AQUANTIA CORP. (Exact Name of Registrant as Specified in its Charter)

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 Or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: (State or other jurisdiction of incorporation or organization) AQUANTIA CORP. (Exact Name of Registrant as Specified in its Charter) Delaware (I.R.S. Employer Identification No.) 105 E. Tasman Drive San Jose, CA (Address of principal executive offices) Registrant s telephone number, including area code: (408) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Exchange on Which Registered Common Stock, $ par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( of this chapter) is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a small reporting company) Small reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The common stock of the registrant was not publicly traded as of the last business day of the registrant s second fiscal quarter ended June 30, The aggregate market value of the voting and nonvoting common stock held by non-affiliates of the registrant on November 3, 2017, the date of initial listing, was $141,889,666, based on the last reported sale price of the common shares on The New York Stock Exchange on such date of $9.51 per share. As of February 28, 2018, the registrant had 33,523,683 shares of common stock, $ par value per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates by reference certain information from the registrant s definitive proxy statement for the 2018 Annual Meeting of Stockholders to be filed no later than 120 days after the conclusion of the registrant s fiscal year ended December 31, 2017.

2 AQUANTIA CORP. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017 Page Special Note Regarding Forward-Looking Statements 3 Industry and Market Data 5 Glossary 6 PART I Item 1. Business 8 Item 1A. Risk Factors 21 Item 1B. Unresolved Staff Comments 42 Item 2. Properties 42 Item 3. Legal Proceedings 42 Item 4. Mine Safety Disclosures 42 PART II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 42 Item 6. Selected Consolidated Financial Data 45 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 67 Item 8. Financial Statements and Supplementary Data 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 97 Item 9A. Controls and Procedures 97 Item 9B. Other Information 97 PART III Item 10. Directors, Executive Officers and Corporate Governance 98 Item 11. Executive Compensation 98 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 98 Item 13. Certain Relationships and Related Transactions, and Director Independence 99 Item 14. Principal Accountant Fees and Services 99 PART IV Item 15. Exhibits and Financial Statement Schedules 99 2

3 SP ECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ThisAnnualReportonForm10-Kcontainsforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933,asamended,ortheSecurities Act,andSection21EoftheSecuritiesExchangeActof1934,asamended,ortheExchangeAct,whicharesubjecttothe safeharbor createdbythosesections.thisreport containsforward-lookingstatements.wemay,insomecases,usewordssuchas anticipate, believe, could, estimate, expect, intend, may, plan, potential, predict, project, should, will, would orthenegativeofthoseterms,andsimilarexpressionsthatconveyuncertaintyoffutureeventsoroutcomestoidentifythese forward-lookingstatements.anystatementscontainedhereinthatarenotstatementsofhistoricalfactsmaybedeemedtobeforward-lookingstatements.forward-looking statementsinthisreportinclude,butarenotlimitedto,statementsabout: ourabilitytoretainandexpandourcustomerrelationshipsandtoachievedesignwins; thesuccess,costandtimingofexistingandfutureproductdesigns; ourabilitytoaddressmarketandcustomerdemandsandtotimelydevelopneworenhancedsolutionstomeetthosedemands; thesizeandgrowthpotentialofthemarketsforoursolutions,includingastothenumberofunitstobesoldandthepricethereforthathavebeenformulated basedoncurrentinformationandaresubjecttochangeasaresultoftheevolvingtechnologicallandscape,competitivemarketdynamicsandunforeseen developments; ourabilitytoserveourtargetmarkets; anticipatedtrends,challengesandgrowthinourbusinessandthemarketsinwhichweoperate,includingpricingexpectationsandeffectsofseasonalityinour business; ourexpectationsregardingourrevenue,grossmarginandexpenses; ourexpectationsregardingcompetitioninourexistingandnewmarkets; regulatorydevelopmentsintheunitedstatesandforeigncountries; theperformanceofourthird-partysuppliersandmanufacturers; ourandourcustomers abilitytorespondsuccessfullytotechnologicalorindustrydevelopments; ourabilitytoattractandretainkeymanagementpersonnel; theaveragesellingpricesofsemiconductorsolutions; theaccuracyofourestimatesregardingcapitalrequirementsandneedsforadditionalfinancing; theindustrystandardstowhichoursolutionsconform;and ourexpectationsregardingourabilitytoobtainandmaintainintellectualpropertyprotectionforourtechnology. 3

4 Theseforward-lookingstatementsreflectourmanagement sbeliefsandviewswithrespecttofutureeventsandarebasedonestimatesandassumptionsasofthedateof thisreportand,whilewebelievesuchinformationformsareasonablebasisforsuchstatements,suchinformationmaybelimitedorincomplete,andourstatementsshouldnotbe readtoindicatethatwehaveconductedanexhaustiveinquiryinto,orreviewof,allpotentiallyavailablerelevantinformation.wediscussmanyoftheserisksingreaterdetail underthesectiontitled RiskFactors. Moreover,weoperateinaverycompetitiveandrapidlychangingenvironment.Newrisksemergefromtimetotime.Itisnotpossiblefor ourmanagementtopredictallrisks,norcanweassesstheimpactofallfactorsonourbusinessortheextenttowhichanyfactor,orcombinationoffactors,maycauseactual resultstodiffermateriallyfromthosecontainedinanyforward-lookingstatementswemaymake.giventheseuncertainties,youshouldnotplaceunduerelianceonthese forward-lookingstatements.wecannotassureyouthattheforward-lookingstatementsinthisreportwillprovetobeaccurate.furthermore,ifourforward-lookingstatements provetobeinaccurate,theinaccuracymaybematerial.inlightofthesignificantuncertaintiesintheseforward-lookingstatements,youshouldnotregardthesestatementsasa representationorwarrantybyusoranyotherpersonthatwewillachieveourobjectivesandplansinanyspecifiedtimeframeoratall.weexpresslydisclaimanyandundertake noobligationtopubliclyupdateorreviseanyforward-lookingstatementscontainedherein,whetherasaresultofnewinformation,futureeventsorotherwise,exceptas requiredbylaw.youshouldreadthisreportandtheexhibitsheretoandthedocumentsincorporatedbyreferenceherein,completelyandwiththeunderstandingthatouractual futureresultsmaybemateriallydifferentfromwhatweexpect.wequalifyalloftheforward-lookingstatementsinthisreportbythesecautionarystatements. Allreferencesto Aquantia, we, us or our meanaquantiacorp. WehaveobtainedorareintheprocessofobtainingregisteredtrademarksforAquantia,AQrateandQuantumStream.Thisreportcontainsreferencestoourtrademarks andtotrademarksbelongingtootherentities.solelyforconvenience,trademarksandtradenamesreferredtointhisreport,includinglogos,artworkandothervisualdisplays, mayappearwithoutthe or symbols,butsuchreferencesarenotintendedtoindicate,inanyway,thatwewillnotassert,tothefullestextentunderapplicablelaw,ourrights ortherightsoftheapplicablelicensortothesetrademarksandtradenames.wedonotintendouruseordisplayofothercompanies tradenamesortrademarkstoimplya relationshipwith,orendorsementorsponsorshipofusby,anyothercompanies. 4

5 INDU STRY AND MARKET DATA Unless otherwise indicated, information contained in this report concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity, and market size, is based on information and data from various sources, on assumptions that we have made that are based on that information and data and other similar sources, and on our knowledge of the markets for our products and services. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. While we believe the market position, market opportunity and market size information included in this report is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled Risk Factors and elsewhere in this report. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. Certain information in this report is contained in: IDC, PC Microprocessor 1Q15 and 3Q15 Vendor Shares; IDC, WW Internet of Things Forecast May 2015; Dell oro, WLAN Forecast January 2016; Cisco, Cisco Visual Networking Index: Forecast and Methodology, White Paper June 2016; IDC Worldwide Networking Technologies Embedded in PCs Forecast, March 2017; Raymond James, From ADAS to Autonomous: A 25-Year Forecast and Full Value Chain Analysis, The 2017 Version March 2017; 650 Group, Long-range Forecast Ethernet Switching & WLAN Access Points June 2017; Crehan, Long-range Forecast Data Center Switch Total July 2017; and Crehan, Long-range Forecast Server-class Adapter & LOM_Controller July

6 G LOSSARY Thefollowingcapitalizedphrasesandtheiracronymsareusedthroughoutthisreportandhavethemeaningssetforthbelow: 802.3bz : the standard introduced by IEEE for Ethernet over twisted pair copper wire at speeds of 2.5GbE and 5GbE. ADAS : Advanced Driver Assistance Systems are systems to help the driver in the driving process. ADC : Analog-to-digital converter. AFE : Analog Front-End, the portion of an integrated circuit that receives and processes external analog signals. AP : Access Point, a networking hardware device that allows wireless devices to connect to a network using Wi-Fi. AQrate : Aquantia s proprietary technology that provides 2.5GbE and 5GbE transmission speeds. ASIC : an application specific integrated circuit. ASSP : an application specific standard product. Attenuation : reduction in the strength of a signal. BASE-T : an acronym used by IEEE to identify an Ethernet protocol characterized by a broadband modulation of a signal transmitted over a twisted-pair copper cabling. Cat5e and Cat6: twisted-pair copper cabling; typically used in legacy enterprise infrastructure. CMOS : Complementary Metal-Oxide Semiconductor, which is a transistor technology used for the fabrication of integrated circuits. Crosstalk : a phenomenon by which a signal creates an undesired effect on another signal, a type of noise that is often experienced with analog signals transmitted over twistedpair cables. DAC : Digital-to-analog converter. Data Center : a facility used to house computing and networking systems and associated components, such as storage systems. Design Tool : a software application that is used to design, simulate, verify and implement the functionality of an integrated circuit. The final output of the design tool is used to create an IC mask set. Die : a small block of semiconducting material on which a given functional circuit is fabricated. Echo : a type of noise that corresponds to the reflection of the transmitted signal unintentionally coupled into the received signal. Ethernet : the most widely installed local area network (LAN) technology, which is a link layer protocol, describing how networked devices can format data for transmission to other network devices on the same network segment, and how to put that data out on the network connection. Enterprise : hardware and software designed to meet the demands of a large organization, rather than individual users. Footprint : the amount of space that part or all of an integrated circuit occupies. 6

7 Foundry : an enterprise that manufactures ICs and related components. GbE : a term which describes various technologies that transmit Ethernet frames. GbE or 1GbE refers to such transmission at a rate of one Gbps, 5GbE refers to such transmission at a rate of five Gbps and 10GbE refers to such transmission at a rate of 10Gbps. Gbps : a measure of bandwidth on digital transmission medium representing billions of bits per second. IC : integrated circuit, which is a semiconductor device on which an electronic circuit is formed. This is also referred to as a chip or a microchip. IEEE: Institute of Electrical and Electronic Engineers, a technical professional society, dedicated to the advancement of technology. IP : Internet protocol, which is the method or protocol by which data is sent from one computer to another on the Internet. LAN : Local Area Network. MCSP : Our proprietary Multi-Core Signal Processing technology, which incorporates multiple customized units to more efficiently process digital signals. MMSP : Our proprietary Mixed-Mode Signal Processing technology, which partitions signal processing across analog and digital domains. nm : nanometer, which is a unit of length in the metric system, equal to one billionth of a meter. OEM : an original equipment manufacturer. OSI : Open Systems Interconnection model PHY : an abbreviation for the physical layer circuitry. A PHY connects a link layer device (often called MAC as an abbreviation for media access control) to a physical medium such as an optical fiber or copper cable. PLD : programmable logic device, which is an electronic component used to build reconfigurable digital circuits. Process Nodes : the transistor width used to define a semiconductor manufacturing process. Smaller widths allow more transistors to be manufactured in the same silicon area. Process node is typically measured in nanometers, or nm ( e.g., 28nm, 40nm, 90nm). Serializer/Deserializer or SerDes : a pair of functional blocks commonly used in high speed communications, which convert data between serial and parallel interfaces. SFP+ : a small form factor module designed to operate at 10Gbps that is pluggable into a system. WAN : Wide-Area Network. WLAN : Wireless Local Area Network. 7

8 PART I Item 1. Overview Business We are a leader in the design, development and marketing of advanced high-speed communications integrated circuits, or ICs, for Ethernet connectivity in the data center, enterprise infrastructure and access markets. Our Ethernet solutions provide a critical interface between the high-speed analog signals transported over wired infrastructure and the digital information used in computing and networking equipment. Our products are designed to cost-effectively deliver leading-edge data speeds for use in the latest generation of communications infrastructure to alleviate network bandwidth bottlenecks caused by the exponential growth of global Internet Protocol, or IP, traffic. Many of our semiconductor solutions have established benchmarks in the industry in terms of performance, power consumption and density. Our innovative solutions enable our customers to differentiate their product offerings, position themselves to gain market share and drive the ongoing equipment infrastructure upgrade cycles in the data center, enterprise infrastructure and access markets. Ethernet is a ubiquitous and evolving standard of network connectivity that is characterized by its reliability and backward compatibility, which enables easy upgrades and continuity of operation through upgrade cycles. One Gigabit Ethernet, or 1GbE, has been deployed as a mainstream wired connectivity standard for over a decade. However, 1GbE is increasingly insufficient to meet the bandwidth requirements that can accommodate the exponential growth of global IP traffic. As a result, the 1GbE infrastructure is currently undergoing an upgrade cycle that is driven by the need to alleviate bandwidth bottlenecks on the wired side of networking equipment, including the data center (servers and switches), the enterprise infrastructure (wireless access points, or APs, and switches), and the access (client connectivity for personal computers, or PCs, and carrier access) markets. Based on projections by Crehan Research, Inc., or Crehan Research, 650 Group LLC, or, 650 Group, IDC and Dell oro Group, Inc., or Dell oro, we estimate that across these markets, over one billion Ethernet ports will ship in 2017 and growing to 1.2 billion ports in 2020, representing a substantial opportunity for upgrade of the Ethernet physical layer, or PHY. Historically, the transition to the next Ethernet generation has been led by the introduction of IC solutions that reliably and cost-effectively meet the new Ethernet standard. We believe that the current upgrade cycle will follow the same course. In addition, we believe another new opportunity for Ethernet is emerging in the automotive market, as a result of increased investment in the development of autonomous vehicles, or self-driving cars. As the data rate of PHY devices continues to increase, the technical challenges of designing high-speed communications ICs require a significantly new architectural approach. In order to meet next-generation performance requirements with low power consumption and a small footprint, our differentiated architecture combines our two fundamental innovations: Mixed-Mode Signal Processing, or MMSP, which partitions signal processing across analog and digital domains, and Multi-Core Signal Processing, or MCSP, which incorporates multiple customized units to more efficiently process digital signals. We also implement patented techniques in Analog Front-End, or AFE, algorithms, power management and programmability in the design of our products. Our next-generation Ethernet solutions have been developed by one of the most innovative design teams in the semiconductor industry, with deep expertise across multiple disciplines that range from analog and mixed-mode design to digital signal processing and communication theory. We have leveraged the expertise of our design team to achieve technological breakthroughs and bring what we believe to be best-in-class semiconductor solutions to market, anticipating the future technological needs of our customers and helping them shape their product roadmaps. Our best-in-class semiconductor solutions provide the functionalities that meet customers requirements, as well as the relevant Institute of Electrical and Electronics Engineers, or IEEE, standard. For example, in 2012 we created a novel technology that we call AQrate, which has since been adopted by the IEEE as the baseline for the IEEE 802.3bz standard that was ratified in September 2016 as the industry specifications for 2.5GBASE-T and 5GBASE-T products made by different manufacturers to be compatible with each other. This technology is currently being deployed in the enterprise infrastructure and access markets. We are a fabless semiconductor company. We have shipped more than 10 million ports to customers across three semiconductor process generations, and are currently in mass production in 28nm process node. 28nm and other silicon process geometries, such as 40nm and 90nm, refer to the size of the process node in nanometers for a particular semiconductor manufacturing process. Our target markets include ASICs and ASSPs for Data Processing and Communications across the following applications: Enterprise LAN and Wireless LAN Infrastructure; Server, 1/2/4+ CPU socket; Storage Network Infrastructure and DAS/FAS Storage; PC, desktop-based; Service Provider Routers and Switches. 8

9 We estimate that our serviceable addressable market opportunity across our application-specific standard product, or ASSP, and application-specific integrated circuit, or ASIC, applications is approximately 100 million Multi-Gig Ethernet ports i n 2020, based on projections by Crehan Research, 650 Group, IDC and Dell oro, which we estimate would be equivalent to $800 million. While the combined data center, enterprise infrastructure and access market generally includes ICs that run at 2.5Gbps, 5Gb ps, 10Gbps, 25Gbps, 40Gbps, 50Gbps, 100Gbps, 200Gbps and 400Gbps, we characterize the Multi-Gig Ethernet market to generally exclude 40Gbps, 200Gbps and 400Gbps ICs because 40Gbps technology has experienced limited market adoption and is projected to decli ne over the next few years as it is replaced by 25/50/100Gbps, and 200Gbps and 400Gbps ICs are still at a very early stage of development with limited market adoption. Industry Background Exponential Growth of Global IP Traffic Demands on global networking infrastructure are being driven by the exponential growth of data from video, social networking and advanced collaboration applications. The Cisco Visual Networking Index estimates that global IP traffic will grow at a compound annual growth rate, or CAGR, of 22% from 2015 to Globally, mobile data traffic is expected to increase at a CAGR of 53% from 2015 to The advent of the Internet of Things, or IoT, will also increase pressure on the network infrastructure as a wide variety of electronic devices become connected to the Internet in order to collect and exchange information. IDC estimates that by 2020, 29.5 billion objects will be connected to the IoT, up from 10.3 billion objects in Transition to 10 Gigabit Ethernet Since its inception more than 40 years ago, Ethernet has grown into a global, widely-deployed communications protocol. More specifically, copper Ethernet cables and the associated Ethernet connector, have permeated the vast majority of Internet networks, including data center, enterprise, campus, small and medium-sized business, smalloffice and home-office (SOHO) and the home. We believe that each transition to higher speeds has enabled the semiconductor company that has been at the forefront of the technological transformation in each upgrade cycle to significantly scale its operations: from National Semiconductor Corporation in the early 1990s, with the transition to 10 Megabit Ethernet, or 10MbE; to Broadcom Corporation in the mid-1990s, with the transition to 100MbE; and to Marvell Semiconductor, Inc. in the early 2000s, with the transition to 1GbE. We believe a similar opportunity now exists with the transition to 10GbE and beyond in the data centers, enterprise infrastructure, access and automotive markets. In the early 2000s, the transition from 100MbE to 1GbE was driven by the availability of the technology as a local-area network, or LAN, on motherboard, or LOM, solution for PC applications. A LOM solution allowed every PC manufacturer to offer a 1GbE port on desktops and laptops, which led to a very rapid transition to 1GbE in the entire networking ecosystem. Today, the 1GbE technology has reached broader markets beyond the traditional networking industry, extending into a wide variety of new applications and markets, including home and automotive networking, security camera, signage and smart television connectivity, and high-density wireless environments, such as stadiums and airports. Gigabit Ethernet has now been deployed as a mainstream wired connectivity standard for over a decade and is currently undergoing an upgrade cycle that is driven by the need to alleviate bandwidth bottlenecks on the wired side of networking equipment, including the data center and the enterprise. Ethernet Connectivity Solutions In order to connect Ethernet networking equipment, such as servers, switches, storage appliances or routers, network engineers have generally used either optical-based glass or plastic fiber cabling or electrical-based copper cabling. Optical interconnect solutions involve the combination of electronics with optical components, such as optical transmitters, optical receivers, optical couplings, packaging and optical fibers. As a result, optical solutions generally have higher relative cost of materials compared to electrical interconnect solutions. Due to the extremely low absorption loss of optical fibers, optical signals can be sent through fiber over very long distances, which are typically hundreds of kilometers or more, making the higher cost of optical solutions a less significant concern for long-reach interconnects. However, for shorter distances within data centers, which are typically less than 100 meters, optical interconnect solutions can be cost-prohibitive. As a result, optical solutions are typically only used in data 9

10 centers when a comparable electrical solution has not been developed or the distance is too great for the electrical solution to cover. Electrical interconnect solutions involve the combination of only a silicon-based IC, a connector and a copper cable. The most prevalent copper interconnect is based on twisted-pair copper cables, also commonly known as Ethernet cables. These cables are relatively inexpensive, but present a number of technical challenges due to significant impairments suffered by the signal as it is transmitted, such as attenuation, crosstalk and echo. As transmission speeds continue to increase to keep up with the exponential growth of global IP traffic, the amount of processing required to be performed in the silicon layer to address these transmission impairments increases correspondingly, leading to greater design complexity and higher power consumption. In recent years, advancements in lithography and manufacturing process technologies have allowed for significantly reduced transistor geometries, resulting in considerably lower power consumption per IC and a greater level of integration. These advancements, as well as additional innovations in the area of digital signal processing, have enabled the use of copper cabling for high-speed data transmission. Ethernet cable, in its present form, was devised with the standardization by the Institute of Electrical and Electronics Engineers, or IEEE, of 1MbE in 1986, which was the first of a long line of standards that pushed the speed limits carried over copper cabling. Most recently, the standard evolved into a technology commonly referred to as BASE-T, which started with the introduction of 10BASE-T (speeds of 10 megabits per second, or Mbps) and eventually evolved into the current standard, 10GBASE-T (speeds of 10 gigabits per second, or Gbps). A unique characteristic of BASE-T is its backward compatibility with earlier Ethernet standards. A 10GBASE-T transceiver, for example, is capable of working at the lower speeds of the previous two standards, 1000BASE-T (speeds of 1000Mbps) and 100BASE-T (speeds of 100Mbps). As a result of this backward compatibility, network engineers and IT managers are able to install new equipment in phases and can, for example, purchase 10GBASE-T servers that connect to a legacy 1000BASE-T switch, with the links running at 1GbE. Then, once the switch is replaced with a new 10GBASE-T version, all the links would run at 10GbE. The Data Center Market Data centers can be categorized as corporate data centers and cloud, or hyperscale, data centers. For both corporate and hyperscale data centers, servers and switches are the two main components of the data center architecture. Traditionally, servers have been located in vertical racks placed side by side in long rows of equipment. Server ports are connected to Ethernet switches, which have the function of directing the traffic to either an upper layer of aggregation (typical of the older client server North-South traffic model) or to other server nodes (typical of the increasing server-to-server East-West traffic model). In the North-South model, traffic flows down to the lower levels for routing services and then back up to reach its destination. In the East-West model, traffic flows are spread across multiple server nodes, requiring hosts to traverse network interconnection points. In either case, the connectivity between the server and the switch ports in a data center is rather short, typically just a few meters, and at most 100 meters. In contrast, the connectivity between switches in the next layers can be quite long depending on the overall topology. As more data is consolidated and processed in data centers, the need for higher performance server nodes has been met with constant innovation in both processor computing power and increased use of server virtualization, both resulting in an increased demand for higher bandwidth connectivity in servers. According to Crehan Research, approximately 80% of all connections currently are between switches and servers (the two main components of data center architecture), and 80% of those connections are electrical, resulting in electrical interconnect solutions accounting for more than 60% of data center connections. CorporateDataCenters Corporate data centers are very cost sensitive and, as a result, have historically made use of Ethernet cabling. Crehan Research estimates that, in 2016, 65% of all serverclass Ethernet networking connections shipped were 1GbE connections, 90% of which were 1000BASE-T. We believe that this significant penetration of 1GbE over twisted-pair copper cabling is directly correlated with the preference by corporate IT managers for this medium. In networking infrastructure, cost is a major driver for upgrade cycles and transitions to the newer interconnect technologies. Today, as the cost of 10GbE over twisted-pair copper cabling, or 10GBASE-T, is approaching twice that of 1000BASE-T, network engineers are transitioning their focus to purchasing equipment that supports the faster speed, allowing them to improve performance, increase work efficiency of their organizations and prepare their network for future 10

11 improvements, which is driving the current upgrade cycle. Crehan Research projects that shipments of 10GBASE-T in data centers will reach 29 million ports in 2020, representing approximately 23% of all ports shipping to data centers that year and a CAGR of 27% from 2017 through CloudDataCenters(HyperscaleDataCenters) In the case of cloud, or hyperscale, data centers, the processing and bandwidth requirements have traditionally been very demanding, with applications ranging from large-scale search engine implementation to high-performance computing for research and high-frequency trading and social media applications characterized by large number of embedded feeds, cross-referencing and videos. These architectures were the first to adopt 10GbE, and are now in various stages of transition towards 25GbE, 40GbE, 50GbE and in some cases 100GbE. These deployments leverage leading-edge technologies, and although they represent a minority of the data centers deployed today, they are expected to increase in importance in the future. Crehan Research projects that, out of a total of approximately 130 million ports shipping to data centers in 2020, shipment of 100GbE, together with 25GbE and 50GbE, will reach 47 million ports, representing approximately 37% of all ports shipping to data centers that year and a CAGR of 87% from 2017 through The Enterprise Infrastructure Market In the early 2000s, the enterprise infrastructure market experienced a very rapid transition from 100MbE to 1GbE. The adoption of 1GbE as the preferred connectivity between PCs and the Ethernet switches located in server rooms was facilitated by the ease of deployment of Ethernet cables in the ceilings and walls of the enterprise. Category 5e, or Cat5e, and Category 6, or Cat6, cables were, and continue to be, widely deployed, representing more than 90% of the worldwide base of cables installed between 2003 and In the past 10 years, the enterprise infrastructure market has also seen an increasing number of wireless LAN, or WLAN, APs being deployed throughout buildings, airports, shopping malls and stadiums, driven by the proliferation of smartphones, laptops and other portable devices. These APs generally connect through a 1GbE infrastructure to the wiring closet or campus Ethernet switch using the same Ethernet cabling infrastructure, and often the same switches, used by desktop PCs. 1GbE connections have historically been sufficient to carry the wireless traffic over the wired infrastructure due to the limited bandwidth of the WiFi standards b/g/n and even the first wave of ac. However, WLAN AP manufacturers have commenced the deployment of the second wave of ac, which has throughput of up to about 5Gbps, followed recently by the new WiFi standard ax, with similar throughput requirements. As a result, for the first time in over a decade, IT managers are faced with the challenge of carrying these bandwidths in excess of 1GbE, or Multi-Gig, over legacy Ethernet infrastructure that is designed to only support 1Gbps. Network administrators have traditionally had three options when confronted with this bottleneck: (1) leave the legacy infrastructure in place and aggregate data traffic over more cables; (2) upgrade to data center-class Ethernet cables that support 10GBASE-T; or (3) upgrade to optical interconnect solutions. The first option presents scalability challenges. The latter two pose significant cost barriers and entail considerable disruption to the physical plan of any building or campus. As a result, there is a need in the enterprise infrastructure market for a scalable, lower-cost alternative to support this network upgrade cycle. 650 Group projects that shipments of 2.5GBASE-T and 5GBASE-T in the enterprise infrastructure market will reach 57 million ports in 2020, representing a CAGR of 112% from 2017 through Group also estimates that in 2020, 385 million ports in enterprise and small- and medium-sized businesses still will be 1GbE, representing a significant opportunity for growth for Multi-Gig Ethernet. The Access Market The access market is composed of two sub-categories: client connectivity and carrier access. Clientconnectivity As Multi-Gig technology starts permeating the enterprise infrastructure as a PHY solution, replacing the legacy 1GbE connections on Ethernet switches, the need for PCs to adopt this Multi-Gig solution has emerged. Despite the trends towards lighter and thinner machines such as notebooks and laptops, IDC projects that PCs will continue to be equipped with Ethernet ports for the foreseeable future, estimating that 194 million PCs, or approximately 80% of the total market, will ship with an Ethernet port by 2020, driven by enterprise buyers and gamers. Based on current adoption trends, we estimate that 10 million ports of Multi-Gig Ethernet, in the form of 2.5GBASE-T, 5GBASE-T and 10GBASE-T, will ship in 2020 as PC users transition to Multi-Gig. Inside 11

12 PCs, the PHY is typically integrated with an Ethernet data link layer function, as defined in the Open Systems Interconnection model, or OSI model, called a network controller or Media Access Control, or MAC, device. We believe t hat integrated solutions combining both the PHY and the controller are likely to become the preferred choice of PC original equipment manufacturers. Carrieraccess Our targeted carrier access market focuses on the last 100 meters between the carrier or service provider termination device, which is typically located in the basement of an apartment complex or the entry-door cabinet in an individual home, and the residential gateway box which is typically owned or leased by the consumer. This last 100 meters is also called wide-area-network, or WAN, and the local-area-network, or LAN, side of the gateway. As carriers and service providers deploy last-mile high bandwidth technologies, such as Passive Optical Network, or PON, Digital Subscriber Line, or DSL, and cable modem, the need has arisen to provide high-bandwidth, lowcost, easy-to-deploy solutions to connect termination devices and gateway boxes. The bandwidth requirement is now exceeding 1 Gbps in an increasing number of deployments, on distances that are typically within 100 meters between termination device and gateway box. In addition, we anticipate that the availability of Multi-Gig Ethernet on PCs, Network-Attach Storage, or NAS, as well as ac/ax WiFi extenders and wireless routers, will drive the need for gateways to migrate from 1GbE to Multi-Gig Ethernet on the LAN side as well. Dell oro projects that 74 million gateways will ship in 2020, representing a total of 370 million ports as gateways typically ship with five Ethernet ports per box. We estimate that seven million ports of Multi-Gig Ethernet will ship on the WAN and LAN sides of these gateways in The Automotive Market The automotive market is undergoing a transformation with the development of self-driving cars. Developing a fully autonomous vehicle requires innovation in the areas of image processing, fast and multi-dimensional decision making processes, and deep learning, similar to some of the most advanced facial recognition algorithms or complex model simulations being handled by super computers in hyperscale data centers today. As a result, systems that are being contemplated by the car industry to deliver such capabilities will likely need high-speed signaling connecting together end points such as cameras and other sensors, processing units, and an array of switches for rich connectivity and redundancy. Ethernet is one of the most promising technologies to deliver the high-speed connectivity required for making the self-driving car a reality. The car environment has its own very stringent set of requirements such as low weight, low power consumption, limited electro-magnetic emissions and susceptibility, ability to support higher spread of environmental temperature, and low cost. In terms of connectivity, this matrix of requirements is well served by high-speed Multi-Gig Ethernet over copper cabling. The potential market opportunity is considerable. Raymond James estimates that the silicon content in ADAS/autonomous vehicles will generate approximately $30.0 billion in revenue by We are currently shipping products into this market but do not expect significant volume production to occur until Our Solution We have developed a differentiated architecture that leverages our deep technical design expertise to create integrated high-performance connectivity solutions that address the significant opportunities present in the data center, enterprise infrastructure and access markets. Our Ethernet PHY solutions provide a critical interface between the high-speed analog signals transported over wired infrastructure and the digital information used in computing and networking equipment. Our architecture combines our two fundamental innovations, MMSP and MCSP, as well as several other patented techniques in AFE design, algorithms, power management and programmability. Key features of our highly integrated, mixed-signal ICs include: Advanced Analog Front-End Design. Our small form factor, low-power, high-speed and high-resolution data acquisition circuits include the analog-to-digital converter, or ADC, and digital-to-analog converter, or DAC, which provide the interface between the real-world signal coming from the cables and the digital processing engine. Our world-class team of analog engineers designed these complex AFE building blocks to be power efficient, highly reusable across many of our products, and easily scalable with advanced CMOS processes as they emerge. 12

13 Mixed-Mode Signal Processing Architecture. We have designed a novel analog architecture that we call MMSP, whi ch provides a different partitioning of signal processing between the analog and digital domains. MMSP reduces the complexity of data acquisition circuitry and, as a result, reduces the die size and power consumption of the overall AFE. MMSP also simplifie s the digital signal processing logic that follows the ADC. Multi-Core Signal Processor Architecture. We estimate that the total amount of processing required to counteract the effect of impairments on a Multi-Gig signal as it is transmitted over copper cabling is approximately 10 Tera-operations per second, which is approximately 200 times more than 1GbE. Processing such a large amount of data with a traditional architecture would be highly inefficient and costly. We use our proprietary transistor-level implementation and mapping techniques to create highly efficient multi-core processing engines, which we call MCSPs. Our MCSPs deliver high performance with low power consumption and a small footprint. Extensive Development of Proprietary Advanced Signal Processing Algorithms. The process of detecting and decoding the desired data from a noisy environment requires sophisticated digital signal processing, or DSP, and algorithms that we have developed over the last 10 years with our team of DSP engineers. We believe these algorithms are critical to the performance and the stability of the end customer solution. Advanced Power Management Techniques. Designing a multichannel Ethernet PHY interface that can handle data transfer speeds up to 10Gbps while minimizing leakage power across smaller process geometries presents a significant challenge. However, by combining innovative techniques, our engineers have been able to significantly reduce the impact of static and dynamic leakage power. Fully Configurable Programmable Architecture. We design our semiconductor solutions to operate in a variety of environments and applications. By keeping our architecture programmable, we enable our customers to use the same device in different applications and enjoy the optimum benefits of our solutions. This programmable architecture also enables us to scale across multiple markets and improve our time to market. While the corporate data center market provides an opportunity for us to serve both server applications and switching applications, historically our core focus has been on, and a significant majority of our data center market revenue has been generated from, the server portion of that market, primarily supporting our relationship with Intel. We initially used these core innovations in the development of 10GBASE-T PHY devices, and subsequently in custom ASICs for Intel that integrate our PHY devices with various elements of Intel s proprietary technologies. These custom ASICs are driving the transition to 10GbE networking from legacy 1GbE technology in corporate data center server applications. More recently, we employed our fundamental PHY expertise to develop AQrate, our technology designed to improve transmission speeds from 1GbE to 5GbE over existing copper cabling infrastructure in the enterprise infrastructure and access markets. We also developed a breakthrough 100GbE interconnect solution we call QuantumStream, leveraging on our core expertise and proprietary architecture. Our QuantumStream technology is capable of transporting data at a speed of 100Gbps over a single lane of copper cabling and is aimed at inter- and intra-rack connectivity of up to three meters complementing longer reach optical connectivity solutions in hyperscale data centers and cloud computing environments. According to estimates by Crehan Research, this currently represents the majority of direct server and storage Ethernet network connections in hyperscale data centers. We are currently developing solutions for Multi-Gig Ethernet over copper to serve the potential automotive market opportunity but do not expect significant volume production to occur until Our Competitive Strengths Differentiated Technology Architecture. We believe our connectivity solutions, many of which are protected with patents and our fundamental trade secrets around analog and mixed signal design, provide us with a significant competitive advantage across our target end markets. Our semiconductor solutions have repeatedly established benchmarks in the industry in terms of performance, power consumption and density. We believe our design techniques and technical innovations, including our MMSP and MCSP technology, enable us to successfully compete with and win designs against larger, more established peers. As of December 31, 2017, we had a total of 87 issued patents, 75 of which are U.S. patents, and 28 pending 13

14 and provisional U.S. patent applications. We continue to invest in our core technology to stay ahead of the competition in the process node migration of our products. Top Industry Talent. We believe the engineering and design talent of our employees is critical to our success. As of December 31, 2017, we employed 186 engineers with deep technical expertise in analog, digital signal processing and mixed-mode signal design, digital signal processing, communication theory and chip-level integration. Our highly talented team of engineers brings together expertise in varied products, including Ethernet PHYs, high-speed serializer/deserializer, Ethernet switching, cellular networking, memory, microprocessors, programmable logic arrays, PLDs, and experience from across industry leaders, including AMD, Beceem, Broadcom, Centillium, Intel, LSI Logic, National Semiconductor, Philips and Samsung. We intend to continue to aggressively recruit and seek to retain talented engineering and design personnel. Consistent Long-Term Relationships with Leaders in Our Markets. We have built significant long-term relationships with, and have developed our solutions for, industry leaders, including Intel, the leader in server microprocessors, and Cisco, the leader in networking infrastructure. We have repeatedly demonstrated our ability to address and preempt the technological challenges facing each of these customers and, as a result, we are designed into several of their respective current systems and their emerging products and architectures. Our key customers rely on our technologically advanced solutions to enable their end products to provide their customers with the highest performance and reliability while maintaining a low total cost of ownership. As such, we have built significant long-term relationships with our key customers that enable them to trust our ability to successfully execute to their internal roadmaps and meet the needs of their end customers. Market Insight and Vision. We are deeply involved with our customers in defining next-generation technologies by leveraging our market knowledge and product expertise in the data center, enterprise infrastructure and access markets. We are helping shape our customers roadmaps and product offerings to their end customers through our fundamental understanding of their technology cycles and product needs. We believe this has enabled us to anticipate market trends ahead of our competition, develop innovative technologies in existing markets and create new market opportunities. Track Record of Execution. We believe we have demonstrated a track record of execution excellence by productizing existing technologies and bringing to market industry-defining technological developments. To date, we have shipped millions of data center-class ICs with our core communications technologies and have achieved more than 170 design wins for ASIC and PHY products across a variety of end markets with a growing number of existing and new customers. Similarly, we demonstrated our ability to bring an entirely new product to market with the successful development and launch of AQrate in the enterprise infrastructure and access markets. AQrate has been established as the technology leader through its adoption by the IEEE as the baseline for the IEEE 802.3bz standard for 2.5GBASE-T and 5GBASE-T products. Our Strategy Key elements of our strategy include: Expand Market Share with Leaders in Existing Markets. Customers with which we have existing supplier relationships are continuously developing new products in existing and new application areas. These customers tend to be large multinational enterprises with significant annual budgets for IC purchases. We intend to increase our market share through our existing customer base by applying our design capabilities to new design programs and by continuing to foster deep relationships with these customers. We believe our product roadmaps will enhance our ability to win new business due to the fact that these new roadmaps have been developed in close collaboration with our existing customers. Further, these customers also typically include our products to develop their future product roadmaps. Sell to New Customers in Existing Markets. We have successfully demonstrated a number of key benefits to our existing customers within certain applications and markets, such as the data center and enterprise infrastructure markets. We believe these customers products have become more competitive as a direct 14

15 result of using our solutions. We intend to work with other leading original equipment manufacturers in our existing markets to help them realize similar b enefits by deploying our IC solutions. Broaden Product Portfolio to Target New Markets. We intend to continue to develop new products that we can leverage across our core data center and enterprise infrastructure markets, and use to penetrate the access and other new markets. In particular, we believe that our core expertise, IP and product portfolio can be leveraged to continue to expand into the access market and to address connectivity needs in the automotive market, where technology requirements for autonomous driving vehicles will push the bandwidth for wired high-speed connectivity well beyond the 100 Mbps and 1Gbps currently being deployed. Continue to Enhance Key Technological Expertise. We maintain three intertwining areas of technical expertise: analog and mixed-mode signal design, signal processing and algorithms, and Ethernet networking. Our engineers have a deep knowledge of Ethernet and data networking that enables us to assist our customers in driving their product roadmaps. We intend to invest in research and development to continue to drive industry leadership. To maintain our position as a technology leader, we intend to continue to leverage our deep market insight and product roadmap knowledge of our customers and our customers customers to look ahead to new products and solutions. Products Our products currently address three primary markets, the data center, the enterprise infrastructure and access. We initially focused on the development of 10GBASE-T PHY devices and later, custom ASICs that integrate our PHY devices with customer IP for data center server applications, to lead the transition to 10GbE networking from legacy 1GbE technology. We leveraged our advanced connectivity technology to develop AQrate, a proprietary product designed to significantly improve transmission speeds from 1Gbps to 5Gbps over existing cabling infrastructure in the enterprise infrastructure market. Most recently, we introduced multiple lines of products to serve the access market composed of client connectivity for PCs and carrier access gateways. In total, we have 9 product lines and 35 products in shipping. Corporate Data Center Products Our differentiated architecture, combining MMSP and MCSP, was first implemented in the 10GBASE-T line of products, shipping to corporate data center environments. Our architecture s characteristic low-power, high-performance, and high-density enabled us to demonstrate the world s first single-chip 10GBASE-T product in 90nm standard CMOS process. This 90nm generation was the first 10GBASE-T product to be deployed in a corporate data center-class Ethernet switch in The follow-on 40nm process generation, unveiled in 2012, led to the world s first fully integrated 10GBASE-T MAC and PHY products for corporate data center servers. This allowed our server customers to deploy the technology for the first time as a LOM solution as part of the Romley server platform cycle. These ICs were also designed on add-on Network Interface Controller cards. The 40nm process generation, in combination with our architecture, allowed us to deliver the highest density 10GBASE- T quad-port solution for 48-port top-of-rack, or ToR, switches. We have shipped the 40nm generation of products in millions of ports to our server and switching customers, contributing to making 10GBASE-T a mainstream technology in corporate data centers. We have since transitioned to the 28nm process generation, continuing to lead the industry, and delivered the world s first 28nm 10GBASE-T in While the majority of our revenue was generated by our 40nm products in 2015, our 28nm products are beginning to account for an increasingly significant portion of our revenue. For the years ended December 31, 2017 and 2016, 28nm products accounted for 65% and 42% of total revenue, respectively. Since inception, we have shipped more than 10 million ports of 10GBASE-T PHYs in the data center market. Cloud Data Center Products The Cloud Data Center product line based on the QuantumStream technology is currently under development. It is our intent to implement this technology in both ASSP as well as ASIC products having the 100GbE SerDes ports 15

16 driving either a backplane or an external pluggable DAC of up to three meters. In the case of a D AC solution, we envision that the 100GbE SerDes could be replicated in a quadport and octal configuration, enabling 400GbE and 800GbE DAC solution respectively. Enterprise Infrastructure Products The development of the AQrate product line, based on the novel 2.5GbE/5GbE protocol invented by Aquantia, started in 2012 and led to the sampling of our first product in November This innovative product line was quickly adopted by Cisco and other major switching and WLAN AP OEMs in the ensuing months. As of December 31, 2017, we believe we are the only supplier in production of this technology compliant with IEEE 802.3bz standard. Our AQrate product line is composed of single-, dualquad- and octal-port configurations. The single- and dual-port devices are designed for use in applications ranging from WLAN APs, compact switches, client PCs, storage devices and security cameras, and the quad- and octal-port versions are designed for use in enterprise and campus Ethernet switches. We are currently in full production for our entire line of AQrate products, all of which are manufactured in 28nm and support five Ethernet speeds, including 100M, 1000BASE-T, 2.5GBASE-T, 5GBASE-T and 10GBASE-T. Access Products - Client Connectivity. We anticipate that, over time, PC OEMs will adopt solutions that integrate the PHY and MAC controller. Our product road map for PC OEMs includes the AQC line (standard product), AQS line (SFP+ modules), and AQN line (NIC), which are all based on our GEN2 AQrate PHYs. These PHYs are low-power, high performance 5-speed 10GBASE-T/5GBASE-T/ 2.5GBASE-T/ 1000BASE-T/ 100BASE-TX transceivers. Our products deliver 2.5GbE and 5GbE network connectivity speeds through 100 meters of Cat 5e cabling. Using a 30-meter Cat 6a cable, 10GbE speeds are achievable. These products are compliant with IEEE 802.3an/802.3bz standards to perform all the physical layer functions required to implement 10GBASE-T/5GBASE-T/ 2.5GBASE-T/1000BASE-T/100BASE-TX transmission over twisted pair cabling. - Carrier Access. Our PHY products are designed for carrier and service provider applications. Our Customers We sell our products directly to IC suppliers, OEMs, original design manufacturers, or ODMs primarily through direct sales. We work closely with our OEM customers throughout their design cycles, and we are able to develop long-term relationships with them as our technology becomes embedded in their products. As a result, we believe we are well-positioned to be designed into their current systems and to continually develop next generation Ethernet solutions for their future products. During the year ended December 31, 2017, we sold our products to more than 70 customers. Across the corporate data center, enterprise infrastructure and access markets, our customers include Brocade, Cisco, Dell, Extreme, Hewlett-Packard, Intel, Juniper and Oracle, among others. Intel is the industry leader in server microprocessors, Cisco is the industry leader in networking infrastructure, and collectively, our customer base represents a significant majority of market share in these industries. We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenue. For the years ended December 31, 2017, 2016 and 2015, Intel accounted for approximately 60%, 68% and 78% of our revenue and our 10 largest customers collectively accounted for 97%, 98% and 98% of our revenue, respectively. Further, for the years ended December 31, 2017, 2016 and 2015, Cisco accounted for 28%, 21% and 13% of our revenue, respectively. No other single customer directly or indirectly accounted for more than 10% of our revenue in the years ended December 31, 2017, 2016 or Sales to customers in Asia accounted for 99% of our revenue in the each of years ended December 31, 2017 and Because many of our customers or their ODMs are located in Asia, we anticipate that a significant portion of our products will continue to be sold to Asia. 16

17 Sales and Marketing Our design cycle from initial engagement to volume shipment typically ranges from 18 months to three years, depending on whether we are developing an ASSP or an ASIC, with product life cycles of four years or more. For many of our products, early engagement with our customers technical staff is critical for success. To ensure an adequate level of early engagement, our application and development engineers work closely with our customers to identify and propose solutions to their systems challenges. We work closely with our customers, including technology leaders such as Intel and Cisco for the data center and enterprise infrastructure markets, to anticipate end customer market needs. We also participate actively in setting industry standards with organizations such as IEEE to ensure that we have a voice in the definition of future market trends. We sell our products worldwide through multiple channels, including our direct sales force, a network of third-party sales representatives and distributors. For major accounts in the United States and some overseas markets, we rely on our direct sales team located in the United States and Taiwan, while for others, we collaborate with thirdparty sales representatives and distributors in the United States, Asia, Europe, the Middle East and Africa. Manufacturing We operate a fabless business model and use third-party foundries and assembly and test manufacturing contractors to manufacture, assemble and test our semiconductor products. This outsourced manufacturing approach allows us to focus our resources on the design, sale and marketing of our products. In addition, we believe that outsourcing many of our manufacturing and assembly activities provides us with the flexibility needed to respond to new market opportunities, simplifies our operations and significantly reduces our capital commitments. We subject our third-party manufacturing contractors to qualification requirements to meet the high quality and reliability standards required of our products. We carefully qualify each of our partners and their processes before applying the technology to our products. Our engineers work closely with our foundries and other contractors to increase yield, lower manufacturing costs and improve product quality. Wafer Fabrication. We currently utilize a wide range of semiconductor process generations to develop and manufacture our products. For most of our products, we use Taiwan Semiconductor Manufacturing Company, or TSMC, and GLOBALFOUNDRIES for semiconductor wafer production. Package, Assembly and Testing. Upon the completion of processing at the foundry, we use third-party contractors for packaging, assembly and testing, including Amkor, STATS ChipPAC and ASE in Taiwan and Korea. Warehousing. JSI in Hong Kong warehouses our products, providing easy transport and accessibility from the assembly and test sites. Research and Development We believe that our future success depends on our ability to introduce enhancements on our existing products and to develop new products for both existing and new markets. As such, a significant majority of our operating expenses has been allocated to this effort. Our research and development efforts are directed to the development of additional high-performance connectivity semiconductor solutions across a range of process technologies. We have assembled a core team of experienced engineers and systems designers in five design centers located in the United States, Canada, India, the Netherlands and Russia. As of December 31, 2017, we had 195 engineers worldwide (or approximately 80% of our total employees). Our core technology team has been with our company since as early as Our research and development expenses for the years ended December 31, 2017, 2016 and 2015 were $44.8 million, $36.6 million and $25.3 million, respectively, excluding the 2015 collaboration and development charge (see Note 2 to our audited consolidated financial statements included elsewhere in this report for additional information). 17

18 Competition The global semiconductor market in general, and the data center and wireless communications infrastructure in particular, is highly competitive. We compete in different target markets on the basis of a number of competitive factors. We expect competition to increase and intensify as additional semiconductor companies enter our markets, and as internal silicon design resources of large OEMs grow. Increased competition could result in price pressure, reduced gross margins and loss of market share, any of which could harm our business, revenue and results of operations. Our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow market verticals. In the enterprise and data center markets, our primary competitors are Broadcom and Marvell. We expect competition in our current markets to increase in the future as existing competitors improve or expand their product offerings and as new competitors enter these markets. In addition, our future growth will depend in part on our ability to successfully enter and compete in new markets. Some of these markets will likely be served by only a few large, multinational OEMs with substantial negotiating and buying power relative to us and, in some instances, with internally developed silicon solutions that can be competitive to our products. Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends. During past periods of downturns in our industry, competition in the markets in which we operate intensified as our customers reduced their purchase orders. Many of our competitors are substantially larger, have greater financial, technical, marketing, distribution, customer support and other resources, are more established than we are and have significantly better brand recognition and broader product offerings which may enable them to better withstand similar adverse economic or market conditions in the future. Any such development may materially and adversely affect our current and future target markets and our ability to compete successfully in those markets. We compete or plan to compete in different target markets to various degrees on the basis of a number of principal competitive factors, including: product performance; power budget; features and functionality; customer relationships; size; ease of system design; product roadmap; reputation and reliability; customer support; research and development; high-level talent, including our management team and engineers; and price. We believe we compete favorably with respect to each of these factors. We maintain our competitive position through our ability to successfully design, develop and market complex Ethernet connectivity solutions for the customers we serve. 18

19 Intellectual Property We rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, to protect our core technology and intellectual property. As of December 31, 2017, we had 87 issued patents, 75 of which are U.S. patents, and 28 pending and provisional U.S. patent applications. The 75 issued patents in the U.S. generally expire between 2024 and Our issued patents and pending patent applications relate to both our 10GBASE-T PHYs, our AQrate PHYs, controller and QuantumStream technologies. We may not receive competitive advantages from any rights granted under our patents, and our patent applications may not result in the issuance of any patents. In addition, any future patents may be opposed, contested, circumvented, designed around by a third party or found to be unenforceable or invalidated. Others may develop technologies that are similar or superior to our proprietary technologies, duplicate our proprietary technologies or design around patents owned or licensed by us. Further, we may be required to license certain of our patents on reasonable and non-discriminatory terms to our competitors due to having promoted the adoption of certain IEEE standards. We generally control access to and use of our confidential information through the use of internal and external controls, including contractual protections with employees, contractors and customers. We rely in part on the laws of the United States and international laws to protect our work. All employees and consultants are required to evaluate confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. Despite our efforts to protect our intellectual property, unauthorized parties may still copy or otherwise obtain and use our software, technology or other information that we regard as proprietary intellectual property. In addition, we intend to expand our international operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited to foreign countries. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We have in the past received and, particularly as a public company, we expect that in the future we may receive, communications liability for damages that may invalidate our proprietary rights and harm our business and our ability to compete. Any litigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and management personnel. In the event we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, which may not be available on reasonable terms or at all, cease sale of products, expend significant resources to develop alternative technology or discontinue the use of processes requiring the relevant technology. Information about Segment and Geographic Revenue Information about segment and geographic revenue is set forth in Note 11 to the Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. Cybersecurity We have implemented a security program consisting of policies, procedures, and technology meant to maintain the privacy, security and integrity of information, systems, and networks. Among other things, the program includes controls designed to limit and monitor access to authorized systems, networks, and data, prevent inappropriate access or modification, and monitor for threats or vulnerability. Employees As of December 31, 2017, we employed 253 full-time equivalent employees located in the United States, Canada, India, the Netherlands, Russia and Taiwan, including 203 in research, product development, engineering and operations and logistics, 24 in general and administrative and 26 in sales and marketing. We consider relations with 19

20 our employees to be good and have neve r experienced a work stoppage. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. Facilities Our principal executive offices are located in a leased facility in San Jose, California, consisting of approximately 36,595 square feet of office space under lease that expires June 30, We entered into a new leased facility in San Jose, California for 66,943 square feet of office space under a lease that starts in April 2018 and expires in March The facility accommodates product development and our principal engineering, sales, marketing, operations and finance and administrative activities. We also lease offices in Canada, India, the Netherlands, Russia and Taiwan. We do not own any real property. We believe that our leased facilities are adequate to meet our current needs and that additional facilities will be available on commercially reasonable terms for lease to meet future needs. Corporate Information We were incorporated in Delaware on January 27, Our principal executive offices are located at 105 E. Tasman Drive, San Jose, California and our telephone number is (408) Our corporate website address is Information contained on or accessible through our website is not a part of this report and the inclusion of our website address in this report is an inactive textual reference only. Available Information We electronically file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act, with the Securities and Exchange Commission, or the SEC. The public may read or copy any materials we file with the SEC at the SEC s Public Reference Room at 100 F Street, NE, Washington, DC The public may obtain information on the operation of the Public Reference Room by calling the SEC at SEC The SEC maintains an Internet site that contains reports and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports with the SEC on our website. 20

21 Item 1A. Ri sk Factors Ouroperationsandfinancialresultsaresubjecttovariousrisksanduncertaintiesincludingthosedescribedbelow.Youshouldconsidercarefullytherisksand uncertaintiesdescribedbelow,inadditiontootherinformationcontainedinthisannualreportonform10-k,includingourconsolidatedfinancialstatementsandrelatednotes. Therisksanduncertaintiesdescribedbelowarenottheonlyonesweface.Additionalrisksanduncertaintiesthatweareunawareof,orthatwecurrentlybelievearenot material,mayalsobecomeimportantfactorsthatadverselyaffectourbusiness.ifanyofthefollowingrisksorothersnotspecifiedbelowmaterialize,ourbusiness,financial conditionandresultsofoperationscouldbemateriallyandadverselyaffected.inthatcase,thetradingpriceofourcommonstockcoulddecline. Risks Related to Our Business and Our Industry We depend on a limited number of customers for a substantial majority of our revenue. If we fail to retain or expand our customer relationships or if our customers cancel or reduce their purchase commitments, our revenue could decline significantly. We derive a substantial majority of our revenue from a limited number of customers. We believe that our operating results for the foreseeable future will continue to depend on sales to Intel Corporation, or Intel, and Cisco Systems, Inc., or Cisco, our two largest customers. For the years ended December 31, 2017, 2016 and 2015, sales to Intel accounted for approximately 60%, 68% and 78% of our revenue, respectively. For the years ended December 31, 2017, 2016 and 2015, sales to Cisco accounted for approximately 28%, 21% and 13% of our revenue, respectively. Substantially all of our sales to date, including sales to Intel and Cisco, have been made on a purchase order basis, which orders may be cancelled, changed or delayed with little or no notice or penalty. As a result of this customer concentration, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of Intel, Cisco or any other significant customer. In the future, Intel, Cisco or any other significant customer may decide to purchase fewer units than they have in the past, may alter their purchasing patterns at any time with limited notice, or may decide not to continue to purchase our semiconductor solutions at all, any of which could cause our revenue to decline materially and materially harm our financial condition and results of operations. In addition, our relationships with existing customers may deter potential customers who compete with these customers from buying our semiconductor solutions. If we are unable to diversify our customer base, we will continue to be susceptible to risks associated with customer concentration. Our revenue and operating results may fluctuate from period to period, which could cause our stock price to fluctuate. Our revenue and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors: customer demand and product life cycles; the receipt, reduction or cancellation of orders by customers; fluctuations in the levels of component inventories held by our customers, which have in the past caused significant fluctuations in our revenue; the gain or loss of significant customers; market acceptance of our products and our customers products; our ability to develop, introduce and market new products and technologies on a timely basis; the timing and extent of product development costs; new product announcements and introductions by us or our competitors; our research and development costs and related new product expenditures; seasonality and fluctuations in sales by product manufacturers that incorporate our semiconductor solutions into their products; 21

22 end-market demand into which we have limited insight, including cyclicality, seasonality and the competitive landscape; cyclical fluctuations in the semiconductor market; fluctuations in our manufacturing yields; significant warranty claims, including those not covered by our suppliers; and changes in our pricing, product cost and product mix. As a result of these and other factors, you should not rely on the results of any prior quarterly or annual periods, or any historical trends reflected in such results, as indications of our future revenue or operating performance. Fluctuations in our revenue and operating results could cause our stock price to decline. We have an accumulated deficit and have incurred net losses in the past, and we may continue to incur net losses in the future. As of December 31, 2017, we had an accumulated deficit of $197.7 million. We generated net losses of $5.4 million, $0.4 million and $10.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. We may continue to incur net losses in the future. Our success and future revenue depend on our ability to achieve design wins and to convince our current and prospective customers to design our products into their product offerings. If we do not continue to win designs or our products are not designed into our customers product offerings, our results of operations and business will be harmed. We sell our semiconductor solutions to customers who include our solutions in their hardware products. This selection process is typically lengthy and may require us to incur significant design and development expenditures and dedicate scarce engineering resources in pursuit of a single design win. If we fail to convince our current or prospective customers to include our products in their product offerings or fail to achieve a consistent number of design wins, our results of operations and business will be harmed. Because of our extended sales cycle, our revenue in future years is highly dependent on design wins we are awarded today. It is typical that a design win today will not result in meaningful revenue until one year or later, if at all. For example, for the year ended December 31, 2017, substantially all of our revenue was derived from design wins for which revenue was first recognized more than 12 months beforehand. If we do not continue to win designs in the short term, our revenue in the following years will deteriorate. Further, a significant portion of our revenue in any period may depend on a single product design win with a large customer. As a result, the loss of any key design win or any significant delay in the ramp of volume production of the customer s products into which our product is designed could adversely affect our financial condition and results of operations. We may not be able to maintain sales to our key customers or continue to secure key design wins for a variety of reasons, and our customers can stop incorporating our products into their product offerings with limited notice to us and suffer little or no penalty. The loss of a key customer or design win, a reduction in sales to any key customer, a significant delay or negative development in our customers product development plans, or our inability to attract new significant customers or secure new key design wins could seriously impact our revenue and materially and adversely affect our results of operations. The success of our products is dependent on our customers ability to develop products that achieve market acceptance, and our customers failure to do so could negatively affect our business. The success of our semiconductor solutions is heavily dependent on the timely introduction, quality and market acceptance of our customers products incorporating our solutions, which may be impacted by factors beyond our control. Our customers products are often very complex and subject to design complexities that may result in design 22

23 flaws, as well as potential defects, errors and bugs. We have in the past been subject to delays and project cancellations as a result of design flaws in the products developed by our customers, changing market requirements, such as the customer adding a new feature, or because a customer s product fails their end c ustomer s evaluation or field trial. In other cases, customer products are delayed due to incompatible deliverables from other vendors. We incur significant design and development costs in connection with designing our products for customers products that may not ultimately achieve market acceptance. If our customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or incompatible deliverables from othe r vendors, they may delay, change or cancel a project, and we may have incurred significant additional development costs and may not be able to recoup our costs, which in turn would adversely affect our business and financial results. Defects in our products could harm our relationships with our customers and damage our reputation. Defects in our products may cause our customers to be reluctant to buy our products, which could harm our ability to retain existing customers and attract new customers and adversely impact our reputation and financial results. The process of identifying a defective or potentially defective product in systems that have been widely distributed may be lengthy and require significant resources. Further, if we are unable to determine the root cause of a problem or find an appropriate solution, we may delay shipment to customers. As a result, we may incur significant replacement costs and contract damage claims from our customers, and our reputation and financial results may be adversely affected. Our target markets may not grow or develop as we currently expect, and if we fail to penetrate new markets and scale successfully within those markets, our revenue and financial condition would be harmed. A substantial majority of our revenue for the years ended December 31, 2017 and 2016 was derived from the data center market. In 2014, we began introducing products for the enterprise infrastructure market and, in 2016, we began introducing products into the access market which serves the client connectivity and carrier access markets. We are currently developing solutions for Multi-Gig Ethernet over copper with major car manufacturers and Tier-1 suppliers in the automotive market. Any deterioration in these markets or reduction in capital spending to support these markets could lead to a reduction in demand for our products, which would adversely affect our revenue and results of operations. Further, if our target markets do not grow or develop in ways that we currently expect, demand for our technology may not materialize as expected, which would also negatively impact our business. We may be unable to predict the timing or development of trends in these end markets with any accuracy and these trends may not be beneficial to us. If we fail to accurately predict market requirements or market demand for these solutions, our business will suffer. A market shift towards an industry standard that we may not support could significantly decrease the demand for our solutions. For example, we have invested significant resources in developing semiconductor solutions to address 2.5 Gigabit Ethernet, or GbE, and 5GbE operation over today s Cat5e and Cat6 cabling infrastructure. If these technologies are not adopted as an industry standard, our investment may not lead to future revenue. Our future revenue growth, if any, will depend in part on our ability to expand within our existing markets, our ability to continue to penetrate newer markets, such as the access market which we entered in 2016, and our ability to enter into new markets, such as the automotive market. Each of these markets presents distinct and substantial challenges and risks and, in many cases, requires us to develop new customized solutions to address the particular requirements of that market. Meeting the technical requirements and securing design wins in any of these new markets will require a substantial investment of our time and resources. We cannot assure you that we will secure design wins from these or other new markets, or that we will achieve meaningful revenue from sales with these markets. If any of these markets do not develop as we currently anticipate or if we are unable to penetrate them and scale in them successfully, our projected revenue would decline. If we are unable to manage our growth effectively, we may not be able to execute our business plan and our operating results and stock price could suffer. In order to succeed in executing our business plan, we will need to manage our growth effectively as we make significant investments in research and development and sales and marketing, and expand our operations and 23

24 infrastructure both domestically and internationally. In addition, in connection with operating as a public company, we will incur additional significant legal, acc ounting and other expenses that we did not incur as a private company. If our revenue does not increase to offset these increases in our expenses, we may not achieve or maintain profitability in future periods. To manage our growth effectively, we must continue to expand our operations, engineering, financial accounting, internal management and other systems, procedures and controls. This may require substantial managerial and financial resources, and our efforts may not be successful. Any failure to successfully implement systems enhancements and improvements will likely have a negative impact on our ability to manage our expected growth, as well as our ability to ensure uninterrupted operation of key business systems and compliance with the rules and regulations applicable to public companies. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new semiconductor solutions, and we may fail to satisfy customer product or support requirements, maintain the quality of our solutions, execute our business plan or respond to competitive pressures, any of which could negatively affect our brand, results of operations and overall business. The average selling prices of our products and of other products in our markets have decreased historically over time and may do so in the future, which could harm our revenue and gross margins. The average selling prices of our products and of other semiconductor products in the markets we serve generally have decreased over time. Our revenue is derived from sales to large customers and, in some cases, we have agreed in advance to modest price reductions, generally over a period of time ranging from 18 months to five years, once the specified product begins to ship in volume. However, our customers may change their purchase orders and demand forecasts at any time with limited notice due in part to fluctuating end-market demand, which can sometimes lead to price renegotiations. Although these price renegotiations can sometimes result in the average selling prices fluctuating over the shorter term, we expect average selling prices generally to decline over the longer term as our products mature. We seek to offset the anticipated reductions in our average selling prices by reducing the cost of our products through improvements in manufacturing yields and lower wafer, assembly and testing costs, developing new products, enhancing lower-cost products on a timely basis and increasing unit sales. However, if we are unable to offset these anticipated reductions in our average selling prices, our results of operations, cash flows and overall business could be negatively affected. If we are not able to successfully introduce and ship in volume new products as our existing products near the end of their product lifecycle, our business and revenue will suffer. We have developed products that we anticipate will have product life cycles of 10 years or more, as well as other products in more volatile high growth or rapidly changing areas, which may have shorter life cycles. Our future success depends, in part, on our ability to develop and introduce new technologies and products that generate new sources of revenue to replace, or build upon, existing revenue streams that may be dependent upon limited product life cycles. If we are unable to repeatedly introduce, in successive years, new products that ship in volume, or if our transition to these new products does not successfully occur prior to any decrease in revenue from our prior products, our revenue will likely decline significantly and rapidly. Our gross margins may fluctuate due to a variety of factors, which could negatively impact our results of operations and our financial condition. Our gross margins may fluctuate due to a number of factors, including customer and product mix, market acceptance of our new products, timing and seasonality of the end-market demand, yield, wafer pricing, competitive pricing dynamics and geographic and market pricing strategies. Further, because we are so dependent on a few large customers, these customers have significant leverage with respect to negotiating pricing and other terms with us and may put downward pressure on our margins. To attract new customers or retain existing customers, we have in the past and will in the future offer certain customers favorable prices, which would decrease our average selling prices and likely impact gross margins. Further, we may also offer 24

25 pricing incentives to our customers on earlier generations of product s that inherently have a higher cost structure, which would negatively affect our gross margins. Because we do not operate our own manufacturing, assembly or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities, and our costs may even increase, which could further reduce our gross margins. We rely primarily on obtaining yield improvements and volume-based cost reductions to drive cost reductions in the manufacture of existing products, introducing new products that incorporate advanced features and optimize die size, and other price and performance factors that enable us to increase revenue while maintaining gross margins. To the extent that such cost reductions or revenue increases do not occur in a timely manner, our financial condition and results of operations could be adversely affected. In addition, we maintain inventory of our products at various stages of production and in finished good inventory. We hold these inventories in anticipation of customer orders. If those customer orders do not materialize, we may have excess or obsolete inventory which we would have to reserve or write off, and our gross margins would be adversely affected. Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualification process which does not assure product sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer. Prior to purchasing our semiconductor solutions, our customers require that both our solutions and our third-party contractors undergo extensive qualification processes, which involve testing of our products in the customers systems, as well as testing for reliability. This qualification process may continue for several months. However, qualification of a product by a customer does not assure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision in our third-party contractors manufacturing process or our selection of a new supplier may require a new qualification process with our customers, which may result in delays and in our holding excess or obsolete inventory. After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products to the customer may be precluded or delayed, which would cause our business and operating results to suffer. We may be subject to warranty or product liability claims, which could result in unexpected expenses and loss of market share. From time to time, we may be subject to warranty or product liability claims that may require us to make significant expenditures to defend those claims, replace our solutions, refund payments or pay damage awards. We generally agree to indemnify our customers for defects in our products. If a customer s equipment fails in use, the customer may incur significant monetary damages, including an equipment recall or associated replacement expenses as well as lost revenue. The customer may claim that a defect in our product caused the equipment failure and assert a claim against us to recover monetary damages. In certain situations, circumstances might warrant that we consider incurring the costs or expense related to a recall of one of our products in order to avoid the potential claims that may be raised should a customer reasonably rely upon our product and suffer a failure due to a design or manufacturing process defect. In addition, the cost of defending these claims and satisfying any arbitration award or judgment with respect to these claims would result in unexpected expenses and could harm our business prospects. Although we carry product liability insurance, this insurance is subject to significant deductibles and may not adequately cover our costs arising from defects in our products or otherwise. If we fail to accurately anticipate and respond to rapid technological change in the industries in which we operate, our ability to attract and retain customers could be impaired and our competitive position could be harmed. We operate in industries characterized by rapidly changing technologies as well as technological obsolescence. The introduction of new products by our competitors, the delay or cancellation of any of our customers product 25

26 offerings for which our semiconductor solutions are designed, the market acceptance of products based on new or alternative technologies or the emergence of new industry standards could render our existing or future products uncompetitive, obsolete and otherwise unmarketable. Our failure to anticipate or timely develop new or enhanced pr oducts or technologies in response to changing market demand, whether due to technological shifts or otherwise, could result in the loss of customers and decreased revenue and have an adverse effect on our operating results. If our products do not conform to, or are not compatible with, existing or emerging industry standards, demand for our existing solutions may decrease, which in turn would harm our business and operating results. We design certain of our products to conform to current industry standards. Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers or by our third-party suppliers. In addition, existing standards may be challenged as infringing upon the intellectual property rights of other companies or may be superseded by new innovations or standards. Our ability to compete in the future will depend on our ability to identify and ensure compliance with evolving industry standards in our target markets, including in the data center and enterprise infrastructure markets. The emergence of new industry standards could render our products incompatible with products developed by third-party suppliers or make it difficult for our products to meet the requirements of certain original equipment manufacturers, or OEMs. If our customers or our third-party suppliers adopt new or competing industry standards with which our solutions are not compatible, or if industry groups fail to adopt standards with which our solutions are compatible, our products would become less desirable to our current or prospective customers. As a result, our sales would suffer, and we could be required to make significant expenditures to develop new solutions. Although we believe our products are fully compliant with applicable industry standards, proprietary enhancements may not in the future result in full conformance with existing industry standards under all circumstances. Due to the interdependence of various components in the systems within which our products and the products of our competitors operate, once a design is adopted, customers are unlikely to switch to another design until the next generation of the applicable technology. For example, we have developed our AQrate technology, which is designed to address 2.5GbE and 5GbE operation over today s Cat5e and Cat6 cabling infrastructure. If this semiconductor solution fails to meet the needs of our customers or penetrate new markets in a timely fashion, and does not gain acceptance, we may not maintain or may lose market share and our competitive position, and operating results will be adversely affected. We may experience difficulties demonstrating the value to customers of newer solutions if they believe existing solutions are adequate to meet end customer expectations. If we are unable to sell new generations of our product, our business would be harmed. As we develop and introduce new solutions, we face the risk that customers may not value or be willing to bear the cost of incorporating these newer solutions into their product offerings, particularly if they believe their customers are satisfied with those current offerings. Regardless of the improved features or superior performance of the newer solutions, customers may be unwilling to adopt our new solutions due to design or pricing constraints. Because of the extensive time and resources that we invest in developing new solutions, if we are unable to sell customers new generations of our solutions, our revenue could decline and our business, financial condition, results of operations and cash flows would be negatively affected. We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business. Our success depends largely upon the continued services of our executive officers and other key employees, including our design and technical personnel. From time to time, there may be changes in our executive management team or other key personnel, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our senior executive officers or other key employees could have an adverse effect on our business. 26

27 In addition, to execute our growth plan, we must attract and retain hi ghly qualified personnel. Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in other locations where we maintain offices, is intense, especially for engineers experienced in designing and developing semic onductor solutions. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have gre ater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources if we respond to them. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, it may adversely affect our ability to recrui t and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected. We may be unable to make the substantial investments that are required to remain competitive in our business. The semiconductor industry requires substantial and continuous investment in research and development in order to bring to market new and enhanced solutions. Our research and development expenses were $44.8 million, $36.6 million and $25.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. We expect to increase our research and development expenditures compared to prior periods as part of our strategy to increase demand for our solutions in our current markets and to expand into additional markets. We are a smaller company with limited resources, and we may not have sufficient resources to maintain the level of investment in research and development required to remain competitive. In addition, we cannot assure you that the technologies, which are the focus of our research and development expenditures, will become commercially successful or generate any revenue. If we fail to compete effectively, we may lose or fail to gain market share, which could negatively impact our operating results and our business. The global semiconductor market in general, and the data center and enterprise communications markets in particular, is highly competitive. We compete in our target markets on the basis of a number of competitive factors. We expect competition to increase and intensify as additional semiconductor companies enter our target markets, and as internal silicon design resources of large OEMs grow. Increased competition could result in price pressure, reduced gross margins and loss of market share, any of which could harm our business, revenue and results of operations. Our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow market verticals. In the markets we serve, our primary competitors are Broadcom and Marvell. We expect competition in our current markets to increase in the future as existing competitors improve or expand their product offerings and as new competitors enter these markets. In addition, our future growth will depend in part on our ability to successfully enter and compete in new markets, such as the access market. Some of these markets will likely be served by only a few large, multinational OEMs with substantial negotiating and buying power relative to us and, in some instances, with internally developed silicon solutions that can be competitive to our products. Our ability to compete successfully depends, in part, on factors that are outside of our control, including industry and general economic trends. Many of our competitors are substantially larger, have greater financial, technical, marketing, distribution, customer support and other resources, are more established than we are and have significantly better brand recognition and broader product offerings, which may enable them to better withstand adverse economic or market conditions in the future and reduce their pricing so as to compete against us. Our ability to compete successfully will depend on a number of factors, including: our ability to define, design and regularly introduce new products that anticipate the functionality and integration needs of our customers next-generation products and applications; our ability to build strong and long-lasting relationships with our customers and other industry participants; our ability to capitalize on, and prevent losses due to, vertical integration by significant customers, including Intel and Cisco; our solutions performance and cost-effectiveness relative to those of competing products; 27

28 the effectiveness and success of our customers products utilizing our solutions within their competitive end markets; our research and development capabilities to provide innovative solutions and maintain our product roadmap; the strength of our sales and marketing efforts, and our brand awareness and reputation; our ability to deliver products in volume on a timely basis at competitive prices; our ability to build and expand international operations in a cost-effective manner; our ability to protect our intellectual property and obtain intellectual property rights from third parties that may be necessary to meet the evolving demands of the market; our ability to promote and support our customers incorporation of our solutions into their products; our ability to continue to develop products at each new technology node; and our ability to retain high-level talent, including our management team and engineers. Our competitors may also establish cooperative relationships among themselves or with third parties or may acquire companies that provide similar products to ours. As a result, new competitors or alliances may emerge that could capture significant market share. Any of these factors, alone or in combination with others, could harm our business and result in a loss of market share and an increase in pricing pressure. In addition, a number of our competitors are able to sell their solutions through multiple channels, including through distributors and third-party sales organizations, while we rely primarily on direct sales, which may provide our competitors with a strategic advantage in sales of their solutions and could harm our prospects and business. We depend on third parties for our wafer, assembly and testing operations, which exposes us to certain risks that may harm our business. We operate an outsourced manufacturing business model. As a result, we rely on third parties for all of our manufacturing operations, including wafer fabrication, assembly and testing. Although we use multiple third-party supplier sources, we depend on these third parties to supply us with material of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality. We do not have any long-term supply agreements with any of our manufacturing suppliers. These third-party manufacturers often serve customers that are larger than us or require a greater portion of their services, which may decrease our relative importance and negotiating leverage with these third parties. If market demand for wafers or production and assembly materials increases, or if a supplier of our wafers ceases or suspends operations, our supply of wafers and other materials could become limited. We currently rely on Taiwan Semiconductor Manufacturing Company, or TSMC, for most of our semiconductor wafer production, and any disruption in their supply of wafers or any increases in their wafer or materials prices could adversely affect our gross margins and our ability to meet customer demands in a timely manner, or at all, and lead to reduced revenue. Moreover, wafers constitute a large portion of our product cost. If we are unable to purchase wafers at favorable prices, our gross margins would be adversely affected. To ensure continued wafer supply, we may be required to establish alternative wafer supply sources, which could require significant expenditures and limit our negotiating leverage. We currently rely on TSMC as our primary foundry; and only a few foundry vendors have the capability to manufacture our most advanced solutions. If we engage alternative supply sources, we may encounter start-up difficulties and incur additional costs. In addition, shipments could be significantly delayed while these sources are qualified for volume production. Certain of our manufacturing facilities are located outside of the United States, where we are subject to increased risk of political and economic instability, difficulties in managing operations, difficulties in enforcing contracts and our intellectual property, and employment and labor difficulties. Any of these factors could result in manufacturing and supply problems, and delays in our ability to provide our solutions to our customers on a timely basis, or at all. If we experience manufacturing problems at a particular location, we may be required to transfer manufacturing to a new location or supplier. Converting or transferring manufacturing from a primary location or 28

29 supplier to a backup facility could be ex pensive and could take several quarters or more. During such a transition, we would be required to meet customer demand from our thenexisting inventory, as well as any partially finished goods that could be modified to the required product specifications. We do not seek to maintain sufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand and because semiconductors are subject to a rapid obsolescence timeline. As a result, we may not be able to meet customer needs during such a transition, which could damage our customer relationships. If one or more of these vendors terminates its relationship with us, or if we encounter any problems with our manufacturing supply chain, our ability to ship our solutions to our customers on time and in the quantity required would be adversely affected, which in turn could cause an unanticipated decline in our sales and loss of customers. If the foundries that we employ do not achieve satisfactory yields or quality, our reputation and customer relationships could be harmed. We depend on satisfactory foundry manufacturing capacity, wafer prices and production yields, as well as timely wafer delivery to meet customer demand and maintain gross margins. The fabrication of our products is a complex and technically demanding process. Minor deviations in the manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. Our foundry vendors may experience manufacturing defects and reduced manufacturing yields from time to time. Further, any new foundry vendors we employ may present additional and unexpected manufacturing challenges that could require significant management time and focus. Changes in manufacturing processes or the inadvertent use of defective or contaminated materials by the foundries that we employ could result in lower than anticipated production yields or unacceptable performance of our devices. Many of these problems are difficult to detect at an early stage of the manufacturing process and may be time consuming and expensive to correct. Poor production yields from the foundries that we employ, or defects, integration issues or other performance problems in our solutions could significantly harm our customer relationships and financial results, and give rise to financial or other damages to our customers. Any product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend. We rely on our relationships with industry and technology leaders to enhance our product offerings and our inability to continue to develop or maintain such relationships in the future would harm our ability to remain competitive. We develop many of our semiconductor products for applications in systems that are driven by industry and technology leaders in the communications and computing markets. We work with IC suppliers, OEMs, system manufacturers and standards bodies, such as the Institute of Electrical and Electronics, or IEEE, and the NBASE-T Alliance, to define industry conventions and standards within our target markets. For example, AQrate has been established as the technology leader through its adoption by the IEEE as the baseline for the IEEE 802.3bz standard for 2.5GBASE-T and 5GBASE-T products. We believe that these relationships enhance our ability to achieve market acceptance and widespread adoption of our products. If we are unable to continue to develop or maintain these relationships, our semiconductor solutions could become less desirable to our customers, our sales could suffer and our competitive position could be harmed. We are subject to the cyclical nature of the semiconductor industry. The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The industry experienced a significant downturn during the most recent global recession. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Any future downturns in the semiconductor industry could harm our business and operating results. Furthermore, any significant upturn in the semiconductor industry could result in increased competition for access to third-party foundry and assembly capacity. We are dependent on the availability of this capacity to manufacture and assemble our products and we can provide no assurance that adequate capacity will be available to us in the future. Deterioration of the financial conditions of our customers could adversely affect our operating results. 29

30 The deterioration of the financial condition of our customers could adversely impact our collection of accounts receivable. We regularly review the collectability and creditworthiness of our customers to determine an appropriate allowance for doubtful accounts. Based on our review of our customers, substantially all of which are very large IC Suppliers, OEMs, we currently have no reserve for doubtful accounts. If our doubtful accounts, however, were to exceed our current or future allowance for doubtful account s, our operating results would be adversely affected. In preparing our consolidated financial statements, we make good faith estimates and judgments that may change or turn out to be erroneous, which could adversely affect our operating results for the periods in which we revise our estimates or judgments. In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, we must make estimates and judgments in applying our most critical accounting policies. Those estimates and judgments have a significant impact on the results we report in our consolidated financial statements. The most difficult estimates and subjective judgments that we make relate to revenue recognition, inventories, stock-based compensation and income taxes. We base our estimates on historical experience, input from outside experts and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We also have other key accounting policies that are not as subjective, and therefore, their application would not require us to make estimates or judgments that are as difficult, but which nevertheless could significantly affect our financial reporting. Actual results may differ materially from these estimates. If these estimates, judgments or their related assumptions change, our operating results for the periods in which we revise our estimates, judgments or assumptions could be adversely and perhaps materially affected. Changes to financial accounting standards may affect our results of operations and could cause us to change our business practices. We prepare our consolidated financial statements to conform to GAAP. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Securities and Exchange Commission, or the SEC, and various bodies formed to interpret and create accounting rules and regulations. In the past few years, new accounting standards have been issued which are expected substantially change the accounting for most companies including those related to revenue recognition and leasing. Changes in accounting rules can have a significant effect on our reported financial results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our financial results or the way we conduct our business. Future loan agreements contain certain restrictive covenants that may limit our operating flexibility. We had in the past entered into loan agreements and may enter into new loan agreements which could contain certain restrictive covenants that either limit our ability to, or require a mandatory prepayment in the event that, we incur additional indebtedness or liens, merge with other companies or consummate certain changes of control, acquire other companies, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions. Our obligations under these loan agreements are secured by all of our property, with limited exceptions. Furthermore, the restrictive terms may limit our operating flexibility which may in turn adversely impact our operating results. We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing to fund our operations. We may need to raise additional funds in the future. Any required additional financing may not be available on terms acceptable to us, or at all. If we raise additional funds by issuing equity securities or convertible debt, investors may experience significant dilution of their ownership interest, and the newly-issued securities may have rights senior to those of the holders of our common stock. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility and would also require us to incur interest expense. If additional financing is not available when required or is not available on acceptable terms, we may have to scale back our operations or limit our production activities, and we may not be able to expand our business, develop or enhance our solutions, take 30

31 advantage of business opportunities or respond to competitive pressures, which could ne gatively impact our revenue and the competitiveness of our products. We may make acquisitions in the future that could disrupt our business, cause dilution to our stockholders, reduce our financial resources and harm our business. In the future, we may acquire other businesses, products or technologies. Our ability to make acquisitions and successfully integrate personnel, technologies or operations of any acquired business is unproven. If we complete acquisitions, we may not achieve the combined revenue, cost synergies or other benefits from the acquisition that we anticipate, strengthen our competitive position or achieve our other goals in a timely manner, or at all, and these acquisitions may be viewed negatively by our customers, financial markets or investors. In addition, any acquisitions we make lead to difficulties in integrating personnel, technologies and operations from the acquired businesses and in retaining and motivating key personnel. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, subject us to additional liabilities, increase our expenses and adversely impact our business, results of operations, financial condition and cash flows. Acquisitions may also reduce our cash available for operations and other uses, and could result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, any of which could harm our business. A portion of our operations is located outside of the United States, which subjects us to additional risks, including increased complexity and costs of managing international operations and geopolitical instability. We outsource the manufacturing of all of our products to third parties that are primarily located in Asia. In addition, we have research and development design centers in Canada, India, the Netherlands and Russia, and we expect to continue to conduct business with companies that are located outside the United States, particularly in Eastern Europe and Asia. As a result of our international focus, we face numerous challenges and risks, including: complexity and costs of managing international operations, including manufacture, assembly and testing of our products; geopolitical and economic instability and military conflicts; limited protection of our intellectual property and other assets; compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations; trade and foreign exchange restrictions and higher tariffs; timing and availability of import and export licenses and other governmental approvals, permits and licenses, including export classification requirements; foreign currency fluctuations and exchange losses relating to our international operating activities; restrictions imposed by the U.S. government or foreign governments on our ability to do business with certain companies or in certain countries as a result of international political conflicts and the complexity of complying with those restrictions; transportation delays and other consequences of limited local infrastructure, and disruptions, such as large scale outages or interruptions of service from utilities or telecommunications providers; difficulties in staffing international operations; local business and cultural factors that differ from our normal standards and practices; differing employment practices and labor relations; heightened risk of terrorist acts; regional health issues, travel restrictions and natural disasters; and work stoppages. 31

32 Fluctuations in exchange rates between and among the currencies of the countries in which we do business could adversely affect our results of operations. Our sales have been historically denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to the currencies of the countries in which our customers operate could impair the ability of our customers to cost-effectively purchase or integrate our solutions into their product offerings, which may materially affect the demand for our solutions and cause these customers to reduce their orders, which in turn would adversely affect our revenue and business. If we increase operations in other currencies in the future, we may experience foreign exchange gains or losses due to the volatility of other currencies compared to the U.S. dollar. Certain of our employees are located in Canada, India, the Netherlands, Russia and Taiwan. Accordingly, a portion of our payroll as well as certain other operating expenses are paid in currencies other than the U.S. dollar. Our results of operations are denominated in U.S. dollars, and the difference in exchange rates in one period compared to another may directly impact period-to-period comparisons of our results of operations. Furthermore, currency exchange rates have been especially volatile in the recent past, and these currency fluctuations may make it difficult for us to predict our results of operations. Failure to comply with the laws associated with our activities outside of the United States could subject us to penalties and other adverse consequences. We face significant risks if we fail to comply with anti-corruption laws and anti-bribery laws, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. Travel Act and the UK Bribery Act 2010, that prohibit improper payments or offers of payment to foreign governments and political parties by us for the purpose of obtaining or retaining business. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other applicable laws and regulations. We are in the early stages of implementing our FCPA compliance program and cannot assure you that all of our employees and agents, as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of these laws could result in severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracting, which could have an adverse effect on our reputation, business, financial condition and results of operations. We are subject to government regulation, including import, export and economic sanctions laws and regulations that may expose us to liability and increase our costs. Our products and technology are subject to U.S. export controls, including the U.S. Department of Commerce s Export Administration Regulations and economic and trade sanctions regulations administered by the U.S. Treasury Department s Office of Foreign Assets Controls. These regulations may limit the export of our products and technology, and provision of our services outside of the United States, or may require export authorizations, including by license, a license exception or other appropriate government authorizations, including annual or semi-annual reporting and the filing of an encryption registration. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons and entities. In addition, various countries regulate the importation of certain products, through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. The exportation, reexportation, and importation of our products and technology and the provision of services, including by our partners, must comply with these laws or else we may be adversely affected, through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products and technology or provide services. Complying with export control and sanctions laws may be time consuming and may result in the delay or loss of sales opportunities. Although we take precautions to prevent our products and technology from being provided in violation of such laws, our products and technology may have previously been, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. Changes in export or import laws or corresponding sanctions, may adversely impact our operations, delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products and technology to certain countries, regions, 32

33 governments, persons or entities altogether, which could adversely affect our business, financial condition and results of operations. New or future changes to U.S. and non-u.s. tax laws could materially adversely affect our company. New or future changes in tax laws, regulations, and treaties, or the interpretation thereof, in addition to tax regulations enacted but not in effect, tax policy initiatives and reforms under consideration in the United States or related to the Organisation for Economic Co-operation and Development s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission s state aid investigations, and other initiatives could have an adverse effect on the taxation of international businesses. Furthermore, countries where we are subject to taxes, including the United States, are independently evaluating their tax policy and we may see significant changes in legislation and regulations concerning taxation. Certain countries have already enacted legislation, including those related to BEPS Project, which could affect international businesses, and other countries have become more aggressive in their approach to audits and enforcement of their applicable tax laws. We are unable to predict what future tax reform may be proposed or enacted or what effect such changes would have on our business, but any such changes, to the extent they are brought into tax legislation, regulations, policies, or practices, could increase our effective tax rates in the countries where we have operations and have an adverse effect on our overall tax rate, along with increasing the complexity, burden and cost of tax compliance, all of which could impact our operating results, cash flows and financial condition. The U.S. Tax Cuts and Jobs Act (the Act ) was enacted on December 22, The Act among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, implements a modified territorial tax system that includes a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. Many of the provisions of the Act are highly complex and may be subject to further interpretive guidance from the Internal Revenue Service or others. The final impact of the Act may differ significantly from these estimates, due to, among other things, changes in interpretations and assumptions made by us as a result of additional information, additional guidance that may be issued by the U.S. Department of the Treasury. We continue to examine the impact of certain provisions of the Act that will become applicable in 2018 related to base erosion anti-abuse tax, global intangible low-taxed income, and other provisions that could adversely affect our effective tax rate in the future. We have recorded significant valuation allowances on our deferred tax assets, and the recording and release of such allowances may have a material impact on our results of operations and cause fluctuations in our stock price. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. As such, we determined that full valuation allowance is required on our deferred tax assets. In the future, we may release valuation allowance and recognize deferred tax assets depending on achieving profitability. We continue to monitor the likelihood that we will be able to recover our deferred tax asset. There can be no assurance that we will generate profits in future periods enabling it to fully realize its deferred tax. The timing of the reversal of such valuation allowance is subject to objective and subjective factors that cannot be readily predicted in advance. The reversal of a previously recorded valuation allowance may have a material impact on our financial results, which may lead to fluctuation in the value of our stock. Tax regulatory authorities may disagree with our positions and conclusions regarding certain tax positions resulting in unanticipated costs or non-realization of expected benefits. A tax authority may disagree with tax positions that we have taken. For example, the Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property in connection with our intercompany research and development cost sharing arrangement and legal structure. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could materially and adversely affect our anticipated effective tax rate or operating income, where applicable. 33

34 Catastrophic events may disrupt our business. Our corporate headquarters and our foundry vendors are located in areas that are in active earthquake zones. In the event of a major earthquake, hurricane or other catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, terrorist attack or disease outbreak, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, breaches of data security, or loss of critical data, any of which could have an adverse effect on our future results of operations. A breach of our security systems may damage our reputation and adversely affect our business. Our security systems are designed to protect our customers, suppliers and employees confidential information, as well as maintain the physical security of our facilities. We also rely on a number of third-party cloud-based service providers of corporate infrastructure services relating to, among other things, human resources, electronic communication services and some finance functions, and we are, of necessity, dependent on the security systems of these providers. Any security breaches or other unauthorized access by third parties to the systems of our cloud-based service providers or the existence of computer viruses in their data or software could expose us to a risk of information loss and misappropriation of confidential information. Accidental or willful security breaches or other unauthorized access by third parties to our information systems or facilities, or the existence of computer viruses in our data or software, could expose us to a risk of information loss and misappropriation of proprietary and confidential information. Any theft or misuse of this information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have an adverse effect on our business, financial condition, our reputation and our relationships with our customers and suppliers. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Risks Related to Our Intellectual Property and Potential Product Liability Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation, which could harm our business, financial condition and results of operations. Our success depends, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other contractual protections, to protect our technologies and proprietary know-how, all of which offer only limited protection. The steps we have taken to protect our intellectual property rights may not be adequate to prevent misappropriation of our proprietary information or infringement of our intellectual property rights, and our ability to prevent such misappropriation or infringement is uncertain, particularly in countries outside of the United States. As of December 31, 2017, we had 75 issued patents, expiring generally between 2024 and 2036, 28 pending and provisional patent applications in the United States and 12 issued international patents. Even if the pending patent applications are granted, the rights granted to us may not be meaningful or provide us with any commercial advantage. For example, these patents could be opposed, contested, circumvented, designed around by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. Further, we are a participant in the IEEE standard process and, as a result, have signed letters of assurance with the IEEE stipulating that we will agree to license to other members of the IEEE, under reasonable and non-discriminatory terms, patents containing essential claims that are necessary for the implementation of the IEEE standards for 10GBASE-T as well as 2.5GBASE-T and 5GBASE-T. Essential claims include any claim the practice of which was necessary to implement a portion of the IEEE standard when, at the time of IEEE s approval, there was no commercially and technically feasible non-infringing alternative implementation method. To date, we do not license any of our patents to other members of the IEEE; however, we may decide, or otherwise be required pursuant to such letters of assurance, to enter into such licensing agreements with respect to a significant number of our patents relating to both our 10GBASE-T PHYs and our AQrate technology in the future. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Our foreign patent protection is generally not as comprehensive as our U.S. patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell products. Even if foreign patents are 34

35 granted, effective enforcement in foreign countries may not b e available. If such an impermissible use of our intellectual property or trade secrets were to occur, our ability to sell our solutions at competitive prices may be adversely affected and our business, financial condition, results of operations and cash f lows could be adversely affected. The legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and evolving. We cannot assure you that others will not develop or patent similar or superior technologies or solutions, or that our patents, trademarks and other intellectual property will not be challenged, invalidated or circumvented by others. Unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for doing so, which could harm our business. Monitoring unauthorized use of our intellectual property is difficult and costly. It is possible that unauthorized use of our intellectual property may have occurred or may occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations. We may in the future need to initiate infringement claims or litigation in order to try to protect our intellectual property rights. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and management, which could harm our business, whether or not such litigation results in a determination favorable to us. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenue, reputation and competitive position could be harmed. We have granted the right to manufacture our custom products to our customers upon the occurrence of certain events. If our customers exercise such rights, our business and financial results would suffer. We have granted certain of our customers, including Intel and Cisco, a worldwide, nonexclusive, nontransferable, perpetual, irrevocable right and license to manufacture or have manufactured our products that have been customized for them. These rights are exercisable only upon the occurrence of certain events, including for example, if we fail to consistently supply products in quantities ordered, we discontinue manufacture of such products or we experience an insolvency event. If these rights are triggered, and our customers choose to exercise these rights, our business and financial results would suffer. Third parties assertions of infringement of their intellectual property rights could result in our having to incur significant costs and cause our operating results to suffer. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. We expect that in the future, particularly as a public company with an increased profile and visibility, we may receive communications from others alleging our infringement of patents, trade secrets or other intellectual property rights. Lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the following: stop selling solutions or using technology that contain the allegedly infringing intellectual property; lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others; incur significant legal expenses; pay substantial damages to the party whose intellectual property rights we may be found to be infringing; redesign those products that contain the allegedly infringing intellectual property; or 35

36 attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all. Any significant impairment of our intellectual property rights from any litigation we face could harm our business and our ability to compete. We may face claims of intellectual property infringement, which could be time-consuming and costly to defend or settle and which could result in the loss of significant rights and harm our relationships with our customers and distributors. The semiconductor industry, the industry in which we operate, is characterized by companies that hold patents and other intellectual property rights and vigorously pursue, protect and enforce intellectual property rights. From time to time, third parties may assert against us and our customers and distributors their patent and other intellectual property rights to technologies that are important to our business. Claims that our products, processes or technology infringe third-party intellectual property rights, regardless of their merit or resolution, could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. Infringement claims also could harm our relationships with our customers or distributors and might deter future customers from doing business with us. We do not know whether we will prevail in these proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If any future proceedings result in an adverse outcome, we could be required to: cease the manufacture, use or sale of the infringing products, processes or technology; pay substantial damages for infringement by us or our customers; expend significant resources to develop non-infringing products, processes or technology, which may not be successful; license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all; cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or pay substantial damages to our customers or end users to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available. Any of the foregoing results could adversely affect our business, financial condition and results of operations. Any potential dispute involving our patents or other intellectual property could affect our customers, which could trigger our indemnification obligations to them and result in substantial expense to us. In any potential dispute involving our patents or other intellectual property, our customers could also become the target of litigation. Our agreements with customers and other third parties generally include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our solutions included in their products. Large indemnity payments or damage claims from contractual breach could harm our business, operating results, and financial condition. From time to time, customers require us to indemnify or otherwise be liable to them for breach of confidentiality or failure to implement adequate security measures with respect to their intellectual property and trade secrets. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any litigation against our customers could trigger technical support and indemnification obligations under some of our agreements, which could result in substantial expense to us. 36

37 In addition, other customers or end customers with whom we do not have formal agreements requiring us to indemnify them may ask us to indemni fy them if a claim is made as a condition to awarding future design wins to us. Because most of our customers are larger than we are and have greater resources than we do, they may be more likely to be the target of an infringement claim by third parties t han we would be, which could increase our chances of becoming involved in a future lawsuit. If any such claims were to succeed, we might be forced to pay damages on behalf of our customers that could increase our expenses, disrupt our ability to sell our s olutions and reduce our revenue. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our solutions, and harm our busin ess and results of operations. In addition to the time and expense required for us to supply support or indemnification to our customers, any such litigation could severely disrupt or shut down the business of our customers, which in turn could hurt our re lations with our customers and cause the sale of our products to decrease. Risks Related to Our Common Stock An active trading market for our common stock may not develop or be sustained. Prior to the closing of our initial public offering, or IPO, in November 2017, no public market for our common stock existed. We cannot assure you that an active market in our common stock will continue to develop or that it will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market for shares of our common stock, your ability to sell shares of our common stock when desired, or the prices that may be obtained for shares of our common stock. Our stock price has been and is likely to continue to be volatile, which could cause the value of our common stock to decline. The trading price and volume of our common stock has been and is likely to continue to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: actual or anticipated fluctuations in our results of operations due to, among other things, changes in customer demand, product life cycles, pricing, ordering patterns and unforeseen operating costs; the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; announcements by our significant customers of changes to their product offerings, business plans or strategies; changes in operating performance and stock market valuations of other technology companies generally, or those in the semiconductor industry; timing and seasonality of the end-market demand; cyclical fluctuations in the semiconductor market; price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; actual or anticipated developments in our business or our competitors businesses or the competitive landscape generally; new laws or regulations or new interpretations of existing laws, or regulations applicable to our business; any major change in our management; 37

38 lawsuits threatened or filed against us; and other events or factors, including those resulting from war, incidents of terrorism or responses to these events. In addition, the market for technology stocks and the stock markets in general have experienced extreme price and volume fluctuations. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, results of operations, financial condition and cash flows. Substantial future sales of shares of our common stock could cause the market price of our common stock to decline. The market price of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. Subject to the restrictions under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, approximately 25.6 million shares of our common stock will be eligible for sale beginning May 2, 2018 upon the expiration of market stand-off provisions or lock-up agreements entered into in connection with our IPO. The market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. In addition, subject to the lock-up agreements described above, the holders of up to an aggregate of approximately 21.9 million shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. We also registered shares of common stock that we may issue under our employee equity incentive plans which shares will be able to be sold freely in the public market upon issuance, subject to existing market stand-off provisions or lock-up agreements. Our directors, officers and principal stockholders beneficially own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. Our directors, officers and beneficial owners of 5% or more of our outstanding stock and their respective affiliates beneficially owned more than 50% of our outstanding stock as of December 31, These stockholders have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders will be able to control elections of directors, amendments of our organizational documents, or the approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. If securities analysts or industry analysts downgrade our common stock, publish negative research or reports or fail to publish reports about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more analysts adversely changes their recommendation regarding our stock or changes their recommendation about our competitors stock, our stock price would likely decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets which in turn could cause our stock price or trading volume to decline. We may invest or spend the proceeds from our IPO in ways with which you may not agree or in ways which may not yield a return. Our management will have considerable discretion in the application of the net proceeds, and our stockholders will not have the opportunity, as part of their investment decision, to assess whether the proceeds are being used 38

39 appropriately. The net proceeds may be used for corporate purposes that do not increase the value of our business, which could cause our stock price to decline. We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock. We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock is prohibited by the terms of our current debt financing arrangements. Any return to stockholders will therefore be limited to the increase, if any, in our stock price, which may never occur. We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards. As of December 31, 2017 and 2016, we had U.S. federal and state net operating loss, or NOL, carryforwards of approximately $176.6 million and $102.4 million, respectively, and U.S. federal and state research and development tax credit carryforwards of approximately $6.9 million and $7.9 million, respectively. The U.S. federal NOL carryforwards begin to expire in 2025 and the state NOL carryforwards begin to expire in The U.S. federal research and development tax credit carryforwards begin to expire in 2026 and the state research and development tax credit carryforwards carry forward indefinitely. These net operating loss and U.S. federal tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of California state law, if a corporation undergoes an ownership change, which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We completed Section 382 analysis and determined ownership changes occurred in July 2005, November 2009 and August 2017, which resulted in reductions to the U.S. federal and California net operating losses of $34.9 million and $24.1 million, respectively, and U.S. federal research and development credits by $1.8 million. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. Our actual operating results may not meet our guidance and investor expectations, which would likely cause our stock price to decline. From time to time, we may release guidance in our earnings releases, earnings conference calls or otherwise, regarding our future performance that represent our management s estimates as of the date of release. If given, this guidance, which will include forward-looking statements, will be based on projections prepared by our management. Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. The principal reason that we expect to release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. With or without our guidance, analysts and other investors may publish expectations regarding our business, financial performance and results of operations. We do not accept any responsibility for any projections or reports published by any such third parties. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. If our actual performance does not meet or exceed our guidance or investor expectations, the trading price of our common stock is likely to decline. We may not be able to effectively or efficiently manage or transition to a public company. We completed our IPO in November 2017 and anticipate to incurring significant legal, accounting and other expenses that we did not incur before as a private company. Our management team and other personnel will need to devote a substantial amount of time to, and we may not effectively or efficiently manage, our transition into a public company. We intend to hire additional accounting and finance personnel with system implementation experience and 39

40 expertise regarding compliance wit h the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. We may be unable to locate and hire qualified professionals with requisite technical and public company experience when and as needed. In addition, new employees will require time and training to learn our business and operating processes and procedures. If we are unable to recruit and retain additional finance personnel or if our finance and accounting team is unable for any reason to respond adequately to the increased demands that will result f rom being a public company, the quality and timeliness of our financial reporting may suffer, which could result in the identification of material weaknesses in our internal controls. Any consequences resulting from inaccuracies or delays in our reported f inancial statements could cause our stock price to decline and could harm our business, operating results and financial condition. If we fail to strengthen our financial reporting systems, infrastructure and internal control over financial reporting to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results timely and accurately and prevent fraud. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404 of the Sarbanes-Oxley Act, or Section 404. We implemented an enterprise resource planning, or ERP, system. This required significant investment of capital and human resources, the re-engineering of many processes of our business and the attention of many employees who would otherwise be focused on other aspects of our business. Any disruptions or deficiencies in the design and implementation of the improvements of our new ERP system could result in potentially much higher costs than we had anticipated and could adversely affect our ability to develop and launch solutions, fulfill contractual obligations, file reports with the SEC in a timely manner, otherwise operate our business or otherwise impact our controls environment. Any of these consequences could have an adverse effect on our results of operations and financial condition. As a public company, we will become subject to additional regulatory compliance requirements, including Section 404, and if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. Rules and regulations such as the Sarbanes-Oxley Act have increased our legal and finance compliance costs and made some activities more time consuming and costly. For example, Section 404 requires that our management report on, and our independent auditors attest to, the effectiveness of our internal control structure and procedures for financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an emerging growth company, as defined in the JOBS Act. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. Implementing these changes may take a significant amount of time and may require specific compliance training of our personnel. In the future, we may discover areas of our internal controls that need improvement. If our auditors or we discover a material weakness or significant deficiency, the disclosure of that fact, even if quickly remedied, could reduce the market s confidence in our consolidated financial statements and harm our stock price. Any inability to provide reliable financial reports or prevent fraud would harm our business. We may not be able to effectively and timely implement necessary control changes and employee training to ensure continued compliance with the Sarbanes-Oxley Act and other regulatory and reporting requirements. If we fail to successfully complete the procedures and certification and attestation requirements of Section 404, or if in the future our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to investigations or sanctions by the New York Stock Exchange, the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our shares of common stock. We cannot assure you that we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management or, when applicable, our auditors will conclude that our internal controls are effective in future periods. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. 40

41 Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock. Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that: authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock; require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of our board of directors, or our Chief Executive Officer; establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; establish that our board of directors is divided into three classes, with each class serving three-year staggered terms; prohibit cumulative voting in the election of directors; provide that our directors may be removed only for cause; provide that vacancies on our board of directors may be filled by a majority of directors then in office, even if less than a quorum; and require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. Any delay or prevention of a change of control transaction or changes in our management could cause our stock price to decline. Our charter documents designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain what they believe to be a favorable judicial forum for disputes with us or our directors, officers, or other employees. Our amended and restated certificate of incorporation and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws or (4) any action asserting a claim against us governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in 41

42 other jurisdictions, which could adversely affect our business, financial condition or results of operations and result in a diversion of the time and resources of our management and board of director s. Item 1 B. None. Unresolved Staff Comments Item 2. Properties We lease 36,595 square feet of office space in San Jose, California which currently serves as our headquarters, which will expire in June In December 2017, we entered into a facility lease for a total of 66,943 square feet of office space staring April 1, 2018 for a term of six years. We also lease offices in Canada, India, the Netherlands, Russia and Taiwan. We do not own any real property. We believe that our leased facilities are adequate to meet our current needs and that additional facilities will be available on commercially reasonable terms for lease to meet future needs. For additional information regarding our obligations under property leases, see Note 6 to our audited consolidated financial statements included elsewhere in this report for additional information. Item 3. Legal Proceedings From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results, financial condition or cash flows. Item 4. Not applicable. MINE SAFETY DISCLOSURES PART II Item 5. Market F or Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Registrant s Common Equity Our common stock began trading on the New York Stock Exchange under the symbol AQ on November 3, The following table sets forth the range of high and low sales prices for our common stock since our initial listing: 2017 Low High Fourth Quarter, from November 3, 2017 $ 9.00 $ As of February 28, 2018, we had approximately 293 holders of record of our common stock. This number does not include the number of persons whose shares are in nominee or in street name accounts through brokers. We have never declared or paid any cash dividends on shares of our capital stock. We expect to retain all of our earnings to finance the expansion and development of our business and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. Our board of directors will determine future dividends, if any. Director and Executive Officers have currently and may from time to time in the future, establish pre-set trading plans in accordance with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. 42

43 Securities Authorized for Issuance under Equity Compensation Plans Information regarding the securities authorized for issuance under our equity compensation plans can be found under Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Share Performance Graph The following information is not deemed to be soliciting material or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing. Set forth below is a line graph showing the cumulative total stockholder return (change in stock price plus reinvested dividends) assuming the investment of $100 in each of our common stock, the S&P 500 Index and PHLX Semiconductor Index for the period commencing on November 3, 2017, the first trading day of our stock and ending on December 31, The comparisons in the table are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of future performance of our common stock. 11/17 12/17 Aquantia Corp S&P PHLX Semiconductor

44 Recent Sales of Unregistered Securities The following sets forth information regarding all unregistered securities sold during the year ended December 31, 2017 (share and per share amounts give effect to a 1- for-10 reverse stock split of our common stock effected on October 5, 2017): (1) From January 1, 2017 to November 2, 2017, prior to the filing of our Registration Statement on Form S-8 on November 3, 2017, we granted stock options to purchase an aggregate of 1,320,382 shares of common stock at exercise prices ranging from $4.90 to $9.90 per share to employees and consultants under our 2015 Equity Incentive Plan; and (2) From January 1, 2017 to November 2, 2017, we sold an aggregate of 388,621 shares of common stock upon exercise of outstanding options at exercise prices ranging from $1.10 to $7.10 per share under our 2004 Equity Incentive Plan and 2015 Equity Incentive Plan to employees and consultants for an aggregate exercise price of $1.3 million. The offers, sales and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder or Rule 701 promulgated under the Securities Act as transactions by an issuer not involving a public offering or under benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us. Issuer Purchases of Equity Securities In November 2017, we repurchased 1,119 shares of common stock for approximately $3,000 from an employee pursuant to our option to repurchase unvested shares of common stock upon such employee s termination. Use of Proceeds On November 7, 2017, we completed our IPO of 7,840,700 shares of our common stock at an offering price of $9.00 per share, including 1,022,700 shares pursuant to the underwriters over-allotment option to purchase additional shares of our common stock. All shares issued and sold in our IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1 (File No ), which was declared effective by the SEC on November 2, Morgan Stanley & Co. LLC, Barclays Capital Inc. and Deutsche Bank Securities Inc. acted as joint book-running managers for our IPO. Needham & Company LLC and Raymond James & Associates, Inc. acted as co-managers. The offering commenced on October 23, 2017 and, following the sale of the shares upon the closing of the IPO on November 7, 2017, the offer terminated. Net proceeds to us were $63.3 million after deducting underwriters discounts and commissions of $4.9 million and deducting estimated offering expenses payable of approximately $2.3 million. No payments were made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our af filiates. We have used the net proceeds to us from our IPO as follows: (i) to pay outstanding fees and expenses of approximately $2.3 million in connection with our IPO, (ii) to repay in full the outstanding indebtedness under our loan with Pinnacle Ventures L.L.C. of approximately $9.2 million, including accrued interest and fees; (iii) to pay and terminate the line of credit with Hercules of approximately $0.3 million and (iv) approximately $0.5 million for other corporate purposes, including insurance pr emiums for being a publicly traded company. There has been no material change in the planned use of proceeds as described in the final prospectus filed on November 3,

45 Item 6. Selected Consol idated Financial Data The following selected consolidated financial data should be read together with Part II, Item 7, Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this report. The selected consolidated balance sheet data as of December 31, 2017 and 2016, and the selected consolidated statements of operations data for each of the years ended December 31, 2017, 2016, and 2015 have been derived from our audited consolidated financial statements included elsewhere in this report. The selected consolidated balance sheet data as of December 31, 2015 and 2014 and the selected consolidated statement of operations data for the year ended December 31, 2014 have been derived from our audited consolidated financial statements not included in this report. Historical results are not necessarily indicative of the results to be expected in the future. Year Ended December 31, Consolidated Statements of Operations Data (in thousands, except for share and per share amounts) Revenue $ 103,371 $ 86,675 $ 80,807 $ 24,500 Cost of revenue (1) 44,348 34,064 41,511 16,189 Gross profit 59,023 52,611 39,296 8,311 Operating expenses: (2) Research and development 44,763 36,553 25,262 27,343 Sales and marketing 7,235 5,347 3,756 2,142 General and administrative 9,975 7,124 6,284 4,403 Collaboration and development charge ,024 - Total operating expenses 61,973 49,024 47,326 33,888 Income (loss) from operations (2,950) 3,587 (8,030) (25,577) Other income (expense): Interest expense (1,735) (3,334) (3,321) (2,164) Change in fair value of convertible preferred stock warrant liability (990) (544) 1,591 (15) Other income, net Total other income (expense) (2,584) (3,864) (1,725) (2,167) Loss before income tax expense (5,534) (277) (9,755) (27,744) Provision for (benefit from) income taxes (117) Net loss $ (5,417) $ (445) $ (9,955) $ (27,800) Net loss per share, basic and diluted $ (0.59) $ (0.10) $ (6.64) $ (24.83) Weighted-average shares used to compute net loss per share, basic and diluted (3) 9,204,384 4,240,461 1,498,233 1,119,632 (1)(2) Cost of revenue and operating expenses include stock-based compensation expense as follows: Year ended December 31, (in thousands) Cost of revenue $ 47 $ 31 $ 19 $ 10 Research and development Sales and marketing General and administrative Total $ 1,673 $ 939 $ 792 $

46 (3) See Note 10 to our audited consolidated financial statements included elsewhere in this report for the calculation of our basic and diluted net loss per common share and the weighted-ave rage number of shares used in the computation of the per share amounts. As of December 31, (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and investments $ 56,402 $ 28,893 $ 34,290 $ 7,056 Working capital 79,230 26,268 38,305 9,397 Total assets 110,366 65,709 66,565 20,571 Total debt - 18,229 28,909 23,308 Convertible preferred stock warrant liability - 12,885 12,346 1,863 Total liabilities 19,452 46,082 52,299 35,483 Convertible preferred stock - 199, , ,183 Total stockholders equity (deficit) 90,914 (179,807) (184,887) (177,095) Non-GAAP Financial Measures We use the financial measures set forth below, which are non-gaap financial measures, to help us analyze our financial results, establish budgets and operational goals for managing our business and to evaluate our performance. We also believe that the presentation of these non-gaap financial measures provides an additional tool for investors to use in comparing our core business and results of operations over multiple periods with other companies in our industry, many of which present similar non-gaap financial measures to investors. However, the non-gaap financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated. The non-gaap financial measures should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, comparable financial measures calculated in accordance with GAAP. Non-GAAPNetIncome(Loss).We define non-gaap net income (loss) as net loss reported on our consolidated statements of operations and comprehensive loss, excluding the impact of the following non-cash charges: stock-based compensation, amortization of acquired intangibles resulting from business combination, change in fair value of convertible preferred stock warrant liability and a collaboration and development charge. We have presented non-gaap net income (loss) because we believe that the exclusion of these non-cash charges allows for a more relevant comparison of our results of operations to other companies in our industry. Reconciliation of Non-GAAP Financial Measures The following tables reconcile the most directly comparable GAAP financial measure to each of these non-gaap financial measures. Year Ended December 31, (in thousands) Non-GAAP Net Income (Loss): Net loss $ (5,417) $ (445) $ (9,955) $ (27,800) Stock-based compensation 1, Amortization of acquired intangibles resulting from business combination Change in fair value of convertible preferred stock warrant liability (1,591) 15 Collaboration and development charge ,024 - Non-GAAP net income (loss) $ (2,720) $ 1,071 $ 1,303 $ (26,757) 46

47 Quarterly Statement s of Operations The following tables set forth selected unaudited quarterly condensed consolidated statements of operations data for each of the eight quarters in the period ended December 31, The quarterly unaudited financial information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this report and, in the opinion of management, includes all adjustments of a normal, recurring nature that are necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the United States. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report. These quarterly operating results are not necessarily indicative of operating results to be expected for a full year or any future periods. Three Months Ended Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, (dollars in thousands) Quarterly results of operations Revenue $ 19,562 $ 21,812 $ 22,534 $ 22,767 $ 23,643 $ 25,164 $ 26,718 $ 27,846 Cost of revenue 7,909 8,274 9,127 8,754 10,047 10,912 11,616 11,773 Gross profit 11,653 13,538 13,407 14,013 13,596 14,252 15,102 16,073 Operating expenses: Research and development 8,183 9,118 9,321 9,931 10,407 10,537 11,512 12,307 Sales and marketing 1,389 1,484 1,344 1,130 1,634 1,822 1,927 1,852 General and administrative 1,718 2,078 1,891 1,437 2,227 2,248 2,572 2,928 Total operating expenses 11,290 12,680 12,556 12,498 14,268 14,607 16,011 17,087 Income (loss) from operations ,515 (672) (355) (909) (1,014) Other income (expense): Interest expense (861) (1,010) (779) (684) (559) (457) (382) (337) Change in fair value of convertible preferred stock warrant liability (622) (660) (1,040) Other income, net 7 (4) (6) (4) 117 Total other income (expense) (854) (936) (785) (1,289) (1,202) (1,486) (69) 173 Income (loss) before income tax expense (491) (78) (1,874) (1,841) (978) (841) Provision for (benefit from) income taxes (22) (509) Net income (loss) $ (550) $ (125) $ 88 $ 142 $ (2,025) $ (1,332) $ (1,005) $ (1,055) 47

48 The following table summarizes our quarterly results of operations as a percentage of revenue for each of the periods indicated: Three Months Ended Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Quarterly results of operations Revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses Income (loss) from operations (3) (1) (3) (4) Other income (expense): Interest expense (4) (5) (3) (3) (2) (2) (2) (1) Change in fair value of convertible preferred stock warrant liability (3) (3) (4) 1 1 Other income, net Total other income (expense) (4) (5) (3) (6) (5) (6) (1) 1 Income (loss) before income tax expense (3) (1) - 1 (8) (7) (4) (3) Provision for (benefit from) income taxes (2) - 1 Net income (loss) (3) % (1) % - % 1 % (9) % (5) % (4) % (4) % 48

49 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Youshouldreadthefollowingdiscussionandanalysisofourfinancialconditionandresultsofoperationstogetherwiththesectiontitled Item6.SelectedConsolidated FinancialData andourconsolidatedfinancialstatementsandrelatednotesthatareincludedelsewhereinthisreport.thisdiscussioncontainsforward-lookingstatements baseduponcurrentplans,expectationsandbeliefsthatinvolverisksanduncertainties.ouractualresultsmaydiffermateriallyfromthoseanticipatedintheseforward-looking statementsasaresultofvariousfactors,includingthosesetforthunder RiskFactors andinotherpartsofthisreport.seealsothesectiontitled SpecialNoteRegarding Forward-LookingStatements inthisannualreport. Overview We are a leader in the design, development and marketing of advanced high-speed communications integrated circuits, or ICs, for Ethernet connectivity in the data center, enterprise infrastructure and access markets. Our Ethernet solutions provide a critical interface between the high-speed analog signals transported over wired infrastructure and the digital information used in computing and networking equipment. Our products are designed to cost-effectively deliver leading-edge data speeds for use in the latest generation of communications infrastructure to alleviate network bandwidth bottlenecks caused by the exponential growth of global Internet Protocol, or IP, traffic. Many of our semiconductor solutions have established benchmarks in the industry in terms of performance, power consumption and density. Our innovative solutions enable our customers to differentiate their product offerings, position themselves to gain market share and drive the ongoing equipment infrastructure upgrade cycles in the data center, enterprise infrastructure and access markets. We are a fabless semiconductor company. We have shipped more than 10 million ports to customers across three semiconductor process generations, and are currently in mass production in 28nm process node. 28nm and other silicon process geometries, such as 40nm and 90nm, refer to the size of the process node in nanometers for a particular semiconductor manufacturing process. Our end customers include Aruba (acquired by Hewlett-Packard Enterprise in 2015), Brocade, Cisco, Dell, Hewlett-Packard Enterprise, Huawei, Intel, Juniper, Oracle and Ruckus (acquired by Brocade in 2016). For the years ended December 31, 2017, 2016 and 2015, our revenue was $103.4 million, $86.7 million and $80.8 million, respectively, our net loss was $5.4 million, $0.4 million and $10.0 million, respectively, and our non-gaap net income (loss) was $(2.7) million, $1.1 million and $1.3 million, respectively. See Item 6. Selected Consolidated Financial Data Non-GAAP Financial Measures for additional information regarding non-gaap financial measures and a reconciliation of non-gaap financial measures to the most directly comparable GAAP financial measures. We derive revenue from our products, which include our 10GBASE-T physical layer devices, or PHYs, custom ASICs for Intel and our recently developed AQrate product line. We currently generate revenue from the sale of our products directly to IC suppliers, original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs. We market and sell our products through our direct sales force. We shipped our first products in Historically, a substantial majority of our revenue has been generated from our largest customer, Intel, including sales to contract manufacturers or ODMs at the direction of this customer in the data center server market, in particular the server portion of that market in support of our relationship with Intel. For the years ended December 31, 2017, 2016 and 2015, Intel accounted for 60%, 68% and 78% and Cisco accounted for 28%, 21% and 13% of our revenue, respectively. Our 10 largest customers collectively accounted for 97%, 98% and 98% of our revenue in the years ended December 31, 2017, 2016 and 2015, respectively. To continue to grow our revenue, it is important that we acquire new customers and sell additional products to our existing customers. While we intend to expand our customer base over time, the markets we serve tend to be highly concentrated, and we expect that a large portion of our revenue will continue to be derived from a relatively small number of customers for the foreseeable future. As the markets expand, the market share of our largest customers may not increase proportionally or may decrease as competition enters into the market. This has in the past materially impacted our revenues and our market share, and it may continue to do so in the future until the diversification of our customer base lessens the impact of this significant customer concentration. 49

50 Key Factors Affecting Our Performance PricingandProductCost. Our pricing and margins depend on the volumes and the features of the ICs we provide to our customers. We believe the primary driver of gross margin is the average selling prices, or ASPs, negotiated between us and our customers relative to volume, material costs and manufacturing yield. Typically, our selling prices are contractually set for multiple quarters and our prototype selling prices are higher than our selling prices at volume production. In certain cases, we have agreed in advance to modest price reductions, generally over a period of time ranging from 18 months to five years, once the specified product begins to ship in volume. However, our customers may change their purchase orders and demand forecasts at any time with limited notice, which can sometimes lead to price renegotiations. Although these price renegotiations can sometimes result in ASPs of our products fluctuating over the shorter term, we expect ASPs generally to decline over the longer term as our products mature. These declines often coincide with improvements in manufacturing yields and lower wafer, assembly and testing costs, which offset some or all of the margin reduction that results from lower ASPs. Since we rely on third-party wafer foundries and assembly and test contractors to manufacture, assemble and test our ICs, we maintain a close relationship with our suppliers to improve quality, increase yields and lower manufacturing costs. In addition, our customers may seek to renegotiate product pricing under the contracts or purchase orders we have with them based on volume or other factors, which could drive fluctuations in ASPs. DesignWinswithNewandExistingCustomers.Our existing and prospective customers tend to be multinational enterprises with large annual purchases of ICs that are continuously developing new products for existing and new application areas. Our solutions enable our customers to differentiate their product offerings and position themselves to gain market share and drive the next upgrade cycles in data center and enterprise infrastructure. We have programs in place to help our existing customers use our solutions throughout their product portfolio, and we work closely with our existing and prospective customers to understand their product roadmaps and strategies. Because of our extended sales cycle, our revenue in future years is highly dependent on design wins we are awarded today. Further, because we expect our revenue relating to our mature products to decline in the future, we consider design wins critical to our future success and anticipate being increasingly dependent on revenue from newer design wins for our newer products. CustomerDemandandProductLifeCycles. Once customers design our ICs into their products, we closely monitor all phases of the product life cycle, including the initial design phase, prototype production, volume production and inventories. For example, during the periods presented, we had several products progressing through their product life cycles. In the data center market, the majority of our revenue for the periods presented was derived from our 10GBASE-T custom ASIC product, which we refer to as Twinville. In late 2015, we introduced and began to record revenue from our Sageville and Coppervale products. We anticipate that our Twinville product will transition to these two newer ASIC products over time, although the timing and rate of such transition will depend on our customers adoption of these products and the demand for our customers products. In the enterprise infrastructure market, during the periods presented, we developed our 5GBASE-T and 2.5GBASE-T AQrate product. We first shipped our AQrate products into the enterprise infrastructure market in the fourth quarter of We began shipping AQrate products in volume in 2015 and We also started to ship our multiple lines of products into the access market in the fourth quarter of We expect the revenue from our AQrate products, and therefore the percentage of our total revenue attributable to the enterprise infrastructure and access markets, to increase from the current levels. We also carefully monitor changes in customer demand and end-market demand, including seasonality, cyclicality and the competitive landscape. Our customers share their development schedules with us, including the projected launch dates of their product offerings. Once our customers are in production, they generally will provide nine to 12- month forecasts of expected demand, which gives us an indication of future demand. However, our customers may change their purchase orders and demand forecasts at any time with limited notice. In light of our significant customer concentration, our revenue is likely to be materially and disproportionally, due in part to fluctuating end-market demand, impacted by the purchasing decisions of our largest customers. Seasonality Our revenue is subject to some seasonal variation as we begin to serve many markets and end-markets which historically experience lower sales in the first quarter of the year which may result in slower growth and lower sales as compared to other quarters. 50

51 Components of Results of Operations Revenue We generate revenue from the sale of our products. We sell our products direct to our customers and to our customers manufacturing subcontractors, and do not currently have a material amount of revenue sold to distributors during the sales process. We offer a limited number of customer rebates and accrue an estimate of such rebates at the time revenue is recognized. Such rebates were not material in any of the periods presented, and the differences between the actual amount of such rebates and our estimates also were not material. Revenue is recognized when delivery has occurred, persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Delivery is considered to have occurred when title and risk of loss have passed to the customer. There are no circumstances where revenue is recognized prior to delivery. Customer purchase orders are generally used to determine the existence of an arrangement. We evaluate whether the price is fixed or determinable based on the payment terms associated with the transaction. With respect to collectability, we perform credit checks for new customers and perform ongoing evaluations of our existing customers financial condition. We defer revenue if any revenue recognition criteria have not been met. Our success and future revenue depend on our ability to achieve design wins and to convince our current and prospective customers to design our products into their product offerings. In addition, our revenue may fluctuate as a result of a variety of factors including customer demand and product life cycles, product cost and product mix sold during the period. In the fourth quarter of 2014, we first began to ship into the enterprise infrastructure market and began shipping in volume in Due to the introduction of our AQrate products, we anticipate that revenue from the enterprise infrastructure market will grow at a greater rate than revenue from the data center market over the next two years. In the fourth quarter of 2016, we started to sample our first access market products. We believe that the access market will represent a significant portion of our revenue in the near future. We anticipate that our revenue will fluctuate based on a variety of factors including the amount and timing of customer and end-market demand, product life cycles, average selling price which declines as our product reaches maturity, production schedule, and product mix sold during the period. In addition, we may introduce new products at lower average selling price than our existing products with the intent of increasing the market demand for our products, which may cause a fluctuation in our revenues during the period in which these new products are introduced. Cost of Revenue Cost of revenue consists of costs of materials, primarily wafers processed by third-party foundries, costs associated with packaging, assembly and testing paid to our third-party contract manufacturers, and personnel and other costs associated with our manufacturing operations. Our cost of revenue also includes allocation of overhead and facility costs, depreciation of production equipment, inventory write-downs and amortization of production mask costs. As we introduce new products, the cost of revenue will fluctuate depending on yield, volume and production cost of these products. Gross Margin Gross margin, or gross profit as a percentage of revenue, has been, and will continue to be, affected by a variety of factors, including product mix, ASPs, material costs, production costs that are themselves dependent upon improvements to yield, production efficiencies, elimination or addition to production processes as required by our end customers and timing of such improvements, and increasing manufacturing overhead to support the greater number of products and markets we serve. We expect our gross margin to fluctuate on a quarterly basis as a result of changes in ASPs due to new product introductions, existing product transitions to high-volume manufacturing, product maturation and fluctuations in manufacturing costs. 51

52 Operating Expenses Our operating expenses consist of research and development, sales and marketing and general and administrative expenses, and a collaboration and development charge. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and commissions. Our operating expenses also include allocated costs of facilities, information technology, depreciation and amortization. Although our operating expenses may fluctuate, we expect our overall operating expenses to increase in absolute dollars over time. ResearchandDevelopment.Our research and development expenses consist primarily of personnel costs, pre-production engineering mask costs, software license and intellectual property expenses, design tools and prototype-related expenses, facility costs, supplies and depreciation expense. We expense research and development costs as incurred. In addition, we enter into development agreements with some of our customers that provide fees that partially offset development costs. Such fees are recognized upon completion of the contract deliverables or milestones, and acceptance by the customer if required. We believe that continued investment in our products and services is important for our future growth and acquisition of new customers and, as a result, we expect our research and development expenses to continue to increase on an absolute basis. SalesandMarketing.Sales and marketing expenses consist of personnel costs, field application engineering support, travel costs, professional and consulting fees and allocated overhead costs. We expect sales and marketing expense to increase in absolute dollars as we increase our sales and marketing personnel and grow our international operations. GeneralandAdministrative.General and administrative expenses consist of personnel costs, professional and consulting fees, legal and allocated overhead costs. We expect general and administrative expense to increase in absolute dollars as we grow our operations and incur additional expenses associated with operating as a public company. CollaborationandDevelopmentCharge.Collaboration and development charge in the first quarter of 2015 represents the fair value of a fully vested convertible preferred stock warrant exercisable for 975,616 shares of Series H convertible preferred stock, which was exercised in full on May 5, This warrant was issued to GLOBALFOUNDRIES U.S. Inc., or GLOBALFOUNDRIES, at an exercise price of $0.10 per share in connection with a letter agreement to collaborate on the development of products that we plan to have manufactured by GLOBALFOUNDRIES upon qualification. As a result of the exercise of this warrant, we will not incur further such charges associated with this agreement. Other Income (Expense) Other income (expense) consists primarily of interest expense on our previously outstanding debt, change in fair value of convertible preferred stock warrant liability and foreign exchange gains and losses. See Note 7 to our audited consolidated financial statements included elsewhere in this report for more information about our debt and the repayment of such debt. Prior to the completion of our IPO, convertible preferred stock warrants were classified as liabilities on our consolidated balance sheets and remeasured to fair value at each balance sheet date with the corresponding change recorded as other income (expense). Upon the exercise of the warrants, the liability was reclassified to convertible preferred stock at their then fair value. In November 2017, upon the completion of the IPO, the warrants were converted into warrants to purchase shares of common stock and the liability was reclassified to stockholders equity (deficit) at their then fair value, and will no longer be subject to fair value accounting. See Notes 1 and 5 to our audited consolidated financial statements for more information. Income Tax Expense Income tax expense consists primarily of state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for deferred tax assets as the realization of the full amount of our deferred tax assets is uncertain, including net operating loss, or NOL, carryforwards, and tax credits 52

53 related primarily to research and development. We expect to maintain this full valuation allowance until realization of the deferred tax assets becomes more likely t han not. As of December 31, 2017, we had NOL carryforwards of approximately $176.6 million and $102.4 million for U.S. federal and state income tax purposes, respectively, and had research and development tax credit carryforwards of approximately $6.9 million and $7.9 million for U.S. federal and state income tax purposes, respectively. The NOL carryforwards begin to expire in 2025 for U.S. federal income tax purposes and begin to expire in 2018 for state income tax purposes. The U.S. federal tax credit carryforwards begin to expire in 2026 and the state tax credits carry forward indefinitely. Internal Revenue Code Section 382 and similar California rules place a limitation on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% in ownership). Generally, after a control change, a corporation cannot deduct NOL carryforwards in excess of the Section 382 limitations. Due to these provisions, utilization of NOL and tax credit carryforwards may be subject to annual limitations regarding their utilization against taxable income in future periods. We completed Section 382 analysis and determined ownership changes occurred in July 2005, November 2009 and August 2017, which resulted in reductions to our U.S. federal and California net operating losses of $34.9 million and $24.1 million, respectively, and U.S. federal research and development credits by $1.8 million. On December 22, 2017, the Tax Cuts and Jobs Act, or the Act, was signed into legislation, making the most significant changes to the U.S. tax system since The Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, implements a modified territorial tax system that includes a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. As of December 31, 2017, our foreign subsidiaries are in a cumulative deficit. Therefore, the one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of foreign subsidiaries has minimal impact on us. Due to the Act, we have remeasured our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We recorded a provisional decrease related to our deferred tax assets and liabilities of $15.7 million with a corresponding adjustment to our valuation allowance for the year ended December 31, However, we are still analyzing certain aspects of the Act including (a) provisions for Global Intangible Low-Taxed Income, or GILTI, wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations (including related accounting policy elections) and (b) state tax implications of the Act. In addition, we are refining our calculations for certain estimated amounts above including the provisional amounts recorded for our deferred taxes and related valuation allowance. As our deferred tax asset is offset by a full valuation allowance, this change in rates had no impact on our financial position or results of operations. Results of Operations The following table summarizes our results of operations for the periods presented. The period-to-period comparison of results is not necessarily indicative of results to be expected for future periods. 53

54 Year Ended December 31, Revenue $ 103,371 $ 86,675 $ 80,807 Cost of revenue 44,348 34,064 41,511 Gross profit 59,023 52,611 39,296 Operating expenses: Research and development 44,763 36,553 25,262 Sales and marketing 7,235 5,347 3,756 General and administrative 9,975 7,124 6,284 Collaboration and development charge ,024 Total operating expenses 61,973 49,024 47,326 Income (loss) from operations (2,950) 3,587 (8,030) Other income (expense): Interest expense (1,735) (3,334) (3,321) Change in fair value of convertible preferred stock warrant liability (990) (544) 1,591 Other income, net Total other income (expense) (2,584) (3,864) (1,725) Loss before income tax expense (5,534) (277) (9,755) Provision for (benefit from) income taxes (117) Net loss $ (5,417) $ (445) $ (9,955) The following table summarizes our results of operations as a percentage of revenue for each of the periods indicated: Year Ended December 31, Consolidated Statements of Operations Data: Revenue 100 % 100 % 100 % Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Collaboration and development charge Total operating expenses Income (loss) from operations (2) 4 (10) Other income (expense): Interest expense (2) (4) (4) Change in fair value of convertible preferred stock warrant liability (1) (1) 2 Other income, net Total other income (expense) (3) (5) (2) Loss before income tax expense (5) (1) (12) Provision for (benefit from) income taxes Net loss (5) % (1) % (12) % 54

55 Comparison of the Year s Ended December 31, 2017 and 2016 Revenue Year Ended December 31, Change $ % (dollars in thousands) Revenue by market Data center $ 64,781 $ 64,024 $ % Enterprise infrastructure 35,208 22,476 12, Access 3, ,957 * Automotive * Total Revenue $ 103,371 $ 86,675 $ 16, * Percentage change not meaningful Revenue increased by $16.7 million, or 19%, for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily attributable to $12.7 million increase in product sold to the enterprise infrastructure market and $3.0 million increase in product sales sold to the access market, a new market we entered into since the fourth quarter of 2016, and a $2.4 million increase in data center product sales as customers transitioned from 40nm products to 28nm products net of lower average selling price, offset by a $1.6 million impact on non-recurring deferred revenue recognized in data center market for the year ended December 31, Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change $ % (dollars in thousands) Cost of revenue $ 44,348 $ 34,064 10, % Gross profit $ 59,023 $ 52,611 6, % Gross margin 57 % 61 % (4) pts Cost of revenue increased by $10.3 million, or 30%, for the year ended December 31, 2017 compared to the year ended December 31, The increase was primarily due to $7.7 million of product costs on higher revenue and $2.5 million increase related to product mix, offset by the sales of products previously reserved. Gross profit increased by $6.4 million, or 12%, for the year ended December 31, 2017 compared to the year ended December 31, For the year ended December 31, 2017, our gross margin decreased by 4%. The gross margin decrease was primarily due to higher product cost related to product mix, which approximated 2.6% and the impact of $1.6 million of the aforementioned deferred revenue recognized for the year ended December 31, 2016, which approximated 1.8% of total revenue for the year ended December 31, Operating Expenses Year Ended December 31, Change $ % (dollars in thousands) Operating expenses: Research and development $ 44,763 $ 36,553 8, % Sales and marketing 7,235 5,347 1, General and administrative 9,975 7,124 2, Total operating expenses $ 61,973 $ 49,024 12,

56 Research and development expenses increased $8.2 million, or 22%, for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to an increase of $3.7 million in personnel-related costs as we continued to expand our research and development headcount, $2.2 million in design tools and prototyperelated expenses, $1.3 million in depreciation and amortization related to lab equipment and licenses and $0.5 million in stock-based compensation. Sales and marketing expenses increased $1.9 million, or 35%, for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to an increase in personnel-related costs of $1.4 million due to higher headcount and marketing tradeshow costs of $0.3 million. General and administrative expenses increased $2.9 million, or 40%, for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to increases of $1.1 million for legal, consulting and audit fees, $0.8 million for personnel-related costs and $0.4 million in depreciation expense. Other Income (Expense) Year Ended December 31, Change $ % (dollars in thousands) Other income (expense): Interest expense $ (1,735) $ (3,334) $ (1,599) 48 % Change in fair value of convertible preferred stock warrant liability (990) (544) 446 (82) Other income, net (127) * Total other income (expense) $ (2,584) $ (3,864) $ (1,280) 33 * Percentage change not meaningful Other expense for the year ended December 31, 2017 decreased by $1.3 million compared to the year ended December 31, 2016, primarily due to lower interest expense of $1.6 million as the principal of debt was repaid in November 2017, offset by an increase in the fair value of the convertible preferred stock warrant liability, a non-cash expense. Income Tax Expense (Benefit) Year Ended December 31, Change $ % (dollars in thousands) Provision for (benefit from) income taxes $ (117) $ 168 $ (285) (170) % Income tax expense decreased by $0.3 million for the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to a research credit benefit from a foreign tax jurisdiction, offset by higher income tax related to our foreign subsidiaries and a credit not anticipated to be benefitted. Comparison of the Years Ended December 31, 2016 and 2015 Revenue 56

57 Year Ended December 31, Change $ % (dollars in thousands) Revenue by market Data center $ 64,024 $ 72,549 $ (8,525) (12)% Enterprise infrastructure 22,476 8,258 14, Access * Total Revenue $ 86,675 $ 80,807 $ 5,868 7 * Percentage change not meaningful Revenue increased by $5.9 million, or 7%, for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to an increase of $14.2 million, or 172%, attributable to an increase in enterprise infrastructure market revenue, offset by a decrease of $8.5 million in data center market revenue. The increase in enterprise infrastructure market revenue was primarily due to $18.4 million in higher unit sales, offset by $4.4 million attributable to lower ASPs as products sold were transitioning to volume production. The decrease in data center market revenue was primarily due to $10.4 million in lower unit sales due to fluctuating customer demand, partially offset by an increase of $3.4 million attributable to higher ASP due to product mix. In particular, the decline in data center revenue was a result of our largest customer having concentrated its purchases in 2015 in order to build up inventory in that period, and selling that accumulated inventory during In addition, data center market revenue included the recognition of deferred revenue in the year ended December 31, 2016 of $1.6 million as compared to $3.1 million for the year ended December 31, 2015 as the deferred revenue was fully recognized by December 31, Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change $ % (dollars in thousands) Cost of revenue $ 34,064 $ 41,511 $ (7,447) (18)% Gross profit $ 52,611 $ 39,296 $ 13,315 34% Gross margin 61% 49% 12pts Cost of revenue decreased by $7.4 million, or 18% for the year ended December 31, 2016 compared to the year ended December 31, The decrease was primarily related to savings from yield improvements achieved through quality assurance processes with our manufacturers and cost reductions from our supply chain achieved through negotiation on production and material costs, partially offset by the higher direct operations costs of managing a greater number of products across multiple markets. Gross profit increased by $13.3 million, or 34%, for the year ended December 31, 2016 compared to the year ended December 31, For the year ended December 31, 2016, our gross margin increased by 12 percentage points. Adjusted for the $3.1 million and $1.6 million of the aforementioned deferred revenue recognized in each period which is non-recurring after June 2016, our adjusted gross margin would have been 47% and 60% for the years ended December 31, 2015 and 2016, respectively, resulting in 13 percentage points increase. The increase in gross margin was due to yield improvement and cost reductions from our supply chain. 57

58 Operating Expenses Year Ended December 31, Change $ % (dollars in thousands) Operating expenses: Research and development $ 36,553 $ 25,262 $ 11,291 45% Sales and marketing 5,347 3,756 1, General and administrative 7,124 6, Collaboration and development charge - 12,024 (12,024) * Total operating expenses $ 49,024 $ 47,326 $ 1,698 4 * Percentage change not meaningful Research and development expenses increased $11.3 million, or 45%, for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to an increase of $5.3 million in personnel-related costs as we continued to expand our research and development headcount, an increase of $1.1 million in design tools and prototype-related expenses and $4.8 million decrease in product development fees received from our customers in 2015, which fees offset our research and development costs. Sales and marketing expenses increased $1.6 million, or 42%, for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to an increase of $1.0 million in personnel-related costs as we increased our headcount to support our growth, and an increase of $0.2 million in consulting fees and third party commissions. General and administrative expenses increased $0.8 million, or 13%, for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to an increase of $0.9 million in personnel-related costs. Collaboration and development charge represents the fair value of a fully vested warrant to purchase 975,616 shares of Series H convertible preferred stock issued to GLOBALFOUNDRIES in 2015, which was subsequently exercised in full on May 5, Other Income (Expense) Year Ended December 31, Change $ % (dollars in thousands) Other income (expense): Interest expense $ (3,334) $ (3,321) $ (13) % Change in fair value of convertible preferred stock warrant liability (544) 1,591 (2,135) * Other income, net * Total other income (expense) $ (3,864) $ (1,725) $ (2,139) * * Percentage change not meaningful Other income (expense) for the year ended December 31, 2016 increased $2.1 million compared to the year ended December 31, 2015 primarily due to the change in fair value of the convertible preferred stock warrant liability. 58

59 Income Tax Expense Year Ended December 31, Change $ % (dollars in thousands) Provision for income taxes $ 168 $ 200 $ (32) (16)% Income tax expense decreased by $32,000 for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to a decrease in the U.S. alternative minimum tax that was reduced by available credits. Our consolidated effective tax rate for the year ended December 31, 2016 was (61)% compared to (2)% for the year ended December 31, 2015 mainly due to a smaller loss before income tax balance. The consolidated effective tax rate for the year ended December 31, 2016 differed from the U.S. statutory rate primarily due to the impact of changes in reserves for uncertain tax positions and in the valuation allowance for deferred tax assets, offset by the impact of higher state taxes and research and development credit. Liquidity and Capital Resources Since our inception, we have financed our operations primarily through cash generated from product sales, proceeds from our convertible preferred stock and debt financings and our IPO in November As of December 31, 2017, we had cash, cash equivalents and investments of $56.4 million. Our principal use of cash is to fund our operations to support our growth. We believe that our existing cash and cash equivalents, our expected cash flows from product sales, and funds available for borrowing under our credit facilities will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, and the continuing market acceptance of our solutions. In the event that we need to borrow funds or issue additional equity, we cannot assure you that any such additional financing will be available on terms acceptable to us, if at all. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when we need it, it would harm our business, results of operations and financial condition. Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, Net cash provided by (used in) operating activities $ (11,509) $ 12,138 $ (11,512) Net cash used in investing activities (54,043) (8,431) (4,174) Net cash provided by (used in) financing activities 44,699 (9,104) 42,920 Net increase (decrease) in cash and cash equivalents $ (20,853) $ (5,397) $ 27,234 OperatingActivities We have historically used cash in operating activities primarily due to our net losses, adjusted for changes in our operating assets and liabilities, particularly from accounts receivable, inventories, prepaid expenses and other assets, accounts payable and accrued expenses, and deferred revenue. In addition, cash in operating activities are adjusted for non-cash expense items such as depreciation and amortization, stock-based compensation expense, issuance of convertible preferred stock warrants, the change in fair value of our convertible preferred stock warrant liability and amortization of our debt discount. 59

60 For the year ended December 31, 2017, cash used in operating activities was approximately $ 11.5 million. The cash used in operating activities was primarily due to $ 14.1 million in net decrease from changes in ope rating assets and liabilities, of which $11.5 million were used to increase inventor ies for the anticipation of product demands in multiple markets, and net loss of $5. 4 million, offset by non-cash expenses of $ 8.0 million. For the year ended December 31, 2016, cash provided by operating activities was approximately $12.1 million. The cash provided by operating activities was primarily the result of decreased inventories of $9.6 million as product revenue increased, non-cash items totaling $5.4 million, offset by other changes in operating assets and liabilities of $0.4 million, net loss of $0.4 million, and decrease in deferred revenue of $2.1 million primarily from the recognition of previously recorded deferred revenue related to a significant agreement with Intel. For the year ended December 31, 2015, we used approximately $11.5 million of cash in operating activities. The cash used in operating activities was primarily the result of increased inventories of $12.7 million to support our future product sales, our net loss of $10.0 million offset by non-cash items totaling $14.4 million, an increase in accounts receivable of $5.2 million due to increased product sales during 2015, and a decrease in deferred revenue of $2.7 million primarily from the recognition of previously deferred revenue related to a significant agreement with Intel. The cash used in operating activities was partially offset by increases in accounts payable and accrued expenses of $3.4 million primarily due to higher compensation and benefit accruals resulting from increased headcount and increased professional services costs, and a decrease in prepaid expenses and other assets of $1.3 million. Non-cash items included $12.1 million for the issuance of convertible preferred stock warrants primarily related to a collaboration and development charge, $1.9 million of depreciation and amortization, $1.2 million amortization of debt discount and non-cash interest expense, and $0.8 million of stock compensation expense, offset by a $1.6 million revaluation of our convertible preferred stock warrants. InvestingActivities Our investing activities consist of available-for-sale investment activities, capital expenditures for property and equipment purchases and IP licenses. Our capital expenditures for property and equipment have primarily been for general business purposes, including machinery and equipment, leasehold improvements, software and computer equipment used internally, and production masks to manufacture our products. For the year ended December 31, 2017, we used approximately $54.0 million in investing activities, of which $48.5 million was invested in available-for-sale investments and $5.6 million for the purchases of property and equipment for general business purposes. For the year ended December 31, 2016 we used approximately $8.4 million in investing activities for the purchase of production masks, IP licenses and other property and equipment for general business purposes. For the year ended December 31, 2015 we used approximately $4.2 million in investing activities for the purchase of production masks and other property and equipment for general business purposes. FinancingActivities Cash generated by financing activities includes proceeds from the recently completed IPO, proceeds from our issuance of common stock following employee stock option exercises borrowings under our credit facilities, and issuance of convertible preferred stock. Cash used in financing activities includes repayment of debt under our credit facilities. For the year ended December 31, 2017, we generated $44.7 million of cash from financing activities, consisting of proceeds of $65.6 million proceeds from our IPO, $1.4 million in proceeds from the exercise of employee stock options and preferred stock warrants, offset by net repayment of our borrowings of $19.2 million and payments of $2.9 million of costs related to the IPO. For the year ended December 31, 2016, we used $9.1 million of cash in financing activities, consisting of $11.6 million used in repayments of our line of credit and borrowings and payments of $2.4 million on costs related to 60

61 our IPO completed in November 2017, partially offset by $4.9 million proceeds from the exercise of employee stock options and preferred stock warrants. For the year ended December 31, 2015, we generated $43.0 million of cash from financing activities, consisting of $37.0 million of cash from the issuance of our Series H convertible preferred stock, net of issuance costs, $20.2 million from our line of credit and $1.4 million from the issuance of common stock, primarily related to the exercise of employee stock options; offset by the repayment of $15.2 million on our line of credit, $0.2 million of debt issuance costs and $0.2 million of costs related to our IPO completed in November During the year ended December 31, 2015, our outstanding balance on our line of credit ranged from $0 to $10.3 million. Contractual Obligations and Commitments Set forth below is information concerning our contractual commitments and obligations as of December 31, 2017: Payments due by period Less than More than Total 1 year 1-3 years 3-5 years 5 years (in thousands) Operating leases $ 10,303 $ 934 3,028 $ 4,113 $ 2,228 Purchase obligations 11,550 7,770 3, Total $ 21,853 $ 8,704 $ 6,808 $ 4,113 $ 2,228 As of December 31, 2017, our operating lease obligations are for our U.S. headquarters and our international research facilities that expire at various dates through March Purchase obligations consist of non-cancelable agreements and purchase orders for goods and services. See Note 6 to our audited consolidated financial statements included elsewhere in this report for additional information. Off-Balance Sheet Arrangements During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our audited consolidated financial statements are described below. Revenue Recognition We primarily sell our products direct to our customers and to our customers manufacturing subcontractors. We offer a limited number of customer rebates and accrue an estimate of such rebates at the time revenue is recognized. Such rebates were not material in any of the periods presented, and the differences between the actual amount of such rebates and our estimates also were not material. Revenue is recognized when delivery has occurred, persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection of the resulting receivable is 61

62 reasonably assured. Del ivery is considered to have occurred when title and risk of loss have passed to the customer. There are no circumstances where revenue is recognized prior to delivery. Customer purchase orders are generally used to determine the existence of an arrangement. We evaluate whether the price is fixed or determinable based on the payment terms associated with the transaction. With respect to collectability, we perform credit checks for new customers and perform ongoing evaluations of our existing customers finan cial condition. We defer revenue if any revenue recognition criteria have not been met. In 2017, a portion of our product sales was made through distributors under agreements allowing for pricing credits and rights of return. These pricing credits and right of return provisions prevent us from being able to reasonably estimate the final price of the product to be sold and the amount of product that could be returned pursuant to these agreements. As a result, the fixed and determinable revenue recognition criterion has not been met at the time we deliver products to our distributors. Accordingly, product revenue from sales made through these distributors is not recognized until the distributors ship the product to their customers. The amount of deferred revenue and deferred cost related to the sales through distributors was not significant as of December 31, Inventories Inventories consist of processed wafers, work-in-process and finished goods and are stated at the lower of standard cost or net realizable value. Standard costs approximate actual costs and are based on a first-in, first-out basis. We perform detailed reviews of the net realizable value of inventories, both on hand as well as for inventories that we are committed to purchase and write down the inventory value for estimated deterioration, excess and obsolete and other factors based on management s assessment of future demand and market conditions. Once written down, inventory write-downs are not reversed until the inventory is sold or scrapped. If market conditions are less favorable, we may be required to take additional inventory write-downs, which could adversely impact our gross margin and operating results. Convertible Preferred Stock Warrant Liability We account for our outstanding convertible preferred stock warrants as derivative liabilities as the terms of the warrants are not fixed due to potential adjustments in the exercise price and the number of shares upon an equity financing at a lower price. The convertible preferred stock warrants are initially recorded at fair value when issued, with gains and losses arising from changes in fair value recognized in other income (expense) in the consolidated statements of operations and comprehensive loss at each period end while such instruments are outstanding and classified as liabilities. Upon the exercise of the warrants, the liability was reclassified to convertible preferred stock at their then fair value. Upon the completion of the IPO, the warrants were converted into warrants to purchase shares of common stock and the liability was reclassified to stockholders equity (deficit) at their then fair value, and will no longer be subject to fair value accounting. The fair values of the convertible preferred stock warrants issued in connection with debt agreements are recorded as debt discounts and are amortized as non-cash interest expense in the consolidated statement of operations over the expected repayment period of the debt agreements. The fair value of the convertible preferred stock warrants issued in connection with a letter agreement to collaborate on the development of products in 2015 was recorded as an operating expense at the date of issuance. 62

63 The assumptions used to determine the fair value of convertible preferred stock warran ts relate to the weighted - average assumptions from January 1, 2017 through November 3, 2017 when our convertible preferred stock warrants were converted into common stock warrants, and for the year ended December 31, 2016 were as follows: Year Ended December 31, Valuation method Black-Scholes Pricing Model Black-Scholes Pricing Model Risk-free interest rate 0.89%-2.24% 0.39%-2.25% Expected term yrs yrs Expected dividends 0% 0% Volatility 25% - 35% 25% - 50% Fair value of preferred stock: Convertible preferred Series A $ 9.00 $ 4.40 Convertible preferred Series B Convertible preferred Series C Convertible preferred Series D Convertible preferred Series E Convertible preferred Series F Convertible preferred Series G Convertible preferred Series H Stock-Based Compensation Compensation expense related to stock-based transactions is measured and recognized in the financial statements at fair value. Stock-based compensation expense is measured at the grant date based on the fair value of the equity award and is recognized as expense over the requisite service period, which is generally the vesting period. We estimate the fair value of each equity award on the date of grant using the Black-Scholes option-pricing model and recognize the related stock-based compensation expense on the straight-line method. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected volatility, expected term, risk-free interest rate, and expected dividends. We account for equity instruments issued to non-employees based on the fair value of the awards determined using the Black-Scholes option pricing model. The fair value of such instruments is recognized as an expense over the period in which the related services are received. We estimated the fair value of stock-based awards granted using the following valuation assumptions: Risk-free interest rate 1.89%-2.40% 1.46%-2.43% 1.51%-2.32% Expected term yrs yrs yrs Expected dividends 0% 0% 0% Volatility 26% - 30% 30% - 34% 41% - 42% 63

64 The following table summarizes the effects of stock-based compensation on our consolidated statements of operations and comprehensive loss for the years ended December 31, 2017, 2016 and Year ended December 31, Cost of revenue $ 47 $ 31 $ 19 Research and development Sales and marketing General and administrative Total $ 1,673 $ 939 $ 792 As of December 31, 2017, we had approximately $4.8 million of unrecognized stock-based compensation expense which we expect to recognize over a weightedaverage period of approximately 3.1 years. The intrinsic value of all outstanding options as of December 31, 2017 was $25.4 million based on the closing stock price of $11.33 as reported on the New York Stock Exchange. CommonStockValuations Prior to the IPO in November 2017, our board of directors determined the fair value of the common stock underlying our stock options. The board of directors granted options to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on each grant date. The common stock valuations were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, ValuationofPrivately-Held-CompanyEquitySecuritiesIssuedasCompensation. The assumptions we use in the valuation model are based on future expectations combined with management judgment. Our board of directors is comprised of a majority of non-employee directors who we believe have the relevant experience and expertise to determine a fair value of our common stock on each respective grant date. In the absence of a public trading market for our common stock, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the common stock s fair value as of the date of each option grant, including the following factors: valuations performed by an unrelated third-party specialist; the prices, rights, preferences and privileges of our preferred stock relative to the common stock; our operating and financial performance; current business conditions and projections; the market performance of comparable publicly traded companies; our history and the introduction of new products and services; our stage of development; the hiring of key personnel; the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering or sale of the company, given prevailing market conditions at the time; any adjustment necessary to recognize a lack of marketability for our common stock; and U.S. and global capital market conditions. At each grant date, our board of directors reviewed any recent events and their potential impact on the estimated fair value per share of the common stock. For grants of stock awards made on dates for which there was no valuation performed by an independent valuation specialist, our board of directors determined the fair value of our common 64

65 stock on the date of grant based upon the im mediately preceding valuation and other pertinent information available to it at the time of grant. Our common stock valuation models have historically utilized a market approach, which bases the valuation of our common stock on multiples of revenue, operating income, net income and similar metrics of publicly traded companies we believe are similar to us in terms of size, product market, liquidity, financial leverage, revenue, profitability, growth and other factors. We also examine transactions in the same or similar assets at the measurement date. These transactions can include venture investments in private firms, or stock market trading prices of similar publicly traded companies. We also allocate value to each class of stock using an Option Pricing Model, or OPM, and Probability Weighted Expected Return Method, or PWERM. The OPM treats common stock and convertible preferred stock as call options on an enterprise value, with exercise prices based on the liquidation preference of our convertible preferred stock. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after our convertible preferred stock is liquidated. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an initial public offering, or IPO, as well as non-ipo market based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an IPO liquidity event and non-ipo outcomes, as well as the values we expect those outcomes could yield. We apply significant judgment in developing these assumptions and estimates, primarily based upon the enterprise value we determined using the market approach, our knowledge of the business and our reasonable expectations of discrete outcomes occurring. In determining the estimated fair value of our common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the expected time to liquidity. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event. The key subjective factors and assumptions used in our valuations primarily consisted of: (1) the selection of the appropriate market comparable transactions, (2) the selection of the appropriate comparable publicly traded companies, (3) the financial forecasts utilized to determine future cash balances and necessary capital requirements, (4) the probability and timing of the various possible liquidity events, (5) the estimated weighted-average cost of capital and (6) the discount for lack of marketability of our common stock. Following the IPO, the fair value of our common stock is determined based on the closing price of our common stock on the NYSE on the grant date. Income Taxes Deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the financial statements carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A tax position can be recognized only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. We consider many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. 65

66 Recent Accounting Pronouncements In May 2017, the Financial Accounting Standards Board, or the FASB issued ASU , Compensation-StockCompensation(Topic718):ScopeofModification Accounting. It provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic718,Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and early adoption is permitted. We do not anticipate the impact of this new standard on our consolidated financial statements will be significant. In February 2016, the FASB issued ASU , Leases(Topic842). The new guidance requires entities to recognize assets and liabilities for leases with terms of more than 12 months and additional disclosures to better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, Early adoption is permitted. We are evaluating the impact of this new standard on our consolidated financial statements. In May 2014, the FASB issued ASU , RevenuefromContractswithCustomers(Topic606)related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The guidance allows for the use of either the full or modified retrospective transition method. This new standard will be effective for us on January 1, We intend to use the modified retrospective method. Under the new standards, we do not expect an impact for revenue to our end customers and to our customers manufacturing subcontractors; however, we anticipate an impact on the timing for its distributor transactions. Under the new standard, we will recognize all revenue on sales to distributors upon shipment and transfer of control (known as sell-in revenue recognition), rather than deferring recognition until distributor report that they have sold the product to their customers (known as sell-through revenue recognition). This change in methodology will cause a shift in the timing of when revenue is recognized for this class of customers. We recently started providing its distributors rights that would result in a deferral of revenue under the current revenue standards. Accordingly, we anticipate deferred revenue of $0.1 million will be recorded to accumulated deficits upon adoption of this new standard on our consolidated financial statements. Adopted In July 2015, the FASB issued ASU , SimplifyingtheMeasurementofInventory,which requires entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). This standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, The adoption of this standard did not have a significant impact on our consolidated financial statements. In March 2016, the FASB, issued ASU , ImprovementstoEmployeeShare-BasedPaymentAccounting.This guidance affects entities that issue share-based payment awards to their employees. The guidance is designed to simplify several aspects of accounting for share-based payment award transactions which include: the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and forfeiture rate calculations. The guidance is effective for us in the first quarter of fiscal The adoption of this standard did not have a material impact on our consolidated financial statements. In August 2016, the FASB issued ASU , ClassificationofCertainCashReceiptsandCashPayments(Topic230),which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. We early adopted this guidance in 2016, and the adoption of this guidance did not result in any adjustments. 66

67 JOBS Act Transition Period The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted in April Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Concentration of Credit Risk We are exposed to the credit risk of our customers. We had two end customers who each accounted for more than 10% of our revenue for the each of the years ended December 31, 2017, 2016 and Our concentration of accounts receivable as of December 31, 2017 and 2016 and revenue for the years ended December 31, 2017, 2016 and 2015 was as follows: As of December 31, Accounts Receivable: Customer A 49% 62% Customer B Year Ended December 31, Revenue: Customer A 60% 68% 78% Customer B We market and sell our products worldwide and attribute revenue to the geography where product is shipped. The geographical distribution of our revenue, as a percentage of revenue was as follows: Year Ended December 31, Malaysia 61 % 69 % 74 % China United States Other Total 100 % 100 % 100 % Majority of our property and equipment, net, were located in the United States. Foreign Currency Risk Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. All of our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States and to a lesser extent in India, the Netherlands, Russia and Taiwan. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our consolidated financial statements. 67

68 Interest Rate and Investment Risk We established an investment policy to preserve principal, maintain liquidity and capture a market rate of return. The policy requires minimum credit ratings of marketable securities, diversification of credit risk and lowers long-term interest rate risk by limiting the maturity duration of marketable securities. Our interest rate risk relates primarily to interest income from investments as we repaid our outstanding debt in full as of December 31, We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The effect of a hypothetical 10% change in interest rates relating to our marketable securities would not have a material impact on our consolidated financial statements. Our marketable securities consisting primarily of commercial paper, U.S. government securities, corporate bonds and money market funds are classified as available-forsale securities and are recorded on our balance sheet at fair value with their related unrealized gains or losses reflected as a component of accumulated other comprehensive income (loss) in the consolidated statement of stockholders equity (deficit). We are exposed to market risk as it relates to changes in the market value of our investments in addition to the liquidity and credit worthiness of the underlying issuers of our investments. Our investments are subject to fluctuations in fair value due to the volatility of the credit markets and prevailing interest rates for such securities. As of December 31, 2017 and 2016, our cash, cash equivalent and short-term investment balance was $56.4 million and $28.9 million, respectively, and our unrealized loss was $96,000 and zero, respectively. 68

69 Item 8. Financial Statemen ts and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 70 Consolidated Balance Sheets 71 Consolidated Statements of Operations and Comprehensive Loss 72 Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit) 73 Consolidated Statements of Cash Flows 74 Notes to Consolidated Financial Statements 75 69

70 To the Board of Directors and Stockholders of Aquantia Corp. and subsidiaries Opinion on the Financial Statements REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM We have audited the accompanying consolidated balance sheets of Aquantia Corp. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP San Jose, California March 7, 2018 We have served as the Company's auditor since

71 AQUANTIA CORP. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) December 31, Assets Current assets: Cash and cash equivalents $ 8,040 $ 28,893 Short-term investments 48,362 - Accounts receivable 15,012 11,495 Inventories 18,469 7,017 Prepaid expenses and other current assets 5,623 1,609 Total current assets 95,506 49,014 Property and equipment, net 9,973 8,122 Intangible assets, net 4,556 5,363 Other assets 331 3,210 Total assets $ 110,366 $ 65,709 Liabilities, Convertible Preferred Stock and Stockholders Equity (Deficit) Current liabilities: Accounts payable $ 7,059 $ 4,757 Accrued liabilities 9,217 6,751 Long-term debt, current portion - 11,238 Total current liabilities 16,276 22,746 Long-term debt, net - 6,991 Convertible preferred stock warrant liability - 12,885 Other long-term liabilities 3,176 3,460 Total liabilities 19,452 46,082 Commitments and contingencies (Note 6) Convertible preferred stock: Convertible preferred stock, par value of $ per share; zero and 213,351,797 shares authorized as of December 31, 2017 and 2016, respectively; zero and 19,824,700 shares issued and outstanding with aggregate liquidation preference of zero and $189,796 as of December 31, 2017 and 2016, respectively - 199,434 Stockholders equity (deficit): Preferred stock, $ par value, 10,000,000 and zero shares authorized as of December 31, 2017 and 2016, respectively; zero share outstanding at December 31, 2017 and 2016, respectively - - Common stock, $ par value, 400,000,000 and 307,000,000 shares authorized as of December 31, 2017 and 2016, respectively; 33,523,683 and 4,443,698 shares outstanding at December 31, 2017 and 2016, respectively - - Additional paid-in capital 288,719 12,419 Accumulated other comprehensive loss (96) - Accumulated deficit (197,709) (192,226) Total stockholders equity (deficit) 90,914 (179,807) Total liabilities, convertible preferred stock and stockholders equity (deficit) $ 110,366 $ 65,709 See notes to consolidated financial statements. 71

72 AQUANTIA CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Amounts in thousands except share and per share data) Year Ended December 31, Revenue $ 103,371 $ 86,675 $ 80,807 Cost of revenue 44,348 34,064 41,511 Gross profit 59,023 52,611 39,296 Operating expenses: Research and development 44,763 36,553 25,262 Sales and marketing 7,235 5,347 3,756 General and administrative 9,975 7,124 6,284 Collaboration and development charge ,024 Total operating expenses 61,973 49,024 47,326 Income (loss) from operations (2,950) 3,587 (8,030) Other income (expense): Interest expense (1,735) (3,334) (3,321) Change in fair value of convertible preferred stock warrant liability (990) (544) 1,591 Other income, net Total other income (expense) (2,584) (3,864) (1,725) Loss before income tax expense (5,534) (277) (9,755) Provision for (benefit from) income taxes (117) Net loss $ (5,417) $ (445) $ (9,955) Net loss per share, basic and diluted $ (0.59) $ (0.10) $ (6.64) Weighted-average shares used to compute net loss per share, basic and diluted 9,204,384 4,240,461 1,498,233 Comprehensive income (loss): Net loss $ (5,417) $ (445) $ (9,955) Other comprehensive income (loss), net of tax: Unrealized gains and losses - short-term investments (96) - - Comprehensive loss $ (5,513) $ (445) $ (9,955) See notes to consolidated financial statements. 72

73 AQUANTIA CORP. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT) (Amounts in thousands, except share amounts) Accumulated Convertible Additional Other Total Preferred Stock Common Stock Paid-In Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Capital loss Deficit Equity (Deficit) BALANCE January 1, ,206,388 $ 162,183 1,268,695 $ - $ 4,731 $ - $ (181,826) $ (177,095) Exercise of stock options ,823-1, ,371 Issuance of Series H convertible preferred stock, net of issuance costs of $30 2,584,819 36, Stock-based compensation expense Net loss (9,955) (9,955) BALANCE December 31, ,791, ,153 1,984,518-6,894 - (191,781) (184,887) Exercise of stock options - - 2,459,180-4, ,586 Issuance of Series A convertible preferred stock upon exercise of warrants 33, Stock-based compensation expense Net loss (445) (445) BALANCE December 31, ,824, ,434 4,443,698-12,419 - (192,226) (179,807) Cumulative effect upon adoption of ASU (Note 2) (66) - Other comprehensive loss - unrealized loss on short-term investments (96) - (96) Exercise of stock options ,621-1, ,272 Issuance of restricted stock units 35, Repurchase of unvested stocks - - (1,119) - (3) - - (3) Issuance of Series H convertible preferred stock upon exercise of warrants 975,616 10, Proceeds from initial public offering, net of issuance costs 7,840,700-59, ,886 Conversion of preferred stock to common stock pursuant to IPO (20,800,316) (210,269) 20,816, , ,269 Conversion of preferred stock warrants to common stock warrants - 3, ,137 Stock-based compensation expense , ,673 Net loss (5,417) (5,417) BALANCE December 31, $ - 33,523,683 $ - $ 288,719 $ (96) $ (197,709) $ 90,914 See notes to consolidated financial statements. 73

74 AQUANTIA CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, Cash flows from operating activities Net loss $ (5,417) $ (445) $ (9,955) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 4,720 2,740 1,856 Stock-based compensation expense 1, Change in fair value of convertible preferred stock warrant liability (1,591) Issuance of convertible preferred stock warrants ,074 Amortization of debt discount and extinguishment cost Non-cash interest expense related to debt costs Loss on disposal of property and equipment Changes in operating assets and liabilities: Accounts receivable (3,517) (4,443) (5,206) Inventories (11,452) 9,570 (12,708) Prepaid expenses and other assets (4,110) 1,617 1,290 Accounts payable 2,139 2, Accrued and other liabilities 2, ,073 Deferred revenue - (2,059) (2,718) Net cash provided by (used in) operating activities (11,509) 12,138 (11,512) Cash flows from investing activities Purchases of property and equipment (5,585) (6,308) (4,200) Purchases of IP licenses - (2,129) - Disposal of property and equipment Proceeds from sales of short-term investments 1, Purchases of short-term investments (50,308) - - Net cash used in investing activities (54,043) (8,431) (4,174) Cash flows from financing activities Repayments on short and long-term borrowings (19,161) (6,560) - Repayments on line of credit (10,000) (5,001) (15,205) Debt issuance costs - - (215) Proceeds from line of credit 10,000-20,206 Proceeds from issuance of convertible preferred stock ,000 Convertible preferred stock issuance costs - - (30) Proceeds from exercise of stock options and warrants 1,368 4,861 1,371 Purchases of IP licenses (260) - - Proceeds from initial public offering 65, Payment of costs related to initial public offering (2,875) (2,404) (207) Net cash provided by (used in) financing activities 44,699 (9,104) 42,920 Net increase (decrease) in cash and cash equivalents (20,853) (5,397) 27,234 Cash and cash equivalents at beginning of period 28,893 34,290 7,056 Cash and cash equivalents at end of period $ 8,040 $ 28,893 $ 34,290 Supplemental disclosures of cash flow information Cash paid for interest $ 1,153 $ 1,972 $ 2,041 Cash paid for income taxes $ 232 $ 333 $ 92 Non-cash financing and investing transactions Reclassification of fair value of warrants to equity from liabilities upon warrant exercise and IPO $ 13,875 $ - $ - Unpaid costs related to initial public offering $ 254 $ 340 $ 132 Property and equipment received and accrued $ 419 $ 240 $ 205 IP licenses accrued $ - $ 3,286 $ - Issuance of convertible preferred stock warrants $ - $ - $ 12,074 Transfer of deferred IPO cost to equity upon IPO $ 5,740 $ - $ - See notes to consolidated financial statements. 74

75 1. Organization, Description of Business and Basis for Presentation AQUANTIA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Organization Aquantia Corp. (together with its subsidiaries, the Company ) was incorporated in Delaware on January 27, The Company is a leader in the design, development and marketing of advanced high-speed communications integrated circuits, or ICs, for Ethernet connectivity in the data center, enterprise infrastructure and access markets. Initial Public Offering On November 7, 2017, the Company completed its initial public offering, or IPO, of 7,840,700 shares of its common stock at the offering price of $9.00 per share, including 1,022,700 shares pursuant to the underwriters option to purchase additional shares of the Company s common stock, resulting in net proceeds to the Company of $65.6 million after deducting underwriters' discounts and commissions of $4.9 million, but before deducting total offering expenses of $5.7 million which were reclassified to additional paid-in capital upon completion of the IPO. Immediately prior to the closing of the IPO, all outstanding shares of the Company s convertible preferred stock automatically converted into shares of its common stock and the Company s convertible preferred stock warrants automatically converted into warrants to purchase common stock. The Company used $9.2 million and $0.3 million of the IPO proceeds, respectively, to repay the outstanding indebtedness under the Company s loan from Pinnacle Ventures, L.L.C. and the termination fee for the line of credit from Hercules. Reverse Stock Split In September 2017, the Company s board of directors and stockholders approved a 1-for-10 reverse split of the Company s common stock (the Reverse Stock Split ), which was effected on October 5, The board of directors and stockholders also approved proportionate adjustments to the conversion prices of each series of convertible preferred stock and convertible preferred stock warrants. All share and per share information included in the accompanying consolidated financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split. Basis of Presentation and Principles of Consolidation The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ( U.S. GAAP ) and include the consolidated accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Liquidity and Capital Resources As shown in the consolidated financial statements, the Company has incurred net losses from inception through December 31, 2017, resulting in an accumulated deficit of approximately $197.7 million. In addition, the Company used cash for operating activities of $11.5 million for the year ended December 31, The Company has financed its operations primarily from cash received from product sales, sales of convertible preferred stock, and debt financing before the IPO. Based on expected cash flows generated from revenue, the Company believes that its existing cash will be sufficient to satisfy its anticipated cash requirements for the next 12 months. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates used in the preparation of the consolidated financial statements include the fair value of the Company s common and convertible preferred stock and convertible preferred stock warrants, the valuation of deferred tax assets, uncertain tax positions, and useful lives of long-lived assets. These estimates and the underlying assumptions are based on management s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Financial Instruments Financial instruments held by the Company consist primarily of corporate bonds, U.S. government securities, commercial paper and money market funds. The Company considers all highly liquid 75

76 financial instruments purchased with an original maturity or remaining maturi ties of three months or less at the date of purchase to be cash equivalents. All remaining financial instruments are classified as short-term investments. The Company s financial instruments are classified as available-for-sale. Unrealized gains and losses on securities, net of tax, are recorded in accumulated other comprehensive loss and reported as a separate component of stockholders equity (deficit). Interest and dividend income and realized gains or losses are included in other income, net on the cons olidated statements of operations and comprehensive loss. The Company evaluates the investments periodically for possible other-than-temporary impairment and reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, the Company s intent to hold and whether the Company will not be required to sell the security before its anticipated recovery, on a more-likely-than-not basis. If the declines in the fair value of the investments are determined to be other-than-temporary, the Company reports the credit loss portion of such decline in other income, net and the remaining noncredit loss portion in accumulated other comprehensive loss. The cost of securities sold is based on the specific identification method. Accounts Receivable The Company s receivables are recorded when due and payable. The carrying value of the accounts receivable represents their estimated net realizable value. Inventories Inventories consist of processed wafers, work-in-process and finished goods and are stated at the lower of standard cost or net realizable value. Standard costs approximate actual costs and are based on a first-in, first-out basis. The Company performs detailed reviews of the net realizable value of inventories, both on hand as well as for inventories that it is committed to purchase and writes down the inventory value for estimated deterioration, excess and obsolete and other factors based on management s assessment of future demand and market conditions. Once written down, inventory write downs are not reversed until the inventory is sold or scrapped. For each of the year ended December 31, 2017 and 2016, inventory write-downs were negligible. Deferred Initial Public Offering Costs Deferred initial public offering costs, consisting of direct and incremental legal, accounting and other fees and costs attributable to the Company s IPO and the preparation of the related registration statement, are capitalized. The total deferred offering costs of $5.7 million were offset against the proceeds received upon the closing of the IPO. Accordingly, the balance of other assets in the accompanying consolidated balance sheets was zero as of December 31, The balance of the other assets related to deferred initial public offering cost was $2.9 million as of December 31, Property and Equipment Property and equipment is initially recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful life or the original lease term, whichever is shorter. Intangible Assets Intangible assets consist of patents and IP license and are amortized over their useful lives of 7-12 years using a straight-line amortization method. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the undiscounted future cash flows. The Company has not recorded any impairment charges in any of the periods presented. Product Warranty The Company s products are generally sold with a limited standard warranty for a period of one to three years, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, the Company has had negligible returns of any defective production parts. Convertible Preferred Stock Warrant Liability The Company accounts for its outstanding convertible preferred stock warrants as derivative liabilities as the terms of the warrants are not fixed due to potential adjustments in the exercise price and the number of shares upon an equity financing at a lower price. The convertible preferred 76

77 stock warrants are initially recorded at fair value when issued, with gains and losses arising from c hanges in fair value recognized in other income (expense) in the consolidated statements of operations and comprehensive loss at each period end while such instruments are outstanding and classified as liabilities. The fair values of the convertible prefer red stock warrants issued in connection with debt agreements were recorded as debt discounts and are amortized as non-cash interest expense in the consolidated statement of operations over the expected term of the debt agreements. The fair value of the con vertible preferred stock warrants issued in connection with a collaboration and development agreement in 2015 was recorded as an operating expense at the date of issuance. Upon the exercise of the warrants, the liability was reclassified to convertible pre ferred stock at its then fair value. Upon the completion of the IPO, the warrants were converted into warrants to purchase shares of common stock and the liability was reclassified to stockholders equity (deficit) at their then fair value, and will no lo nger be subject to fair value accounting. Convertible Preferred Stock The Company recorded convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The convertible preferred stock is recorded outside of stockholders equity (deficit) because the shares contain liquidation features that were not solely within the Company s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it was uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences were made only when it becomes probable that such a liquidation event will occur. In November 2017, all outstanding convertible preferred stock was converted to common stock and the balance of convertible preferred stock was reclassified to additional paid in capital upon the closing of the IPO. Revenue Recognition The Company primarily sells its products direct to- its customers or to its customers manufacturing subcontractors. The Company offers a limited number of customers rebates and accrues an estimate of such rebates at the time revenue is recognized. Such rebates were not material in any of the periods presented, and the differences between the actual amount of such rebates and the estimates also were not material. Revenue is recognized when delivery has occurred, persuasive evidence of an arrangement exists, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Delivery is considered to have occurred when title and risk of loss have passed to the customer. There are no circumstances where revenue is recognized prior to delivery. Customer purchase orders are generally used to determine the existence of an arrangement. The Company evaluates whether the price is fixed or determinable based on the payment terms associated with the transaction. With respect to collectability, the Company performs credit checks for new customers and performs ongoing evaluations of its existing customers financial condition. The Company defers revenue if any of the revenue recognition criteria have not been met. In 2017, a portion of the Company s product sales was made through distributors under agreements allowing for pricing credits and rights of return. These pricing credits and right of return provisions prevent the Company from being able to reasonably estimate the final price of the product to be sold and the amount of product that could be returned pursuant to these agreements. As a result, the fixed and determinable revenue recognition criterion has not been met at the time the Company delivers products to its distributors. Accordingly, product revenue from sales made through these distributors is not recognized until the distributors ship the product to their customers. The amount of deferred revenue and deferred cost related to the sales through distributors was not significant as of December 31, Cost of Revenue Cost of revenue consists of wafers, processed by third-party foundries, costs associated with packaging, assembly, and test paid to third-party contract manufacturers, and personnel and other costs associated with the Company s manufacturing operations. Cost of revenue also includes allocation of overhead and facility costs, depreciation of production equipment, inventory write-downs and amortization of production mask costs. Research and Development Research and development expenses are charged to operations as incurred. These costs include personnel costs, pre-production engineering mask costs, software license and intellectual property expenses, design tools and prototype-related expenses, facility costs, supplies and depreciation expense. The Company enters into development agreements with some of its customers that provide fees that partially offset development costs. Such fees are recognized upon completion of the contract deliverables or milestones, and acceptance by the customer, if required. 77

78 Collaboration and Development Charge Collaboration and development charge represents the fair value of Series H convertible preferred stock warrants issued to GLOBALFOUNDRIES (see Note 5) in connecti on with a letter of agreement to collaborate on the potential development and manufacture of products with GLOBALFOUNDRIES. While the Company is not under any contractual obligation to develop its products under this arrangement, the collaboration agreemen t with GLOBALFOUNDRIES has provided the Company access to GLOBALFOUNDRIES collaborative efforts to help the Company develop its products and shorten the time to market. In fiscal 2015, the Company expensed the fair value of the warrants on issuance becaus e they were legally issued, fully vested, and nonforfeitable on issuance. The fair value of the warrants was recognized as an expense as opposed to an asset because there were no specific performance obligations of GLOBALFOUNDRIES; rather, the Company and GLOBALFOUNDRIES only agreed to collaborate with the possibility of a future contractual arrangement between the parties regarding the manufacture and sale of products to the Company. The Company did not acquire any intangible assets or other rights that wo uld allow or require capitalization as an asset, nor is GLOBALFOUNDRIES obligated to provide any future service to the Company beyond the general understanding pursuant to the letter agreement to collaborate on the potential development of products for man ufacture by GLOBALFOUNDRIES. Accordingly, the Company accounted for the fair value of the warrants as additional research and development expense. Because it represents a significant expense, the Company presented this charge as a separate line item in its statement of operations. Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A tax position is recognized only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately represent actual outcomes. Stock-Based Compensation Compensation expense related to stock-based transactions is measured and recognized in the financial statements at fair value. Stockbased compensation expense is measured at the grant date based on the fair value of the equity award and is recognized as expense, less actual forfeitures (see Note 8), over the requisite service period, which is generally the vesting period. The Company estimates the fair value of each equity award on the date of grant using the Black-Scholes optionpricing model and recognizes the related stock-based compensation expense on the straight-line method. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the common stock fair value, expected term, expected volatility, risk-free interest rate, and expected dividends. The Company accounts for equity instruments issued to nonemployees based on the fair value of the awards determined using the Black-Scholes option pricing model. The fair value of such instruments is recognized as an expense over the vesting period. Other Comprehensive Loss During the years ended December 31, 2016 and 2015, the Company did not have any other components of comprehensive loss other than net loss and, therefore, the net loss and comprehensive loss were the same for all periods presented. As of December 31, 2017, the Company purchased financial instruments which were classified as available-for-sale securities for which an accumulated other comprehensive loss of $96,000 was recorded. Net Loss per Share of Common Stock Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, convertible preferred stock, stock warrants and stock options are considered to be potentially dilutive securities. Basic and diluted net loss per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock was considered a participating security. The Company s participating securities do not have a contractual obligation to share in the Company s losses. As such, the net loss was attributed entirely to common stockholders. 78

79 Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. Recent Accounting Pronouncements In May 2017, the Financial Accounting Standards Board ( FASB ) issued ASU , Compensation-StockCompensation (Topic718):ScopeofModificationAccounting.It provides clarity and reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718,Compensation-StockCompensation, to a change to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and early adoption is permitted. The Company does not anticipate the impact of this new standard on our consolidated financial statements will be significant. In February 2016, the FASB issued ASU , Leases(Topic842). The new guidance requires entities to recognize assets and liabilities for leases with terms of more than 12 months and additional disclosures to better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for financial statements issued for fiscal years beginning after December 15, Early adoption is permitted. Management is evaluating the impact of this new standard on the Company s consolidated financial statements. In May 2014, the FASB issued ASU , Revenue from Contracts with Customers (Topic 606) related to the recognition and reporting of revenue that establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The guidance allows for the use of either the full or modified retrospective transition method. This new standard will be effective for us on January 1, The Company intend to use the modified retrospective method. Under the new standards, the Company does not expect an impact for revenue to its end customers and to its customers manufacturing subcontractors; however, the Company does anticipate an impact on the timing for its distributor transactions. Under the new standard, the Company will recognize all revenue on sales to distributors upon shipment and transfer of control (known as sell-in revenue recognition), rather than deferring recognition until distributor report that they have sold the product to their customers (known as sell-through revenue recognition). This change in methodology will cause a shift in the timing of when revenue is recognized for this class of customers. The Company recently started providing its distributors rights that would result in a deferral of revenue under the current revenue standards. Accordingly, the Company anticipates deferred revenue of $0.1 million will be recorded to retained earnings upon adoption of this new standard on the Company s consolidated financial statements. Adopted In March 2016, the FASB issued Accounting Standards Update ( ASU ) , ImprovementstoEmployeeShare-BasedPaymentAccounting. This guidance affects entities that issue share-based payment awards to their employees. The guidance is designed to simplify several aspects of accounting for share-based payment award transactions which include: the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and forfeiture rate calculations. The adoption of this guidance did not result in a significant impact to the Company s consolidated financial statements. In July 2015, the FASB issued ASU , SimplifyingtheMeasurementofInventory, which requires entities to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). This standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, Early adoption is permitted. The adoption of this new guidance did not result in a significant impact to the Company s consolidated financial statements and the related disclosures. In August 2016, the Financial Accounting Standards Board, ( FASB ), issued ASU , ClassificationofCertainCashReceiptsandCashPayments(Topic230), which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. 79

80 Early adoption is permitted. The Company early adopted this guidance effective in The early adoption of this guidance did not result in any adjustments. 3. Balance Sheet Components Inventories consisted of the following (in thousands): December 31, Processed wafers $ 3,523 $ 1,474 Work in process 10,118 3,310 Finished goods 4,828 2,233 Total inventories $ 18,469 $ 7,017 Prepaid expenses and other current assets consisted of the following (in thousands): December 31, Processed wafer prepayments $ 3,443 $ 653 Electronic design automation tools Other prepaid and other current assets 1, Total other prepaid and other current assets $ 5,623 $ 1,609 Property and equipment, net consisted of the following (in thousands): December 31, Estimated Useful Lives Machinery and equipment 2-3 years $ 13,268 $ 10,189 Production masks 4 years 5,401 4,301 Software and computer equipment 3 years 3,820 2,724 Leasehold improvements Shorter of estimated life of asset or remaining lease term Office furniture and fixtures 3 years Total property and equipment 23,142 17,584 Less: accumulated depreciation and amortization (13,169) (9,462) Property and equipment, net $ 9,973 $ 8,122 Depreciation and amortization of property and equipment totaled $3.9 million, $2.7 million and $1.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. Intangible assets, net are carried at cost, less accumulated amortization. Intangible assets were as follows (in thousands): December 31, Estimated Useful Lives IP license 7 years $ 5,416 $ 5,416 Patents years Total intangible assets 5,764 5,764 Less: accumulated amortization (1,208) (401) Intangible assets, net $ 4,556 $ 5,363 80

81 Amo rtization of intangible assets totaled $0.8 million, $0.3 million and $33,000 for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization expense related to amortizable intangibles in future periods as of December 31, 2017 is expected to be as follows (in thousands): 2018 $ and thereafter 1,324 Total $ 4,556 Accrued liabilities consisted of the following (in thousands): December 31, Accrued compensation and related benefits $ 5,242 $ 3,585 Customer deposit 1, Accrued IP license fees Accrued technical consulting and professional services Accrued royalty, rebates, and commission Other accrued liabilities 1,932 1,539 Total accrued liabilities $ 9,217 $ 6, Financial Instruments The following is a summary of financial instruments (in thousands): As of December 31, 2017 Gross Gross Unrealized Unrealized Estimated Fair Cost Gains Losses Values Available-for sale securities Commercial paper $ 13,927 $ - $ (11) $ 13,916 Money market funds 1, ,269 Corporate bonds 36,534 - (81) 36,453 U.S. government securities 2,489 - (4) 2,485 Total available-for-sale securities $ 54,219 $ - $ (96) $ 54,123 Reported in: Cash and cash equivalents $ 5,761 Short-term investments 48,362 Total available-for-sale securities $ 54,123 The contractual maturities of available-for-sale securities are presented in the following table (in thousands): Amortized Cost Basis December 31, 2017 Estimated Fair Value Due in one year or less $ 35,131 $ 35,087 Due between one and five years 19,088 19,036 $ 54,219 $ 54,123 As of December 31, 2016, the only financial instruments held were those related to money market funds of $15,316 included in cash equivalents on our consolidated balance sheet. Gross realized gains and gross realized losses on sales of available-for-sale securities for the years ended December 31, 2017 and 2016 were not significant. As of 81

82 December 31, 2017, and 2016, there were no individual securities that had been in a continuous loss position for 12 months or longer. 5. Fair Value Measurements The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Level 1 liabilities consist of accounts payable, accrued expense and longterm debt. The carrying amounts of accounts receivable, prepaid expenses, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms, the carrying value of the term debt approximates fair value as well. The Company categorizes assets and liabilities recorded at fair value based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows: Level1 Observable inputs, such as quoted prices in active markets for identical, unrestricted assets, or liabilities. Level2 Quoted prices for similar assets or liabilities, or inputs other than quoted prices in active markets that are observable either directly or indirectly. Level3 Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions about the assumptions market participants would use in pricing the asset or liability. Valuation techniques include use of option-pricing models, discounted cash flows models, and similar techniques. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The following tables represent the Company s financial assets and financial liabilities measured at fair value on a recurring basis categorized by the fair value hierarchy as of December 31, 2017 and 2016 (in thousands): As of December 31, 2017 Level 1 Level 2 Level 3 Total Financial asset available-for-sales securities Money market funds $ 1,269 $ - $ - $ 1,269 Commercial paper - 13,916-13,916 Corporate bonds - 36,453-36,453 U.S. government securities - 2,485-2,485 Total financial asset available-for-sales securities $ 1,269 $ 52,854 $ - $ 54,123 As of December 31, 2016 Level 1 Level 2 Level 3 Total Financial asset money market funds $ 15,316 $ - $ - $ 15,316 Financial liability convertible preferred stock warrant liability $ - $ - $ 12,885 $ 12,885 82

83 The summary of changes in the fair value of the Company s Level 3 financial liabilities was as follows (in thousands): Balance as of January 1, 2016 $ 12,346 Decrease in fair value of convertible preferred stock warrant liability 544 Exercise of Series A convertible preferred stock warrants (5) Balance as of December 31, 2016 $ 12,885 Change in fair value of convertible preferred stock warrant liability 990 Exercise of Series H convertible preferred stock warrants (10,738) Conversion of convertible preferred stock warrants to common stock warrants upon IPO (3,137) Balance as of December 31, 2017 $ - Convertible Preferred Stock Warrants As of December 31, 2016, the Company has the following convertible preferred stock warrants which were converted to common stock warrants upon the closing of the IPO in November 2017 (in thousands except per share data): As of December 31, 2017 Exercise Price Common Shares Series Per Share Expiration Date Underlying Warrants B $ /9/2018 3,197 C-1 (1) $ /16/ ,208 D $ /9/2018, 11/16/ ,532 F $ /5/ ,655 G $ /16/ ,012 G/H $ /30/ ,683 Total Common Stock Warrants 481,287 (1) 300,600 shares of Series C-1 preferred stock underlies the Series C-1 warrant, of which 247,208 shares have vested. Series A Convertible Preferred Stock Warrants Issued to Pinnacle Ventures As consideration for a 2006 Loan and Security Agreement, the Company issued fully vested warrants to Pinnacle Ventures to purchase 33,499 shares of Series A convertible preferred stock at an exercise price of $ per share which were fully exercised as of December 31, Series B Convertible Preferred Stock Warrants Issued to Pinnacle Ventures As consideration for a 2008 Amended and Restated Loan and Security Agreement with Pinnacle Ventures, the Company issued fully vested warrants to purchase 15,753 shares of Series B convertible preferred stock at an exercise price of $ per share. These Series B warrants have a term of 10 years. In connection with the issuance of the Series D convertible preferred stock in November 2009, warrants to purchase 12,556 shares of Series B convertible preferred stock automatically converted into warrants to purchase 40,516 shares of Series D convertible preferred stock at $ per share. Series C-1 Convertible Preferred Stock Warrants Issued to Intel Corporation In connection with entering into an agreement with a customer, the Company issued warrants to purchase up to 400,608 shares of Series C-1 convertible preferred stock at an exercise price of $0.10 per share. The warrants are valued as they vest and become exercisable upon the achievement of certain milestones, primarily related to product development. As of December 31, 2017, warrants to purchase 53,400 shares of Series C-1 convertible preferred stock are subject to potential vesting under the Intel Agreement. The fair value at vesting will be allocated to the Intel Agreement. During 83

84 the year ended December 31, 2009, warrants to purchase 347,208 shares vested with an initial value of $1,927,505. Prior to 2014, 100,000 of the shares underlying the vested warrants were issued upon exercise of such warrants. The remaining warrants will expire in January Series D Convertible Preferred Stock Warrants Issued to Pinnacle Ventures As consideration for a 2009 Amendment to the 2008 Amended and Restated Loan and Security Agreement with Pinnacle Ventures, the Company issued to Pinnacle Ventures fully vested warrants to purchase 21,008 shares of Series D convertible preferred stock. The Company also issued fully vested warrants to purchase an additional 21,008 shares of Series D convertible preferred stock when the Company borrowed an additional $3.5 million in December In addition, in connection with the issuance of the Series D convertible preferred stock in November 2009, warrants to purchase 12,556 shares of Series B convertible preferred stock automatically converted into fully vested warrants to purchase 40,516 shares of Series D convertible preferred stock. The Series D warrants have an exercise price of $ per share and a term of ten years. Series F Convertible Preferred Stock Warrants Issued to Pinnacle Ventures On April 5, 2013, in connection with the 2013 Agreement, the Company issued to Pinnacle Ventures fully vested warrants to purchase 64,655 Series F convertible preferred stock at an exercise price of $ price per share. These warrants will expire in April Series G Convertible Preferred Stock Warrants Issued to Pinnacle Ventures On December 16, 2014, in connection with the 2013 Amended Agreement, the Company issued to Pinnacle Ventures fully vested warrants to purchase 64,012 shares of Series G convertible preferred stock at an exercise price of $ per share. At issuance, the estimated fair value was determined using the Monte Carlo Simulation with an aggregate fair value of $173,091 that was determined using the following assumptions: risk-free rate of 2.13%, contractual term of 9.71 years, and volatility of 50%. The warrants will expire in December Series G or Series H Convertible Preferred Stock Warrants Issued to Hercules Technology Growth Capital On January 30, 2015, the Company entered into a Loan and Security Agreement with Hercules Technology Growth Capital for an $11.5 million, revolving line of credit. In connection with this agreement, the Company issued fully vested warrants to purchase 19,683 shares at an exercise price of $ per share. At the election of the holder, these warrants may be exercised for Series G or Series H convertible preferred stock. At issuance, the estimated fair value was determined using the Monte Carlo Simulation with an aggregate fair value of $50,000 that was determined using the following assumptions: risk-free rate of 2.06%, contractual term of 9.83 years, and volatility of 50%. The warrants will expire in January Series H Convertible Preferred Stock Warrants Issued to GLOBALFOUNDRIES In connection with the collaboration and development agreement with GLOBALFOUNDRIES on March 25, 2015, the Company issued to GLOBALFOUNDRIES fully vested warrants to purchase 975,616 shares of Series H convertible preferred stock at an exercise price of $0.10 per share. At issuance, the estimated fair value was determined using the Monte Carlo Simulation with an aggregate estimated fair value of $12.0 million that was determined using the following assumptions: risk-free interest rate of 1.03%, expected term of one year, no expected dividends, and volatility of 35%. The fair value of these warrants was recorded as an operating expense in the consolidated statement of operations at the date of issuance. These warrants would have expired at the earlier of March 2025, the Company s IPO, or a deemed liquidation event. These warrants were exercised in May 2017 and were no longer outstanding as of December 31, The Company recorded a loss of $1.0 million, a gain $0.5 million and a loss of $1.6 million to Change in fair value of convertible preferred stock warrant liability in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2017, 2016 and 2015, respectively, for the change in fair value of the convertible preferred stock warrants. 84

85 Determining Fair Value of Convertible Preferred Stock Warrants The assumptions used to determine the fair value of convertible preferred stock warrants relate to the weighted average assumptions from January 1, 2017 through November 3, 2017, when the convertible preferred stock warrants were converted into common stock warrants and for the year ended December 31, 2016 were as follows: Year Ended December 31, Valuation method Black-Scholes Pricing Model Black-Scholes Pricing Model Risk-free interest rate 0.89%-2.24% 0.39%-2.25% Expected term yrs yrs Expected dividends 0% 0% Volatility 25% - 35% 25% - 50% Fair value of preferred stock: Convertible preferred Series A $ 9.00 $ 4.40 Convertible preferred Series B Convertible preferred Series C Convertible preferred Series D Convertible preferred Series E Convertible preferred Series F Convertible preferred Series G Convertible preferred Series H There were no transfers within the hierarchy during the years ended December 31, 2017, 2016 and As of December 31, 2016, the Company s only Level 3 financial instruments were convertible preferred stock warrants which ceased to be a financial liability upon their conversion to common stock warrants in November 2017 upon completion of the IPO. 6. Commitments and Contingencies Lease and purchase obligations The Company leases office and research facilities under operating leases for its U.S. headquarters and international locations that expires at various dates through March Under the lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term. Rent expense for the years ended December 31, 2017, 2016 and 2015 was $1.2 million, $0.9 million and $0.7 million, respectively. In addition, the Company has purchase obligations which included agreements and issued purchase orders containing non-cancelable payment terms to purchase goods and services. As of December 31, 2017, future minimum operating lease payments and purchase obligations are as follows (in thousands): Total Operating Purchase Lease and Purchase Leases Obligations Obligations 2018 $ 934 $ 7,770 $ 8, ,490 2,230 3, ,538 1,550 3, ,037-2, and thereafter 4,304-4,304 Total $ 10,303 $ 11,550 $ 21,853 85

86 Litigation The Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss and the Company has made an assessment of the probability of incurring any such losses and whether or not those losses are estimable. Although the Company is not currently subject to any litigation, and no litigation is currently threatened against the Company, the Company may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. The Company accrues amounts that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that it believes will result in a probable loss that is reasonably estimable. To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred and the amount of such additional loss would be material, the company will either disclose the estimated additional loss or state that such an estimate cannot be made. The Company does not currently believe that it is reasonably possible that losses in connection with litigation arising in the ordinary course of business would be material. Indemnification Under the indemnification provisions of the Company s standard sales related contracts, the Company agrees to defend its customers against thirdparty claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets and to pay judgments entered on such claims. Certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. In addition, the Company indemnifies its directors and certain of its officers while they are serving in good faith in such capacities. To date, the Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As of December 31, 2017, and 2016, no liability associated with such indemnifications had been recorded. 7. Debt In connection with each of the Loan and Security Agreements with Pinnacle Ventures and the Loan and Security Agreement with Hercules Technology Growth Capital described below, the Company has granted in favor of the lenders thereunder a security interest in substantially all of the Company s assets other than the Company s intellectual property. The loan with Pinnacle Ventures is subordinated to the loan with Hercules Technology Growth Capital pursuant to a subordination agreement. Loan and Security Agreement with Pinnacle Ventures On April 5, 2013, the Company entered into a Loan and Security Agreement with Pinnacle Ventures (the 2013 Agreement ) to borrow an aggregate principal amount of $15.0 million. The interest rate on this loan was the greater of the prime rate plus 925 basis points, or 12.5% per annum. At December 31, 2014, the interest rate was 12.5%. The Company was required to make interest-only payments for the first 24 months starting in April 2013 and thereafter make 18 equal installment payments through October 5, 2016, the maturity date of the loan. In connection with the 2013 Agreement, the Company issued 64,655 fully vested Series F convertible preferred stock warrants at an exercise price of $ The agreement also provided a conversion right (the Conversion Right ), which expired unexercised on December 31, 2014 and was reclassified to convertible preferred stock. The Conversion Right was accounted for as a financial derivative and the estimated fair value was determined using the Monte Carlo Simulation with an initial aggregate fair value of $180,843. The estimated fair value was determined using the following assumptions: risk-free interest rate of 0.21%, contractual term of 0.46 years to 0.96 years, and volatility of 45%. 86

87 On December 16, 2014, the Company amended the 2013 Agreement with Pinnacle Ventures (the 2013 Amended Agreement ) to borrow an additional $8.8 million and modify the terms of the existing loan of $15.0 million. The interest rate on this loan, effective January 1, 2015 is the greater of the prime rate plus 550 basis points, or 8.75% per annum. As of December 31, 2016, the interest rate on this loan was 9.25%. Under the terms of the 2013 Amended Agreement, principal payments for the combined loan started in May An additional payment of $1.5 million is due upon the earliest to occur of the maturity date of July 1, 2018 or the prepayment of all outstanding principal and ac crued and unpaid interest. The final payment is being amortized to interest expense over the original term of the loan. In connection with this 2013 Amended Agreement, the Company also issued 64,012 fully vested Series G convertible preferred stock warrant s with an exercise price of $ per share). As of December 31, 2017, the loan was repaid in full and the 2013 Agreement was terminated. Loan and Security Agreement with Hercules Technology Growth Capital On January 30, 2015, the Company entered into a Loan and Security Agreement with Hercules Technology Growth Capital for an $11.5 million revolving line of credit. In connection with this agreement, the Company issued fully vested warrants to purchase 19,683 shares of convertible preferred stock at an exercise price of $ per share. At the election of the holder, these warrants may be exercised for Series G or Series H convertible preferred stock. The line of credit is based upon a percentage of eligible receivables and eligible customer purchase orders. The line of credit bears a variable rate of interest and is based upon the Federal Reserve s prime rate and changes in the Company s borrowing base eligibility and whether the borrowing base is based on eligible accounts receivables or eligible purchase orders or both. The line of credit was scheduled to mature on February 1, An additional final payment of $0.3 million was due upon the earliest to occur of the maturity date, the date of prepayment of the outstanding secured obligations, or the date that the secured obligations become due and payable. The final payment was recorded as a long-term liability and other asset on the Company s consolidated balance sheet and the asset was amortized to interest expense over 24 months, the initial term of the agreement. As of December 31, 2017, the line of credit was repaid in full and terminated. As of December 31, 2016, debt obligations consisted of the following (in thousands) as there were no outstanding debt as of December 31, 2017: As of December 31, 2016 Term loans $ 17,241 Final payment liability 1,192 Total term loans 18,433 Unamortized debt discount (204) Balance term loans 18,229 Bank borrowings line of credit - Total debt 18,229 Less: long-term debt, current portion and bank borrowings line of credit (11,238) Long-term debt $ 6, Convertible Preferred Stock and Shareholder s Equity and Share-based Compensation The Company s certificate of incorporation, as of December 31, 2017 and 2016, authorized the Company to issue up to 400,000,000 and 307,000,000 shares of common stock, respectively, and 10,000,000 and zero shares of preferred stock, each at $ par value per share, respectively. As of December 31, 2017, no preferred stock was outstanding. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available. No dividends have been declared to date. 87

88 As of December 31, 2016, the Company s convertible preferred stock issued and outstanding was as follows (dollars in thousands): As of December 31, 2016 Issued and Carrying Outstanding Value Convertible preferred Series A 1,866,423 $ 15,216 Convertible preferred Series B 1,204,917 25,834 Convertible preferred Series C-1 100, Convertible preferred Series D 5,717,200 37,950 Convertible preferred Series E 2,643,840 22,608 Convertible preferred Series F 4,310,323 40,017 Convertible preferred Series G 1,397,178 19,917 Convertible preferred Series H 2,584,819 36,970 Total 19,824,700 $ 199,434 Immediately prior to the closing of the Company s IPO, all outstanding shares of its convertible preferred stock automatically converted into 20,816,754 shares of common stock Equity Incentive Plan and 2004 Equity Incentive Plan Under the Company s 2015 Equity Incentive Plan and 2004 Equity Incentive Plan, shares of common stock were reserved for the issuance of incentive stock options ( ISO ); nonstatutory stock options ( NSO ); or the sales of restricted common stock to employees, officers, directors, and consultants of the Company. The exercise price of an option is determined by the board of directors when the option is granted and may not be less than 85% of the fair market value of the shares on the date of grant, provided that the exercise price of an ISO is not less than 100% of the fair market value of the shares on the date of grant and the exercise price of any option granted to a 10% stockholder is not less than 110% of the fair market value of the shares on the date of grant. ISOs granted under the Plan generally vest 25% after the completion of 12 months of service and the balance in equal monthly installments over the next 36 months of service and expire 10 years from the grant date. NSOs vest as per the specific agreement and expire 10 years from the date of grant. The Plan allows for early exercise of options prior to full vesting as determined by the board of directors and set forth in the stock option agreements governing such options. Exercises of unvested options are subject to repurchase by the Company at not less than the original exercise price upon termination of employment Equity Incentive Plan In November 2017, the Company adopted the 2017 Equity Incentive Plan, or 2017 Plan, and all shares reserved for grant under the 2015 Equity Incentive Plan and 2004 Equity Incentive Plan were cancelled. The 2017 Plan had 1,618,735 common shares reserved, plus any shares subject to outstanding stock options or other stock awards that were granted under the 2015 Equity Incentive Plan and 2004 Equity Incentive Plan that were forfeited, terminate, expire or are otherwise not issued. In addition, the shares reserved under the 2017 Plan will automatically increase on the first day of each calendar year, beginning on January 1, 2018 and ending on January 1, 2027, by an amount equal to 5% of the total number of shares of the Company s capital stock outstanding on the last day of the calendar month before the date of the automatic increase, or a lesser number of shares determined by the board of directors prior to the date of such automatic increase. The 2017 Plan provides for the grant of common stock awards, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units, performance units and performance shares to employees, directors, and consultants of the Company. All granted shares that are canceled, forfeited or expired are returned to the 2017 Plan and are available for grant in conjunction with the issuance of new equity awards. Stock options may be granted at an exercise price per share not less than 100% of the fair market value at the date of grant. If a stock option is granted to a 10% stockholder, then the exercise price per share must not be less than 110% of the fair market value per share of common stock on the grant date. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years. As of December 31, 2017, 1,598,331 shares are available for grant. 88

89 Stock options Activity of stock options granted under the Company s equity incentive plans is set forth below: Weighted- Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Value Number of Shares Price Term (Years) (in thousands) Balance January 1, ,827,785 $ $ 9,759 Granted 570,939 $ 4.32 Exercised (2,459,180) $ 1.85 Canceled (32,948) $ 3.11 Balance December 31, ,906,596 $ $ 4,941 Granted 1,320,382 $ 7.08 Exercised (388,621) $ 3.28 Canceled (104,813) $ 4.53 Balance December 31, ,733,544 $ $ 25,386 Vested and exercisable December 31, ,648,917 $ $ 13,924 Vested and exercisable December 31, ,208,989 $ $ 2,994 Outstanding options and exercisable options information by range of exercise prices as of December 31, 2017 was as follows: Outstanding Options Exercisable Options Weighted Average Number of Remaining Weighted Number of Weighted Range of Shares Contractual Term Average Shares Average Exercise Prices (in Thousands) (in Years) Exercise Price (in Thousands) Exercise Price $ 1.10 to $ , $ ,432 $ 1.45 $ 2.00 to $ ,661, $ ,273,112 $ 2.66 $ 4.30 to $ ,922, $ ,236 $ 4.38 $ 8.61 to $ , $ $ 9.9 Total 3,733, $ ,648,917 $ 2.89 As of December 31, 2017, approximately $4.8 million of unrecognized stock compensation costs related to awards were expected to be recognized over a weightedaverage period of 3.1 years. As of December 31, 2016, approximately $2.4 million of unrecognized stock compensation costs related to awards were expected to be recognized over a weighted-average period of 2.8 years. The aggregate intrinsic value of options exercised for the year ended December 31, 2017 was $1.6 million. The aggregate intrinsic value of options exercised during the year ended December 31, 2016 was $6.3 million. The weighted-average grant-date fair value of options granted for the year ended December 31, 2017, was $2.94 per share. The weighted-average grant-date fair value of options granted during the year ended December 31, 2016 was $1.52 per share. The Company uses the straight-line vesting attribution method to record stock-based compensation expense. Stock-based compensation expense recognized in the consolidated statements of operations and comprehensive loss was as follows (in thousands): 89

90 Year ended December 31, Cost of revenue $ 47 $ 31 $ 19 Research and development Sales and marketing General and administrative Total $ 1,673 $ 939 $ 792 No income tax benefit associated with stock-based compensation expense was recognized in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2017, 2016 and The calculated fair value of option grants was estimated using the Black-Scholes model with the following assumptions for which options were granted: Year ended December 31, Risk-free interest rate 1.89%-2.40% 1.46%-2.43% 1.51%-2.32% Expected term yrs yrs yrs Expected dividends 0% 0% 0% Volatility 26% - 30% 30% - 34% 41% - 42% Employee Stock Purchase Plan Concurrent with the completion of the IPO in November 2017, the Company adopted the 2017 Employee Stock Purchase Plan, or ESPP. The ESPP authorizes the issuance of 647,494 shares of common stock outstanding under purchase rights granted to its employees. In addition, the shares reserved under the ESPP Plan will automatically increase on the first day of each calendar year, beginning on January 1, 2018 and ending on January 1, 2027, by the lesser of (i) an amount equal to 2% of the total number of shares of the Company s capital stock outstanding on the last day of the calendar month before the date of the automatic increase, (ii) 1,000,000 shares of common stock, and (iii) a lesser number of shares determined by the board of directors prior to the date of such automatic increase. The ESPP allows eligible employees to purchase shares of the Company s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP generally provides for offering periods and purchase periods every six months, and at the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company s common stock on the first trading day of the purchase period or on the last trading day of the offering period. Since the ESPP was established in November 2017, no shares were issued as of December 31, Shares expected to be issued under the ESPP were 226,000 for the offering period as of December 31, The calculated fair value of the shares under the ESPP was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate of 1.31%, expected term of 0.5 year, expected dividends of 0% and volatility of 22%. For the year ended December 31, 2017, unamortized compensation expense related to ESPP was approximately $0.5 million, to be recognized over approximately five months. Restricted Stock Unit Awards The Company grants restricted stock units (RSU) to employees under the 2017 Plan. RSUs granted typically vest ratably over a four-year period, and are converted into shares of the Company s common stock upon vesting on a one-for-one basis subject to the employee s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant. Each RSU award granted from the 2017 Plan will reduce the number of shares available for issuance under the 2017 Plan by one share. The number of RSU shares granted were approximately 35,000 shares at an average fair value of $11.90 per share. For the year ended December 90

91 31, 2017, unamortized compensation expense related to RSU was approximately $0.4 million, to be recognized over 1.8 years. 9. Income Taxes The following table represents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands): Year Ended December 31, Domestic $ 4,195 $ (992) $ (10,128) Foreign (9,729) Total $ (5,534) $ (277) $ (9,755) The Company s provision for (benefit from) income taxes was as follows (in thousands): Year Ended December 31, Current: Federal $ - $ (63) $ 63 State Foreign (118) Total current: (117) Deferred: Federal State Foreign Total deferred benefit: Total provision for (benefit from) income taxes $ (117) $ 168 $ 200 Reconciliation of the statutory federal income tax rate to the Company s effective income tax rate is as follows: Year Ended December 31, Federal tax at statutory rate 34 % 34 % 34 % Foreign taxes (58) 5 - State taxes (2) 316 (71) Change in warrant valuation (6) (66) (37) Stock-based compensation (5) (80) (2) Research and development credit (11) Changes in reserves for uncertain tax positions 3 (731) - Change in valuation allowance tax cut and jobs act impact (283) - - Tax effect upon adoption of ASU Other Total 2 % (61) % (2) % 91

92 Significant components of the Company s net deferred tax assets were as follows (in thousands): Year Ended December 31, Deferred tax assets: Net operating loss carryforwards $ 31,286 $ 49,124 Tax credit carryforwards 9,439 7,025 Accruals recognized in different periods 1,115 1,389 Fixed assets depreciation Stock-based compensation Other Gross deferred tax assets: 42,112 58,457 Deferred tax liabilities: Other (81) - Subtotal 42,031 58,457 Valuation allowance (42,031) (58,457) Total net deferred tax assets $ - $ - Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (or loss) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income tax expense (benefit) in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred tax assets will not be realized. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Act ). The Act makes broad and complex changes to the U.S. tax code including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax, or AMT, and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax, or BEAT, a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, The Company s remeasured certain deferred tax assets and liabilities based on rates at which they are expected to reverse in the future, which is generally 21%. The rate reduction would generally take effect on January 1, Consequently, any changes in the U.S. corporate income tax rate will impact the carrying value of the deferred tax assets. Under the new corporate income tax rate of 21%, U.S. federal and state deferred tax assets decreased by approximately $15.7 million and the valuation allowance decreased by approximately the same amount. Due to the valuation allowance on the deferred tax assets, the provisional amount recorded related to the remeasurement was zero. As of December 31, 2017, the Company's foreign subsidiaries are in a cumulative deficit. Therefore, the one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of foreign subsidiaries has minimal impact on the Company. Undistributed earnings of foreign subsidiaries are determined to be reinvested indefinitely. Accounting for the transition tax and the conclusion on the Company s indefinite reinvestment have been completed pursuant to the requirements of the Act. 92

93 The SEC staff issued Staff Accountant Bulletin No. 118, or SAB 118, which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a c ompany s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be inc luded in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act. As noted above, the Company has recorded a provisional amount associated with the deferred tax assets and related valuation allowance as of December 31, At December 31, 2017, the Company is still analyzing certain aspects of the Act including (a) provisions for Global Intangible Low-Taxed Income, or GILTI, wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations (including related accounting policy elections) and (b) state tax implications of the Act. Based on the available objective evidence, both positive and negative, management believes that it is more likely than not that the net deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance against net deferred tax assets as of December 31, 2017, 2016 and The valuation allowance for deferred tax assets was $42.0 million, $58.5 million and $61.7 million as of December 31, 2017, 2016 and 2015, respectively. The change in the valuation allowance for the years ended December 31, 2017, 2016 and 2015 was $(16.5) million, $(3.2) million and $(18.1) million, respectively. The changes in 2017 were primarily the result of the enacted federal tax rate decreased from 35% to 21%, resulting in a $15.7 million decrease in the deferred tax asset balance of net operating loss carryforwards. As of December 31, 2017, the Company had net operating loss, or NOL, carryforwards of approximately $176.6 million and $102.4 million for federal and state income tax purposes, respectively. The NOL carryforwards begin to expire in 2025 and 2018 for federal and state purposes, respectively. As of December 31, 2017, the Company had research and development tax credit carryforwards of approximately $6.9 million and $7.9 million for federal and state income tax purposes, respectively. The federal tax credit carryforwards begin to expire in 2026 and the state tax credits carry forward indefinitely. Internal Revenue Code Section 382 and similar California rules place a limitation on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership). Generally, after a control change, a corporation cannot deduct NOL carryforwards in excess of the Section 382 limitations. Due to these provisions, utilization of NOL and tax credit carryforwards may be subject to annual limitations regarding their utilization against taxable income in future periods. The Company completed Section 382 analysis in 2016 and determined ownership changes occurred in July 2005, November 2009 and August 2017, which resulted in reductions to the U.S. federal and California net operating losses of $34.9 million and $24.1 million, respectively, and U.S. federal research and development credits by $1.8 million. Reconciliation of the beginning and ending balances of the gross unrecognized tax benefits during the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands): Year Ended December 31, Unrecognized benefits - beginning of period $ 4,323 $ 4,100 $ - Increases in balances related to tax positions taken during a prior period 2, Increases in balances related to tax positions taken during the current period 1, ,100 Decreases in balances related to tax positions taken during a prior period (1,119) (1) - Unrecognized benefits - end of period $ 7,047 $ 4,323 $ 4,100 93

94 The Company s policy is to classify interest and penalties associated with unrecognized tax benefits as income tax expense. The Company had no interest or penalty accruals associated with uncertain tax benefits in its balance sheets and statements of operations and comprehensive loss for the years ended December 31, 2017, 2016 and Although the Company files U.S. federal and various state tax returns, the Company s only major tax jurisdictions are the United States and California. As a result of NOL carryforwards, all of the Company s tax years are open to federal and state examination in the United States. All tax years are open to examination in various foreign countries. 10. Net Loss Per Share The following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data): Year Ended December 31, Net loss $ (5,417) $ (445) $ (9,955) Weighted-average common shares outstanding 9,204,384 4,240,461 1,498,233 Less: Shares subject to repurchase Weighted-average shares outstanding 9,204,384 4,240,461 1,498,233 Basic net loss per share $ (0.59) $ (0.10) $ (6.64) Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Basic and diluted net loss per share is presented in conformity with the two-class method required for participating securities. Prior to the IPO, the holders of the Company s convertible preferred stock were entitled to receive non-cumulative dividends, payable prior and in preference to any dividends on shares of the common stock. Any additional dividends would be distributed among the holders of convertible preferred stock and common stock pro rata, assuming the conversion of all convertible preferred stock into common stock. After to the IPO, all convertible preferred stocks were converted to common stock and the Company has one class of stock issued and outstanding. Because the Company has reported a net loss for the years ended December 31, 2017, 2016 and 2015, diluted net loss per common share is the same as basic net loss per common share for those periods. The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares): As of December 31, Stock options to purchase common stock 3,733,544 2,831,850 4,264,705 Convertible preferred stock - 19,833,843 18,952,258 Common stock warrants 584,148 1,559,764 1,367,114 Total 4,317,692 24,225,457 24,584, Segment Reporting The Company operates in one reportable segment related to the design, development and sale of network communication integrated circuits. The Company s chief operating decision-maker ( CODM ) is its Chief Executive Officer, who reviews operating results on an aggregate basis and manages the Company s operations as a whole for the purpose of evaluating financial performance and allocating resources. Substantially all of the Company s long-lived assets were attributable to operations in the United States as of December 31, 2017, 2016 and

95 The following table summarizes revenue by market (in thousands): Year Ended December 31, Revenue by market: Data Center $ 64,781 $ 64,024 $ 72,549 Enterprise Infrastructure 35,208 22,476 8,258 Access 3, Automotive Total revenue $ 103,371 $ 86,675 $ 80,807 The Company sells its products worldwide and attributes revenue to the geography where the product is shipped. The geographical distribution of revenue as a percentage of total revenue for the periods indicated was as follows: Year Ended December 31, Malaysia 61 % 69 % 74 % China United States Other Total 100 % 100 % 100 % 12. Concentrations Credit Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company s cash equivalents consist of checking and money market accounts with a financial institution that management believes to be of high-credit quality; however, at times, balances exceed federally insured limits. Amounts held on deposit at financial institutions in excess of Federal Deposit Insurance Corporation-insured amounts were $0.9 million, $28.0 million and $34.1 million at December 31, 2017, 2016 and 2015, respectively. Significant Customers Credit risk with respect to accounts receivable is concentrated with two large customers that contribute a majority of the Company s business and is mitigated by a relatively short collection period. Collateral is not required for accounts receivable. The fair value of accounts receivable approximates their carrying value. Revenue and accounts receivables concentrated with significant customers and their manufacturing subcontractors, as a percentage of total revenue and accounts receivable was as follows: As of December 31, Accounts Receivable: Customer A 49% 62% Customer B Year Ended December 31, Revenue: Customer A 60% 68% 78% Customer B

96 Significant Suppliers The Company depends on a limited number of subcontractors to fabricate, assemble, and test its semiconductor devices. The Company generally sources its production through standard purchase orders and has wafer supply and assembly and test agreements with certain outside contractors. While the Company seeks to maintain a sufficient level of supply and endeavors to maintain ongoing co mmunications with suppliers to guard against interruptions or cessation of supply, business and results of operations could be adversely affected by a stoppage or delay of supply, substitution of more expensive or less reliable products or services, receip t of defective semiconductor devices, an increase in the price of products, or an inability to obtain reduced pricing from suppliers in response to competitive pressures. 13. Employee Benefit Plan The Company has established a 401(k) plan, which permits participants to make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code. The Company may, at its discretion, make matching contributions to the 401(k) Plan. The Company has made no contributions to the 401(k) Plan since its inception. 14. Related Party Transaction In 2016, the Company entered into an agreement with a significant stockholder to license certain technology intended to be incorporated into the Company s products under development. Under this agreement, the Company agreed to pay an initial $2.0 million licensing fee and additional licensing fees at a later point of the development program upon the achievement of certain development milestones. In addition, royalties may be due on products sold utilizing the licensed technology. From time to time, the Company also purchases tooling, mask sets, wafers and services from this stockholder in its ordinary course of business. For the year ended December 31, 2016, the Company recorded the license amount of $5.4 million to intangible assets, net representing $2.1 million fees paid and $3.3 million for the portion due upon milestones completion which was included in accrued and other long-term liabilities in relation to the IP license. Starting in 2016, the Company recorded $8.0 million and $4.2 million to research and development expenses, inventory and cost of revenue for the year ended December 31, 2017 and 2016, in relation to toolings, mask sets, wafers and services. As of December 31, 2017 and 2016, the total balance due this stockholder was $3.4 million and $3.4 million, respectively, which were included in accrued, accounts payable and other long-term liabilities. 96

97 Item 9 Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None. Item 9A Controls and Procedures EvaluationofDisclosureControlsandProcedures. We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15 (e) and 15d 15(e) under the Securities Exchange Act 1934, as amended, or the Exchange Act (as amended), that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management sannualreportoninternalcontroloverfinancialreporting; AttestationReportoftheRegisteredPublicAccountingFirm. This Annual Report on Form 10-K does not include a report of management s assessment regarding internal control over financial reporting or an attestation report of the company s registered public accounting firm due to a transition period established by rules and regulations of the SEC for newly public companies. Further, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financials reporting as long as we are an emerging growth company pursuant to the provisions of the JOBS Act. ChangesinInternalControloverFinancialReporting No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. InherentLimitationsonEffectivenessofControls Our management, including our principal executive and chief executive officer, does not expect that our disclosure controls and procedures or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inher ent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Aquantia have been detected. Item 9B Other Information None. 97

98 PART III Item 10 Directors, Executive Officers and Corporate Governance The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, in connection with our 2018 annual meeting of stockholders, or the 2018 Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017, and is incorporated in this report by reference. Item 11 Executive Compensation The information required by this item will be set forth in the 2018 Proxy Statement to be filed with the SEC within 120 days of the year ended December 31, 2017, and is incorporated herein by reference. Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be set forth in the 2018 Proxy Statement to be filed with the SEC within 120 days of the year ended December 31, 2017, and is incorporated herein by reference. Equity Compensation Plan Information The following table summarizes the number of outstanding options granted to our employees, consultants and directors, as well as the number of shares of common stock remaining available for future issuance under our equity compensation plans as of December 31, (a) Number of Securities to be Issued upon Exercise of Outstanding Options and Rights (b) Weighted Average Exercise Price of Outstanding Options and Rights (1) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) Equity compensation plans approved by security holders (2)(3)(4) 3,768,573 $ ,598,331 (1) The calculation of the weighted average exercise price includes only stock options and does not include the outstanding restricted stock units which do not have an exercise price. (2) Consists of four plans: 2017 Equity Incentive Plan, 2017 Employee Stock Purchase Plan or 2017 ESPP, 2015 Equity Incentive Plan and 2004 Equity Incentive Plan. (3) The number of shares reserved for issuance under our 2017 Equity Incentive Plan will automatically increase on January 1st each year, beginning on January 1, 2018 and continuing through January 1, 2027, by the lesser of (a) five percent (5%) of the total number of shares of the Registrant s capital stock outstanding on December 31st of the immediately preceding calendar year and (b) a number determined by the Registrant s board of directors. (4) The number of shares reserved for issuance under our 2017 ESPP will automatically increase on January 1st each year, beginning on January 1, 2018 and continuing through January 1, 2027, by the least of (a) two percent (2%) of the total number of shares of the Registrant s capital stock outstanding on December 31st of the immediately preceding calendar year, (b) 1,000,000 shares of Common Stock and (c) a number determined by the Registrant s board of directors. 98

99 I tem 13 Certain Relationships and Relate d Transactions, and Director Independence The information required by this item will be set forth in the Proxy Statement to be filed with the SEC within 120 days of the year ended December 31, 2017, and is incorporated herein by reference. Item 14 Principal Accountant Fees and Services The information required by this item will be set forth in the 2018 Proxy Statement to be filed with the SEC within 120 days of the year ended December 31, 2017, and is incorporated herein by reference. PART IV Item 15 Exhibits and Financial Statement Schedules (a) (b) Documents filed as part of this report: (1)FinancialStatements Reference is made to the Index to Consolidated Financial Statements under Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. (2)FinancialStatementSchedules All schedules are omitted because they are not applicable or not required or because the required information is shown in the consolidated financial statements and related notes. (3)Exhibits See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified. Exhibits 99

100 EXHIBIT INDEX Exhibit Number Incorporation By Reference Description Form SEC File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation 8-K Nov 9, Amended and Restated Bylaws S Oct 6, Form of Common Stock Certificate of the Registrant. S Oct 6, Amended and Restated Investors Rights Agreement, by and among the Registrant and certain of its stockholders, dated March 25, 2015, as amended Form of Indemnification Agreement by and between the Registrant and its directors and officers Equity Incentive Plan, as amended, and Forms of Stock Option Agreement and Notice of Exercise thereunder. S Oct 6, 2017 S Oct 6, 2017 S Oct 6, Equity Incentive Plan and Forms of Stock Option Agreement and Notice of Exercise. S Oct 6, * Office and R&D Lease with Paul Erickson, Trustee of the H.C. and R.C. Merritt Trust and Century Urban Tasman, LLC dated December 7, * 2017 Executive Bonus Plan of Registrant Amended and Restated Employment Agreement, dated April 21, 2016, between Faraj Aalaei and the Registrant. S Oct 6, Offer of Employment, dated December 10, 2015, between Mark Voll and the Registrant. S Oct 6, Offer of Employment by Aquantia Corp., dated November 18, 2009, between Kamal Dalmia and the Registrant. S Oct 6, Employment Offer Letter for Pirooz Parvarandeh and the Registrant. 8-K Jan 12, # Master Purchase Agreement for 10 Gigabit Ethernet Physical Layer Devices, dated January 15, 2009, between the Registrant and Intel Corporation, as amended, and related Addendums # Letter Agreement, dated July 29, 2014, between the Registrant and GLOBALFOUNDRIES U.S. Inc Equity Incentive Plan, and Forms of Stock Option Agreement, Notice of Exercise and Stock Option Grant Notice thereunder. S Oct 6, 2017 S Oct 6, 2017 S-1/A Oct 3, Employee Stock Purchase Plan. S-1/A Oct23, Subsidiaries of the Registrant S Oct 6, * Consent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm. 24.1* Power of Attorney. Reference is made to the signature page hereto. 31.1** Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ** Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of

101 32.1** Certification of the Principal Executive Officer and Principal Financial Officer pursuant to the 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of INS*** XBRL Instance Document 101.SCH*** XBRL Taxonomy Extension Schema Document 101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*** XBRL Taxonomy Extension Label Linkbase Document 101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document + Indicates a management contract or compensatory plan or arrangement. # Confidential treatment has been granted for portions omitted from this exhibit (indicated by asterisks) and those portions have been separately filed with the Securities and Exchange Commission. * Filed herewith. ** This certification is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. *** Submitted electronically with this Annual Report. 101

102 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUANTIA CORP. Date: March 7, 2018 By: /s/ Faraj Aalaei Faraj Aalaei Chairman, President and Chief Executive Officer (Principal Executive Officer) 102

103 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Faraj Aalaei and Mark Voll, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/faraj Aalaei Chairman, President and Chief Executive Officer March 7, 2018 Faraj Aalaei (Principal Executive Officer) /s/ Mark Voll Chief Financial Officer March 7, 2018 Mark Voll (Principal Financial and Accounting Officer) /s/ Dmitry Akhanov Director March 7, 2018 Dmitry Akhanov /s/ Bami Bastani Director March 7, 2018 Bami Bastani /s/ Geoffrey G. Ribar Director March 7, 2018 Geoffrey G. Ribar /s/ Ken Pelowski Director March 7, 2018 Ken Pelowski /s/ Ramin Shirani Director March 7, 2018 Ramin Shirani /s/ Sam Srinivasan Director March 7, 2018 Sam Srinivasan /s/ Anders Swahn Director March 7, 2018 Anders Swahn /s/ Lip-Bu Tan Lead Director March 7, 2018 Lip-Bu Tan 103

104 EXHIBIT 10.4 OFFICE AND R&D LEASE 91 EAST TASMAN, SAN JOSE, CALIFORNIA PAUL ERICKSON, TRUSTEE of the H.C. and R.C. MERRITT TRUST and CENTURY URBAN TASMAN, LLC, a California limited liability company, as Landlord and AQUANTIA CORP., a Delaware corporation as Tenant

105 TABLE OF CONTENTS ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS4 ARTICLE 2 LEASE TERM7 ARTICLE 3 BASE RENT9 ARTICLE 4 ADDITIONAL RENT10 ARTICLE 5 USE OF PREMISES15 ARTICLE 6 SERVICES AND UTILITIES18 ARTICLE 7 REPAIRS21 ARTICLE 8 ADDITIONS AND ALTERATIONS21 ARTICLE 9 COVENANT AGAINST LIENS23 ARTICLE 10 INSURANCE24 ARTICLE 11 DAMAGE AND DESTRUCTION26 ARTICLE 12 NONWAIVER27 ARTICLE 13 CONDEMNATION27 ARTICLE 14 ASSIGNMENT AND SUBLETTING28 ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES32 ARTICLE 16 HOLDING OVER32 ARTICLE 17 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS33 ARTICLE 18 SUBORDINATION33 ARTICLE 19 DEFAULTS; REMEDIES34 ARTICLE 20 COVENANT OF QUIET ENJOYMENT36 ARTICLE 21 SECURITY DEPOSIT37 ARTICLE 22 DEVELOPMENT OF THE PROJECT37 ARTICLE 23 SIGNS39 ARTICLE 24 COMPLIANCE WITH LAW40 ARTICLE 25 LATE CHARGES41 ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT41 ARTICLE 27 ENTRY BY LANDLORD42 ARTICLE 28 TENANT PARKING42 ARTICLE 29 MISCELLANEOUS PROVISIONS43 EXHIBITS A B C D E OUTLINE OF PREMISES WORK LETTER FORM OF NOTICE OF LEASE TERM DATES RULES AND REGULATIONS FORM OF TENANT'S ESTOPPEL CERTIFICATE

106 91 EAST TASMAN OFFICE AND R&D LEASE This Office and R&D Lease (the " Lease "), dated as of December 5, 2017, is entered into by and between PAUL ERICKSON, TRUSTEE of the H.C. and R.C. MERRITT TRUST and CENTURY URBAN TASMAN, LLC, a California limited liability company (collectively, " Landlord "), and AQUANTIA CORP., a Delaware corporation (" Tenant "). SUMMARY OF BASIC LEASE INFORMATION ( Summary ) TERMS OF LEASE DESCRIPTION 1.Premises ( Article 1 ): 1.1Building: 1.2Premises: 1.3Project: That certain two-story building (the " Building ") located at 91 East Tasman Dr California 95134, containing approximately 84,049 rentable square feet ( RSF Approximately 66,943 RSF in the Building, comprised of (i) 33,598 RSF locate on the First Floor, (ii) 1,572 RSF constituting the entire First Floor lobby, an RSF constituting the entire Second Floor, as further set forth in Exhibit A to thi The Building is the principal component of an office project known as "91 Ea further set forth in Section of this Lease. 2.Lease Term ( Article 2 ): 2.1Length of Term: Six years. 2.2Lease Commencement Date: April 1, Lease Expiration Date: March 31,

107 3. Base Rent ( Article 3 ): Lease Year Months Total RSF Occupied Total Rent Paying SF Monthly Installment of Base Rent Annual Base * 66,943 0 $0.00 $ ** 66,943 40,000 $74, $888, ** 66,943 40,000 $76, $914, ** 66,943 40,000 $78, $942, ,943 66,943 $131, $1,576, ,943 66,943 $135, $1,623, ,943 66,943 $139, $1,672, ,943 66,943 $143, $1,722,837 * The Base Rent between April 1, 2018 and December 31, 2018, shall be fully abated. ** Base Rent during the first 30 months of the term is based on 40,000 square feet only. 4.Tenant's Share ( Article 4 ): 5.Permitted Use ( Article 5 ): 79.7% (the Building, as noted in Section 1.1 above, has 84,049 RSF). General office use, research and development, a lab, and any other lawful use inci and permitted by local zoning laws, without the requirement of obtaining a special other discretionary governmental permits or approvals. 6.Security Deposit ( Article 21 ): $143, subject to the terms and provisions of Article 21. Two hundred twenty seven (227) unreserved non-exclusive common parking, all 7.Parking ( Article 28 ): terms of Article 28 of this Lease. 8.Address of Tenant ( Section ): 9.Address of Landlord ( Section ): 10.Broker ( Section ): Aquantia Corp. 105 East Tasman Drive San Jose, CA Attention: Linda Reddick See Section of the Lease. CBRE, Inc. 11.Tenant Improvements ( Exhibit B ): The "Tenant Improvements" (as defined in the Work Letter attached to this Le constructed by Landlord in accordance with the terms of such Work Letter

108 ARTICLE 1 - PREMISES, BUILDING, PROJECT, AND COMMON AREAS 1.1 Premises, Building, Project and Common Areas The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 1.2 of the Summary (the " Premises "). The outline of the Premises is set forth in Exhibit A attached hereto and the Premises has the number of rentable square feet as set forth in Section 1.2 of the Summary. The RSF of the Building and Premises shall not be subject to re-measurement or modification unless Landlord elects to do so solely for purposes of recalculating Tenant s Share of Direct Expenses, in which case any such measurement shall be governed by ANSI/BOMA Z Exterior Gross Area Standards for a single-tenant building, modified to include balconies, roof decks and 2-story lobbies, but specifically excluding mechanical and other non-occupiable penthouses on the roof and drip lines. The lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The purpose of Exhibit A is to show the approximate location of the Premises in the "Building," as that term is defined in Section 1.1.2, below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the "Common Areas," as that term is defined in Section 1.1.3, below, or the elements thereof or of the accessways to the Premises or the "Project," as that term is defined in Section 1.1.2, below. Except as specifically set forth in this Lease and in the Work Letter attached hereto as Exhibit B (the " Work Letter "), Tenant shall accept the Premises in their existing, "as is" condition, and Landlord and Tenant shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant's business, except as specifically set forth in this Lease and the Work Letter. The taking of possession of the Premises by Tenant when Ready for Occupancy shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair. Except when and where Tenant's right of access is specifically excluded in this Lease, Tenant shall have the right of access to and use of the Premises and Common Areas, including the Project parking areas, twenty-four (24) hours per day, seven (7) days per week during the "Lease Term, " as that term is defined in Section 2.1, below The Building and The Project. The Premises are a part of the building set forth in Section 1.1 of the Summary (the " Building "). The Building is the principal component of an office project known as " 91 East Tasman Drive." The term " Project," as used in this Lease, shall mean (i) the Building and the Common Areas and (ii) the land (which is improved with landscaping, parking areas and other improvements) upon which the Building and the Common Areas are located Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are designated by Landlord, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas are collectively referred to herein as the " Common Areas "). The manner in which the Common Areas are maintained and operated shall be at the reasonable discretion of Landlord and the use thereof shall be subject to such reasonable rules, regulations and restrictions as Landlord may make from time to time. Subject to the terms of this Lease, Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas. 1.2 Right of First Refusal. Landlord hereby grants to the original Tenant set forth in this Lease (the " Original Tenant "), and the Original Tenant s Permitted Transferee (defined in Section 1.3 below), an on-going right of first refusal with respect to any particular "directly available" space for lease by Landlord (as opposed to any sublease, license or other occupancy rights from a master tenant to a third party) on the first (1 st ) floor of the Building (the " First Refusal Space "). in accordance with the following terms and conditions:

109 1.2.1 Procedure for Offer. Landlord shall notify Tenant (the " First Refusal Notice ") from time-to-time when and if Landlord receives a "bona-fide third-party offer" for a lease of the First Refusal Space (or any portion thereof). Pursuant to such First Refusal Notice, Landlord shall offer to lease to Tenant the applicable First Refusal Space (or any portion thereof). The First Refusal Notice shall describe the First Refusal Space, and the lease term, rent, any tenant improvement allowance, any Landlord work or improvements, and other fundamental economic terms and conditions upon which Landlord proposes to lease such First Refusal Space pursuant to the bona-fide third-party offer, and shall include a copy of the bona-fide third-party offer (which may be redacted to remove any confidential, privileged or sensitive information). For purposes of this Section 1.2, a " bona-fide third-party offer " shall mean an offer or counter-offer received by Landlord to lease First Refusal Space from an unaffiliated and qualified third party which Landlord would otherwise be willing to accept (but for Tenant's superior rights hereunder). For purposes of example only, the following would each constitute a bona-fide third-party offer: Landlord receives a request for proposal from an unaffiliated third party. Landlord, in Landlord's sole and absolute discretion, responds to the request for proposal with a lease proposal and subsequently receives a written bona-fide counter proposal from the same unaffiliated third party to which it originally responded Landlord receives a written offer to lease from an unaffiliated third party. Landlord, in Landlord's sole and absolute discretion, responds to the offer with a written counter offer and subsequently receives a bona-fide counter to Landlord's counter offer from the same unaffiliated third party to which it originally responded Procedure for Acceptance. If Tenant wishes to exercise Tenant's right of first refusal with respect to the space described in the First Refusal Notice, then within ten business days of delivery of the First Refusal Notice to Tenant (the " Election Period "), Tenant shall deliver to Landlord written notice (an " Election Notice ") of Tenant's exercise of its right of first refusal with respect to all of the First Refusal Space described in the First Refusal Notice for the term and upon the other fundamental economic terms and conditions contained in such First Refusal Notice, including, but not limited to rental concessions and improvement allowances; provided,however, the rent for the First Refusal Space shall be the greater of (i) the rental rate under this Lease or (ii) 95% of the rental rate described in the bona-fide third-party offer. If Tenant, following its receipt of a First Refusal Notice, fails to timely exercise its right to lease all of the First Refusal Space, time being of the essence, then Landlord shall have the right to lease the First Refusal Space to any third party on any terms that Landlord desires, and Tenant's right of first offer as set forth in this Section 1.2 shall no longer be applicable to the First Refusal Space or portion thereof described in the First Refusal Notice; provided,however, prior to leasing such First Refusal Space to any third party at a rental rate (taking into consideration the "Economic Terms," as that term is defined below) which is more than ten percent (10%) more favorable to the proposed tenant than the Economic Terms set forth in the corresponding First Refusal Notice, Landlord shall first again offer such First Refusal Space to Tenant on the Economic Terms offered to such tenant by delivering another First Refusal Notice to Tenant, which shall be subject to all of the terms and conditions of this Section For purposes hereof, the " Economic Terms " shall mean the following items: (i) any base rent and free rent, including escalations thereto, expressed as a dollar amount per rentable square foot, (ii) operating expense and tax protection such as an expense stop, and (iii) all other monetary terms and concessions (e.g., free rent, improvement allowances) First Refusal Space Commencement Date; Construction in First Refusal Space. The commencement date for the First Refusal Space shall be the applicable date specified in the applicable First Refusal Notice (the " First Refusal Space Commencement Date "), unless otherwise agreed to by Landlord and Tenant. Except as otherwise expressly identified in the First Refusal Notice, Tenant shall take the First Refusal Space in its "as is" condition as of the First Refusal Space Commencement Date, and the construction of improvements in the First Refusal Space shall comply with the terms of Article 8 of this Lease

110 1.2.4 Amendment to Lease. If Tenant timely exercises Tenant's right to lease the First Refusal Space as set forth herein, then Landlord and Tenant shall within 30 days thereafter execute an amendment to the Lease for such First Refusal Space upon the terms and conditions as set forth in the First Refusal Notice and this Section 1.2. Notwithstanding the foregoing, the failure of Landlord and Tenant to execute and deliver such First Refusal Space amendment shall not affect an otherwise valid exercise of Tenant's first refusal rights or the parties' rights and responsibilities in respect thereof Expiration Date of Right of First Refusal. Tenant s Right of First Refusal is only applicable between the execution date of this Lease and December 31, 2019, and this Section 1.2 shall be automatically stricken from this Lease on January 1, Termination of Right of First Refusal. Tenant's rights under this Section 1.2 shall be personal to the Original Tenant and may only be exercised by the Original Tenant (and not any assignee, or any sublessee or other transferee of the Original Tenant's interest in the Lease) if the Original Tenant occupies at least ninety percent (90%) of the initial Premises. Tenant shall not have the right to lease First Refusal Space, as provided in this Section 1.2, if, as of the date of the attempted exercise of any right of first refusal by Tenant, or, at Landlord's option, as of the scheduled date of delivery of such First Refusal Space to Tenant, Tenant is in default under the Lease beyond the expiration of any applicable notice and cure period set forth in the Lease. 1.3 Permitted Transfers; Affiliates. For purposes of the entire Lease and all references to Original Tenant, the following shall apply: Permitted Transfer : Notwithstanding any provisions of this Lease to the contrary, so long as the Tenant is in physical occupancy of and conducting business in the whole of the Premises and is not in default of any of its covenants, obligations, or agreements under this Lease which default has not been cured within the applicable cure period, the Landlord agrees that the Tenant may, without the Landlord s consent but upon fifteen (15) days prior written notice, assign this Lease or sublet the Premises (a Permitted Transfer ) to: an Affiliate of the Tenant (as defined below), but only so long as such Affiliate remains an Affiliate of the Tenant and if it does not, a transfer shall be deemed to have occurred under this Lease that requires the Landlord s consent and all of the provisions the Lease shall apply. If requested by the Landlord, the Tenant will, within fifteen (15) days of its receipt of such request, provide the Landlord with a statutory declaration sworn by a director or officer of the Tenant stating that such Transferee remains an Affiliate of the Tenant; or a corporation formed as a result of a merger or amalgamation of the Tenant with another corporation provided that the net worth of such corporation is equal to or greater than that of the Tenant immediately prior to any such amalgamation or merger; or a corporation purchasing all of the Tenant s assets provided that the purchaser continues to carry on the business operations of the Tenant as they were conducted immediately prior to such acquisition, and further provided that the resulting entity is equal to or greater than the net worth of the Tenant prior to the asset sale. Each of the foregoing transferees in Subsections through above inclusive are referred to hereinafter as a Permitted Transferee Conditions to a Permitted Transfer. In the case of any Permitted Transfer permitted by the terms of this Section 1.3, the Permitted Transfer shall not become effective unless and until:

111 S uch Permitted Transferee shall carry on only the same business as is permitted to be carried on by the Tenant under the Lease and there shall be a continuity of its business practices and policies after the Permitted Transfer ; being a Permitted Transferee; Permitted Transfer; and Landlord receives satisfactory evidence that the Permitted Transferee qualifies as Tenant delivers to the Landlord a copy of the document giving effect to the Tenant and the Permitted Transferee execute the Landlord s form of documentation in which the Permitted Transferee covenants directly with the Landlord to assume this Lease and observe and perform each of the covenants, obligations and agreements of the Tenant under this Lease for which the Tenant remains liable under the Lease for the performance and observance of all of the covenants, obligations and agreements of the Tenant under this Lease. All the provisions of the Lease shall apply in respect of the Permitted Transfer Affiliate. An Affiliate means (i) any entity that controls, is controlled by, or is under common control with Tenant, (ii) any successor to Tenant by merger, consolidation or operation of law, (iii) any entity to whom all of substantially all of Tenant s assets or stock are conveyed; and (iv) any entity with whom Tenant is undertaking or will undertake a joint venture or similar joint research and development, marketing, distribution, sales or development project at the premises. " Control " means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity's affairs. Landlord shall not be entitled to terminate the Lease due to a Permitted Transfer. ARTICLE 2 - LEASE TERM 2.1 Lease Term; Lease Commencement Date; Lease Expiration Date. The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the " Lease Term ") shall be as set forth in Section 2.1 of the Summary, shall commence on the date set forth in Section 2.2 of the Summary (the " Lease Commencement Date "), and shall terminate on the date set forth in Section 2.3 of the Summary (the " Lease Expiration Date ") unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term " Lease Year " shall mean each consecutive 12 month period during the Lease Term, provided, however, that the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the month in which the first anniversary of the Lease Commencement Date occurs (or if the Lease Commencement Date is the first day of a calendar month, then the first Lease Year shall commence on the Lease Commencement Date and end on the day immediately preceding the first anniversary of the Lease Commencement Date), and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C, attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within ten business days of receipt thereof. 2.2 Option to Extend Term Option to Extend and Rent During the Extended Period : Tenant shall have one option to extend the Lease Term for a period of five years (the Extension Period ) by giving written notice of exercise of such option ( Extension Option Notice ) to Landlord at least 180 days, but not more than 270 days, prior to the expiration of the Lease Term. The Extension Period shall commence, if at all, immediately following the expiration of the initial Lease Term. If there exists an Event of Default (defined in Section 19.1 below) on the date Tenant delivers the Extension Option Notice, or on the date of the Extension Period is to commence,

112 the Extension Period at the option of Landlord shall not commence and the Lease shall expire at the end of the initial Lease Term Lease Terms During the Extension Period. The Extension Period shall be upon all of the terms and provisions of the Lease, except that (i) the Base Rent during the first Lease Year of the Extension Period shall be 95% of then Fair Market Rent (defined below), (ii) any tenant improvements, allowances, free rent, and other concessions provided by Landlord in connection with the initial Lease Term shall not apply; and (iii) Tenant shall not have any additional option to extend. Commencing on the first day of the second Lease Year of the Extension Period, and continuing annually thereafter, the Base Rent will increase by 3% per annum over the Base Rent in effect during the prior Lease Year. The parties shall take this factor into account in calculating Fair Market Rent for the first year of the Extension Period Fair Market Rent. The term Fair Market Rent for purposes of determining Base Rent during the Extension Period shall mean the Base Rent generally applicable to leases at comparable class buildings of comparable size, age, quality of the Premises within a 10- mile radius of the Project, projected as of the first day of the Extension Period by giving due consideration for the quality of the Building and improvements therein (including the quality of the then existing improvements in the Premises), the quality of tenants credit, for a term comparable to the Extension Period at the time the Extension Period is scheduled to commence, and for comparable space that is not subleased or subject to another party s expansion rights or not leased to a tenant that holds an ownership interest in the landlord, and taking into account items that professional real estate brokers or professional real estate appraisers customarily consider, including, but not limited to, rental rates for extensions and renewals, space availability, tenant improvement allowances, parking charges (or lack thereof) and any other lease considerations, if any, then being charged or granted by Landlord or the lessors of such similar buildings. All economic terms other than Base Rent, will be established by Landlord with input from Tenant, and will be factored into the determination of the fair market rental rate for the Extension Period. Such terms shall be binding on both parties once the Third Party establishes the Fair Market Rent under Section below Procedure to Determine Fair Market Rent. Landlord shall notify Tenant in writing of Landlord s determination of the Fair Market Rent ( Landlord s FMR ) within 30 days after Landlord s receipt of the Extension Option Notice. Within 30 days after Tenant s receipt of Landlord s FMR, Tenant shall have the right either to: (i) accept Landlord s FMR, or (ii) elect to have the Fair Market Rent determined in accordance with the appraisal procedure set forth below by giving written notice of such election to Landlord (the Election Notice ). The failure of Tenant to provide the Election Notice within such 30-day period shall be deemed an acceptance of Landlord s FMR. The election (or deemed election) by Tenant under this section shall be nonrevocable and binding on the parties Appraisers. If Tenant elects to have the Fair Market Rent determined by an appraisal, then within 10 days after Landlord s receipt of Tenant s Election Notice, each party, by giving written notice to the other party, shall appoint a broker to render a written opinion of the Fair Market Rent for the Extension Period. Each broker must be a real estate broker licensed in the State where the Building is located for at least ten years and with at least ten years experience in the appraisal of rental rates of leases or in the leasing of space in office buildings in the area in which the Building is located and otherwise unaffiliated with either Landlord or Tenant. The two brokers shall render their written opinion of the Fair Market Rent for the Extension Period to Landlord and Tenant within 30 days after the appointment of the second broker. If the Fair Market Rent of each broker is within 5% of each other, then the average of the two appraisals of Fair Market Rent shall be the Fair Market Rent for the Extension Period. If one party does not appoint its broker as provided above, then the one appointed shall determine the Fair Market Rent. The Fair Market Rent so determined under this section shall be binding on Landlord and Tenant Third Appraiser. If the Fair Market Rent determined by the brokers is more than 3% apart, then the two brokers shall pick a third broker within 10 days after the two brokers have rendered their opinions of Fair Market Rent as provided above. If the two brokers are unable to agree on the third broker within

113 s uch 10 - day period, Landlord and Tenant shall mutually agree on the third broker within 10 days thereafter. If the parties do not agree on a third qualified broker within 10 days, then at the request of either Landlord or Tenant, such third broker shall be promptly appointed by the then Presiding Judge of the Superior Court of the State of California for the County where the Building is located. The third broker shall be a person who has not previously acted in such capacity for either party and must meet the qualifications stated above Impartial Appraisal. Within 30 days after its appointment, the third broker (the Third Party ), shall render its written opinion by preparing an appraisal of the Fair Market Rent. This third appraisal shall be averaged with the closest of the first two appraisals and that shall be the Fair Market Rent. The Fair Market Rent determined in accordance with the foregoing procedure shall be binding on the parties. appraiser Appraisal Costs. Each party shall bear the cost of its own appraiser and one-half the cost of the third Acknowledgment of Rent. After the Fair Market Rent for the Extension Period has been established in accordance with the foregoing procedure, Landlord and Tenant shall promptly execute an amendment to this Lease to reflect the Base Rent for the Extension Period Personal Option. The foregoing option to extend the Lease Term is personal to the Original Tenant signing this Lease and its Permitted Transferee. Further, the rights contained in this Section 2.2 shall only be exercised by the Original Tenant if it is in occupancy of at least ninety percent (90%) of the then-existing Premises on the date it gives the Extension Option Notice, with the intention of continuing to occupy such amount of space during the Extension Period. ARTICLE 3 - BASE RENT 3.1 In General. Tenant shall pay, without prior notice or demand, to Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (" Base Rent ") as set forth in Section 3 of the Summary, payable in equal monthly installments as set forth in Section 3 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis. 3.2 Base Rent Abatement; Base Rent Reduction. During the nine- month period commencing on April , and ending on December 31, 2018 (the " Base Rent Abatement Period "), Tenant shall not be obligated to pay Base Rent for the Premises (the " Base Rent Abatement "). In addition, during the 21-month period commencing on January 1, 2019 and ending on September 30, 2020 (the " Base Rent Reduction Period "), Tenant shall only be obligated to pay Base Rent on 40,000 RSF of the Premises (the " Base Rent Reduction "). During such Base Rent Abatement Period and the Base Rent Reduction Period, such abatement and reduction of Base Rent for the Premises shall have no effect on the calculation of any future increases in Base Rent or Direct Expenses payable by Tenant under this Lease, which increases shall be calculated without regard to such Base Rent Abatement or Base Rent Reduction. Additionally, Tenant shall be obligated to pay all "Additional Rent" (as that term is defined in Section 4.1 of this Lease) during the Base Rent Abatement Period and the Base Rent Reduction Period ARTICLE 4 - ADDITIONAL RENT

114 4.1 General Terms. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay " Tenant's Share " of the annual " Direct Expenses," as those terms are defined in Sections and of this Lease, respectively. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the " Additional Rent, " and the Base Rent and the Additional Rent are herein collectively referred to as " Rent." All amounts due under this Article 4 as Additional Rent shall be payable for the entire period of the Lease Term (including during the period of abatement of Base Rent). Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term. 4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth: " Tenant's Share " shall mean the amount set forth in Section 4 of the Summary " Direct Expenses " shall mean " Operating Expenses " and " Tax Expenses." " Expense Year " shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other 12 consecutive month period, and, in the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change, and in any event, any such change shall not increase Tenant's obligations under this Lease " Operating Expenses " shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof, with the understanding that this is a triple net Lease. On the date the parties execute this Lease, the current Operating Expenses for vacant space are approximately $0.44 per RSF per month; this sum may increase after Tenant occupies the Premises, such as based on increases in real property taxes. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities (provided that Tenant shall pay 100% of the cost of all utilities separately metered for the Premises, as provided in Article 6 below), the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems (provided that Tenant shall pay 100% of the cost to maintain and repair the elevator systems, as Tenant is the exclusive user of the elevator), and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses; (iii) the cost of all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area operation, repair, restoration, and maintenance; (vi) fees and costs of all contractors, consultants and accountants in connection with the management, operation, maintenance and repair of the Project and, subject to the terms of item (o) below, all Project management fees; (vii) payments under any equipment rental agreements; (viii) subject to item (j), below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project, but only to the extent such shared costs otherwise qualify as Operating Expenses; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project; (xi) replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways and repairs to the roofs; (xii) amortization (including interest on the unamortized cost) over such period of time as Landlord shall reasonably determine, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project which are (A) intended to reduce current or future Operating Expenses, (B) required under any

115 Applicable Laws ( defined in Section 24.1 below ) or (C) necessary, in Landlord s reasonable judgment, to replace rather than repair; provided,however, the cost of any capital improvement shall be amortized on a straight-line basis (including interest on the amortized cost) over such period of time as Landlord shall reasonably determine in accordance with generally accepted real estate management and accounting principles ; (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute "Tax Expenses" as that term is defined in Section 4.2.5, below, and (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building, including, without limitation, any covenants, conditions and restrictions affecting the Project, and reciprocal easement agreements affecting the Project. For purposes of this Section, the term capital improvements means those costs which must be capitalized rather than expensed under the Internal Revenue Code and its implementing regulations. T o the extent Landlord incurs and amortizes capital improvements, Tenant shall have no responsibility or liability for any unamortized capital improvements after the later of (i) the Lease Expiration Date or (ii) the date the Lease would have terminated but for Tenant s breach thereof. Notwithstanding the foregoing or any other provision of this Lease, for purposes of this Lease, Operating Expenses shall not, however, include: (a) costs incurred with respect to the installation of tenant improvements made for tenants in the Project or incurred in renovating or otherwise improving or decorating vacant space for tenants of the Project; (b) depreciation and, except as set forth in items (xii) and (xiii) above, costs of capital replacements; (c) interest and principal payments on mortgages and other debt costs; (d) costs for which the Landlord is reimbursed by any tenant or occupant of the Project, or by insurance by its carrier or any tenant's carrier or by anyone else; (e) costs covered by a warranty to the extent of reimbursement for such coverage; company; (f) electric power and other utility costs for which any tenant directly contracts with the local public service or utility (g) any bad debt loss or rent loss; (h) Landlord's general overhead and administrative expenses, including costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project); (i) costs incurred in connection with any disputes between Landlord and other tenants or occupants; (j) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; (k) except for a Project management fee, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services or utilities in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis (provided that Landlord shall have the right to include in Operating Expenses service or utility

116 charges paid to affiliates or subsidiaries of Landlord, provided that such costs do not exceed market costs or rates for services or utilities); (l) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement; (m) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the comparable buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project; (n) to the extent caused by Landlord or its employees, agents or contractors, all costs and expenses incurred to comply with laws relating to the remediation or removal of Hazardous Materials; (o) cost of repairs or other work incurred by reason of fire, windstorm or other casualty or by the exercise of the right of eminent domain to the extent Landlord is compensated through proceeds or insurance or condemnation awards, or would have been so reimbursed if Landlord had in force all of the insurance required to be carried by Landlord under this Lease; provided, however, any deductible amounts under any such insurance policy and any uninsured amounts be included as an Operating Expense; (p) leasing commissions, attorneys' fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with tenants or other occupants or prospective tenant or other occupants, or associated with the enforcement of any leases or the defense of Landlord's title to or interest in the Project or any part thereof or Common Areas or any part thereof; (q) contributions to charitable or political organizations; and agents and brokers. (r) gifts to any person, including, without limitation, tenants, employees, contractors, vendors, prospective tenants, If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. Notwithstanding any provision to the contrary set forth herein, Landlord shall not collect or be entitled to collect Operating Expenses from all of the tenants in the Project in an amount in excess of one hundred percent (100%) of the Operating Expenses actually paid or incurred by Landlord in connection with the operation of the Project Taxes " Tax Expenses " shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent [unless assessed against and required to be paid by Tenant directly pursuant to the terms of Section 4.5], personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the

117 ownership, leasing and operation of the Project, or any portion thereof, including due to any change of ownership or improvements to the Project Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (" Proposition 13 ") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iii) any tax or assessment levied in connection with any public transportation system; (iv) unless assessed against and required to be paid by Tenant pursuant to the terms of Section 4.5, any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (v) unless assessed against and required to be paid by Tenant pursuant to the terms of Section 4.5, any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises Any costs and expenses (including, without limitation, reasonable attorneys' and consultants' fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred. Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. Notwithstanding anything to the contrary set forth in this Lease, (a) only Landlord may institute proceedings to reduce Tax Expenses and the filing of any such proceeding by Tenant without Landlord's consent shall constitute a default by Tenant under this Lease, and (b) Landlord shall not be obligated to file any application or institute any proceeding seeking a reduction in Tax Expenses. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax Expenses. Notwithstanding anything to the contrary contained in this Section (except as set forth in Section , above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease. 4.3 [Deleted]. 4.4 Calculation and Payment of Additional Rent. Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an amount equal to Tenant's Share of Direct Expenses Statement of Actual Direct Expenses and Payment by Tenant. Landlord shall give to Tenant within 90 days following the end of each Expense Year, a reasonably detailed written statement (the " Statement ") certified by a representative of the Landlord, which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share of Direct Expenses. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term,

118 Tenant shall pay, within 30 days of Tenant's receipt of the Statement, the full amount of Tenant's Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as " Estimated Direct Expenses," as that term is defined in Section 4.4.2, below, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses, Tenant shall receive a credit in the amount of Tenant's overpayment against Rent next due under this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord Tenant's Share of Direct Expenses within 30 days of Tenant's receipt of the Statement, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant's Share of Direct Expenses, Landlord shall, within 30 days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section shall survive the expiration or earlier termination of the Lease Term Statement of Estimated Direct Expenses. In addition, Landlord shall give Tenant, prior to the Lease Commencement Date and on or prior to April 1 st of each Expense Year, a detailed yearly expense written estimate statement (the " Estimate Statement ") which shall set forth Landlord's reasonable estimate (the " Estimate ") of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant's Share of Direct Expenses (the " Estimated Direct Expenses "). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary or desirable. Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section ). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and 12 as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant. 4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against Tenant's equipment, furniture, trade fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant's equipment, furniture, trade fixtures and any other personal property are levied against Landlord or Landlord's property or if the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon such equipment, furniture, trade fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall within 30 days after written demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be Notwithstanding any contrary provision herein, to the extent not included in Tax Expenses, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking areas; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. 4.6 Landlord's Records; Tenant Audit Rights. Upon Tenant's written request given not more than 60 days after Tenant's receipt of a Statement for a particular Expense Year, and provided that Tenant is not then in default under this Lease beyond the applicable notice and cure period provided in this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation pertaining to the calculation of the Direct

119 Expenses set forth in the Statement as Tenant may reasonably request. Landlord shall provide said documentation pertaining to the relevant Direct Expenses to Tenant within 60 days after Tenant's written request therefor ; provided, however, Landlord may remove from such records any information not directly relevant to Direct Expenses payable under this Lease. Within 90 days after receipt of a Statement by Tenant (the " Audit Period "), if Tenant disputes the amount of the Direct Expenses set forth in the Statement, an independent certified public accountant (which accountant (A) is a member of a nationally recognized certified public accounting firm which has previous experience in auditing financial operating records of landlords of office buildings, and ( B ) is not working on a contingency fee basis [i.e., Tenant must be billed based on the actual time and materials that are incurred by the certified public accounting firm in the performance of the audit] ), designated and paid for by Tenant and reasonably approved by Landlord (the Accountant ), may, after reasonable notice to Landlord and at reasonable times, audit Landlord's records with respect to the Direct Expenses set forth in the Statement at Landlord's corporate offices, provided that ( i) Tenant is not then in default under this Lease beyond the applicable notice and cure periods provided under this Lease, ( ii) Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, and ( iii ) a copy of the audit agreement between Tenant and the Accountant has been delivered to Landlord prior to the commencement of the audit. In connection with such audit, Tenant and the Accountant must agree in advance to follow Landlord's reasonable rules and procedures regarding an audit of the aforementioned Landlord records, and shall execute a commercially reasonable confidentiality agreement regarding such audit. Any audit report prepared by the Accountant shall be delivered concurrently to Landlord and Tenant within the Audit Period. Tenant's failure to audit the amount of the Direct Expenses set forth in any Statement within the Audit Period shall be deemed to be Tenant's waiver of the right or ability to audit the amounts set forth in such Statement pursuant to this Section 4.6. If such audit proves that the Direct Expenses in the subject Expense Year were overstated, Landlord and Tenant shall work together in good faith to resolve the discrepancy and to make any appropriate adjustment. Further, if the resolution of such discrepancy proves that the Direct Expenses in the subject Expense Year were overstated by more than five percent ( 5 %), then the cost of the Accountant and the cost of such audit shall be paid for by Landlord. Tenant hereby acknowledges that Tenant's sole right to audit Landlord's records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6, or alternatively, in a legal action, and Tenant hereby waives any and all other rights pursuant to applicable law to audit such records and/or to contest the amount of Direct Expenses payable by Tenant. Any information obtained by Tenant or its agents pursuant to this Section shall be treated as confidential. ARTICLE 5 - USE OF PREMISES 5.1 Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 5 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion. 5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant shall not use or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D, attached hereto, or in violation of the laws of the United States of America, the State of California, the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper or unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with, and Tenant's rights and obligations under the Lease and Tenant's use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions, and restrictions now or hereafter affecting the Project. 5.3 Hazardous Materials. Tenant shall not cause or permit the storage, use, generation, release, handling or disposal (collectively, Handling ) of any Hazardous Materials (as defined below) in, on, or about the Premises, the Building or the Project by Tenant or any agents, employees, contractors, licensees, subtenants,

120 customers, guests or invitees of Tenant ( each, including Tenant, a Tenant Party ), except that Tenant shall be permitted to use normal quantities of office supplies or products (such as copier fluids or cleaning supplies) customarily used in the conduct of general business office and R&D activities ( Common Chemicals ), provided that the Handling of such Common Chemicals shall comply at all times with all Applicable Laws, including Hazardous Materials Laws (as defined below). In no event, however, shall Tenant permit any usage of Common Chemicals in a manner that may cause the Premises, the Building or the Project to be contaminated by any Hazardous Materials or in violation of any Hazardous Materials Laws. Tenant shall immediately advise Landlord in writing of (a) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed, or threatened pursuant to any Hazardous Materials Laws relating to any Hazardous Materials affecting the Premises; and (b) all c laims made or threatened by any third party against Tenant, Landlord, the Premises or the Project relating to any Hazardous Materials on or about the Premises. Without Landlord s prior written consent, Tenant shall not take any remedial action or enter into any agreements or settlements in response to the presence of any Hazardous Materials in, on, or about the Premises. Tenant shall be solely responsible for and shall i ndemnify, defend and hold Landlord and its employees, agents and invitees harmless from and against all c laims arising out of or in connection with, or otherwise relating to (i) any Handling of Hazardous Materials by any Tenant Party or Tenant s breach of its obligations under this Section, or (ii) any removal, cleanup, or restoration work and materials necessary to return the all property of whatever nature located within Project to their condition existing prior to the Handling of Hazardous Materials in, on or about the Premises by any Tenant Party. Tenant s obligations under this paragraph shall survive the expiration or other termination of this Lease. For purposes of this Lease, Hazardous Materials means any explosive, radioactive materials, hazardous wastes, or hazardous substances, including asbestos containing materials, PCBs CFCs, or substances defined as hazardous substances in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ; the Hazardous Materials Transportation Act of 1975; the Resource Conservation and Recovery Act of 1976; all amendments to the foregoing law; and any other Applicable Laws regulating, relating to, or imposing liability or standards of conduct concerning any such materials or substances now or at any time hereafter in effect (collectively, Hazardous Materials Laws ). To Landlord s best actual knowledge on the date the parties sign this Lease, without any duty of inquiry, Landlord is not aware of any Hazardous Materials below or within the Building, except as disclosed in the Environmental Site Assessment dated September 12, 2016 by AllWest Environmental, a copy of which Tenant acknowledges receiv ing. Landlord recommends that Tenant engage a licensed consultant to perform a pre-demolition asbestos survey before Tenant performs any Alterations (as defined in Section 8.1 below). 5.4 Tenant s Early Access. Provided that Tenant and its agents do not interfere with any of the Tenant Improvement work in the Building and the Premises, Tenant may access the Premises at any time prior to the Lease Commencement Date to install equipment and fixtures (including Tenant s data and telephone equipment) in the Premises, and to otherwise prepare the Premises for occupancy. All of such access rights are subject to the following limitations: (i) prior to any entry, Tenant shall comply with all of the insurance provisions in this Lease, including delivering applicable Certificates of Insurance to Landlord which name Landlord as an additional insured; (ii) any early entry shall be at the sole risk of Tenant, including, but not limited to theft, bodily injury, vandalism or other damage; (iii) Tenant shall strictly comply with all requirements of Landlord and Landlord s contractor concerning Tenant s early entry into the Premises; and (iv) Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons or property damage caused by Tenant s actions pursuant to this Section. Tenant shall have no obligation to pay Base Rent or Direct Expenses during such early occupancy period; provided, however, if Tenant commences business operations in any portion of the Premises before the Lease Commencement Date, then (i) such early occupancy period shall automatically end and (ii) the Lease Commencement Date shall be advanced to occur on the date Tenant commences such business operations, notwithstanding any other provision in this Lease to the contrary. 5.5 Tenant s Temporary Right to Occupy the Other Space. The term Other Space means the leasable portion of the first floor of the Building located outside of the Premises, consisting of about 17,106 square feet of space. Subject to the provisions below, Tenant may temporarily occupy the Other Space immediately after the parties fully execute this Lease and until the earlier of (i) the date the Premises are Ready

121 for Occupancy (as defined in Work Letter Section 5.1 ) or (ii) the 30th day after Landlord notifies Tenant that Landlord requires some or all of the Other Space for renovation work and/or use by another tenant. Tenant s right to use the Other Space is subject to the terms of this Lease, as modified by the following provision s : Prior to any use or occupancy of the Other Space, Tenant shall comply with all of the insurance provisions in this Lease, including delivering applicable Certificates of Insurance to Landlord which name Landlord as an additional insured; Tenant accepts the Other Space in AS IS condition, without any representation or warranty of any nature, express or implied. Landlord has no obligation to make any improvements to or changes of any nature to the Other Space, and the Work Letter is inapplicable to the Other Space. Tenant acknowledges that (i) the HVAC in the Other Space is not presently working (one or more coils need to replaced) and (ii) Landlord has no obligation to make any repairs or replacements to any portion of such HVAC system; The occupancy and use of the Other Space shall be for the Permitted Use only, and at the sole risk of Tenant, including, but not limited to theft, bodily injury, vandalism or other damage; Tenant shall strictly comply with all requirements of Landlord and Landlord s contractor concerning Tenant s access to the Other Space, and Tenant and its agents and invitees shall not interfere with any Tenant Improvement work in the Building or the Premises while using the Other Space; Tenant acknowledges that it may be subject to excessive noise, dust, vibrations and other disruptions while it uses or occupies the Other Space, due to Landlord s construction of the Tenant Improvements and other improvements in the Building. Tenant hereby waives all rights, claims and remedies of any nature resulting from such interruptions, including but not limited to any claims for breach of the covenant of quiet enjoyment; Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or the Other Space and against injury to any persons or property damage caused by Tenant s and its invitees and agents access to and/or use of the Other Space; Tenant shall pay all costs and expenses under this Lease that are applicable to the Other Space during Tenant s use thereof, including but not limited to (i) Direct Expenses (other than real property taxes), (ii) the taxes described in Section 4.5 above and (iii) all utilities and trash disposal charges described in Section 6.2 below; and The Base Rent for the Other Space is $31, per month, commencing on the first day Tenant uses any portion of the Other Space, and is payable in a lump sum when Tenant vacates the Other Space; provided,however, such amount shall be fully abated, unless Tenant breaches any of the provisions in this Lease while in possession of the Other Space and fails to cure such breach after notice and the expiration of the applicable cure period; in such event the Base Rent for the Other Space shall be due in full. ARTICLE 6 - SERVICES AND UTILITIES 6.1 Standard Tenant Services. Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating and air conditioning (" HVAC ") at the Premises. Unless and until Landlord directs otherwise, Tenant shall directly contract with PG&E to provide electricity at the Premises to operate the HVAC and other appliances and equipment, and Tenant shall pay all electrical bills directly to PG&E

122 6.1.2 Subject to the other terms of this Lease, Landlord shall provide adequate electrical wiring and facilities and power for normal general office use as reasonably determined by Landlord. Tenant will, at Tenant s sole cost, design Tenant's electrical system serving any equipment producing nonlinear electrical loads to accommodate such nonlinear electrical loads, including, but not limited to, oversizing neutral conductors, derating transformers and/or providing power-line filters. If Landlord requests, Tenant s e ngineering plans shall include a calculation of Tenant's fully connected electrical design load with and without demand factors and shall indicate the number of watts of unmetered and submetered loads, subject to the following; the Premises shall be allocated 2, /480V, which is separately metered, and the remaining amperage in the Building will be allocated to the other tenants. Landlord shall designate the electricity utility provider from time to time. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-building standard lighting fixtures within the Premises Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building s Common Areas. responsibility Landlord shall not provide janitorial services to the Premises; rather, all janitorial services are Tenant s Landlord shall provide exterior window washing services in a manner consistent with other comparable buildings in the vicinity of the Building Landlord shall provide non-exclusive, non-attended automatic passenger elevator service. 6.2 Payments for Utilities; Trash Disposal. The Premises are separately metered for electricity and gas, and are or will be separately metered for water. Tenant shall pay for 100% of such utilities, as Additional Rent. Tenant shall also pay for 100% of the cost of trash disposal from the Premises. Tenant shall pay Tenant s Share of the cost of all utilities that serve the Common Areas. 6.3 Cooperation; Overstandard Tenant Use. Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems. Tenant shall not, without Landlord's prior written consent, use machines other than normal general office machines and equipment, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease (see also Section below). Landlord may install devices to separately meter any other utilities use, at Tenant s cost. Tenant's use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation. If Tenant desires to use heat or air conditioning during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant's desired use in order to supply such utilities, and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant (which shall be treated as Additional Rent) as Landlord shall from time to time establish. Notwithstanding any provision to the contrary contained in this Lease, Tenant shall pay to Landlord within 10 days of Tenant's receipt of an invoice therefor, Landlord's standard charge for any services requested by and provided to Tenant which Landlord is not specifically obligated to provide to Tenant pursuant to the terms of this Lease Supplemental HVAC. Landlord has no obligation to provide any supplemental HVAC for Tenant s server room, data center, lab areas and similar facilities. If Tenant intends to use heat- or cold-generating machines or equipment (collectively, the Supplemental HVAC ) for any of such facilities, Tenant at Tenant s sole cost shall provide and install appropriate and adequate Supplemental HVAC equipment and systems, including supplementary or additional metering devices. Such Supplemental HVAC equipment and systems shall be considered Alterations, and shall be subject to Landlord s prior reasonable written approval and

123 the other applicable requirements of this Lease. Without limiting any other requirements, Landlord shall have the right to require and to designate supplementary or additional metering devices. At its sole cost, Tenant shall be responsible for the proper installation, operation, maintenance, repair and replacement of any Supplemental HVAC, subject to the applicable provisions of this Lease, and for all related utility costs. All costs relating to the Supplemental HVAC are excluded from the Tenant Improvements described in the Work Letter. Landlord recommends that Tenant engage an HVAC professional to provide regular maintenance services for the Supplemental HVAC. Whether or not Tenant m aintain s a maintenance contract for the Supplemental HVAC, Landlord shall have no liability whatsoever for any damages or loss to Tenant or the Premises relating to or arising from the Supplemental HVAC. 6.4 Interruption of Use. Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease, except to the extent expressly set forth in Section of this Lease. Furthermore, subject to Paragraph below, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6, except to the extent caused by Landlord s negligence (as limited by the provisions in Section 10.5 below) or willful misconduct. 6.5 Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises (collectively, the " Lines "), provided that (i) Tenant shall obtain Landlord's prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) a reasonable number of spare Lines or space for a reasonable number of additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord's reasonable opinion, (iii) the Lines therefor (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, shall be surrounded by a protective conduit reasonably acceptable to Landlord, and shall be identified in accordance with the "Identification Requirements," as that term is set forth hereinbelow, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, and (v) Tenant shall pay all costs in connection therewith. All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant's name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4') outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines' termination point(s) (collectively, the " Identification Requirements "). Upon the expiration or earlier termination of this Lease, Tenant shall, upon Landlord s request and at Tenant's sole cost and expense, cause the Lines, and all other telecommunications equipment serving Tenant and located in the Premises, Building and Common Area, to be removed and shall cause such areas to be restored to the condition existing immediately prior to the installation of such Lines and equipment. If Tenant fails to timely remove such Lines and equipment or to restore the areas in which such it was located, then Landlord may perform such work, and all costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within 30 days after Tenant's receipt of an invoice therefor. The terms of this Section shall survive the expiration or earlier termination of this Lease. 6.6 Telecommunications Services. Tenant may select its own telecommunications provider (the Provider ). Landlord shall reasonably cooperate with the Provider and data infrastructure installations in the Building and Common Area, at no out-of-pocket cost to Landlord and subject to the provisions in Section 6.4 above. Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant

124 with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider will not be acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord. 6.7 Generator. Tenant may install a back-up generator on a generator pad site, which location shall be mutually agreed on by Landlord and Tenant. Tenant shall be solely responsible for all costs relating to the acquisition, engineering, installation, repair, maintenance and replacement of the generator. All costs relating to the generator are excluded from the Tenant Improvements described in the Work Letter. The generator shall be Tenant s property during the Lease Term, and Tenant shall insure the generator. Tenant shall engage a professional to provide regular maintenance services for the generator, and Tenant shall provide a copy of such maintenance agreement to Landlord on request. If Tenant fails to maintain a maintenance contract for the generator, Landlord may obtain such a contract at Tenant s expense, and Tenant shall reimburse Landlord for such costs on demand. Upon the expiration of the Lease Term or earlier termination of this Lease, Tenant shall have the option to remove the generator and all associated equipment, at Tenant s sole cost and expense, or convey Tenant s ownership interest in the generator to Landlord via a Bill of Sale, provided that such conveyance shall be without express or implied warranties (except a warranty that the generator is owned by Tenant and free and clear of liens). 6.8 Utility Billing Information. If the Tenant is permitted to contract directly for the provision of electricity, gas and/or water services to the Premises with the third-party provider thereof (all in Landlord's sole and absolute discretion), Tenant shall promptly, but in no event more than fifteen business days following its receipt of each and every invoice for such items from the applicable provider, provide Landlord with a copy of each such invoice. Tenant acknowledges that pursuant to California Public Resources Code Section , or any successor statute, and the regulations adopted pursuant thereto (collectively the " Energy Disclosure Requirements "), Landlord may be required to disclose information concerning Tenant s energy usage at the Building to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Building (the " Tenant Energy Use Disclosure "). Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, and (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure. Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and liabilities relating to, arising out of and/or resulting from any Tenant Energy Use Disclosure. The terms of this Section shall survive the expiration or earlier termination of this Lease. ARTICLE 7 - REPAIRS Landlord shall at all times during the Lease Term maintain in good condition and repair and operating order the structural portions of the Building, including, without limitation, the foundation, structural portions of the floors, floor slabs, exterior walls, exterior windows, exterior window seals, ceilings, roof, load bearing walls, columns, beams, shafts, stairs, stairwells, the elevator and all Common Areas (collectively, the " Building Structure "), and the Building's mechanical, electrical, life safety, plumbing, sprinkler and HVAC systems and equipment installed or furnished by Landlord (collectively, the " Building Systems "). Landlord s cost to perform such work shall be considered Operating Expenses. (The Supplemental HVAC and generator described in Article 6 are not considered part of the Building Systems, and Landlord therefore has no obligation to maintain them.) Except as specifically set forth in this Lease to the contrary, Tenant shall not be required to repair the Building

125 Structure and/or the Building Systems. Tenant shall, at Tenant's own expense, keep the Premises, including all improvements, fixtures, furnishings, and systems and equipment in or exclusively serving the Premises (including, without limitation, (a) plumbing fixtures and equipment such as dishwashers and garbage disposals, and (b) all equipment located in the Premises that is utilized to supply supplemental HVAC to the Premises ) in good order, repair and condition at all times during the Lease Term. In addition, Tenant shall, at Tenant's own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair and replace all damaged, broken, or worn fixtures and appurtenances in the Premises or exclusively serving the Premises, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord's option, or if Tenant fails to make such repairs or replacements within 30 days after receiving Landlord's written demand, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof to reimburse Landlord for its actual out-of-pocket cost thereof within 30 days of being billed for same. Notwithstanding the foregoing, Landlord shall be responsible for repairs to the Building Structure and Building Systems, except to the extent that such repairs are required due to the negligence or willful misconduct of Tenant; provided,however, that to the extent such repairs are due to the negligence or willful misconduct of Tenant, Landlord shall nevertheless make such repairs at Tenant's expense (subject to the terms of Section 10.5 below). Landlord may, but shall not be required to (except to the extent otherwise provided in this Lease or required by Applicable Law ), enter the Premises at all reasonable times upon not less than twenty-four (24) hours' prior written notice (except in the case of an emergency, in which case no prior written notice shall be required, but Landlord shall notify Tenant of any such entry as soon as reasonably practicable ) to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree or the terms of this Lease. Tenant hereby waives and releases any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect. ARTICLE 8 - ADDITIONS AND ALTERATIONS 8.1 Landlord's Consent to Alterations. Tenant may not make or cause the installation of any improvements, alterations, fixtures, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the " Alterations ") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than 30 days prior to the commencement thereof, and which consent shall not be unreasonably withheld, conditioned or delayed by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. Notwithstanding the foregoing, Tenant shall be permitted to make cosmetic Alterations following ten days notice to Landlord, but without Landlord's prior consent, to the extent that such Alterations do not (i) adversely affect the Building Systems or Building Structure, (ii) affect the exterior appearance of the Building, (iii) adversely affect the value of the Premises or Building, (iv) require a building or construction permit, or (v) cost more than Fifty Thousand Dollars ($50,000.00) for a particular job of work. 8.2 Manner of Construction. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and reasonably approved by Landlord; provided, further, Tenant shall not remove any improvements made by Landlord as described in the Work Letter attached hereto, or any Alterations approved by Landlord; provided, however, on the Lease Expiration Date the Tenant shall have the right and option to remove its trade fixtures to the extent they are part of the Alterations, and in such event Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all Applicable Laws and, if required, pursuant to a valid building permit, issued by the city in which the Building is located (or other applicable governmental authority), all in conformance with any construction rules and regulations Landlord may adopt;

126 provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord's design parameters and code compliance issues. If Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the "Base Building," as that term is defined below, then Landlord shall, at Tenant's expense (subject to the terms of Article 24), make such changes to the Base Building. The " Base Building " shall mean the Building Structure and Building Systems. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Santa Clara in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the "as built" drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations. 8.3 Payment for Alterations. If payment is made by Tenant directly to contractors, Tenant shall (i) comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to contractors, and (ii) comply Landlord's standard commercially reasonable contractor's rules and regulations, including signing such rules on request. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to ten percent of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord's reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord's review of such work. 8.4 Construction Insurance. In addition to the requirements of Article 10 of this Lease, if Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Tenant's contractors and subcontractors shall be required to carry Commercial General Liability Insurance in an amount approved by Landlord and otherwise in accordance with the requirements of Article 10 of this Lease. For any Alterations costing in excess of $100, in aggregate, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. 8.5 Landlord's Property. All Alterations which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord, except that Tenant may remove any trade fixture Alterations which Tenant can substantiate to Landlord have not been paid for by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord. Furthermore, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant's expense, to remove any Alterations within the Premises and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord; provided,however, (i) nothing herein shall be construed to obligate Tenant to remove any of the Tenant Improvements installed by Landlord under the Work Letter and (ii) upon request by Tenant at the time of Tenant's request for Landlord's consent to any Alteration, Landlord shall notify Tenant whether the applicable Alteration will be required to be removed pursuant to the terms of this Section 8.5. If Tenant fails to complete the removal and/or to repair any damage caused by the removal of any Alterations

127 that Tenant is required to remove and return the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord, Landlord may do so and may charge the cost thereof to Tenant. Except to the extent caused by Landlord s negligence ( as limited by the provisions in Section 10.5 below ) or willful misconduct, Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease. ARTICLE 9 - COVENANT AGAINST LIENS Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or at the request of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys' fees and costs) arising out of or in connection with such liens or encumbrances. Tenant shall give Landlord notice at least 20 days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under Applicable Laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within ten days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord's title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord's option shall attach only against Tenant's interest in the Premises and shall in all respects be subordinate to Landlord's title to the Project, Building and Premises. Such notice does not apply to work included in the Work Letter, to the extent performed by Landlord. ARTICLE 10 - INSURANCE 10.1 Indemnification and Waiver. Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that Landlord, its partners, subpartners and their respective officers, agents, servants and employees (collectively, " Landlord Parties ") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) incurred in connection with or arising from any cause in, on or about the Premises (including, but not limited to, a slip and fall), any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any person claiming by, through or under Tenant, in, on or about the Project, any violation of law by any Tenant Party or any breach of the terms of this Lease by Tenant, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the negligence (as limited by the provisions in Section 10.5 below) or willful misconduct by any Landlord Parties. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy of the Premises for which Tenant is obligated to indemnify Landlord pursuant to the provisions of this Section 10.1, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without

128 limitation, its actual professional fees such as reasonable appraisers', accountants' and attorneys' fees. Landlord shall indemnify, defend, protect, and hold harmless Tenant from any and all loss, cost, damage, expense and liability (including without limitation reasonable attorneys' fees) incurred in connection with or arising from the negligence (as limited by the provisions in Section 10.5 below), willful misconduct, violation of law or breach of this Lease by any Landlord Parties. Notwithstanding anything to the contrary set forth in this Lease, either party's agreement to indemnify the other party as set forth in this Section 10.1 shall be subject to the waivers set forth in Section Further, Tenant's agreement to indemnify Landlord and Landlord's agreement to indemnify Tenant pursuant to this Section 10.1 are not intended to and shall not relieve any insurance carrier of its obligations under any insurance policies carried by Landlord or Tenant. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination Landlord's Fire and Casualty and Liability Insurance. Landlord shall insure the Project during the Lease Term against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism coverage and malicious mischief, sprinkler leakage, water damage and special extended coverage. Such coverage shall be in such amounts, from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine (provided, however that such insurance shall at minimum cover the full replacement value of the Project, excluding the value of property that Tenant and other tenants of the Project are obligated to insure under their respective leases). Additionally, at the option and sole expense of Landlord, such insurance coverage may include the risks of earthquakes and/or flood damage and additional hazards, a rental loss endorsement and one or more loss payee endorsements in favor of the holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Project or the ground or underlying lessors of the Project, or any portion thereof. Landlord shall also maintain commercial general liability insurance with respect to the Project in the same form and in the minimum amounts as described in Section Notwithstanding the foregoing provisions of this Section 10.2, the coverage and amounts of insurance carried by Landlord in connection with the Project shall, at a minimum, be comparable to the coverage and amounts of insurance which are carried by reasonably prudent landlords of buildings comparable to and in the vicinity of the Building (provided that in no event shall Landlord be required to carry earthquake insurance). All of Landlord s obligations under this Section are reimbursable to Landlord as Operating Expenses. If Tenant's particular use of the Premises for other than the Permitted Use causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase Tenant's Insurance. Tenant shall maintain the following coverages in the following amounts Commercial General Liability Insurance on an occurrence form covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements subject to the terms and conditions of the policies) including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, and including products and completed operations coverage, for limits of liability on a per location basis of not less than: Bodily Injury and Property Damage Liability Personal Injury Liability $4,000,000 each occurrence $4,000,000 annual aggregate $4,000,000 each occurrence $4,000,000 annual aggregate 0% Insured's participation Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, and (ii) all Alterations to the Premises. Such insurance shall be written on an "all risks" of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in

129 amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage for a period of one year Worker's Compensation and Employer's Liability or other similar insurance pursuant to all applicable state and local statutes and regulations Form of Policies. The minimum limits of policies of insurance required of Landlord and Tenant under this Lease shall in no event limit the liability of Landlord or Tenant under this Lease. Such insurance shall (i) in the case of Tenant's commercial general liability insurance, name Landlord (and any other party specified by Landlord), as an additional insured, including Landlord's managing agent, if any; (ii) in the case of Tenant's commercial general liability insurance, specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under Section 10.1 of this Lease subject to the terms and conditions of the policies; (iii) be issued by an insurance company having a rating of not less than A-VII in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) in the case of Tenant's commercial general liability insurance, be primary and noncontributory insurance as to claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless 30 days' prior written notice shall have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Lease Commencement Date and upon renewal thereof. Further, Landlord shall have the right, from time to time, to request copies of policies of Tenant's insurance required hereunder, which Tenant shall thereafter provide within ten days. If Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within 30 days after delivery to Tenant of bills therefor pursuant to Section Subrogation; Limitation of Liability. Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder, even if the property loss is caused by the negligence of the other party. Notwithstanding anything in this Lease to the contrary, the parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waiver of subrogation shall not affect the right of the insured to recover thereunder. The parties shall ensure their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor. Further, if any claim of any nature against Landlord or Landlord Parties is based on Landlord s negligence, and is not a property loss as described above (which will be solely covered by Tenant s insurance), Landlord s total liability shall be limited to the amount of insurance proceeds made available by Landlord s insurer to cover such claim Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord, but in no event in excess of the amounts and types of insurance then being required by landlords of buildings comparable to and in the vicinity of the Building. ARTICLE 11 - DAMAGE AND DESTRUCTION 11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas serving

130 or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this Article 11, restore the Base Building, the Common Areas and the Tenant Improvements and any other improvements which exist in the Premises as of the Lease Commencement Date, other than Tenant s Alterations ( the Tenant Improvements and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding the Base Building and Tenant s Alterations ) shall be referred to herein as the " Original Improvements "). Such restoration shall be to substantially the same condition of the Base Building, the Common Areas, and Original Improvements prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to and use of the Premises, any common restrooms serving the Premises and any parking areas shall not be materially impaired. Tenant shall, at its sole cost and expense, repair any damage to any of its furniture, fixtures, equipment and Alterations it desires to retain in the Premises and return such Alterations to their original condition after Landlord has returned the Original Improvements to their original condition. P rior to the commencement of construction, Tenant shall submit to Landlord, all plans, specifications and working drawings relating to the Original Improvements or Alterations which Tenant has in its possession, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; providedhowever, if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy for the Permitted Use, including during the time the Premises or such Common Areas are being repaired and restored, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the Permitted Use bears to the total rentable square feet of the Premises. Tenant's right to rent abatement pursuant to the preceding sentence shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Alterations assuming Tenant used reasonable due diligence in connection therewith Scope of Landlord's Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within 60 days after the date of discovery of the damage, such notice to include a termination date giving Tenant a mutually agreed upon time to vacate the Premises, but not more than 60 days, provided Landlord may so elect only if the Building or Project shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be completed within 180 days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) excluding deductibles and self-insured amounts, the damage is not fully covered by Landlord's insurance policies actually carried or required to be carried under this Lease (provided, however, that Tenant shall have the right to deliver to Landlord payment, or adequate assurance thereof, in an amount equal to the portion not so covered, and in which event Landlord shall not have the right to terminate this Lease pursuant to this item (ii) in connection with such applicable event of casualty); or (iii) the damage occurs during the last 12 months of the Lease Term Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, and any other statute or regulation, now or hereafter in effect, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project

131 ARTICLE 12 - NONWAIVER No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord's right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, it being agreed that after such termination, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said termination or judgment. ARTICLE 13 - CONDEMNATION If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than 25% of the rentable square feet of the Premises is taken for a period in excess of 180 days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, for moving expenses, and for all other amounts allowable to Tenant under Applicable Law, so long as such claims do not diminish the award available to Landlord or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section of the California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of 180 days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking, except that Tenant shall have the right to file any separate claim available to Tenant for amounts allowable to Tenant under Applicable Law, so long as such claims do not diminish the award available to Landlord. ARTICLE 14 - ASSIGNMENT AND SUBLETTING 14.1 Transfers. Subject to the terms in Section 1.3, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons (all of the foregoing are hereinafter sometimes referred to collectively as " Transfers " and any person to

132 whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a " Transferee "). If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the " Transfer Notice ") shall include (i) the proposed effective date of the Transfer, which shall not be less than 30 days nor more than 180 days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the " Subject Space "), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the "Transfer Premium, " as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord's standard Transfer consent documents in connection with the documentation of Landlord's consent to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space, and (v) an executed estoppel certificate from Tenant in the form attached hereto as Exhibit E. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's reasonable review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys', accountants', architects', engineers' and consultants' fees) incurred by Landlord within 30 days after written request by Landlord Landlord's Consent. Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice, and Landlord shall grant or withhold its consent by written notice to Tenant delivered within 30 days following the date Landlord receives the Transfer Notice. If Landlord fails to grant or deny its consent within the foregoing 30 day period, and shall failure to grant or deny its consent continues for an additional five business days following receipt of a second notice requesting Landlord's approval or denial of such proposed Transfer from Tenant, then Landlord's consent shall be deemed granted. Without limitation as to other reasonable grounds for withholding consent, it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project; The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease; The Transferee is either a governmental agency or instrumentality thereof or a non-profit organization; provided,however, that Tenant shall be entitled to assign, sublet or otherwise transfer to a governmental agency or instrumentality thereof to the extent Landlord has leased or has permitted the lease of space to a comparable (in terms of security, foot traffic, prestige, eminent domain and function oriented issues) governmental agency or instrumentality thereof in comparably located space of comparable size; The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested; The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease; or Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Project at the time of the request for consent, or (ii) is negotiating with Landlord or has negotiated with Landlord

133 during the 180-day period immediately preceding the date Landlord receives the Transfer Notice, to lease space in the Project ; provided, however, that it shall not be deemed reasonable for Landlord to withhold it consent to pursuant to this Section if Landlord cannot meet such potential Transferee ' s space needs. If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenant's business including, without limitation, loss of profits, however occurring) or declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all Applicable Laws, on behalf of the proposed Transferee Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this Section 14.3, received by Tenant from such Transferee. " Transfer Premium " shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee in connection with the Transfer (provided that such free rent shall be deducted only to the extent the same is included in the calculation of total consideration payable by such Transferee), (iii) any brokerage commissions in connection with the Transfer and (iv) legal fees reasonably incurred in connection with the Transfer (collectively, " Tenant's Subleasing Costs "). " Transfer Premium " shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. The determination of the amount of Landlord's applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer. For purposes of calculating the Transfer Premium on a monthly basis, Tenant's Subleasing Costs shall be deemed to be expended by Tenant in equal monthly amounts over the entire term of the Transfer Landlord's Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, if Tenant contemplates a Transfer of all or a portion of the Premises for the remainder or substantially the remainder of the Lease Term, Tenant shall give Landlord notice (the " Intention to Transfer Notice ") of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined). The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the " Contemplated Transfer Space "), the contemplated date of commencement of the Contemplated Transfer (the " Contemplated Effective Date "), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space. Thereafter, Landlord shall have the option, by giving written notice to Tenant within 30 days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space. Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer

134 Space as of the Contemplated Effective Date. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other terms of this Article 14, for a period of nine (9) months (the " Nine Month Period ") commencing on the last day of such 30 day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any Transfer made during the Nine Month Period, provided that any such Transfer is substantially on the terms set forth in the Intention to Transfer Notice, and provided further that any such Transfer shall be subject to the remaining terms of this Article 14. If such a Transfer is not so consummated within the Nine Month Period (or if a Transfer is so consummated, then upon the expiration of the term of any Transfer of such Contemplated Transfer Space consummated within such Nine Month Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect any contemplated Transfer, as provided above in this Section Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space. If Tenant subleases all or any portion of the Premises in accordance with the terms of this Article 14, Tenant shall cause such subtenant to carry and maintain the same insurance coverage terms and limits as are required of Tenant, in accordance with the terms of Article 10 of this Lease. Landlord or its authorized representatives shall have the right at all reasonable times, upon at least ten days' prior written notice to Tenant, to audit the books, records and operative agreements of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within 30 days after demand, pay the deficiency, and if understated by more than five percent (5%), Tenant shall pay Landlord's costs of such audit Additional Transfers. Subject to the terms in Section 1.3, for purposes of this Lease, the term " Transfer " shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a 12-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation ( i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of fifty percent (50%) or more of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a 12-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of fifty percent (50%) or more of the value of the unencumbered assets of Tenant within a 12-month period Occurrence of Default. Any sublease hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any sublease, Landlord shall have the right to: (i) treat such sublease as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such sublessee attorn to and recognize Landlord as its landlord under any such sublease. If Tenant shall be in default under this Lease beyond the expiration of any applicable notice and cure periods set forth herein, and this Lease has not yet been terminated, Landlord is hereby irrevocably authorized to direct any sublessee to make all payments under or in connection with the sublease directly to Landlord (which Landlord shall apply towards Tenant's obligations under this Lease) until such default is cured. Such sublessee shall be

135 entitled to rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord's enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord's right to enforce any term of this Lease against Tenant or any other person. If Tenant's obligations hereunder have been guaranteed, Landlord's consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer Deemed Consent Transfers. Notwithstanding anything to the contrary contained in this Lease, (A) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant as of the date of such Transfer), (B) a sale of corporate shares of capital stock in Tenant in connection with an initial public offering of Tenant's stock on a nationally-recognized stock exchange, (C) an assignment of the Lease to an entity which acquires all or substantially all of the stock or assets of Tenant, or (D) an assignment of the Lease to an entity which is the resulting entity of a merger or consolidation of Tenant during the Lease Term, shall not be deemed a Transfer requiring Landlord's consent under this Article 14 (any such assignee or sublessee described in items (A) through (D) of this Section 14.8 hereinafter referred to as a " Permitted Transferee "), provided that (i) Tenant notifies Landlord at least 30 days prior to the effective date of any such assignment or sublease and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such transfer or transferee as set forth above, (ii) Tenant is not in default, beyond any applicable notice and cure period, and such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (iii) such Permitted Transferee shall be of a character and reputation consistent with the quality of the Building, (iv) such Permitted Transferee shall have a tangible net worth (not including goodwill as an asset) calculated pursuant to "GAAP," as that term is defined in Article 21 below, that is reasonably sufficient to meet its obligations under this Lease, and is equal to or greater than the tangible net worth of Original Tenant on the date of this Lease, and (v) no assignment relating to this Lease, whether with or without Landlord's consent, shall relieve the transferring Tenant from any liability under this Lease, and, in the event of an assignment of Tenant's entire interest in this Lease, the liability of Tenant and such transferee shall be joint and several. " Control," as used in this Section 14.8, shall mean the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, any person or entity. ARTICLE 15 - SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES 15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, subject to reasonable wear and tear, an event of casualty or condemnation, and repairs which are specifically made the responsibility of Landlord hereunder. Upon such

136 expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, and Tenant shall repair at its own expense all damage to the Premises and Build ing resulting from such removal; provided, however, in no event shall Tenant remove (i) any of the Tenant Improvements described in the Work Letter or (ii) any of the Alterations, except trade fixtures, as noted in Section 8.2 above. ARTICLE 16 - HOLDING OVER If Tenant holds over with Landlord s express written consent after the expiration of the Lease Term or earlier termination thereof, such tenancy shall be from month-to-month only. If Tenant holds over after the expiration of the Lease Term or earlier termination thereof without Landlord s express written consent, such tenancy shall be a tenancy-at-sufferance. In either event, such holdovers shall not constitute a renewal hereof or an extension for any further term. In either event, in addition to Tenant's Share of Direct Expenses, the Base Rent shall be payable (i) during the first 180 days of the holdover period shall be at a monthly rate equal to 125% of the monthly Base Rent applicable during the last rental period of the Lease Term and (ii) thereafter during a holdover period, at a monthly rate equal to 150% of the monthly Base Rent applicable during the last rental period of the Lease Term under this Lease. Such tenancy shall be subject to every other applicable term, covenant and agreement contained herein, and the month-to-month tenancy shall be terminable by Landlord or Tenant upon not less than 30 days' prior written notice. Notwithstanding the foregoing, nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant following the Lease Term, the termination of such month-to-month tenancy or following Landlord's earlier termination of this Lease due to an Event of Default, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon any such termination of this Lease. If Tenant holds over following the termination of the Lease Term, such month-to-month tenancy or following Landlord's earlier termination of this Lease due to an Event of Default, and tenders payment of rent for any period beyond the termination of the Lease Term by way of check (whether directly to Landlord, its agents, or to a lock box) or wire transfer, Tenant acknowledges and agrees that the cashing of such check or acceptance of such wire shall be considered inadvertent and not be construed as creating a month-to-month tenancy, provided Landlord refunds such payment to Tenant promptly upon learning that such check has been cashed or wire transfer received. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises following the termination of the Lease Term or a month-to-month tenancy, or following Landlord's earlier termination of this Lease due to an Event of Default, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom. Tenant agrees that any proceedings necessary to recover possession of the Premises, whether before or after expiration of the Lease Term, shall be considered an action to enforce the terms of this Lease for purposes of the awarding of any attorney s fees in connection therewith. ARTICLE 17 - ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS Within ten days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other commercially reasonable form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. At any time during the Lease Term, Landlord may require Tenant to provide Landlord with its most recent current financial statement. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of

137 Tenant, shall be audited by an independent certified public accountant. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. Notwithstanding the foregoing, if Tenant has publicly-available financial statements (as opposed joint or cumulative filings with an entity that controls Tenant or with entities which are otherwise Affiliates of Tenant), then Tenant's obligation to provide Landlord with a copy of its most recent current financial statement shall be deemed satisfied. ARTICLE 18 - SUBORDINATION This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground or underlying leases, require in writing that this Lease be superior thereto (collectively, the " Superior Holders "); provided, however, that in consideration of and a condition precedent to Tenant s agreement to subordinate this Lease to any future ground or underlying lease or to the lien of any future mortgage, trust deed or other encumbrances, or any renewal, extension or modification, consolidations and replacements thereof, shall be the receipt by Tenant of a subordination, non-disturbance and attornment agreement in commercially-reasonable form provided by the Superior Holder and reasonably acceptable to Tenant, which requires the Superior Holder to accept this Lease, and not to disturb Tenant s possession or any of Tenant s other rights and interests under this Lease, so long as an event of default beyond the expiration of any applicable notice and cure periods set forth in this Lease has not occurred (an SNDA ). Tenant covenants and agrees in the event of a foreclosure (or deed in lieu thereof) of any such mortgage, trust deed or other encumbrance that is the subject of an SNDA (or if any such ground or underlying lease that is the subject of an SNDA is terminated), to attorn to the lienholder, purchaser or any successors thereto upon any such foreclosure sale or the grantee of any deed in lieu thereof (or to the ground or underlying lessor) and to recognize such purchaser, grantee or ground or underlying lessor as the lessor under this Lease. Landlord's interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale. ARTICLE 19 - DEFAULTS; REMEDIES 19.1 Events of Default. The occurrence of any of the following shall constitute an event of default (an " Event of Default ") under this Lease by Tenant: Any failure by Tenant to pay any Base Rent or the monthly Estimated Direct Expenses, or any part thereof, when due, unless such failure is cured within five days after written notice from Landlord that such amount was not paid when due; Any failure by Tenant to pay any other monetary amount required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five days after written notice from Landlord that said amount was not paid when due; Where a specific time period is set forth for Tenant's performance of a nonmonetary under this Lease (e.g., Articles 17 and 18), Tenant s failure to perform such obligation within such time period, unless such failure is cured within five days after written notice from Landlord;

138 Any other failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for 30 days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a 30 day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or Abandonment (within the meaning of Section of the California Civil Code, or any successor statute) of the Premises by Tenant. The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law Remedies Upon Default. Upon the occurrence of any Event of Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever, except as required by Applicable Laws Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor, and Landlord may recover from Tenant the following: time of such termination; plus The worth at the time of award of any unpaid rent which has been earned at the The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom; and At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Law. The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections and , above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Section above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%) Landlord shall have the remedy described in California Civil Code Section (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any Event of Default by Tenant, Landlord may, from time to time,

139 without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections and , above, or any law or other provision of this Lease), without prior demand or notice except as required by Applicable Law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any Event of Default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. If Landlord elects to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder Efforts to Relet. No efforts by Landlord to relet the Premises, acts of maintenance or preservation with respect to the Premises, appointment of a receiver to protect Landlord's interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant's right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant Landlord Default In General. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in breach in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless Landlord fails to perform such obligation within 30 days after the receipt of notice from Tenant specifying in detail Landlord's failure to perform; provided, however, if the nature of Landlord's obligation is such that more than 30 days are required for its performance, then Landlord shall not be in breach of this Lease if it shall commence such performance within such 30 day period and thereafter diligently pursue the same to completion. Upon any such breach by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights and seek to obtain any remedies provided at law or in equity. Except as otherwise specifically provided in this Lease to the contrary, the exercise of any right or remedy by Tenant shall not be deemed an election of remedies or preclude Tenant from exercising any other rights and remedies in the future. However, Tenant hereby waives the right to terminate this Lease based on Landlord s default Abatement of Rent. If Tenant is prevented from using, and does not use, the Premises or any portion thereof, as a result of (i) any negligent repair, maintenance, alteration or other negligent activities performed by or on behalf of Landlord in, on or about the Premises, Building or Project or (ii) any negligent failure to provide services, utilities or access to the Premises, Building or Project that Landlord is required to provide by this Lease or (iii) any Landlord Party's willful misconduct (any such set of circumstances as set forth in items (i) through (iii), above, to be known as an " Abatement Event "), then Tenant shall give Landlord notice of such Abatement Event; if such Abatement Event continues for three consecutive business days after Landlord's receipt of any such notice (the " Eligibility Period "), then the Base Rent and Tenant's Share of Direct Expenses shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use for the normal conduct of Tenant's business, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided,

140 however, if Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant's Share of Direct Expenses for the entire Premises shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. To the extent an Abatement Event is caused by an event covered by Articles 11 or 13 of this Lease, then Tenant's right to abate rent shall be governed by the terms of such Article 11 or 13, as applicable, and the Eligibility Period shall not be applicable thereto. Such right s to abate Base Rent and Tenant's Share of Direct Expenses, as set forth in this Section , shall be Tenant's sole and exclusive remedy for rent abatement at law or in equity for an Abatement Event not otherwise covered by Articles 11 or 13. Except as provided in this Section , nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder. Nothing contained herein is intended to limit Tenant's rights against any third parties (including other tenants in the Project) to the extent their acts or omissions result in the temporary or permanent interruption, delay or loss of access to, use of, or services or utilities provided to the Premises, Building or Project. ARTICLE 20 - COVENANT OF QUIET ENJOYMENT Landlord covenants that Tenant, on paying the Rent and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant of quiet enjoyment express or implied. ARTICLE 21 - SECURITY DEPOSIT Concurrently with Tenant s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the Security Deposit ) in the amount set forth in Section 6 of the Summary, as security for the faithful performance by Tenant of all of its obligations under this Lease. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, upon written notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, within 20 days of Landlord's demand therefor, restore the Security Deposit to its original amount. Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord s option, to the last assignee of Tenant s interest hereunder, within 60 days following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby irrevocably waives and relinquishes any and all rights, benefits, or protections, if any, Tenant now has, or in the future may have, under Section of the California Civil Code, any successor statute, and all other provisions of law, now or hereafter in effect, including, but not limited to, any provision of law which (i) establishes the time frame by which a landlord must refund a security deposit under a lease, or (ii) provides that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant which the tenant was obligated but failed to repair, or to clean the subject premises to the extent tenant was obligated but failed to do so. Tenant acknowledges and agrees that (A) any statutory time frames for the return of a security deposit are superseded by the express period identified in this Article 21, above, and (B) rather than be so limited, Landlord may claim from the Security Deposit (i) any and all sums expressly identified in this Article 21, above, and (ii) any additional sums reasonably necessary to compensate Landlord for any and all losses or damages caused by Tenant's default of this Lease, including, but not limited to, all damages or rent due upon termination of this Lease pursuant to Section of the California Civil Code

141 ARTICLE 22 - DEVELOPMENT OF THE PROJECT 22.1 Location of Entranceway for Other Tenants. Landlord is currently marketing the remaining space in the Building (the Other Space ) for lease by one or more third party tenant(s) (the Other Users ). During such process, Landlord shall use good faith efforts to have such Other Users agree to access the Other Space via an entryway (the Other Entrance ) located on the side of the Building, rather than facing Tasman Drive. Such efforts shall include, but not be limited to, engaging Landlord s architect to prepare a rendering showing the Other Entrance on the side of the Building, which shall be prepared no later than 15 business days after the Lease is signed, and thereafter marketing such space with such rendering, including preparing and distributing marketing brochures with such rendering. If the City of San Jose will not approve the construction of the Other Entrance on the side of the Building, or if by January 31, 2018, (i) such location of the Other Entrance is unacceptable to any of the Other Users, (ii) such location of the Other Entrance does not in Landlord s reasonable opinion generate a fair market rent or (iii) Landlord has not received a letter of intent from qualified Other Users to lease the Other Space, then Landlord may instead locate and construct the Other Entrance on that portion of the Building facing Tasman Drive. If the Other Entrance is installed so that it faces Tasman Drive, (i) the Other Entrance shall have double entry doors and a small canopy with an address on the canopy, (ii) signage for the benefit of the Other Users that is attached to the outside of the Building shall be available only on the double entry doors (in addition to such Other User s pro rata share of space on the Monument Sign, discussed in Article 23 below) and (iii) the scope and identity of the Other Entrance shall be generally in conformance with the conceptual plan Landlord provided to Tenant on August 7, In no event will other tenants enter their space by using the Lobby of Tenant Project or Building Name, Address and Signage. Landlord shall have the right at any time to change the name and/or address of the Project or Building and, subject to Article 23, to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire. If Landlord voluntarily changes the address of the Premises at any time, Landlord will be responsible for all of Tenant s reasonable direct costs resulting from such address change, including but not limited to Tenant s reasonable direct cost to replace its existing supply of stationary, forms, checks and business cards that contain the obsolete address. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord Building Renovations. Other than as noted in the Work Letter, Landlord has no obligation, and has made no promises, to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof. No representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Work Letter. Further, after Landlord constructs the Tenant Improvements and during the Lease Term, Landlord may further renovate, improve, alter, or modify the Project and/or the Building (collectively, the " Renovations "). In such event, Landlord shall use commercially reasonable efforts to complete any Renovations in a manner which does not materially, adversely affect Tenant's use of or access to the Premises. Notwithstanding the foregoing, Tenant hereby agrees that such Renovations shall in no way entitle Tenant to any abatement of Rent or other remedies, except as otherwise expressly provided in this Lease. Landlord shall have no responsibility and shall not be liable to Tenant for any injury to or interference with Tenant's business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Renovations, or for minor inconvenience or annoyance occasioned by such Renovations, except as expressly provided in this Lease No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease

142 22.5 Su bdivision. Landlord reserves the right to further subdivide all or a portion of the Project, provided that Tenant's ability to access and use the Premises are not affected thereby. Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from such subdivision. Landlord represents that it has no current plans to subdivide The Other Improvements. If portions of the Project or property adjacent to the Project (collectively, the " Other Improvements ") are owned by an entity other than Landlord, Landlord, at its option, may enter into an agreement with the owner or owners of any or all of the Other Improvements to provide (i) for reciprocal rights of access and/or use of the Project and the Other Improvements, (ii) for the common management, operation, maintenance, improvement and/or repair of all or any portion of the Project and the Other Improvements, (iii) for the allocation of a portion of the Direct Expenses to the Other Improvements and the operating expenses and taxes for the Other Improvements to the Project, and (iv) for the use or improvement of the Other Improvements and/or the Project in connection with the improvement, construction, and/or excavation of the Other Improvements and/or the Project, in each case, provided that Tenant's ability to access and use the Premises is not affected thereby. Nothing contained herein shall be deemed or construed to limit or otherwise affect Landlord's right to convey all or any portion of the Project or any other of Landlord's rights described in this Lease Construction of Project and Other Improvements. Tenant acknowledges that portions of the Project and/or the Other Improvements may be subject to demolition or construction following Tenant's occupancy of the Premises, and that such construction may result in commercially reasonable levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project. Except as expressly set forth in this Lease, Tenant hereby waives any and all rent offsets which may arise in connection with such demolition or construction. ARTICLE 23 - SIGNS 23.1 First Floor Interior Signage. Tenant's initial identifying signage on the first floor of the Premises shall be provided by Landlord, at Landlord's cost, and shall comply with Landlord's then-current Building standard signage program Second Floor Interior Signage. Subject to Landlord's prior written approval, in its reasonable discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, at its sole cost and expense, may install identification signage anywhere in the second floor of the Premises, including in the second floor elevator lobby, provided that such signs must not be visible from the exterior of the Building Outside Building Signage; Exclusivity. Subject to all the provisions in this Section 23, Tenant, at its sole cost and expense, may install a prominent exterior building-mounted sign at a mutually approved location on the upper exterior of the outside of the Building ( Building Top Signage ). Size and specifications of the Building Top Signage shall be according to Tenant s reasonable preference, not to exceed to the maximum signage allowable by applicable laws, including the right for such signage to be lighted. Landlord shall not charge any additional fee to Tenant for its right to have the signage. As long as Original Tenant occupies any portion of the Premises, (i) Original Tenant shall have exclusive rights to Building Top Signage and (ii) no other tenant shall be permitted to install Building Top Signage on the Building. Per Section 22.1 above, any Other Users signage on that portion of the Building facing Tasman Drive shall be limited to a location on future double entry doors only Monument Signage. Subject to all the provisions in this Section 23, Tenant, at its sole cost and expense, shall have the nonexclusive right to install a sign (" Tenant s Monument Signage ") on the existing ground level monument sign outside of the Building (the Monument Sign ). Tenant s Monument Signage may

143 occupy as much as 80% of the Monument Sign; provided,however, Tenant s Monument Signage must be configured to reasonably accommodate the name of other Building tenant s on the Monument Sign Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed by Landlord at the sole expense of Tenant, after consulting with Tenant. Tenant may not install any signs on the exterior of the Building or the Common Areas without Landlord's approval (which may be withheld in Landlord's sole discretion), except as provided in Sections 23.3 and 23.4 Any signs, window coverings, or blinds, or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its reasonable discretion Tenant Signage Specifications and Permits. All of the Tenant s signs described above ( Tenant Signage ) shall set forth Tenant's name or logo as determined by Tenant; provided, however, in no event shall the Tenant Signage include an "Objectionable Name or Logo," as that term is defined in Section of this Lease. The graphics, materials, color, design, lettering, lighting, size, illumination, specifications and exact location of all of the Tenant Signage (collectively, the " Sign Specifications ") shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and shall be consistent and compatible with both Tenant s corporate standards and the quality, design, style and nature of the Project and the exterior Building signage of other tenants of the Building. In addition, the Tenant Signage shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all Applicable Law and to any covenants, conditions and restrictions affecting the Project. Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for the Tenant Signage. Tenant hereby acknowledges that, notwithstanding Landlord's approval of the Tenant Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for the Tenant Signage. Tenant does not receive the necessary governmental approvals and permits for the Tenant Signage, Tenant's and Landlord's rights and obligations under the remaining provisions of this Lease shall be unaffected Objectionable Name or Logo. In no event shall the Tenant Signage (or any signage provided to Tenant pursuant to this Article 23) include, identify or otherwise refer to a name and/or logo which relates to an entity which is of a character or reputation, or is associated with a political faction or orientation, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of a comparable Building (an " Objectionable Name or Logo ") Cost and Maintenance of Tenant Signage. The costs of Tenant Signage, including the installation, design, construction, and any and all other costs associated with the Tenant Signage, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant, at Tenant's sole cost and expense (expressly excluding any costs related to the underlying Monument Sign for the Building, which costs may be included in Operating Expenses). Should the Tenant Signage require repairs and/or maintenance, as determined in Landlord's reasonable judgment, Landlord shall, after providing 10 business days written notice to Tenant, cause such repairs and/or maintenance to be performed, and Tenant shall pay Landlord, within 30 days after Landlord's demand therefor, the cost of the same as Additional Rent (expressly excluding any costs related to the underlying Monument Sign for the Building, which costs may be included in Operating Expenses). Upon the expiration or earlier termination of this Lease (or within 30 days following Tenant's receipt of written notice from Landlord that Tenant's rights to such Tenant Signage have terminated as a result of an Event of Default under this Lease), Tenant shall, at Tenant's sole cost and expense, cause the Tenant Signage to be removed and shall cause the area in which such the Tenant Signage was located to be restored to the condition existing immediately prior to the installation of such Tenant Signage, reasonable wear and tear excepted. If Tenant fails to timely remove such Tenant Signage or to restore the areas in which such Tenant Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all costs incurred by Landlord in so performing shall be reimbursed by Tenant to Landlord within 30 days after Tenant's receipt of an invoice therefor. The terms of this Section shall survive the expiration or earlier termination of this Lease

144 ARTICLE 24 - COMPLIANCE WITH LAW 24.1 Applicable Laws. Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any state, federal or local law, statute, ordinance or other governmental rule, regulation or requirement, including but not limited to those relating to occupational, health or safety standards (collectively, " Applicable Laws ") now in force or which may hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall promptly comply with all such Applicable Laws, but only to the extent such obligations (including any obligation to make improvements and alterations thereto) are triggered by Tenant s use of the Premises, Alterations made by Tenant to the Premises or are required to comply with any Applicable Laws which are first enacted or enforced on or after the Lease Commencement Date (collectively, " Tenant's Legal Compliance Obligations "). Landlord shall comply with all Applicable Laws relating to the Base Building and the Common Areas, including making any improvements and alterations that are required to comply with Applicable Laws, provided that compliance with such Applicable Laws is not part of Tenant s Legal Compliance Obligations, and provided further that Landlord's failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would materially affect the safety of Tenant's employees or invitees or create a material health hazard for Tenant's employees or invitees, or would otherwise materially and adversely affect Tenant's or its employees or invitees use of, access to or quiet enjoyment of the Premises, or would subject Tenant to any liability therefor. Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24. The judgment of any court of competent jurisdiction regardless of whether Landlord is a party thereto, that Tenant has violated any of any Applicable Laws, shall be conclusive of that fact as between Landlord and Tenant CASp Inspection. For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist (CASp). As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: "A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises." In furtherance of the foregoing, Landlord and Tenant hereby agree as follows: (a) any CASp inspection requested by Tenant shall be conducted, at Tenant's sole cost and expense, by a CASp designated by Landlord and reasonably approved by Tenant; (b) with respect to Tenant's Legal Compliance Obligations, Tenant, at its cost, is responsible for making repairs within the Premises to correct violations of construction-related accessibility standards; and, if pursuant to Tenant's Legal Compliance Obligations, Tenant is required to make repairs to the Building (outside the Premises) to correct violations of construction-related accessibility standards, then Tenant shall, at Landlord's option, either perform such repairs at Tenant's sole cost and expense or reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of performing such repairs; (c) if Tenant requests any CASp inspection, Tenant shall be solely responsible for all costs to correct violations of construction-related accessibility standards and (d) to the extent clauses (b) and (c) are inapplicable, Landlord is responsible for making all repairs to the Original Improvements, the Base Building and the Common Areas to correct violations of construction-related accessibility standards, which costs are reimbursable as Operating Expenses. ARTICLE 25 - LATE CHARGES If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within five days after written notice from Landlord to Tenant that said amount was not paid when due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount; provided,however, if Tenant has previously received one or more notices from Landlord during the immediately

145 preceding 12 month period stating that Tenant failed to pay any Rent or any other sum required to be paid by Tenant under this Lease when due, then Landlord shall not be required to deliver a notice to Tenant, and a late charge shall immediately and automatically become payable to Landlord upon any failure by Tenant to pay any Rent or any other sum required to be paid under the Lease within five days after the date due. The late charge, plus any reasonable attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder, shall be deemed Additional Rent, and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law, and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within 30 days after the date they are due shall bear interest from the date when due until paid at a rate of 10 percent per annum. ARTICLE 26 - LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT 26.1 Landlord's Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under the applicable provision in Section 19.1, above, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder Tenant's Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, within 30 days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations reasonably incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of Section 26.1 ; (ii) sums equal to all insurance premium expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures reasonably made and obligations reasonably incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended. Tenant's obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term. ARTICLE 27 - ENTRY BY LANDLORD Landlord reserves the right at all reasonable times and upon Advance Written Notice to Tenant (except in the case of an emergency, in which case no advance notice is required) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers or, during the last 18 months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building's systems and equipment. The phrase Advance Written Notice means (i) 24 hours notice if the persons entering the Premises are limited to the Landlord, its employees, agents, and/or maintenance or repair persons and (ii) three business days if any other third party will be entering the Premises, whether or not accompanied by Landlord. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord; (B) take possession following an Event of Default by Tenant under this Lease in the manner provided herein; and (C) perform any covenants of Tenant which Tenant fails to perform in the manner provided herein. Except with respect to clause (B), above, Landlord shall use commercially reasonable efforts to minimize interference with the conduct of Tenant's business in connection with such entries into the Premises. Landlord may make any such entries without the abatement of Rent, except as otherwise expressly provided in this Lease, and may take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, and/or lost profits occasioned thereby, provided that the foregoing shall not limit Landlord's liability for personal injury and property damage to the extent arising out of or resulting from a Landlord Party s negligence (as limited by the provisions in Section 10.5 above) or willful misconduct. Provided that Landlord employs

146 commercially reasonable efforts to minimize interference with the conduct of Tenant's business in connection with entries into the Premises, Tenant hereby waives any claims for any loss of occupancy or quiet enjoyment of the Premises in connection with such entries. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord for the purposes and in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed to be performed by Landlord in this Lease. ARTICLE 28 - TENANT PARKING 28.1 Parking Rights. Tenant shall have the right, but not the obligation, to use, commencing on the Lease Commencement Date, the amount of parking set forth in Section 7 of the Summary, on a monthly basis throughout the Lease Term, all of which parking shall pertain to the Project parking areas, at no cost during the initial Lease Term or any Extension Period. Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the use of the parking areas by Tenant. Tenant's continued right to use the parking is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time and are reasonable for the orderly operation and use of the parking areas where the parking is located (including any sticker or other identification system that may be established by Landlord, and the prohibition of vehicle repair and maintenance activities in the Project's parking areas, although Tenant shall have the non-exclusive right to use of a portion of the parking area designated by Landlord for periodic car detailing and car wash services on terms reasonably approved by Landlord), Tenant's cooperation in seeing that Tenant's employees and visitors also comply with such rules and regulations. Tenant's use of the Project parking areas shall be at Tenant's sole risk, and Tenant acknowledges and agrees that Landlord shall have no liability whatsoever for damage to the vehicles of Tenant, its employees and/or visitors, or for other personal injury or property damage or theft relating to or connected with the parking rights granted herein or any of Tenant's, its employees' and/or visitors' use of the parking areas, except for personal injury or property damage to the extent arising out of or resulting from a Landlord Party s negligence (as limited by the provisions in Section 10.5 above) or willful misconduct. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking areas at any time and Tenant acknowledges and agrees that Landlord may within reason, without incurring any liability to Tenant and without any abatement of Rent (except as expressly otherwise provided in this Lease), from time to time, close-off or restrict access to the Project parking areas for purposes of permitting or facilitating any such construction, alteration or improvements, except that in no case shall any temporary pro rata reduction in Tenant s share of parking exceed the pro rata reduction of parking for the other tenant(s) of the Building. Landlord may institute parking controls, a parking validation system and/or a valet and/or a valet assist program at any time. Tenant may also institute parking controls at Tenant s cost, subject to Landlord s advance written approval, which shall not be unreasonably withheld. The parking provided to Tenant is solely for use by Tenant's own personnel in connection with this Lease, and such rights may not be transferred, assigned, subleased or otherwise alienated by Tenant, except in the case of Permitted Transfers or a Landlord-approved subtenant. The right to use the parking areas within the Project are exclusive to (i) Tenant and other tenants of the Project, (ii) each of their employees and visitors and (iii) Landlord and its agents, employees, visitors and contractors Transportation Management. Tenant shall fully comply with all present or future governmentally required programs intended to manage parking, transportation or traffic in and around the Building. ARTICLE 29 - MISCELLANEOUS PROVISIONS 29.1 Terms; Captions. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either

147 to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections Binding Effect. Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten days following a request therefor. At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a memorandum of Lease and deliver the requesting party within ten days following the request therefor Transfer of Landlord's Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer, and Tenant shall attorn to such transferee Prohibition Against Recording. Except as provided in Section 29.3 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant Landlord's Title. Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same

148 services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto Landlord Exculpation. The liability of Landlord and the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord's operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Project. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section shall inure to the benefit of Landlord's and the Landlord Parties' present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord's obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity or loss of goodwill, in each case, however occurring Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform (collectively, a " Force Majeure "), notwithstanding anything to the contrary in other Sections of this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure. Notwithstanding the foregoing, Tenant s obligation to pay Rent and other charges under this Lease are not subject to Force Majeure Notices. All notices, demands, statements, designations, approvals or other communications (collectively, " Notices ") given or required to be given by either party to the other hereunder or by law shall be in writing, shall be delivered by and also (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (" Mail "), (B) delivered by a nationally recognized overnight courier, or (C) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 9 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) business days after the date it is posted if sent by Mail, (ii) the date the overnight courier delivery is made, or (iii) the date personal delivery is made. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses: Century Urban Tasman, LLC Attention: Bryant Sparkman 235 Montgomery Street, Suite 1042 San Francisco, CA 94104

149 and Paul Erickson, Trustee H.C. and R.C. Merritt Trust 3501 California Street, Suite 200 San Francisco, CA several Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and Attorneys' Fees. If either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment Governing Law; Venue. This Lease shall be construed and enforced in accordance with the laws of the State of California. In any action or proceeding arising out of this Lease, Landlord and Tenant hereby consent to (i) the jurisdiction of any competent court within the counties of Santa Clara or San Francisco, and (ii) service of process by any means authorized by California law Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 10 of the Summary (the " Brokers "), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. Landlord shall pay any commission owed to the Brokers pursuant to the terms of a separate written agreement. The terms of this Section shall survive the expiration or earlier termination of the Lease Term Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent, and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord under this Lease, except as expressly set forth in this Lease to the contrary Confidentiality. Tenant acknowledges that the content of this Lease and any related documents, specifically including the Rent and economic terms herein, are strictly confidential information. Tenant shall keep such information strictly confidential and shall not disclose such confidential information to any person or entity, other than Tenant's financial, legal, and space planning consultants and prospective assignees No Violation. Tenant hereby covenants that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation

150 by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from Tenant's breach of this warranty and representation. Landlord hereby covenants that neither its execution of nor performance under this Lease shall cause Landlord to be in violation of any agreement, instrument, contract, law, rule or regulation by which Landlord is bound, and Landlord shall protect, defend, indemnify and hold Tenant harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from Landlord's breach of this warranty and representation Authority. If Tenant is a corporation, trust or partnership, Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that each individual executing this Lease on behalf of Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. In such event, Tenant shall, within ten days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant's state of incorporation and (ii) qualification to do business in the State of California. Landlord hereby represents and warrants that each Landlord is a duly formed and existing entity qualified to do business in the State of California and that each individual executing this Lease on behalf of each Landlord has full right and authority to execute and deliver this Lease and that each person signing on behalf of Landlord is authorized to do so Entire Agreement. There are no oral agreements between the parties hereto affecting this Lease. This Lease constitutes the parties' entire agreement with respect to the leasing of the Premises, and it supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease No Further Text on This Page-

151 29.27 Electronic Delivery. T his Lease may be signed and/or transmitted by facsimile, of a.pdf document or using electronic signature technology (e.g., via DocuSign or similar electronic signature technology) ; such signed electronic record shall be valid and as effective to bind the party so signing as a paper copy bearing such party s handwritten signature. T o the extent a party signs this Lease using electronic signature technology, by clicking SIGN, such party is signing this Lease electronically. Any electronic signatures appearing on this Lease shall be treated, for purposes of validity, enforceability and admissibility, the same as handwritten signatures. Executed in San Francisco and San Jose, California as of the date first written above below. LANDLORD : TENANT : /s/ PAUL ERICKSON PAUL ERICKSON, TRUSTEE of the H.C. and R.C. MERRITT TRUST AQUANTIA CORP., a Delaware corporation Executed on December 7, 2017 By: /s/ FARAJ AALAEI Name: FARAJ AALAEI CENTURY URBAN TASMAN, LLC, a California limited liabilitytitle: CEO company By: /s/ BRYANT SPARKMAN Name: BRYANT SPARKMAN Title: PRINCIPAL By: /s/ MARK VOLL Name: MARK VOLL Title: CFO [ NOTE : Both an operational officer and a financial officer must sign on behalf of Tenant, per the provisions in Corporations Code Section 313]

152 Exhibit A

153 Exhibit A

154 EXHIBIT B 91 EAST TASMAN WORK LETTER This Work Letter sets forth the terms and conditions relating to Landlord s construction of the improvements in the Premises (the Tenant Improvements ). Terms not otherwise defined in this Work Letter shall have the same meaning ascribed to them in the Lease. 1. PLANS AND SPECIFICATIONS. The plans and specifications for the Tenant Improvements shall be designed in the following order: (i) Space Plan; (ii) Draft Working Drawings; (iii) Approved Working Drawings; and (iv) Construction Drawings, all as further defined below. Using Building standard materials, components and finishes, Landlord shall engage the Contractor (defined below) to construct the Tenant Improvements. 1.1 Space Plan; Architect. The term " Space Plan " shall mean that certain space plan prepared by AAI Design (the " Architect "), consisting of 2 pages, and which is attached to this Work Letter as Schedule 1, and is incorporated herein by reference. Landlord and Tenant hereby approve the Space Plan. 1.2 Draft Working Drawings. Based on the Space Plan, Landlord shall cause the Architect to prepare draft working drawings (the " Draft Working Drawings "). Landlord shall retain applicable engineering consultants (the " Engineers ") to prepare engineering working drawings relating to the structural, mechanical, electrical, plumbing and HVAC work of the Tenant Improvements, to the extent needed for Permits (defined below). Landlord will pay for the services of the Architect and the Engineers, except as otherwise noted in this Work Letter Value Engineering. Tenant has the right to modify and/or value engineer the Space Plan before Landlord completes the Draft Working Drawings, as long as (i) Tenant provides its comments by December 22, 2017, time being of the essence, and (ii) Landlord s overall expected costs relating to the Tenant Improvements do not increase over $1,940,000 (the Budget ) as a result. If Tenant s proposed modifications will cause the expected cost of the work to run over Budget, the parties will work together in good faith to alter or delete the modifications, so that all of Landlord s costs are brought within Budget. 1.3 Approved Working Drawings. Following the completion of the Draft Working Drawings, Landlord shall send to Tenant via electronic mail one.pdf electronic copy of the Draft Working Drawings for Tenant s reasonable approval. Tenant shall approve the Draft Working Drawings within five business days of receipt by delivery of written notice thereof to Landlord. Tenant may only disapprove the Draft Working Drawings to the extent they are not a logical extension of, or they are inconsistent with, the Space Plan, in which event Tenant shall provide a reasoned explanation for such disapproval. In such event, Landlord shall redraft the Draft Working Drawings and resubmit them to Tenant for its reasonable approval, until Tenant approves them. In any event, Landlord shall have the absolute right to reject any proposed changes or modifications proposed by Tenant that, in Landlord s reasonable opinion, (i) are inconsistent with, or not a logical extension of, the Space Plan, (ii) will increase the cost of the Tenant Improvements, (iii) will materially detract from the value of the Project or (iv) will impact the Building's structure, systems or future marketability. If Tenant does not approve or disapprove the Draft Working Drawings within five business days after receipt of any version of them, Tenant shall be deemed to have approved the Draft Working Drawings. The Draft Working Drawings as approved (or deemed approved) by Tenant are hereinafter referred to as the " Approved Working Drawings ". 1.4 Submittals; Permits; Construction Drawings. Landlord shall submit the Approved Working Drawings to the City of San Jose for all applicable building and other permits (collectively, the EXHIBIT B -1-

155 " Permits ") necessary to allow the Contractor to complete the construction of the Tenant Improvements. The Approved Working Drawings, once approved and permitted by the City of San Jose, shall be known as the " Construction Drawings." Landlord shall cause the Tenant Improvements to comply with all required ADA and Title 24 upgrades required by the City at the time the Permits are issued. Landlord shall have no obligation to expend funds in excess of the Budget to install the Tenant Improvements; rather, the parties shall work together to value engineer the Project to bring it within the Budget. I f any code-related upgrades for outside of the Premises are triggered by permitting the P roject, funds for making those upgrades shall be allocated from the Budget. Furthermore, if permitting the P roject triggers code-related upgrades not originally budgeted by Landlord, and therefore the total P roject cost exceeds the Budget, Landlord shall work with Tenant to value engineer the Construction Drawings so that the Project remains within Budget. Alternately, Tenant may elect to use all or a portion of the Additional Tenant Improvement Allowance (defined in Section 2.4 below to pay for all costs of the work in excess of the Budget). 1.5 Cooperation. Immediately upon the full execution and delivery of this Lease, Tenant shall cooperate in good faith with the Architect and Engineers to supply the necessary information, if any, required to allow such parties to readily complete all plans and specifications for the Tenant Improvements, including the Draft Working Drawings, Approved Working Drawings, and Construction Drawings. 1.6 No Changes. Once Approved Working Drawings exist, Tenant shall make no requested changes, additions or modifications to the Tenant Improvements or the Approved Working Drawings, or require the installation of any "Non-Conforming Tenant Improvements," as defined in Section 3, below, without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, notwithstanding the foregoing, Landlord may withhold its consent in Landlord's sole discretion if such change or modification would directly or indirectly delay the Substantial Completion of the Tenant Improvements beyond June 1, 2018 (unless Tenant accepts in writing that such change or modification shall be deemed a Tenant Delay, as defined below). 2. COST OF TENANT IMPROVEMENTS; ALLOWANCES. 2.1 In General. Landlord shall install the Tenant Improvements shown on the Construction Drawings, at its cost, except as otherwise noted in this Work Letter. 2.2 FF&E Allowance. Tenant shall be entitled to a one-time FF&E allowance in an amount not to exceed Three Hundred Thirty Four Thousand Seven Hundred and Fifteen Dollars ($334,715.00) (the FF&E Allowance ), for the following items only: (i) furniture, fixtures and equipment actually installed by Tenant in the Premises or the Project; and (ii) Tenant s out of pocket costs paid to others for moving furniture, fixtures and equipment into the Premises. Landlord shall disburse the FF&E Allowance to Tenant in accordance with Landlord s reasonable standard disbursement procedures, within 30 days following Landlord s receipt of all of the following (collectively, the FF&E Documentation ): (a) Tenant s request for payment, showing the work completed or expense incurred, and the amount requested; (b) paid invoices and proof of payment for all requested sums for which the FF&E Allowance is to be disbursed; (c) signed permits (if applicable) for any portion of the FF&E installed which requires a permit and for which Tenant is seeking reimbursement; and (d) properly executed unconditional lien releases in compliance with Applicable Laws, if applicable. However, Landlord shall only be obligated to disburse the FF&E Allowance if Landlord receives the FF&E Documentation by not later than the 180th day after the Lease Commencement Date, time being of the essence. 2.3 Tenant Improvement Allowance. Tenant shall be entitled to a one-time improvement allowance in an amount not to exceed Two Hundred Thousand Dollars ($200,000.00) (the Tenant Improvement Allowance ), for the following items only, each of which shall be constructed by Landlord: (i) creation of exterior patio/seating area off of the main first floor break room of the Premises, to maximize employees indoor/outdoor amenities; (ii) construction of two additional showers in the locker room (for a total of four total showers); and (iii) the second floor bathroom expansion. These items are shown on the Space Plan, but their cost is subject to the provisions in this paragraph. If Landlord s overall cost to install these items exceeds EXHIBIT B -2-

156 the Tenant Improvement Allowance, Tenant shall either (i) pay the excess to Landlord within 30 days of demand or (ii) use funds from the Additional Tenant Improvement Allowance (defined below) or from Tenant s own funds to pay for such costs. 2.4 Additional Tenant Improvement Allowance; Increased Base Rent. Tenant shall be entitled, pursuant to a written notice delivered to Landlord by by not later than December 20, 2017, time being of the essence, to a one-time improvement allowance (the " Additional Tenant Improvement Allowance ") in an amount not to exceed Four Hundred Thousand Dollars ($400,000.00) for additional tenant improvements selected by Tenant and approved by Landlord, each of which shall be constructed by Landlord within the Premises. If Tenant exercises its right to use all or any portion of the Additional Tenant Improvement Allowance, then the monthly Base Rent for the Premises shall be increased during each month of the Lease Term by an amount equal to the Additional Monthly Base Rent (defined below), to repay such Additional Tenant Improvement Allowance to Landlord. The " Additional Monthly Base Rent " shall be calculated as follows: the Additional Tenant Improvement Allowance actually expended by Landlord shall be amortized over the Lease Term using an 8.5% annual interest rate. For example, if the Additional Tenant Improvement Allowance is $200,000, then the Base Rent shall be increased by $3, per month for each month of the Lease Term, commencing on the Lease Commencement Date, as shown by the calculations on Schedule 2 attached hereto. The rent abatement provisions in the Lease shall not apply to the Additional Monthly Base Rent Additional Allowance Amendment. Landlord shall determine the final amount of the Additional Monthly Base Rent and promptly thereafter the parties shall execute an amendment (the " Additional Allowance Amendment ") to this Lease setting forth the new amount of Base Rent for the Premises. The additional amount of monthly Base Rent owing for the first full month of the Lease Term shall be paid by Tenant to Landlord at the time of Tenant's execution of the Additional Allowance Amendment. Whether or not the parties execute the Additional Allowance Amendment, if Tenant exercises its right to use all or any portion of the Additional Tenant Improvement Allowance, the Base Rent shall be increased by the Additional Monthly Base Rent and Tenant shall be required to pay to Landlord the new amount of Base Rent for the Premises as determined by Landlord in accordance with the terms of this Section. 2.5 Elements of the Tenant Improvement Allowances. The Tenant Improvement Allowance (and Additional Tenant Improvement Allowance, as applicable) shall include the following items and costs: Payment of the fees of the Architect and the Engineers relating to such additional work; Payment to Landlord of a supervision fee in the sum of 4% of the Tenant Improvement Allowance and the Additional Tenant Improvement Allowance used by Tenant; The cost of any further changes in the Base Building; The cost of any changes to the Approved Working Drawings, Construction Drawings or Tenant Improvements required by all applicable building codes; Zeroscaping in the front of the Building; and Repainting the Building a mutually acceptable color. 2.6 Excess Amounts. Notwithstanding anything in this Work Letter to the Contrary, if the Tenant Improvement Allowance, Additional Tenant Improvement Allowance or FF&E Allowance are not fully utilized by Tenant by the 18 0th day after the Lease Commencement Date, then such unused amounts shall revert to Landlord and Tenant shall have no further rights with respect thereto EXHIBIT B -3-

157 3. OTHER TENANT IMPROVEMENTS. Tenant shall be responsible for the cost of any items not identified on the Space Plan, Approved Working Drawings, Construction Drawings, and/or any items requiring other than Building-standard materials, components or finishes (collectively, the " Non-Conforming Tenant Improvements "), to the extent such costs are not covered by the various allowances in Sections 2. 2 through 2.4 above. In connection therewith, any costs (which costs shall include a coordination fee in consideration for Landlord's supervision of the same) which arise in connection with any such Non-Conforming Tenant Improvements shall be paid by Tenant to Landlord in cash, in advance, upon Landlord's request. Any such amounts required to be paid by Tenant shall be disbursed by Landlord prior to any Landlord-provided funds for the costs of construction of the Tenant Improvements. 3.1 Example; Change Orders. For example, if Tenant requests any change, addition or alteration in or to the Space Plan, Approved Working Drawings or Construction Documents (each, a Tenant Change Order ), the requested change in the Tenant Change Order shall be considered Non-Conforming Tenant Improvements. If Landlord believes such Tenant Change Order (i) is reasonable, (ii) will not materially detract from the value of the Project and (iii) will not impact the Building's structure, systems or future marketability, Landlord shall cause the Architect to prepare additional plans implementing such Tenant Change Order. Tenant shall pay the Architect s cost of preparing such additional plans within ten days after receipt of Landlord s invoice therefor. As soon as practicable after the completion of such additional plans, Landlord shall notify Tenant of the estimated cost of the applicable Tenant Change Order (the Change Cost ). Within three business days after receipt of the Change Cost, Tenant shall notify Landlord in writing whether Tenant approves the Change Cost. If Tenant fails to approve the Change Cost within such three-business day period, Landlord shall not perform the requested work, and construction of the Tenant Improvements shall proceed as provided in accordance with the Construction Documents. If Tenant approves the Change Cost, Landlord shall proceed with the Tenant Change Order, at Tenant s expense. Tenant pay for the Change Cost by remitting a payment of fifty percent (50)% of the Change Cost to Landlord before Landlord proceeds with the Tenant Change Order. Tenant shall pay twenty five percent (25%) of the Change Cost when the work is half completed, and the remaining twenty five percent (25%) upon completion of the change. 3.2 Example; EV Car Charging Stations. If example, Tenant may request Landlord to install EV Car Charging Stations (the EV Stations ) in the parking area, subject to the following conditions: (i) Tenant shall recommend, and Landlord shall decide on, the number and location of EV Stations, with the understanding that Landlord shall not approve more than five EV Stations; (ii) the EV Stations shall count toward Tenant s pro rata share of parking at the Building; (iii) Tenant shall pay for the EV Stations and all related coring and conduits, before they are installed, as a Non-Conforming Tenant Improvement; and (iv) Tenant shall be solely responsible for all electricity and other utilities costs to operate the EV Stations. The EV Stations shall be the Tenant s property and for the exclusive use of Tenant and its employees during the term; provided,however, at the end of the Lease term the EV Stations shall automatically become the Landlord s sole property, unless Tenant removes them by the end of the term. In such event, Tenant shall repair any damage caused by such removal and return the affected areas to standard improved condition as reasonably determined by Landlord, Tenant s sole cost. 4. CONTRACTOR; WARRANTIES 4.1 Contractor. Toeniskoetter Commercial Construction (" Contractor "), or any other California-licensed general contractor, shall construct the Tenant Improvements pursuant to the terms of an agreement entered into by and between Landlord and Contractor. 4.2 Warranties and Guaranties. Landlord represents and warrants that when the Premises is Ready for Occupancy (defined in Section 5.1 below) and for a period of 180 days thereafter, the Building Systems serving the Premises (including HVAC, mechanical, electrical, plumbing and roof) shall be in good operating condition. Further, Landlord shall use reasonable efforts to enforce all warranties and guaranties by the Contractor relating to the Tenant Improvements EXHIBIT B -4-

158 5. COMPLETION OF THE TENANT IMPROVEMENTS 5.1 Ready for Occupancy; Substantial Completion. The Premises shall be deemed " Ready for Occupancy " upon the Substantial Completion of the Tenant Improvements. For purposes of this Lease, " Substantial Completion " of the Tenant Improvements shall occur upon the last of the following: (i) Landlord s completion of construction of the Tenant Improvements in accordance with the Construction Drawings, with the exception of (a) any punch list items that do not unreasonably interfere with Tenant's ability to use the Premises for the Permitted Use, (b) any tenant fixtures, work stations, builtin furniture, or equipment that are to be installed by Tenant, (c) the generator described in Lease Section 6.6 (which is separate from the Tenant Improvements) and (d) of exterior patio/seating area off of the main first floor break room of the Premises, which may be completed post-substantial Completion; (ii) if required, the issuance of a temporary certificate of occupancy (or its legal equivalent) for the Premises; and (iii) Tenant's confirmation that the Building Systems servicing the Premises are in proper operating condition to support Tenant's use of the Premises for the Permitted Use (provided, however, that Tenant's failure to identify any such systems as not being in proper operating condition within 15 business days of Landlord's delivery of the Premises shall constitute Tenant's approval of the same). Tenant acknowledges that the Premises will not be Ready for Occupancy on the Lease Commencement Date. Landlord shall use commercially reasonable efforts to cause the Substantial Completion of the Tenant Improvements to occur by June 1, 2018, subject to delays based on Force Majeure or Tenant Delays. If the Landlord fails to have the Premises Substantially Completed by July 15, 2018, subject to delays beyond that date caused by Force Majeure or Tenant Delays (the Final Delivery Deadline ), the Base Rent shall be abated by one day for each three-day period between the Final Delivery Deadline and the date Landlord Substantially Completes the Premises. 5.2 Punch List. Upon the Substantial Completion of the Tenant Improvements, Tenant and Landlord shall jointly conduct a walk-through of the Premises and shall jointly prepare a punch list (the " Punch List ") of Tenant Improvement items needing additional work (the " Punch List Items "); provided, however, the Punch List shall be limited to items which are required by the Construction Drawings. Landlord shall use commercially reasonable efforts to cause the Punch List Items to be completed and/or corrected within the first 30 days following the preparation of the Punch List (but in no event shall Landlord be required to engage overtime labor in order to complete the Punch List Items). 5.3 Delay of the Substantial Completion of the Premises. If there are delays in the Substantial Completion of the Tenant Improvements as a direct, indirect, partial, or total result of a Tenant Delay (defined in Section 5.4 below), then, Landlord shall provide written notice to Tenant setting forth the Tenant Delay, and notwithstanding anything to the contrary set forth in the Lease or this Work Letter and regardless of the actual date of the Substantial Completion of the Tenant Improvements, the Substantial Completion of the Tenant Improvements shall be deemed to be the date the Substantial Completion of the Tenant Improvements would have occurred if no Tenant Delay had occurred. 5.4 Tenant Delay. A Tenant Delay means any of the following: Tenant's failure to timely approve any matter requiring Tenant's approval (provided, however, that to the extent a time period is not set forth herein, any such matter shall be approved or disapproved within three business days) ; Tenant's failure to comply with any time deadlines set forth in this Work Letter; A breach by Tenant of the terms of this Work Letter, or the terms of the Lease ; A Tenant Change Order that results in a delay in the construction schedule, including Tenant's request for changes in the Tenant Improvements, the Space Plan, or, once completed, the EXHIBIT B -5-

159 Approved Working Drawings, or Tenant's request for changes which cause the Approved Working Drawings to not be a logical extension or, or consistent with, the Space Plan; Any Non-Conforming Tenant Improvements; Tenant's requirement for materials, components, finishes or improvements which are not included in, Landlord's Building standards ; or Letter Any failure by Tenant to timely pay any amounts due under the Lease or this Work 5.5 No Tenant Delay Until After Notice and Expiration of Cure Period. Notwithstanding anything in this Work Letter to the contrary, there shall not be any Tenant Delay until after Landlord has given Tenant written notice specifying the action or inaction that Landlord contends constitutes a Tenant Delay, and Tenant fails to cure such matter within three business days after Tenant s receipt of such notice (provided, however, that to the extent Tenant does not cure any such matter within such three-business day period, the applicable Tenant Delay shall be deemed to commence as of the date of Tenant's receipt of such notice). 6. MISCELLANEOUS 6.1 Tenant's Representative. Tenant has designated Linda Reddick as its sole representative with respect to the matters set forth in this Work Letter (whose address for the purposes of this Work Letter is Linda.Reddick@aquantia.com ), who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter. 6.2 Landlord's Representatives. Landlord has designated Bryant Sparkman and Jessica Murphy as its sole representatives with respect to the matters set forth in this Work Letter (whose addresses for the purposes of this Work Letter are: bsparkman@centuryurban.com and jmurphy@centuryurban.com ) who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter. 6.3 Days; Automatic Approvals. Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days. 6.4 Tenant's Lease Default. Notwithstanding any provision to the contrary contained in the Lease or this Work Letter, if any default by Tenant under the Lease or this Work Letter after the expiration of any applicable notice and cure periods set forth in the Lease occurs, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to cause the cessation of construction of the Tenant Improvements until Tenant cures any such default (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Tenant Improvements and any costs occasioned thereby, as a Tenant Delay), and (ii) all other obligations of Landlord under the terms of the Lease and this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of this Lease. 6.5 Ownership. All Tenant Improvements shall be deemed Landlord's property at all times. 6.6 Electronic Approvals. Landlord and Tenant may transmit or otherwise deliver any of the approvals required under this Work Letter via electronic mail to the other party's representative identified in Sections 6.1 and 6.2 of this Work Letter, as applicable, or by any of the other means identified in Section of the Lease EXHIBIT B -6-

160 SCHEDULE 1 TO EXHIBIT B SPACE PLAN Schedules to Exhibit B -1-

161 Schedules to Exhibit B -2-