default under this Section 7.1(i) caused by the occurrence of a breach or default under such other agreement shall be cured or waived for purposes of this Agreement upon Lender receiving written notice from the party asserting such breach or default of such cure or waiver of the breach or default under such other agreement, if at the time of such cure or waiver under such other agreement (i) Lender has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto; (ii) any such cure or waiver does not result in an Event of Default under any other provision of this Agreement or any related document; and (iii) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are not modified or amended in any manner which could in the good faith business judgment of Lender be materially less advantageous to Borrower.
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(j)
|
Default under Related Documents. Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement (after giving effect to any cure period provided for therein) or any such document is no longer in effect (other than in accordance with the terms thereof and the terms of this Agreement).
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(k)
|
Other Agreements. Borrower (or any guarantor) or any of Borrower’s Affiliates fails to meet the conditions of, or fails to perform any obligation under any other agreement Borrower (or any guarantor) or any of Borrower’s Affiliates has with Lender or any Affiliate of Lender (after giving effect to any cure period provided for therein).
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(l)
|
Change of Control. A Change of Control occurs.
|
(m)
|
Other Breach Under Agreement. Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to above and, with respect to any such default other than a default under Sections 1.11 or 4.17 of this Agreement (for which no cure period shall be applicable), Borrower has failed to cure such default within 10 business days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 10 business day period or cannot after diligent attempts by Borrower be cured within such 10 business day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no credit extensions will be made hereunder.
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7.2
|
Remedies. Upon the occurrence and during the continuance of an Event of Default, (1) without implying any obligation to do so, Lender may cease making Credit Extensions or extending any other financial accommodations to Borrower; (2) all or a portion of the Obligations shall be, at the option of and upon demand by Lender, or with respect to an Event of Default described in Section 7.1(e), automatically and without notice or demand, due and payable in full; and (3) Lender shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the UCC, all the power of attorney rights described in Section 6 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Receivables and all Collateral in any commercially reasonable manner.
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8.
|
ACCRUAL OF INTEREST. All interest and finance charges hereunder calculated at an annual rate shall be based on a year of 360 days, which results in a higher effective rate of interest than if a year of 365 or 366 days were used. Lender may charge interest, finance charges and fees based upon the projected amounts thereof as of the due dates therefor, and adjust subsequent charges to account for the actual accrued amounts. If any amount due under Section 2.2, amounts due under Section 9, and any other Obligations not otherwise bearing interest hereunder is not paid when due, such amount shall bear interest at a per annum rate equal to the Finance Charge Percentage until the earlier of (i) payment in good funds or (ii) entry of a trial judgment thereof, at which time the principal amount of any money judgment remaining unsatisfied shall accrue interest at the highest rate allowed by applicable law.
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9.
|
FEES, COSTS AND EXPENSES; INDEMNIFICATION. Borrower will pay to Lender upon demand all fees, costs and expenses (including reasonable and invoiced fees of attorneys and fees of other professionals and their costs and expenses) that Lender incurs or may from time to time impose in connection with any of the following: (a) preparing, negotiating, administering, and enforcing this Agreement or any other agreement executed in connection herewith, including any amendments, waivers or consents in connection with any of the foregoing, (b) any litigation or dispute (whether instituted by Lender, Borrower or any other Person) in any way relating to the Receivables, the Collateral, this Agreement or any other agreement executed in connection herewith or therewith, (c) enforcing any rights against Borrower or any guarantor, or any Account Debtor, (d) protecting or enforcing its interest in the Receivables or the Collateral, (e) collecting the Receivables and the Obligations, or (f) the representation of Lender in connection with any bankruptcy case or insolvency proceeding involving Borrower, any Receivable, the Collateral, any Account Debtor, or any guarantor. Borrower shall indemnify and hold Lender harmless from and against any and all claims, actions, damages, costs, expenses, and liabilities of any nature whatsoever arising in connection with any of the foregoing.
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10.
|
INTEGRATION, SEVERABILITY WAIVER, CHOICE OF LAW, FORUM AND VENUE.
|
10.1
|
This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between Lender and Borrower concerning this credit; (b) replace any prior oral or written agreements between Lender and Borrower concerning this credit; and (c) are intended by Lender and Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. If any provision of this Agreement is deemed invalid by reason of law, this Agreement will be construed as not containing such provision and the remainder of the Agreement shall remain in full force and effect. Lender retains all of its rights, even if it makes a Credit Extension after a default. If Lender waives a default, it may enforce a later default. Any consent or waiver under, or amendment of, this Agreement must be in writing, and no such consent, waiver, or amendment shall imply any obligation by Lender to make any subsequent consent, waiver, or amendment.
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10.2
|
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA, OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS JURISDICTION OVER THE SUBJECT MATTER AND PARTIES IN CONTROVERSY. EACH PARTY HERETO WAIVES ANY RIGHT TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND STIPULATES THAT THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, OR ANY OTHER RELATED DOCUMENTS. SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST BORROWER MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS SPECIFIED FOR NOTICES PURSUANT TO SECTION 11.
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11.
|
NOTICES; TELEPHONIC AND TELEFAX AUTHORIZATIONS. All notices shall be given to Lender and Borrower at the addresses or faxes set forth on the signature page of this agreement and shall be deemed to have been delivered and received: (a) if mailed, three (3) calendar days after deposited in the United States mail, first class, postage pre-paid, (b) one (1) calendar day after deposit with an overnight mail or messenger service; or (c) on the same date of confirmed transmission if sent by hand delivery, telecopy, telefax or telex. Lender may honor telephone or telefax instructions for Advances or repayments given, or purported to be given, by any one of the Authorized Persons. Borrower will indemnify and hold Lender harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions Lender reasonably believes are made by any Authorized Person. This paragraph will survive this Agreement's termination, and will benefit Lender and its officers, employees, and agents.
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12.
|
DEFINITIONS AND CONSTRUCTION.
|
12.1
|
Definitions. In this Agreement:
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(a)
|
The Receivable has been created by Borrower in the ordinary course of Borrower’s business and without any obligation on the part of Borrower to render any further performance.
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(b)
|
There are no conditions which must be satisfied before Borrower is entitled to receive payment of the Receivable, and the Receivable does not arise from COD sales, consignments, bill and hold, guaranteed sales, or other terms where the Account Debtor’s payment may be conditional.
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(c)
|
The Account Debtor upon the Receivable does not claim any defense to payment of the Receivable, whether well founded or otherwise.
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(d)
|
The Receivable is not the obligation of an Account Debtor who has asserted or may reasonably be expected to assert any counterclaims or offsets against Borrower (including offsets for any “contra accounts” owed by Borrower to the Account Debtor for goods purchased by Borrower or for services performed for Borrower) other than any Best Buy Adjustments.
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(e)
|
The Receivable represents a genuine obligation of the Account Debtor.
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(f)
|
Borrower has sent an invoice to the Account Debtor in the amount of the Receivable.
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(g)
|
Borrower is not prohibited by the laws of the jurisdiction where the Account Debtor is located from bringing an action in the courts of that jurisdiction to enforce the Account Debtor’s obligation to pay the Receivable. Borrower has taken all appropriate actions to ensure access to the courts of the jurisdiction where Account Debtor is located, including, where necessary; the filing of a Notice of Business Activities Report or other similar filing with the applicable government agency or the qualification by Borrower as a foreign corporation authorized to transact business in such jurisdiction.
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(h)
|
The Receivable is owned by Borrower free of any title defects or any liens or interests of others except the security interest in favor of Lender, and Lender has a perfected, first priority security interest in such Receivable.
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(i)
|
The Account Debtor on the Receivable is not any of the following: (1) an employee, Affiliate, parent or Subsidiary of Borrower, or any Person which has common officers or directors with Borrower; (2) the U.S. government or any agency or department of the U.S. government unless otherwise approved in writing by Lender in its sole discretion on a case-by-case basis (including, without limitation, if required by Lender, that Borrower complies with the procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. §15) with respect to the Receivable, and the underlying contract expressly provides that neither the U.S. government nor any agency or department thereof shall have the right of set-off against Borrower); or (3) any Person located in a foreign country other than Canada (with the exception of the Province of Quebec) unless otherwise approved in writing by Lender in its sole discretion on a case-by-case basis (including, without limitation, if required by Lender, that any such Receivables be billed and collected in the U.S.).
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(j)
|
The Receivable is not in default (a Receivable will be considered in default if any of the following occur: (i) the Receivable is not paid within (A) 90 days from its invoice date in the case of invoices issued between July 1st and September 14th or between December 16th and December 31st, (B) 120 days from its invoice date for invoices issued between November 16th and December 15th or (C) 150 days from its invoice date for invoices issued between September 15th and November 15th; (ii) the Account Debtor obligated upon the Receivable suspends business, makes a general assignment for the benefit of creditors, or fails to pay its debts generally as they come due; or (iii) any petition is filed by or against the Account Debtor obligated upon the Receivable under any bankruptcy law or any other law or laws for the relief of debtors).
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(k)
|
The Receivable does not arise from the sale of goods which remain in Borrower’s possession or under Borrower’s control.
|
(l)
|
The Receivable is not a bonded Receivable and does not constitute a prebilling, prepaid deposit, retention billing or progress billing.
|
(m)
|
The Receivable is not owing from an Account Debtor with respect to which Borrower has received deferred revenue (but such Receivable shall only be offset to the extent of such deferred revenue), unless otherwise approved in writing by Lender in its sole discretion on a case-by-case basis and unless such deferred revenue relates to free services.
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(n)
|
The Receivable is not evidenced by a promissory note or chattel paper, nor is the Account Debtor obligated to Borrower under any other obligation which is evidenced by a promissory note.
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(o)
|
The Receivable is owing from Best Buy (but excluding Best Buy Canada).
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(p)
|
The invoice relating to the Receivable was first sent to Best Buy between July 1 and December 31.
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(q)
|
The Receivable is otherwise acceptable to Lender.
|
(a)
|
its Copyrights, Trademarks and Patents;
|
(b)
|
any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals;
|
(c)
|
any and all source or object code;
|
(d)
|
any and all design rights which may be available to such Person;
|
(e)
|
any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
|
(f)
|
all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
|
(a)
|
The aggregate amount of cash consideration for all such Permitted Acquisitions does not exceed Twenty Million Dollars ($20,000,000) in any twelve (12) month period;
|
(b)
|
No additional indebtedness or liabilities shall be incurred, assumed or otherwise be reflected on the consolidated balance sheet of Borrower after giving effect to such Permitted Acquisition (other than Permitted Indebtedness);
|
(c)
|
Lender shall receive at least 30 days’ prior written notice of such Permitted Acquisition, which notice shall include a reasonably detailed description of such Permitted Acquisition, and such other financial information, financial analysis, documentation or other information relating to such Permitted Acquisition as Lender shall reasonably request;
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(d)
|
Immediately prior to and after giving effect to the Permitted Acquisition, no Default or Event of Default shall exist under this Agreement or any other Loan Document;
|
(e)
|
Borrower provides Lender with pro-forma financial information in form and detail satisfactory to Lender reflecting the effect of the Permitted Acquisition;
|
(f)
|
The Person being acquired is a going concern;
|
(g)
|
The Permitted Acquisition is not a hostile acquisition;
|
(h)
|
After giving effect to the Permitted Acquisition, Borrower’s chief executive officer and chief financial officer remain actively involved in the ongoing business of Borrower;
|
(i)
|
Simultaneously with the closing of the Permitted Acquisition, Borrower must execute and deliver to Lender such documents and agreements as reasonably required by Lender in connection with granting a security interest in favor of Lender on the domestic purchased assets and/or equity interests of a U.S. Person;
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(j)
|
If the U.S. target is not merged with and into Borrower then, simultaneously with the closing of the Permitted Acquisition, the U.S. target must become a “Borrower” under this Agreement and the other Loan Documents and become subject to all rights and obligations of this Agreement and the other Loan Documents, and must execute and deliver to Lender a joinder agreement acceptable to Lender as well as such other documents and agreements as required by Lender in connection with the target becoming a Borrower and granting a Lien in favor of Lender on the Collateral; and
|
(k)
|
Borrower shall have provided Lender with evidence satisfactory to Lender that the assets of the Person being acquired, immediately prior to and at the closing of the acquisition, are free and clear of all liens other than Permitted Liens.
|
(a)
|
purchases of capital stock from former or current employees, officers, consultants and directors pursuant to employee stock purchase plans, stockholder plans, director or consultant stock option plans, employee stock option agreements, restricted stock agreements, equity incentive plans or other similar agreements or plans so long as an Event of Default does not exist at the time of any such repurchase and would not exist after giving effect to any such repurchase; provided such purchases do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any twelve-month period.
|
(b)
|
distributions or dividends consisting solely in common stock of Borrower.
|
(c)
|
purchases of capital stock in connection with the exercise of stock options, warrants or other equity awards by way of cashless exercise or in connection with the satisfaction of withholding tax obligations.
|
(d)
|
purchases of fractional shares of capital stock arising out of stock dividends, splits or combinations or business combinations or in connection with exercises or conversions of options, warrants and other convertible securities.
|
(a)
|
Indebtedness under this Agreement or that is otherwise owed to Lender.
|
(b)
|
Indebtedness existing on the Closing Date and specifically disclosed on a schedule to this Agreement or in the Perfection Certificate delivered by Borrower to Lender as of the Closing Date (the “Perfection Certificate”).
|
(c)
|
Purchase money indebtedness and capital leases incurred to acquire capital assets in the ordinary course of business and not exceeding Five Hundred Thousand Dollars ($500,000) per fiscal year.
|
(d)
|
Indebtedness in respect of bankers acceptances, letters of credit, bank guarantees and other similar instruments issued for the account of the Borrower or any Subsidiary in the ordinary course of business not to exceed Five Million Dollars ($5,000,000).
|
(e)
|
Advances or deposits received in the ordinary course of business from customers or vendors.
|
(f)
|
“Earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts (including any indemnification and other similar obligations incurred in an acquisition), in each case subject to the limitations in the definition of “Permitted Acquisition”.
|
(g)
|
Indebtedness with respect to performance bonds, appeal bonds, customs and duty bonds, and other similar obligations.
|
(h)
|
Hedging obligations incurred in the ordinary course of business not for speculative purposes.
|
(i)
|
Guaranties of the obligations of suppliers and licensees of the Borrower incurred in the ordinary course of business to third parties for the purpose of enabling such suppliers, customers and licensees to purchase products that will be supplied, or incorporated into products that will be supplied, to the Borrower by such supplier or licensee.
|
(j)
|
Indebtedness incurred in the refinancing of any indebtedness set forth in (a) through (d) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower.
|
(k)
|
Unsecured indebtedness to trade creditors incurred in the ordinary course of business.
|
(l)
|
Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business.
|
(m)
|
Subordinated Debt.
|
(n)
|
Indebtedness in respect of credit cards with other financial institutions not to exceed Seven Hundred Thousand Dollars ($700,000).
|
(o)
|
Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (n) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose materially more burdensome terms upon Borrower.
|
(p)
|
Other unsecured Indebtedness not to exceed Five Hundred Thousand Dollars ($500,000) in aggregate principal amount at any time outstanding.
|
(a)
|
Investments existing on the Closing Date and specifically disclosed on a schedule to this Agreement or in the Perfection Certificate.
|
(c)
|
Investments by (i) a Borrower in another Borrower or any secured guarantor, (ii) by any Subsidiary in Borrower or any secured guarantor or (iii) so long as no Event of Default has occurred and is continuing or would be caused by such investment, by Borrower in a Subsidiary that is not a co-Borrower or secured guarantor up to One Hundred Thousand Dollars ($100,000) per Subsidiary in any twelve-month period.
|
(d)
|
Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower.
|
(e)
|
Investments consisting of deposit and investment accounts (but only to the extent that Borrower is permitted to maintain such accounts pursuant to Section 4.16 of this Agreement) in which Lender has a first priority perfected security interest, to the extent required by Section 4.16.
|
(f)
|
Investments accepted in connection with Transfers permitted by Section 4.8.
|
(g)
|
Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business.
|
(h)
|
Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this clause (h) shall not apply to Investments of Borrower in any Subsidiary.
|
(i)
|
Investments consisting of “transfer pricing”, “cost sharing” and “cost plus” arrangements in the ordinary course of business by Borrower in its wholly-owned foreign Subsidiaries (other than directors’ qualifying shares or other similar shares as required by applicable law), for operating expenses, provided that the amount charged to Borrower and the other terms of such arrangements are upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.
|
(j)
|
Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower's board of directors.
|
(k)
|
Joint ventures or strategic alliances in the ordinary course of Borrower's business consisting of the licensing of technology, the development of technology or the providing of technical support provided that the aggregate cash transferred to the joint ventures and strategic alliances does not exceed One Million Dollars ($1,000,000) in any twelve-month period.
|
(l)
|
Permitted Acquisitions.
|
(m)
|
Investments consisting of hedging obligations permitted under clause (h) of the definition of “Permitted Indebtedness” hereunder.
|
(n)
|
So long as no Event of Default has occurred and is continuing or would be caused by such investment, investments in Dormant Subsidiaries not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal quarter of Borrower.
|
(o)
|
So long as no Event of Default has occurred and is continuing or would be caused by such investment, other Investments aggregating not in excess of Five Hundred Thousand Dollars ($500,000) in any twelve-month period.
|
(a)
|
Liens securing any of the indebtedness described in clauses (a) through (d) of the definition of Permitted Indebtedness.
|
(b)
|
Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Lender’s security interests.
|
(c)
|
Liens incurred in connection with the extension, renewal or refinancing of the indebtedness described in clause (e) of the definition of Permitted Indebtedness, provided that any extension, renewal or replacement lien shall be limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase.
|
(d)
|
Liens existing on the Closing Date and specifically disclosed on a schedule to this Agreement or in the Perfection Certificate.
|
(e)
|
Deposits to secure the performance of bids, tenders, trade contracts, government contracts, statutory obligations, surety, stay, customs and appeal bonds, performance and other similar obligations, in each case provided in the ordinary course of business and not in connection with indebtedness for money borrowed.
|
(f)
|
Non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business and Permitted Exclusive Licenses.
|
(g)
|
Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that (i) Lender has a first priority perfected security interest in the amounts held in such deposit and/or securities accounts, and (ii) such accounts are permitted to be maintained pursuant to Section 4.16 of this Agreement.
|
(h)
|
Liens of carriers, warehousemen, suppliers, landlords, mechanics or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens secure liabilities which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto.
|
(i)
|
Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by Employee Retirement Income Security Act of 1974, and its regulations).
|
(j)
|
Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default.
|
(k)
|
Leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Lender a security interest therein.
|
(l)
|
Easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business, and other minor title imperfections with respect to real property that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of Borrower.
|
(m)
|
Deposits with landlords as security in connection with real property leases.
|
(n)
|
Deposits as security for contested taxes or import or customs duties in the ordinary course of business.
|
(o)
|
Escrows, Liens and licenses contemplated in or related to the Permitted Transaction.
|
12.2
|
Construction:
|
(a)
|
In this Agreement: (i) references to the plural include the singular and to the singular include the plural; (ii) references to any gender include any other gender; (iii) the terms “include” and “including” are not limiting; (iv) the term “or” has the inclusive meaning represented by the phrase “and/or,” (v) unless otherwise specified, section and subsection references are to this Agreement, and (vi) any reference to any statute, law, or regulation shall include all amendments thereto and revisions thereof.
|
(b)
|
Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved using any presumption against either Borrower or Lender, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each party hereto and their respective counsel. In case of any ambiguity or uncertainty, this Agreement shall be construed and interpreted according to the ordinary meaning of the words used to accomplish fairly the purposes and intentions of all parties hereto.
|
(c)
|
Titles and section headings used in this Agreement are for convenience only and shall not be used in interpreting this Agreement.
|
(d)
|
Any obligations of a Person that are or would have been treated as operating leases for purposes of GAAP prior to the issuance by the Financial Accounting Standards Board on February 25, 2016, of an Accounting Standards Update (the “ASU”) shall continue to be accounted for as operating leases for purposes of all financial definitions, calculations and covenants for purpose of this Agreement (whether or not such operating lease obligations were in effect on such date) notwithstanding the fact that such obligations are required in accordance with the ASU (on a prospective or retroactive basis or otherwise) to be treated as capitalized lease obligations in accordance with GAAP.
|
13.
|
JURY TRIAL WAIVER. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.
|
14.
|
JUDICIAL REFERENCE PROVISION.
|
14.1
|
In the event the Jury Trial Waiver set forth above is not enforceable, the parties elect to proceed under this Judicial Reference Provision.
|
14.2
|
With the exception of the items specified in Section 14.3, below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement, any Credit Card Services Agreement, or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Loan Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).
|
14.3
|
The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.
|
14.4
|
The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).
|
14.5
|
The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.
|
14.6
|
The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.
|
14.7
|
Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.
|
14.8
|
The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.
|
14.9
|
If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.
|
14.10
|
THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
|
15.
|
EXECUTION, EFFECTIVENESS, SURVIVAL. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other documents executed in connection herewith constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Lender and shall continue in full force and effect until the Maturity Date and thereafter so long as any Obligations remain outstanding hereunder. Lender reserves the right to issue press releases, advertisements, and other promotional materials describing any successful outcome of services provided on Borrower’s behalf after review and consultation with Borrower. Borrower agrees that Lender shall have the right to identify Borrower by name in those materials.
|
16.
|
OTHER AGREEMENTS. Any security agreements, liens and/or security interests securing payment of any obligations of Borrower owing to Lender or its Affiliates also secure the Obligations, and are valid and subsisting and are not adversely affected by execution of this Agreement. An Event of Default under this Agreement constitutes a default under other outstanding agreements between Borrower and Lender or its Affiliates.
|
17.
|
REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by Borrower or any guarantor, or the transfer to Lender of any property should for any reason subsequently be asserted, or declared, to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the United States Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (each, a "Voidable Transfer"), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and reasonable attorneys' fees of Lender related thereto, the liability of Borrower and such guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.
|
18.
|
PATRIOT ACT NOTIFICATION. Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (“Patriot Act”), Lender is required to obtain, verify and record information that identifies Borrower, which information includes the names and addresses of Borrower and other information that will allow Lender to identify Borrower in accordance with the Patriot Act.
|
19.
|
SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Lender’s prior written consent (which may be granted or withheld in Lender’s discretion). Lender has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Lender’s obligations, rights, and benefits under this Agreement and the other Loan Documents. Notwithstanding anything to the contrary contained herein, as long as no Event of Default has occurred and is continuing, Lender may not make an assignment of this Agreement, without Borrower’s consent, to a direct competitor of Borrower as reasonably determined by Lender, whether as an operating company or direct or indirect parent with voting control over such operating company; provided however, no such consent shall be required for any assignment made in connection with the acquisition of Lender or sale or disposition of all or a portion of Lender’s loan portfolio.
|
20.
|
THIRD PARTIES. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any Persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any Person not an express party to this Agreement; or (c) give any Person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
|
21.
|
NOTICE OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
|
BORROWER:
ARLO TECHNOLOGIES, INC. By: /s/ Christine Gorjanc Name: Christine Gorjanc
Title: Chief Financial Officer
Address for Notices: Arlo Technologies, Inc. 3030 Orchard Parkway San Jose, CA 95134 Fax: Email: Attn: Chief Executive Officer |
LENDER:
WESTERN ALLIANCE BANK, AN ARIZONA CORPORATION By:/s/ Elisa Sun Name: Elisa Sun Title: VP Address for Notices: Western Alliance Bank,
55 Almaden Blvd.
San Jose, CA 95113 Fax: (408) 423-8520 Email: elisa.sun@bridgebank.com
Attn: Elisa Sun
|
Arlo Technologies, Inc.
|
Arlo Technologies Australia Pty Ltd
|
Arlo Technologies Canada Limited
|
Arlo France SAS
|
Arlo Germany GmbH
|
Arlo Hong Kong Limited
|
Arlo Asia Limited
|
Arlo Technologies International Ltd
|
Arlo Technologies B.V.
|
Arlo Sweden AB
|
Arlo Taiwan Co. Ltd
|
Arlo Technologies UK Limited
|
Arlo Italy Srl
|
Arlo India
|
Avaak, Inc.
|
Placemeter Inc.
|
Placemeter France SAS
|
1.
|
I have reviewed this Annual Report on Form 10-K of Arlo Technologies, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f) for the Registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
|
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.
|
|
/s/ MATTHEW MCRAE
|
|
Matthew McRae
|
|
Chief Executive Officer
|
|
Arlo Technologies, Inc.
|
1.
|
I have reviewed this Annual Report on Form 10-K of Arlo Technologies, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;
|
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.
|
|
/s/ CHRISTINE M. GORJANC
|
|
Christine M. Gorjanc
|
|
Chief Financial Officer
|
|
Arlo Technologies, Inc.
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
|
/s/ MATTHEW MCRAE
|
|
|
Matthew McRae
|
|
|
Chief Executive Officer
|
|
|
Arlo Technologies, Inc.
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
|
/s/ CHRISTINE M. GORJANC
|
|
|
Christine M. Gorjanc
|
|
|
Chief Financial Officer
|
|
|
Arlo Technologies, Inc.
|