UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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, 2022

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number: 001-37557

Penumbra, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	05-0605598
(State or Other Jurisdiction of<br>Incorporation or Organization)	(I.R.S. Employer<br>Identification No.)

One Penumbra Place

Alameda, CA 94502

(Address of principal executive offices, including zip code)

(510) 748-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant of Section 12(b) of the Act:Title of each classTrading SymbolName of each exchange on which registeredCommon Stock, Par value $0.001 per sharePENThe New York Stock Exchange

Securities registered pursuant of 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:  x   No:  o

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:  o   No:  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes:  x    No:  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes:  x    No:  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	o

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. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: ☐  No:  x

As of June 30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $4.5 billion, based on the closing price as reported on the New York Stock Exchange as of such date.

As of February 9, 2023, the registrant had 38,178,925 shares of common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2023 annual meeting of stockholders, which is to be filed not more than 120 days after the registrant’s fiscal year ended December 31, 2022, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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Penumbra, Inc.

FORM 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business.	5
Item 1A.	Risk Factors.	22
Item 1B.	Unresolved Staff Comments.	52
Item 2.	Properties.	52
Item 3.	Legal Proceedings.	52
Item 4.	Mine Safety Disclosures.	52
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	53
Item 6.	[Reserved]	55
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	56
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	71
Item 8.	Financial Statements and Supplementary Data.	72
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	112
Item 9A.	Controls and Procedures.	112
Item 9B.	Other Information.	114
Item 9C.	Disclosures Regarding Foreign Jurisdictions that Prevent Inspections	114
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	115
Item 11.	Executive Compensation.	115
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	115
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	115
Item 14.	Principal Accountant Fees and Services.	115
PART IV
Item 15.	Exhibits and Financial Statement Schedules.	116
Item 16.	Form 10-K Summary.	116
Signatures

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Form 10-K”) includes forward-looking statements in addition to historical information. These forward-looking statements are included throughout this Form 10-K, including in the sections entitled “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other sections of this Form 10-K. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “opportunity” or “continue,” the negative of these terms and other comparable terminology, but such words, terms and terminology are not the exclusive means for identifying such statements. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business.

These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the section entitled “Risk Factors” in this Form 10-K. You should specifically consider the numerous risks outlined in the section of this Form 10-K entitled “Risk Factors.” Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. We undertake no obligation to update any forward-looking statements made in this Form 10-K to reflect events or circumstances after the date of this Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law.

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RISK FACTORS SUMMARY

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” in Part I, Item IA of this Form 10-K. These risks include, but are not limited to, the following:

•we have a limited operating history in certain markets and may not be able to sustain or grow our profitability or generate positive cash flows from operations in the future;

•our existing products may be rendered obsolete and we may be unable to effectively introduce and market new products or may fail to keep pace with advances in technology;

•delays in product introductions could adversely affect our business, results of operations, financial condition or cash flows;

•we face significant competition, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations;

•the COVID-19 pandemic has adversely affected and could in the future adversely affect our business, financial condition, results of operations, or cash flows;

•we face risks related to our investment in our immersive healthcare platform, including our inexperience with virtual reality technology, and we may be unsuccessful in developing and commercializing products using virtual reality technology;

•our future growth depends, in part, on our ability to further penetrate our current customer base and increase the frequency of use of our products by our customers;

•our future growth depends, in part, on significantly expanding our user base to include additional specialist physicians and other healthcare providers in both our existing and future target end markets;

•we may not have the resources to successfully market and sell our products, which would adversely affect our business and results of operations;

•third-party reimbursement may not be available or adequate for the procedures or sessions for which our products are used, and may be subject to change;

•we have generated a significant portion of our revenue and revenue growth from a limited number of product families, and our revenue and business prospects would be adversely affected if sales of any of these product families were to decline;

•we must maintain and further develop relationships with specialist physicians and other healthcare providers, and if specialist physicians or other healthcare providers do not recommend and endorse, or use, our products or if our relationships with specialist physicians or other healthcare providers deteriorate, our products may not be accepted or maintain acceptance in the marketplace, which would adversely affect our business and results of operations;

•our dependence on key suppliers puts us at risk of interruptions in the availability of our products, which could reduce our revenue and adversely affect our results of operations;

•we may not be able to achieve or maintain satisfactory pricing and margins for our products;

•we cannot be certain that we will be able to manufacture our products in high volumes at commercially reasonable costs;

•we are required to maintain high levels of inventory, which consume a significant amount of our working capital and could lead to permanent write-downs or write-offs of our inventory;

•defects or failures or alleged defects or failures associated with our products could lead to recalls, safety alerts, or product-related or securities litigation, as well as significant costs and negative publicity;

•our products are continually the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may be unfavorable, or perceived as unfavorable, which could materially adversely affect our business, financial condition and results of operations;

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•we are subject to stringent domestic and foreign medical device regulations, which may impede the approval or clearance process for our products, hinder our development activities and manufacturing processes and, in some cases, result in the recall or seizure of previously approved or cleared products;

•we are subject to federal, state and foreign healthcare laws and regulations that could result in significant liability, require us to change our business practices and restrict our operations in the future;

•we rely on a variety of intellectual property rights, and if we are unable to maintain or protect our intellectual property, our business and results of operations will be harmed; and

•we may become involved in lawsuits or other proceedings to protect or enforce our patents or other intellectual property rights or to defend against accusations of infringement, which could be expensive, time consuming and unsuccessful.

The above list represents a summary of the risks that could affect our business, financial condition, results of operations, cash flows and the trading price of our common stock. Additional information regarding such risks may be found in the section of this Form 10-K entitled “Risk Factors,” and you should carefully review and consider such risk factors in addition to the above summary. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition, results of operations and future prospects could be materially and adversely harmed by any of these risks.

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PART I

ITEM 1. BUSINESS.

Overview

References herein to “we,” “us,” “our,” the “Company,” and “Penumbra,” refer to Penumbra, Inc. and its consolidated subsidiaries unless expressly indicated or the context requires otherwise.

Penumbra is a global healthcare company focused on innovative therapies. We design, develop, manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. Our team focuses on developing, manufacturing and marketing novel products for use by specialist physicians and healthcare providers to drive improved clinical and health outcomes. We believe that the cost-effectiveness of our products is attractive to our customers.

Since our founding in 2004, we have had a strong track record of organic product development and commercial expansion that has established the foundation of our global organization. We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the neurovascular market since 2007, vascular market since 2013, neurosurgical market since 2014, and immersive healthcare market since 2020.

We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization, access and immersive healthcare technologies, while iterating on our currently available products. Generally, when we introduce a next generation product or a new product designed to replace a current product, sales of the earlier generation product or the product replaced decline. Our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products.

We attribute our success to our culture built on cooperation, our highly efficient product innovation process, our disciplined approach to product and commercial development, our deep understanding of our target end markets and our relationships with specialist physicians and healthcare providers. We believe these factors have enabled us to rapidly innovate in a highly efficient manner.

We sell our products to healthcare providers primarily through our direct sales organization in the United States, most of Europe, Canada and Australia, as well as through distributors in select international markets. We generated revenue of $847.1 million, $747.6 million and $560.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. This represents an annual increase of 13.3% and 33.4%, respectively. We generated income from operations of $6.1 million for the year ended December 31, 2022, and losses from operations of $7.5 million and $38.9 million for the years ended December 31, 2021 and 2020, respectively.

Our results for the years ended December 31, 2022, 2021 and 2020 were impacted by the COVID-19 pandemic, and while our business falls within the category of healthcare operations, which are essential businesses that have generally been permitted to continue operating during the COVID-19 pandemic, we have experienced, and may continue to experience, disruptions to our operations as a result of the pandemic. For example, at times during the pandemic hospital resources have been diverted to fight the pandemic, and many government agencies in conjunction with healthcare systems have recommended the deferral of elective and semi-elective medical procedures. In addition, the pandemic and the response thereto have impacted global supply chains and labor markets, resulting in cost inflation and raw material supply constraints, as well as an increase in employee turnover rates in certain jurisdictions, which has impacted, and may continue to impact, our business. While the acute phase of the pandemic has subsided due to the development and widespread availability of vaccines for COVID-19, we remain mindful of the potential negative impacts on business trends resulting from the COVID-19 pandemic and are unable to reliably predict the full impact that COVID-19 will have on our business due to numerous uncertainties, including the severity and duration of the pandemic, the global resurgences of cases, particularly as new variants of the virus spread, additional actions that may be taken by governmental authorities in response to the pandemic, the impact of the pandemic on the business of our customers, distributors and suppliers, other businesses and worldwide economies in general, our ability to have access to our customers to provide training and case support, and other factors identified in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, and financial condition.

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Our Markets

We concentrate on improving treatment outcomes for patients with certain forms of vascular disease and strive to improve the long-term quality of life for patients who could benefit from immersive healthcare applications. Vascular disease refers to any condition that affects the circulatory system and typically manifests as a blockage or rupture of an artery or a vein. When the treatment for vascular disease is performed from within a vessel, it is referred to as an endovascular procedure. Endovascular device markets are conventionally classified according to the anatomic location of the disorder, and are generally divided into neuro, which includes neurovascular and neurosurgical, and vascular, which includes peripheral vascular and cardiovascular. In both of these markets, our main product technologies include thrombectomy devices to remove clots and embolization devices to treat aneurysms and to occlude vessels. Immersive healthcare technology includes applications for patients recovering from or undergoing rehabilitation related to diseases, injuries, or illnesses, as well as applications designed to address mental well-being and cognition.

We generated revenue of $347.7 million, $338.7 million and $292.6 million from our neuro product category for the years ended December 31, 2022, 2021 and 2020, respectively. We generated revenue of $499.4 million, $408.9 million, and $267.8 million from our vascular product category for the years ended December 31, 2022, 2021 and 2020, respectively. The Company designs, develops, manufactures and markets novel products, and operates as one operating segment.

While reliable third-party data is not available for many markets outside the United States, we believe there are substantial additional market opportunities for our neuro, vascular and immersive healthcare products throughout the world.

The Neuro Market

The neuro market is comprised of vascular diseases and disorders in the brain, including ischemic stroke, brain aneurysms, hemorrhagic stroke and other conditions. Our solutions address the intervention of these diseases.

Globally, stroke is a leading cause of death and serious long-term disability. A stroke occurs when a blood vessel that carries oxygen and nutrients to the brain is either blocked by a clot or bursts (ruptures). It is estimated that nearly 14 million strokes occur annually and that there are more than 80 million survivors of stroke globally. In the United States, the American Heart Association (“AHA”) and American Stroke Association (“ASA”) estimate that nearly 800,000 strokes occur annually, and lead to approximately 150,000 deaths per year.

Some of the more common neurovascular diseases we focus on are:

•Ischemic Stroke: Ischemic strokes, caused by the blockage of an artery in the brain, represent approximately 87% of strokes, or approximately 700,000 patients annually, in the United States. Of these cases, we estimate that approximately 200,000 are treatable with mechanical thrombectomy, which involves removal of the clot causing the blockage by mechanical means and restoring blood flow to the blocked vessels. Outside of the United States, we estimate, based on published sources, that there are approximately 9.7 million ischemic strokes annually and that 1.9 million of these patients are treatable with mechanical thrombectomy. Studies have shown that patients treated with mechanical thrombectomy had improved functional outcomes compared with treatments such as tPA alone.

•Brain Aneurysm: An aneurysm is a weak area in a blood vessel that usually enlarges and is often described as a “ballooning” of the blood vessel. Approximately 1.5% to 5.0% of the general population has or will develop a brain aneurysm and about 6 million people in the United States may currently have a brain aneurysm. If a patient has had an aneurysm, there is a 15% to 20% likelihood that the patient will have one or more additional aneurysms. The primary endovascular procedure for treating unruptured aneurysms uses a repair technique called embolization, in which the aneurysm is packed with coils in a minimally invasive procedure.

•Hemorrhagic Stroke: Hemorrhagic strokes, caused by the sudden rupture of a brain artery that leads to bleeding into or around the brain, represent approximately 13% of strokes in the United States. Brain aneurysms and arteriovenous malformations (“AVM”) can both cause hemorrhagic stroke. According to independent sources, every year 0.5% to 3.0% of people with a brain aneurysm and 1.0% to 3.0% of people with an AVM may suffer from bleeding. According to the AHA and ASA, once a brain aneurysm or an AVM bleeds, the chance of death is 30% to 40% and 10% to 15%, respectively. Intracerebral hemorrhage, a type of hemorrhagic stroke, occurs when a vessel within the brain bursts, allowing blood to leak inside the brain.

In addition to products addressing these specific diseases, our neuro access products address other diseases and potentially broader neuro conditions as well.

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The Vascular Market

Vascular diseases are diseases occurring in vessels in the body outside of the brain. Such diseases are very similar to those experienced in the neurovasculature. Just as the disruption of blood flow to the brain has high mortality and morbidity, disruptions in the peripheral vasculature can also have serious adverse consequences. There are approximately 1.4 million incidences of clot in the peripheral vasculature each year in the United States, the vast majority of which do not currently receive mechanical thrombectomy intervention. This includes:

•Peripheral Arterial Occlusion (“PAO”): Acute PAO occurs when a blood clot develops in major peripheral arteries. PAO includes Acute Limb Ischemia (“ALI”), which occurs when the leg has an immediate change because of an occlusion in the artery, which is almost always caused either because a blood clot forms in the artery or because emboli from the heart or other place within the body travels to the extremity and causes an occlusion. We estimate there are approximately 250,000 patients in the United States each year who are treated for ALI.

•Deep Vein Thrombosis (“DVT”): A DVT occurs when a clot forms in a deep vein, usually in the leg and sometimes in the arm. We estimate that approximately 350,000 patients in the United States each year suffer from iliofemoral or proximal upper extremity DVT.

•Pulmonary Embolism (“PE”): PE is a condition that occurs when blood clots, which typically travel from the veins in the legs, get caught in the lungs. We estimate there are approximately 150,000 patients in the United States who suffer either a high- or intermediate-risk PE, also known as massive or sub massive PEs, respectively.

•Clot associated with Arteriovenous Graft or Fistula: Arteriovenous grafts or fistulas are created for access to dialyze the blood of patients with end-stage renal disease. It is common for clots to form within these access vessels when patients undergo dialysis long-term.

•Acute Coronary Syndrome: Acute Coronary Syndrome is a term used to describe a variety of conditions associated with sudden, reduced blood flow to the heart. One such condition is a heart attack (myocardial infarction) — when cell death results in damaged or destroyed heart tissue. These heart attacks can often be associated with high thrombus burden in the coronary arteries. We estimate that there are approximately 300,000 patients each year in the United States suffering from clot in the coronary vasculature that we believe could benefit from aspiration technology.

•Other Vascular Diseases: In addition to products addressing the above diseases and conditions, our peripheral embolization products address other diseases and conditions such as aneurysm, vessel malformations, bleeding, endoleaks, ovarian veins and varicoceles.

The Immersive Healthcare Market

Immersive healthcare is the use of immersive 3D computer-based technologies to support patient care across a broad spectrum of conditions, including patients recovering from or undergoing physical rehabilitation, and patients with mental well-being and cognition related challenges. Physical rehabilitation can include patients recovering from a range of neuro conditions, including stroke and traumatic brain injury, trauma, sports medicine and other orthopedic conditions. In the case of mental well-being and cognition, patients with a variety of conditions can benefit from distraction, reminiscence, and other therapies to manage symptoms including pain, anxious and depressed moods, age-related challenges, fatigue, and loneliness in a wide range of healthcare settings such as in-hospital settings, skilled nursing facilities, outpatient facilities, senior living facilities and other specialty settings. We estimate there are more than 50 million patients in the United States each year who can benefit from our immersive healthcare products.

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Our Product Portfolio

Since our founding in 2004 we have developed a product portfolio that includes 7 product families within our major markets. The following table summarizes our product offerings.

Product Families				Key Product Brands
NO		Thrombectomy		Penumbra System<br>Penumbra RED, JET, ACE catheters<br>3D Revascularization Device <br>Penumbra ENGINE and other components and accessories
			Penumbra Coil 400<br>POD400<br>PAC400
	Penumbra SMART COIL
			Neuron<br>Neuron MAX Select<br>BENCHMARK<br>BMX96<br>BMX81<br>DDC <br>PX SLIM<br>SENDit
			Artemis Neuro Evacuation Device
VASCULAR		Thrombectomy		Indigo System<br>Lightning<br>CAT RX
			Ruby Coil<br>Ruby LP<br>LANTERN<br>POD (Penumbra Occlusion Device) <br>Packing Coil<br>Packing Coil LP
IMMERSIVE HEALTHCARE		Immersive 3D Computer-based Technology Platform		Real Immersive System

All values are in Euros.

Neuro Products

Our neuro products fall into the following broad product families:

Thrombectomy Products

Our Penumbra System brand of products offers a form of mechanical thrombectomy used by specialist physicians to revascularize blood vessels that are blocked by clots in the intracranial vasculature. These products are aspiration-based. The Penumbra System is a fully integrated mechanical thrombectomy system consisting of reperfusion catheters and separators, the 3D Revascularization Device, aspiration tubing, and aspiration pump.

Penumbra System Reperfusion Catheters are the cornerstone of the Penumbra System and are manufactured using a variety of proprietary processes and materials science innovations for use in revascularization of patients with acute ischemic stroke.

The Penumbra System Reperfusion Catheters, powered by Penumbra ENGINE or Penumbra Pump MAX, are designed for trackability and to maximize thrombus removal force. We believe these design features contribute to improved clinical outcomes and reduced procedure times. Penumbra System Reperfusion Catheters include the Penumbra RED family, JET family, ACE family and MAX families of catheters, designed to address a broad range of occlusions.

In 2021, we launched our RED family of catheters, which are designed with the latest innovations in tracking and aspiration technology to navigate complex distal vessel anatomy and deliver powerful aspiration, together with Penumbra ENGINE, for the removal of blood clots in acute ischemic stroke patients with large vessel occlusions.

Designed specifically for use with aspiration technology, the 3D Revascularization Device is a component of the Penumbra System that offers a technologically-advanced structure designed to treat large vessel occlusion in combination with Penumbra RED, JET 7, ACE, and MAX Reperfusion Catheters.

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Either Penumbra ENGINE or Penumbra Pump MAX is connected to our reperfusion catheters and provides the aspiration suction force. We developed our proprietary aspiration source as a fully-integrated system specifically for mechanical thrombectomy by aspiration.

Embolization Products

Penumbra Coil 400 is a family of detachable coils developed to offer an improved alternative for the treatment of small to large aneurysms and other larger, more complex lesions. We implemented several proprietary design innovations to enable the coil to maintain shape while achieving biomechanically stable occlusion. Given the size and handling of Penumbra Coil 400, it is able to achieve higher packing density with fewer coils compared to competitive coiling systems.

Penumbra SMART COIL is a family of detachable coils, designed to treat patients with a wide range of neurovascular lesions, including the small and medium sized aneurysms that comprise the majority of the neurovascular coiling market. The design of Penumbra SMART COIL allows the level of softness to be determined not only by the diameter of the platinum filament, but also by a structural component inside the coil itself. This development enables Penumbra SMART COIL to become progressively softer within the span of an individual coil.

Access Products

Most endovascular procedures require access to the diseased area using guidewires and catheters. Accessing the brain through the tortuous neurovasculature has been a substantial challenge for physicians treating vascular disorders in the brain. Companies that developed catheters and other products for neurovascular applications historically leveraged technologies developed for use in coronary or peripheral vascular interventions. This approach created challenges given the vastly different anatomy, structure and sizing of the neurovascular vessels.

The Neuron family of guide catheters and the Penumbra distal delivery catheters (“DDC”) enable many endovascular procedures in the tortuous anatomy of the neurovasculature. The Neuron delivery catheter is a variable stiffness guide catheter with increased support in the aortic arch, easier access, and trackability into the intracranial vasculature. The design of Neuron enables physicians to position the catheter much higher in the anatomy than conventional guide catheters.

The BENCHMARK catheter features additional improvements in aortic arch support, ease-of-use, and trackability. In addition to improved proximal support in the arch through multi-geometry metal reinforcement, the distal tip is softer and more trackable, while maintaining distal shaft radiopacity for improved visualization. The BENCHMARK also is available pre-packaged with a Select catheter to obviate the need for a neurovascular guide catheter exchange, which may reduce the number of devices needed per procedure and shorten procedure times.

The BENCHMARK family includes our BENCHMARK BMX 96 and BMX 81 Access Systems. BMX 96 provides a larger internal diameter without increasing the outer diameter of the delivery catheter, enabling more working room for all neurovascular procedures while maintaining the same size access site as our Neuron MAX. BMX 81 utilizes the same technology as BMX 96 but has a smaller diameter and is designed for both radial and femoral access.

Neurosurgical Tools

Artemis Neuro Evacuation Device leverages our expertise in thrombectomy and access to offer a minimally invasive approach to surgical removal of fluid and tissue from the ventricles and cerebrum. The Artemis Neuro Evacuation Device works with a neuroendoscope through a sheath to access hematomas. Together with the Penumbra Pump MAX aspiration source, Artemis offers powerful and controlled hematoma evacuation.

Vascular Products

The peripheral vasculature presents unique challenges that differ from the neurovasculature. Many peripheral arteries and veins are significantly larger than those found in the brain and therefore have higher blood flow rates and larger clot burden. More importantly, they must be able to accommodate larger pressure gradients and sustain structural integrity despite substantial movement and flexing of the organs and musculature that surround them. Imaging can also be more challenging as physicians have to view their equipment through many more layers of organs and tissue than in the brain. The coronary vasculature also presents unique challenges.

Our vascular products fall into the following broad product families:

Thrombectomy

Indigo System

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The Indigo System was designed for continuous aspiration, computer-orchestrated mechanical thrombectomy, leveraging the success of the Penumbra System in ischemic stroke. It is an easy to use thrombectomy system that is powerful, highly trackable, and suited to a wide range of clot morphology in the peripheral arterial, peripheral venous, pulmonary arteries and coronary vasculature. The Indigo System is comprised of four principal components:

•Continuous Aspiration Mechanical Thrombectomy Catheters are robust, durable, trackable and suited for the peripheral and coronary anatomy. We have introduced multiple sizes of catheters for use in both the peripheral and coronary vasculature. CAT Catheters are available in a wide range of sizes and lengths to address a wide range of vessel sizes and clot locations.

•Computer-Orchestrated Aspiration Technology combines our CAT Catheters with microprocessor-controlled software algorithms that orchestrate the interaction of our pump and catheters, enabling physicians to focus on optimizing thrombus removal while helping to mitigate blood loss for arterial and venous applications including the treatment of pulmonary embolism.

•Indigo Separators are advanced and retracted through the aspiration catheter at the proximal margin of the primary occlusion to facilitate clearing of the thrombus from the catheter tip. In the peripheral vasculature, clots often form in long segments and are more resistant to traditional aspiration techniques. The Indigo System with the Separator enables a practitioner to remove a wide range of clot morphology from both peripheral and coronary vasculature.

•Penumbra ENGINE or Penumbra Pump MAX is connected to our CAT catheters and computer-orchestrated aspiration technology, where applicable, and provides the needed aspiration suction force. We developed our proprietary aspiration source as a fully-integrated system specifically for mechanical thrombectomy by vacuum aspiration.

Embolization

Ruby Coil System

The Ruby Coil System consists of detachable coils that are specifically designed for peripheral applications. Ruby Coils have a controlled mechanical detachment mechanism that permits the physician to deliver and reposition the coil until the final satisfactory position is reached before detachment.

The Ruby Coil System is used in a variety of clinical applications, including, but not limited to:

•active extravasations, or the escape of blood into surrounding tissue;

•selective embolization in patients with visceral aneurysms;

•exclusion of branches prior to chemoembolization and radioembolization;

•embolization in patients with gastrointestinal bleeding;

•embolization of branches prior to stent graft procedures;

•procedures after stent grafting in patients with persistent type II endoleaks and sac enlargement;

•treatment of patients with varicocele and pelvic congestion syndrome;

•high-flow arterial venous malformations;

•post trans intrahepatic shunt placement;

•balloon retrograde transvenous obliteration; and

•exclusion of hepatic branches prior to liver resection.

LANTERN

The Penumbra LANTERN Delivery Microcatheter is a low-profile microcatheter with a high-flow lumen that enables large-volume coil delivery. LANTERN features a radiopaque distal shaft for enhanced visibility and dual distal marker bands for precise coil deployment in tortuous anatomy.

POD (Penumbra Occlusion Device) System

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POD addresses a specific need in the peripheral embolization market to rapidly and precisely occlude a target vessel, including in high-flow situations. Our POD device utilizes technology that delivers both variable sizing and variable softness to provide a single device solution for rapid and precise embolization of the target vessel. The technology achieves this range of features through the design of a distal anchoring segment, thereby immediately anchoring the device in a range of vessel diameters. The proximal segment of the POD achieves dense occlusion by packing a softer, smaller diameter segment tightly behind the anchored portion.

The Packing Coil is a complementary device for use with our other peripheral embolization products. It is uniquely designed to pack densely behind Ruby Coils and POD to occlude arteries and veins throughout the peripheral vasculature including aneurysms. Both POD and Packing Coil are detached instantly with a sterile detachment handle.

Immersive Healthcare Platform

The REAL Immersive System is a proprietary, immersive 3D computer-based technology platform that has the potential to benefit patients over a broad range of healthcare applications, including rehabilitation, mental well-being and cognition. This technology builds on our experience with neuro and vascular medical device innovation and was initially commercialized for conducting upper body rehabilitation in a clinical setting. Studies have shown that adding virtual reality therapy to conventional therapy is effective in improving patient engagement and outcomes, particularly with systems that are fully immersive, customized for the healthcare setting, and fun and engaging for patients. Our REAL Immersive System products include the REAL i-Series, which features a virtual reality-enabled headset with intuitive gaze navigation and exclusive experiences and activities designed to address mental well-being and cognition, and the REAL y-Series, which includes upgraded hardware and sensor technology as well as an expanded content library to include activities that address motor skills, cognition, core and balance, functional tasks, activities of daily living, vision and wellness. In the fourth quarter of 2022, we introduced the first full body, non-tethered immersive healthcare offering for rehabilitation, which uses upper and lower body sensors that allow clinicians to track full body movement and progress in real time and to support a broad range of physical, cognitive and mental well-being for patients undergoing physical or occupational therapy. We intend to continue to pursue healthcare applications where our immersive 3D computer-based technology platform can improve the quality of life of patients with a variety of conditions.

Research and Development

Our research and development team has a track record of product innovation and significant product improvements. Since inception, we have introduced multiple brands in either the United States, international markets, or both.

We believe our ability to rapidly develop innovative products is in large part attributable to the fully integrated product innovation process that we have implemented, and the management philosophy behind that process. In addition, we have recruited and retained engineers with a variety of backgrounds and experience to support the development of innovative therapies. Substantially all of our research and development efforts are based at our campus in Alameda, California.

Manufacturing

We currently maintain our manufacturing facilities in Alameda and Roseville, California and currently produce substantially all of our products in-house. Our manufacturing facilities are International Organization for Standardization (“ISO”) 13485 compliant. We received ISO 13485:2016 certification of our Alameda facility in 2018 and successfully completed our most recent surveillance audit in 2022. We received ISO 13485:2016 certification of our Roseville facility in 2020 and successfully completed our most recent surveillance audit in 2022. In 2007, our Quality Management System (“QMS”) was first audited to the European Union’s Medical Device Directive in support of product CE marking, and we successfully completed our most recent surveillance audit in 2022. We participate in the Medical Device Single Audit Program (“MDSAP”) which allows for certification and review of compliance to standards and regulations required in the United States, Canada, Brazil, Australia, and Japan by a single auditing organization. We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2022.

We use annual internal audits to ensure strong quality control practices. An internal, on-going staff training and education program contributes to our quality assurance program; training is documented and considered part of the employee evaluation process.

We believe we have adequate supplies or sources of availability of raw materials necessary to meet our needs. However, there are risks and uncertainties with respect to the supply of raw materials, including as a result of the COVID-19 pandemic and measures taken in response thereto, particularly where provided by a single supplier, which could impact availability in sufficient quantities to meet our needs. In an effort to manage risk associated with raw materials supply, we work closely with suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability. We also utilize long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases.

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Where possible, we seek second source suppliers or suppliers that have alternate manufacturing sites at which they could manufacture our parts.

Sales and Marketing

We sell our products directly in the United States, most of Europe, Canada and Australia, subject to required regulatory clearances and approvals. We have complemented our direct sales organization with distributors in most international markets.

We currently sell our products in the United States through our dedicated salesforce in our major markets, neuro, vascular, and immersive healthcare. Our sales representatives and sales managers generally have substantial medical device experience and market our products directly to a variety of specialist physicians engaged in the treatment of vascular disorders and healthcare providers who manage patients addressing motor function, cognition and mental well-being, who are the end users of our products and significantly influence buying decisions in hospitals and other healthcare settings relating to medical devices and other healthcare products. We are focused on developing strong relationships with specialist physicians and other healthcare providers and devote significant resources to training and educating physicians and other healthcare providers in the use and benefits of our products. The principal specialist physicians and other healthcare providers in our target end markets include:

•Neuro: Interventional neuroradiologists, neurosurgeons, and interventional neurologists.

•Vascular: Interventional radiologists, vascular surgeons, and interventional cardiologists.

•Immersive Healthcare: Occupational therapists, physical therapists, nurses, mental health professionals and other healthcare providers.

In addition to our direct sales organizations, we work with distributors in certain geographic areas where we have determined that selling through distributors is likely to be more effective.

We have continued licensing the technology to certain of our products to our partner in China pursuant to a distribution and licensing arrangement entered into in December 2020, as further expanded in February 2022, which permits our partner to manufacture and commercialize such products in China in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products. We believe this arrangement will allow us to monetize our technology while helping us to mitigate market risk.

Our direct sales have been, and we anticipate will continue to represent, a majority of our revenues. In 2022, direct sales accounted for approximately 81% of our revenue, with the balance generated by independent distributors that sell our products outside of the United States and by the arrangement with our partner in China, which includes licensing royalty and distribution revenue.

Backlog

We typically accept and ship orders on the day purchase orders are received or the next business day. Furthermore, if requested, we generally permit customers to cancel or reschedule without penalty. As a result, we do not believe that our backlog at any particular time is material, nor is it a reliable indication of future revenue.

Reimbursement

In the United States, hospitals are the primary purchasers of our products. Hospitals in turn bill various third-party payors, such as Medicare, Medicaid and private health insurance plans, for the total healthcare services required to treat the patient. Government agencies and some other payors determine whether to provide coverage for a particular procedure and to reimburse hospitals for inpatient treatment at a fixed rate based on the Medicare severity diagnosis-related group (“MS-DRG”) as determined by the U.S. Centers for Medicare and Medicaid Services (“CMS”). The fixed rate of reimbursement is generally based on the patients’ diagnosis and the procedure performed, and is unrelated to the specific medical device used in that procedure. Medicare rates for the same or similar procedures vary due to geographic location, nature of facility in which the procedure is performed (i.e., teaching or community hospital) and other factors. Private payors vary in their coverage and payment policies. While some may look to coverage and payment by Medicare as a guide, most formulate their own coverage and payment policies.

Some payors may deny reimbursement if they determine that the device used in a treatment was unnecessary, not cost-effective, or used for a non-approved indication. We cannot assure you that government or private third-party payors will cover

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and reimburse the procedures performed using our products in whole or in part in the future, that payment rates will be adequate, or that reimbursement rates will not change in the future.

Outside the United States, market acceptance of medical devices depends partly upon the availability of reimbursement within the prevailing healthcare payment system. Reimbursement levels vary significantly by country, and by region within some countries. Reimbursement is obtained from a variety of sources, including government-sponsored and private health insurance plans, and combinations of both. A small number of countries may require us to gather additional clinical data before or after recognizing coverage and reimbursement for our products. It is our intent to complete the requisite clinical studies and obtain coverage and reimbursement approval in countries where it makes economic sense to do so.

The increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in international markets will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our product sales and results of operations. These pressures can arise from rules and practices of insurers and managed care organizations, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, medical device reimbursement policies and pricing in general. Our ability to achieve market acceptance or significant sales volume will depend in large part on the availability of coverage and the level of reimbursement for procedures performed using our products under healthcare payment systems in such markets.

All third-party reimbursement programs, whether government funded or insured commercially, whether in the United States or internationally, are developing increasingly sophisticated methods of controlling health care costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, second opinions required prior to major surgery, review and analysis of claims, encouragement of and incentives for maintaining healthier lifestyles, and exploration of more cost-effective methods of delivering health care. These types of programs and legislative or regulatory changes to reimbursement policies could potentially limit the amount which healthcare providers may be willing to pay for medical devices.

Competition

The medical device industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. We compete with a number of manufacturers and distributors of neuro and vascular medical devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo, AngioDynamics and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than we have. As a consequence, they are able to spend more on product development, marketing, sales and other product initiatives than we can. For example, in 2021 some of these competitors acquired technologies that compete with our products in the vascular market. We also compete with a number of smaller medical device companies that have single products or a limited range of products. Some of our competitors have:

•significantly greater name recognition;

•broader or deeper relations with healthcare professionals, customers, group purchasing organizations, and third-party payors;

•more established distribution networks;

•additional lines of products and the ability to offer rebates or bundle products to offer greater discounts or other incentives to gain a competitive advantage;

•greater experience in conducting research and development, manufacturing, clinical trials, marketing and obtaining regulatory clearance or approval for products; and

•greater financial and human resources for product development, sales and marketing and patent litigation.

We compete primarily on the basis that our products are able to treat patients with neuro and vascular diseases and disorders and other health conditions safely and effectively. Our continued success depends on our ability to:

•develop innovative, proprietary products that can cost-effectively address significant clinical needs;

•continue to innovate and develop scientifically advanced technology;

•obtain and maintain regulatory clearances or approvals;

•demonstrate safety and efficacy in Penumbra-sponsored and third-party clinical trials and studies;

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•apply technology across product lines and markets;

•attract and retain skilled research and development and sales personnel; and

•cost-effectively manufacture and successfully market and sell products.

The immersive healthcare market is an emerging field within healthcare which is gaining increasing attention. There are a number of other companies that are also pursuing virtual reality-based healthcare solutions which have engaging therapeutic content activities. We believe that market success for us or any of our competitors in the immersive healthcare industry will be determined by virtual reality-based healthcare solutions becoming more widely accepted in the marketplace and the ability to design purpose-built virtual reality hardware and software specifically for use in healthcare.

Intellectual Property

Our success depends in part on our ability to protect our proprietary technology and intellectual property and operate without infringing the patents and other proprietary rights of third parties. We rely on a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to protect our intellectual property rights that we consider important to our business. We also rely on know-how and continuing technological innovation to develop and maintain our competitive position. We do not have any material licenses to any technology or intellectual property rights.

As of December 31, 2022, we owned and/or had rights to 103 issued patents globally, of which 46 were U.S. patents. As of December 31, 2022, we owned and/or had rights to 75 pending patent applications, of which 37 were patent applications pending in the United States. Subject to payment of required maintenance fees, annuities and other charges, 16 of our issued patents are currently expected to expire between 2025 and 2026; 13 of these patents relate to components of the Penumbra System and the Indigo System. Thirty-six of our issued patents, which relate to components of the Penumbra Coil 400, Ruby Coil System and Smart Coil System, are currently expected to expire between 2029 and 2037. Eighteen patents pertaining to the 3D Revascularization Device are projected to expire between 2032 and 2034. Seventeen patents related to our REAL Immersive System are expected to expire between 2032 and 2041. Some of our pending patent applications pertain to components and methods of use associated with currently commercialized products. Our pending patent applications may not result in issued patents and we can give no assurance that any patents that have issued or might issue in the future will protect our current or future products or provide us with any competitive advantage. See the section titled “Risk Factors-Risks Related to Our Intellectual Property” for additional information.

Additionally, we own or have rights to trademarks or trade names that are used in our business and in conjunction with the sale of our products, including 40 U.S. trademark registrations and 171 foreign trademark registrations as of December 31, 2022. Included in the registered trademarks is a mark with our company name and logo.

We also seek to protect our proprietary rights through a variety of other methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to our proprietary information.

Government Regulation

Our products are subject to extensive and ongoing regulation by the United States Food and Drug Administration (“FDA”) under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and its implementing regulations, as well as other federal and state regulatory bodies in the United States and comparable authorities in other countries under other statutes and regulations. The laws and regulations govern, among other things, product design and development, pre-clinical and clinical testing, manufacturing, packaging, labeling, storage, record keeping and reporting, handling of patient data and information clearance or approval, marketing, distribution, promotion, import and export, pricing and discounts, post-marketing surveillance and interactions with healthcare professionals. Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as issuance of warning letters, import detentions, civil monetary penalties, and/or judicial sanctions, such as product seizures, injunctions and criminal prosecution.

United States

FDA’s Premarket Clearance and Approval Requirements

Each medical device we seek to commercially distribute in the United States will require either a prior premarket notification (or 510(k)) clearance, unless it is exempt, or a premarket approval (“PMA”) from FDA. Medical devices are classified into three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be

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low risk and are subject to the general controls of the FD&C Act, such as provisions that relate to adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports; and good manufacturing practices. Most Class I devices are classified as exempt from premarket notification under Section 510(k) of the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from FDA. Class II devices are subject to both general controls and special controls to provide reasonable assurance of safety and effectiveness. Special controls include performance standards, postmarket surveillance, patient registries, and guidance documents. A manufacturer may be required to submit to FDA a premarket notification requesting clearance to commercially distribute some Class II devices. Medical devices which pose the greatest risk, such as life-sustaining or life-supporting devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are Class III devices. For Class III devices, a PMA application will be required unless the device was on the market prior to the passage of the medical device amendments in 1976, or substantially equivalent to such a device, and PMAs have not been called for. In that case, the manufacturer must submit a premarket notification and obtain 510(k) clearance in order to commercially distribute the device. FDA can also impose sales, marketing or other restrictions on devices in order to assure that they are used in a safe and effective manner.

510(k) Clearance Pathway

When a 510(k) clearance is required, a premarket notification must be submitted to FDA demonstrating that the proposed device is substantially equivalent to a predicate device, which is a previously cleared and legally marketed 510(k) device or a device that was in commercial distribution before May 28, 1976. By regulation, a premarket notification must be submitted to FDA and receive 510(k) clearance from FDA before the device can be marketed in the United States. The Medical Device User Fee Amendments (“MDUFA”) performance goal for a traditional 510(k) clearance is 90 calendar days. As a practical matter, however, clearance often takes longer, because the review clock is paused by FDA to allow time to resolve questions they may have on the 510(k) file. To demonstrate substantial equivalence, the manufacturer must show that the proposed device has the same intended use as the predicate device, and it either has the same technological characteristics, or different technological characteristics and the information in the premarket notification demonstrates that the device does not raise new questions of safety and effectiveness. FDA may require further information, including clinical data, to make a determination of substantial equivalence. If FDA determines the device, or its intended use, is not substantially equivalent to a previously cleared device or use, FDA will place the device into Class III, subject to the applicant’s option to submit a De Novo request for FDA to make a risk-based classification of the device into Class I or II.

There are three types of 510(k)s: traditional, special and abbreviated. Special 510(k)s are appropriate for certain technological, design, and labeling changes to a device which necessitates a new 510(k) but where the method(s) to evaluate the change(s) are well-established, and whether the results can be sufficiently reviewed in a summary or risk analysis format. Abbreviated 510(k)s are for devices that conform to a recognized standard. The special and abbreviated 510(k)s are intended to streamline review, and FDA intends to process special 510(k)s within 30 days of receipt.

Premarket Approval Pathway

A PMA application under section 515 of the FD&C Act must be submitted to FDA for Class III devices that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. The PMA application process is much more demanding than the 510(k) premarket notification process. A PMA is based on a determination by FDA that the PMA application contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s).

After a PMA application is submitted, FDA has 45 days to determine whether the application is sufficiently complete to permit a substantive review and thus whether FDA will file the application for review. FDA has 180 days to review a PMA application, although the review of an application generally occurs over a significantly longer period of time and can take up to several years. During this review period, FDA may request additional information or clarification of the information provided. Also, an advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. Although FDA is not bound by the advisory panel decision, the panel’s recommendations are important to FDA’s overall decision making process. In addition, FDA may conduct a preapproval inspection of the manufacturing facility to ensure compliance with the Quality System Regulation (“QSR”). FDA also may inspect one or more clinical sites to assure compliance with FDA’s regulations.

Upon completion of the PMA application review, FDA may: (i) approve the PMA which authorizes commercial marketing with specific prescribing information for one or more indications, which can be more limited than those originally sought; (ii) issue an approvable letter which indicates FDA’s belief that the PMA application is approvable and states what additional information FDA requires, or the post-approval commitments that must be agreed to prior to approval; (iii) issue a not approvable letter which outlines steps required for approval, but which are typically more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming and can delay approval for months

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or even years; or (iv) deny the PMA application. If FDA issues an approvable or not approvable letter, the applicant has 180 days to respond, after which FDA’s review clock is reset.

Clinical Trials

Clinical trials are almost always required to support a PMA and are sometimes required for 510(k) clearance. In the United States, for significant risk devices, these trials require submission of an application for an Investigational Device Exemption (“IDE”) to FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by FDA for a specific number of patients at specified study sites. During the trial, the sponsor must comply with FDA’s IDE requirements for investigator selection, trial monitoring, reporting, and recordkeeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices, and comply with all reporting and recordkeeping requirements. Clinical trials for significant risk devices may not begin until the IDE application is approved by FDA and the appropriate institutional review boards (“IRBs”), at the clinical trial sites. An IRB is an appropriately constituted group that has been formally designated to review and monitor medical research involving subjects and which has the authority to approve, require modifications in, or disapprove research to protect the rights, safety and welfare of human research subjects. A nonsignificant risk device does not require FDA approval of an IDE; however, the clinical trial must still be conducted in compliance with various requirements of FDA’s IDE regulations and be approved by an IRB at the clinical trials sites. The sponsor, FDA or the IRB at each site at which a clinical trial is being performed may withdraw approval of a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits or a failure to comply with FDA or IRB requirements. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and effectiveness of the device, may be equivocal or may otherwise not be sufficient to obtain approval or clearance of the product.

Sponsors of clinical trials of devices are required to register with clinicaltrials.gov, a public database of clinical trial information. Information related to the device, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is made public as part of the registration.

Ongoing Regulation by FDA

Even after a device receives clearance or approval by FDA and is placed on the market in the United States, there are requirements and regulations that must be followed. These include:

•establishment registration and device listing;

•QSR per 21 CFR Part 820 of U.S. Code of Federal Regulations (“CFR”), which requires manufacturers, including third-party manufacturers, to follow design, testing, control, documentation, and other quality assurance procedures during all aspects of the manufacturing process;

•labeling regulations and prohibitions against product adulteration and misbranding (e.g., the promotion of products that do not have the appropriate market clearance or promotion for “off-label” uses), and other requirements related to promotional activities;

•medical device reporting regulations, which require that manufacturers report to FDA if their device may have caused or contributed to a death or serious injury or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur;

•corrections and removal reporting regulations, which require that manufacturers report to FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FD&C Act that may present a risk to health; and

•post-market surveillance regulations, which apply to certain Class II or Class III devices when necessary to protect the public health or to provide additional safety and effectiveness data for the device.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, may require a new 510(k) or possibly a PMA. FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and may disagree with a manufacturer’s determination. If FDA disagrees with the determination to not seek a new 510(k) clearance, FDA may retroactively require a 510(k) clearance or possibly a PMA. FDA could also require the manufacturer to cease marketing and

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distribution and/or recall the modified device until 510(k) clearance or a PMA approval is obtained. Also, in these circumstances, there may be significant regulatory fines and penalties.

Changes to an approved PMA device, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new PMA application or PMA supplement, as appropriate, before the change can be implemented. Supplements to a PMA often require the submission of the same type of information required for an original PMA application, with the exception that the supplement is generally limited to the information needed to support the proposed change from the device covered by the original PMA.

FDA regulations require the registration of manufacturing facilities for medical device manufacturers. Additionally, the California Department of Health Services (“CDHS”) requires registration as a medical device manufacturer within the state. Therefore, FDA and the CDHS may inspect the registered facilities on a routine basis for compliance with the QSR. These regulations include requirements for the manufacturing of products and maintaining of related documentation with respect to manufacturing, testing, maintenance and control activities. Manufacturers are subject to regular QSR inspections in connection with the manufacture of medical devices at registered facilities. Further, FDA requires compliance with various labeling regulations. Failure by manufacturers or by their suppliers to comply with applicable regulatory requirements can result in enforcement action by FDA or state authorities, which may include any of the following sanctions:

•warning or untitled letters, fines, injunctions, consent decrees and civil penalties;

•customer notifications, voluntary or mandatory recall or seizure of our products;

•operating restrictions, partial suspension or total shutdown of production;

•delay in processing submissions or applications for new products or modifications to existing products;

•withdrawing approvals that have already been granted; and

•criminal prosecution.

The Medical Device Reporting laws and regulations require us to provide information to FDA when we receive or otherwise become aware of information that reasonably suggests our device may have caused or contributed to a death or serious injury as well as a device malfunction that likely would cause or contribute to death or serious injury if the malfunction were to recur. Our approach has been to file such reports with FDA even in cases where reporting might not otherwise be required out of an abundance of caution. In addition, FDA prohibits an approved device from being marketed for off-label use. FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.

Newly discovered or developed safety or effectiveness data may require changes to a product’s labeling, including addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or FDA’s policies may change, which could delay or prevent regulatory clearance or approval of our products under development.

We are also subject to other federal, state and local laws, and regulations relating to safe working conditions, laboratory, and manufacturing practices.

Regulatory Inspections

We are subject to periodic inspections by FDA and other regulatory entities, such as a European Notified Body, related to the regulatory requirements that apply to medical devices designed and manufactured, and clinical trials sponsored, by us. When FDA conducts an inspection, the inspectors will identify any deficiencies in the form of a notice of inspectional observations, or FDA Form 483. If a notice of inspectional observations or deficiencies is received from FDA following an inspection, we would be required to respond in writing, and would be required to undertake corrective and/or preventive or other actions in order to address FDA’s or other regulators’ concerns. Failure to address FDA’s concerns may result in the issuance of a warning letter or other enforcement or administrative actions.

European Union

Our medical devices are regulated in the European Union as medical devices per the European Medical Devices Regulation 2017/745 (“EU MDR”). An authorized third party, also called a Notified Body, must approve products for CE marking, other

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than those which are categorized as class I self-certified. The CE mark is contingent upon continued compliance to the applicable regulations, harmonized standards and the quality system requirements of the EU MDR and the ISO 13485 standard.

Our medical devices were previously regulated per the European Union Directive (93/42/EEC), also known as the Medical Device Directive (the “MDD”). In May 2017, the EU MDR was published to replace the MDD and was initially scheduled to be fully implemented on May 26, 2020 (the “EU MDR Effective Date”), with no further applications under the previous directives permitted and therefore requiring that we update our quality management system processes to meet the new EU MDR requirements. On April 17, 2020, the European Parliament postponed the EU MDR Effective Date by 12 months in response to the exceptional circumstances associated with the COVID-19 pandemic, and EU MDR came into effect on May 26, 2021. We have updated our quality management system processes to meet the new EU MDR requirements, which were successfully audited most recently in August 2022 by a Notified Body. We are actively updating technical documentation supporting our medical devices to meet EU MDR requirements and have submitted and obtained approvals for some of our products. We are also working with a Notified Body on transitioning our remaining medical devices CE marked under the MDD to gain CE marking under the EU MDR. CE certificates issued under the MDD prior to May 2021 will remain valid in accordance with their term, but will become void at the latest on May 27, 2024 (the “Transition Period”); however, certain limitations set forth in the EU MDR, such as the inability to substantially change medical devices without Notified Body approval will apply. We do not expect such limitations to have any material impact on our ability to supply our products to the market in the region covered by the EU MDR.

Other Regions

Most major markets have different levels of regulatory requirements for medical devices. Modifications to the cleared or approved products may require a new regulatory submission in all major markets. The regulatory requirements, and the review time, vary significantly from country to country.

Fraud and Abuse and Other Healthcare Regulation

Anti-Kickback Statute

We are subject to various federal and state healthcare laws, including, but not limited to, anti-kickback laws. In particular, the federal Anti-Kickback Statute prohibits persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce either the referral of an individual for the furnishing or arranging for a good or service, or for the purchasing, leasing, ordering, or arranging for or recommending any good, facility, service or item for which payment may be made in whole or in part under federal healthcare programs, such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. The term “remuneration” expressly includes kickbacks, bribes, or rebates and also has been broadly interpreted to include anything of value, including, for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value.

There are a number of statutory exceptions and regulatory safe harbors protecting certain business arrangements from prosecution under the federal Anti-Kickback Statute. These statutory exceptions and safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they may not be prosecuted under the federal Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more applicable statutory exceptions or safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy all requirements of an applicable safe harbor may result in increased scrutiny by government enforcement authorities and will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the federal Anti-Kickback Statute was amended under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. The Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act which is discussed below. Penalties for violations of the anti-kickback statute include, but are not limited to, criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from Medicare, Medicaid and other federal healthcare programs, and the curtailment or restructuring of operations. Various states have adopted laws similar to the federal Anti-Kickback Statute, and some of these state laws may be broader in scope in that some of these state laws extend to all payors and may not contain safe harbors. In addition, many foreign jurisdictions in which we operate have similar laws and regulations.

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Federal Civil False Claims Act. The federal civil False Claims Act prohibits, among other things, persons or entities from knowingly presenting or causing to be presented a false or fraudulent claim to, or the knowing use of false statements to obtain payment from or approval by, the federal government. Suits filed under the federal civil False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government. These individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. As a result, qui tam actions continue to cause healthcare companies to have to defend cases brought under the federal civil False Claims Act. If an entity is determined to have violated the federal civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Various states have adopted laws similar to the federal civil False Claims Act, and many of these state laws are broader in scope and apply to all payors, and therefore, are not limited to only those claims submitted to the federal government.

Federal Civil Monetary Penalties Statute. The federal Civil Monetary Penalties Statute, among other things, imposes fines against any person who is determined to have presented, or caused to be presented, claims to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent.

Sunshine Act. The Affordable Care Act also included a provision, commonly referred to as the Sunshine Act, that requires any manufacturer of a covered device that provides payments or other transfers of value to a physician or teaching hospital, or to a third party at the request of a physician or teaching hospital, to submit to CMS on an annual basis information about the payments or other transfers of value, with the reported information to be made public on a searchable website. This reporting requirement was expanded by the SUPPORT for Patients and Communities Act, which required manufacturers, beginning January 1, 2021, to report payments or other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives in addition to physicians and teaching hospitals. Similar laws have been enacted at the state level and in foreign jurisdictions, including France.

Foreign Corrupt Practices Act and Anti-Bribery Laws. The Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. companies and their representatives from offering or making payments to foreign officials for the purpose of securing a business advantage. In many countries, the healthcare professionals we regularly interact with may meet the definition of a foreign government official for purposes of the FCPA. Similar anti-bribery laws are in effect in many of the countries in which we operate.

Health Insurance Portability and Accountability Act of 1996. The federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) created several new federal crimes, including healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. In addition, HIPAA and its implementing regulations established uniform standards for certain covered entities, which are healthcare providers, health plans and healthcare clearinghouses, as well as their business associates, governing the conduct of specified electronic healthcare transactions and protecting the security and privacy of protected health information.

The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included an expansion of HIPAA’s privacy and security standards called the Health Information Technology for Economic and Clinical Health Act (“HITECH”). Among other things, HITECH created four tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

Human Capital Resources

As of December 31, 2022, we had approximately 3,900 employees worldwide. None of our U.S. employees are represented by a collective bargaining agreement. Some of our employees outside of the United States are subject to mandatory, industry-specific collective bargaining agreements or the protections of statutory works councils as required by local law. We have never experienced a work stoppage. We believe our employee relations are good.

In managing our business, we focus on a number of measures and objectives with respect to the attraction, development and retention of our employees that we believe are important to our business, including diversity, communication, compensation, professional development, and health, well-being and safety:

•We are proud to be an equal opportunity employer and to have a diverse employee population and leadership team: for example, as of December 31, 2022, approximately 50% of our employees are female, more than half of our senior management team are female, and approximately 75% of our employee population in the United States are from a

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minority background. We seek to attract a diverse slate of candidates, including from historically underrepresented groups. We believe that diversity and inclusion in the workplace enhance employee engagement and stimulate innovation, and that people in diverse groups work better, share information more broadly and consider a wider range of views. We pride ourselves on our diverse workforce, which we believe has been and will continue to be a major contributor to our growth and innovation, and intend to continue to make diversity and inclusion a cornerstone of our efforts regarding our workforce.

•We aim to maintain an “open door” culture, and encourage employees to voice their concerns, questions, suggestions and comments. We strive to foster an atmosphere where employees openly share ideas and where people are treated with dignity and respect. Our goal is to provide a productive working environment based on mutual respect and the highest level of ethical and lawful conduct. We have also established a hotline for employees to report suspected violations of law and concerns related to accounting, auditing and ethical violations.

•We provide our employees a competitive wage that is aimed to allow them to meet the standard cost of living in their region. We evaluate our compensation programs to ensure that our employees are paid fairly for the valuable work they are doing, and we are rewarding outstanding performance. We are also committed to achieving internal pay equity. We offer our employees competitive benefits that follow local country standards.

•We aim to foster a culture where learning is continuous, and we strive to promote from within. We believe in our people and their ability to accept new responsibilities and challenges and to grow with us to contribute to our success. Growth is fostered through professional development and learning programs as well as practical experience leading projects or teams. Employees receive regular performance reviews to support their progress and development.

•We recognize the benefits of a healthy workforce. We provide employees at our Alameda campus with on-site restaurants that offer fresh food at discounted pricing for employees, as well as an on-site fitness center. Employees in the United States are also eligible for a gym discount at a local commercial fitness chain. We also support the mental health of our employees by offering an employee assistance program for employees and their families that provides free counseling sessions and offers other resources for employees.

•We prioritize the health and safety of our employees. Guided by a strategic plan that is regularly reviewed, we have a dedicated Employee Health and Safety team, who seek to prevent and reduce workplace risks and injuries through various programs, projects, services, and assistance, such as ergonomic evaluation, hazard reporting, risk assessment, and first aid training. Employee safety is also supported by an access control system at all facilities and a dedicated 24/7 Security team on the Alameda and Roseville campuses. We require all work-related injuries or illnesses to be reported. This information is reviewed monthly by our Safety Committee for analysis and trending.

•We are committed to maintaining and improving the safety of our employees and our workplace. For example, we have taken a number of steps to address the impact of the COVID-19 pandemic on our employees at various stages of the pandemic, including continuing to pay United States employees impacted by the pandemic consistent with California requirements, permitting most of our office employees to work remotely, providing periodic on-site vaccine and booster clinics and on-site testing, and implementing changes to how we manufacture our products and to other processes in order to prioritize the health and safety of our employees and to operate under the protocols mandated by local and state authorities. We will continue to assess, identify and implement measures to support the health and safety of our employees during the pandemic.

Facilities

We maintain approximately 600,000 square feet of office, research and development, manufacturing and administrative facilities in nine buildings at our campus in Alameda, California as of December 31, 2022. The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years. From time to time through February 1, 2035, if any space in any of the buildings located in the same business park as our campus becomes vacant, that space will be added to the lease. The maximum additional space that could be added under this provision of the lease as of December 31, 2022 is approximately 30,000 square feet. The Company has a right of first offer to lease any space that becomes available after such date. We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years. An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon completion of certain improvements to the premises, which is not expected to occur in 2023. In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore

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warehouse spaces expire at various times in 2025 to 2028. The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years.

We also lease office and warehouse space in Germany, Italy, Australia, Brazil, and Singapore as of December 31, 2022. The offices in Germany and Australia support our direct sales operations in Europe and Australasia, respectively, with the Germany office also supporting distributor relationships in Europe and the Middle East; the offices in Brazil and Singapore support our sales and marketing efforts, including through our distribution partners, in Latin America and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland. We also warehouse and distribute finished products to our international customers utilizing a third-party logistics provider in the Netherlands.

Legal Proceedings

From time to time, we are subject to claims and assessments in the ordinary course of business. For more information regarding our current legal proceedings, please refer to the section entitled “Legal Proceedings” in Part I, Item 3 of this Form 10-K. Such matters are subject to many uncertainties and there can be no assurance that legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

Available Information

We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports available free of charge at our website as soon as reasonably practicable after they have been filed with the SEC. Our website address is www.penumbrainc.com. Information contained in or accessible through our website is not part of this report. The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov.

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ITEM 1A. RISK FACTORS.

This Form 10-K contains forward-looking information based on our current expectations. Because our business is subject to many risks and our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our business, operating results, financial condition and the trading price of our common stock. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K as well as our other publicly available filings with the SEC. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely harmed.

Business Risks

We have a limited operating history in certain markets and may not be able to sustain or grow our profitability or generate positive cash flows from operations in the future.

We were founded in 2004 and did not generate any revenue until 2007. Moreover, while we have successfully developed, obtained regulatory clearance or approval for, and introduced a number of products in the neurovascular market since 2007, we first introduced products in the peripheral vascular, neurosurgical and immersive healthcare markets in 2013, 2014 and 2020, respectively. Accordingly, in certain markets we have a limited operating history upon which investors can evaluate our business and prospects, and this limited operating history may not be indicative of our future results. We incurred operating losses in 2020 and 2021. We can give no assurance that we will be profitable or cash flow positive in the future.

Our sales, general and administrative expenses have increased, and we expect that they will continue to increase, to support our past and anticipated future growth. We have also expended significant amounts on research and development to develop our products, and we expect to continue to do so. We also expend significant amounts on maintaining inventory levels of raw materials, components and finished products to meet anticipated customer demand. In addition, our coil products are sold on a consignment basis, which requires us to expend significant amounts on inventory that is placed at many customer locations. Our ability to sustain our growth and profitability and generate positive operating cash flow in the future may be influenced by many factors, including:

•our ability to achieve and maintain market acceptance of our products;

•unanticipated problems and additional costs relating to the development and testing of new products;

•our ability to introduce, manufacture at scale, build new inventory and commercialize new products;

•our ability to produce sufficient quantities of our products to meet demand;

•the impact of competition;

•the timing and impact of market, reimbursement and regulatory developments;

•our ability to expand into new markets;

•pricing pressure from competitors;

•the availability and adequacy of third-party reimbursement for procedures in which our products are used; and

•our ability to obtain and maintain adequate intellectual property protection for our products and technologies.

If we encounter difficulties with any of the foregoing or unexpected expenses, it could materially adversely affect our business, results of operations, financial condition or cash flows.

Our existing products may be rendered obsolete and we may be unable to effectively introduce and market new products or may fail to keep pace with advances in technology.

The medical device market is characterized by rapidly advancing technology. Our success and growth depends, in part, on our ability to anticipate technological advancements and competitive innovations and introduce new products to adapt to these advancements and innovations. To compete in the marketplace, we have made, and we must continue to make, substantial investments in new product development, whether internally through research and development or externally through licensing or acquisitions. We can give no assurance that we will be successful in identifying, developing or acquiring, and marketing new products or enhancing our existing products. In addition, we can give no assurance that new products or alternative treatment techniques developed by competitors will not render our current or future products obsolete or inferior, technologically or economically.

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The success of any new products that we develop or acquire depends on achieving and maintaining market acceptance. Market acceptance for our current and new products could be affected by a number of factors, including:

•our ability to market and distribute our products effectively;

•the availability, perceived efficacy and pricing of alternative products from our competitors;

•the development of new products or alternative treatments by others that render our products and technologies obsolete;

•the price, quality, effectiveness and reliability of our products;

•our customer service and reputation;

•our ability to convince specialist physicians and other healthcare providers to use our products on their patients; and

•the timing of market entry of new products or alternative treatments.

For example, treatment protocols for ischemic stroke patients vary according to the particular hospital, often resulting in significant delays and gaps in patients being assessed for and receiving interventional treatment. We believe that the stroke care system in the United States has not been historically geared towards interventional treatment of stroke due to the absence of clinical evidence that interventional techniques were effective. Specialist physician societies and we and our competitors are making efforts to alter the existing stroke care pathway, but we anticipate that these efforts will take years to be fully successful. The success of these efforts may depend on whether we and our competitors can effectively use substantial clinical data - demonstrating that intervention yields superior clinical results relative to cases where intervention is not used - to convince specialist physicians to use interventional techniques to treat ischemic stroke patients. Even if these efforts are successful, it may be years before existing systems and care pathways are changed.

Our inability to maintain or grow the market acceptance of our existing products, or to develop and market new products, could result in write-offs of our inventory and otherwise have a material and adverse effect on our business, results of operations, financial condition or cash flows.

Delays in product introductions could adversely affect our business, results of operations, financial condition or cash flows.

The medical device market is highly competitive and designs change often to adjust to shifting market preferences and other factors. Therefore, product life cycles are relatively short. As a result, any delays in our product launches may significantly impede our ability to enter or compete in a given market and may reduce the sales that we are able to generate from these products. We may experience delays in any phase of a product launch, including during research and development, clinical trials, regulatory review, manufacturing and marketing.

In addition, our competition may respond more quickly to new or emerging technologies or a changing clinical landscape, undertake more extensive marketing campaigns, have greater financial, marketing and other resources than us or be more successful in attracting potential customers and strategic partners. Given these factors, we cannot assure you that we will be able to continue or increase our level of success. If we are unable to introduce new and innovative products, or if there are delays in product introductions, our business, results of operations, financial condition or cash flows could be materially adversely affected.

We face significant competition, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations.

The medical device industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. We compete with a number of manufacturers and distributors of neuro and vascular devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo, AngioDynamics and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than us. We also compete with a number of smaller medical device companies that have a single product or a limited range of products. Our competitors may be able to spend more on product development, marketing, sales and other product initiatives, or be more focused in their spending and activities, than we can. Some of our competitors have:

•significantly greater name recognition;

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•broader or deeper relations with healthcare professionals, customers, group purchasing organizations and third-party payors;

•more established distribution networks;

•additional lines of products and the ability to offer rebates or bundle products to offer greater discounts or other incentives to gain a competitive advantage;

•greater experience in conducting research and development, manufacturing, clinical trials, marketing and obtaining regulatory clearance or approval for products; and

•greater financial and human resources for product development, sales and marketing and patent litigation.

We compete primarily on the basis that our products are able to treat patients with neuro and vascular diseases and disorders and other health conditions safely and effectively, with improved outcomes and procedural cost savings. Our continued success depends on our ability to:

•develop innovative, proprietary products that can cost-effectively address significant clinical needs;

•continue to innovate and develop scientifically advanced technology;

•obtain and maintain regulatory clearances or approvals;

•demonstrate efficacy in Penumbra-sponsored and third-party clinical trials and studies;

•apply technology across product lines and markets;

•attract and retain skilled research and development and sales personnel; and

•cost-effectively manufacture and successfully market and sell products.

We cannot assure you that we will be able to compete effectively on the basis of these factors. Additionally, our competitors with greater financial resources could acquire or develop new technologies or products that effectively compete with our existing or future products. If we are unable to effectively compete, it would materially adversely affect our business, results of operations, financial condition and cash flows.

The COVID-19 pandemic has adversely affected and could in the future adversely affect our business, financial condition, results of operations, or cash flows.

In December 2019, a strain of coronavirus, known as COVID-19, surfaced in Wuhan, China and resulted in an outbreak throughout the world. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In response to the emergence of the pandemic, governments, public institutions, and other organizations in countries and localities throughout the world took, and in certain cases continue to take, certain measures to combat the spread of COVID-19. While the acute phase of the pandemic has subsided due to the development and widespread availability of vaccines for COVID-19, we have experienced negative impacts from this pandemic and it could materially harm our business, results of operations and financial condition in the future.

For example, at times during the COVID-19 pandemic hospitals and other healthcare providers have faced constraints in their capacities to perform non-COVID related procedures, including staffing shortages, and have also implemented restrictions on vendor access, which limited in certain cases our ability to provide product and case support. In addition, we have experienced certain disruptions in our business due to the pandemic, including changes to our on-site operations, delays in product development efforts and related clinical trials and regulatory clearances and approvals, and other negative impacts on our capacity to develop, commercialize, manufacture, sell and support the use of our products, and there can be no assurances that we will not experience similar disruptions in the future. The COVID-19 pandemic and the response thereto have also impacted global supply chains and labor markets, resulting in cost inflation and raw material supply constraints, as well as an increase in employee turnover rates in certain jurisdictions, which has impacted, and may continue to impact, our business.

These impacts and any further adverse impacts of the COVID-19 pandemic on our business, healthcare systems, the medical device industry or the global economy as a whole could materially and adversely affect our business, financial condition, results of operations, or cash flows.

We face risks related to our investment in our immersive healthcare platform, including our inexperience with virtual reality technology, and we may be unsuccessful in developing and commercializing products using virtual reality technology.

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In 2017, we formed a joint venture with Sixense Enterprises Inc. (“Sixense”) to explore healthcare applications using virtual reality technology. Since the formation of the joint venture in 2017, we have invested significant financial resources to develop and commercialize immersive healthcare products. In October 2021, we acquired Sixense for $251.0 million, which was paid in the form of shares of Penumbra common stock and options to purchase Penumbra common stock.

Our company is experienced in and has a strong history of bringing technology to healthcare markets. While we are familiar with the healthcare markets that we plan to target initially, we do not have extensive experience with virtual reality technology and are relying on new hires, including former Sixense employees, and consultants with expertise in the field. Apart from funds we have invested to date, we continue to invest substantial additional funds for research and development, to establish manufacturing operations, to hire dedicated sales and marketing personnel and to commercialize immersive healthcare products.

We can give no assurance that we will be successful in developing and commercializing products using virtual reality technology. To date, our efforts have been focused on developing the REAL Immersive System and our commercial launch of the early generation of this product is in its nascent stages. We have not yet determined that the business model we are pursuing to bring virtual reality technology to the healthcare field will be successful. Our ability to successfully commercialize healthcare applications using virtual reality technology may be influenced by many factors, including:

•our ability to develop new products and content;

•unanticipated problems and additional costs relating to the development and testing of new products;

•our ability to install, set up and service new customers;

•our ability to achieve and maintain market acceptance;

•our possible reliance on a limited number of suppliers for key components of the products we develop;

•maintaining an appropriate program for compliance with regulations related to the privacy and security of individually-identifiable patient information, including but not limited to HIPAA;

•our ability to introduce, manufacture at scale, build new inventory and commercialize new products;

•our ability to produce sufficient quantities of products to meet demand;

•the impact of competition, including with respect to the hardware and software underlying our immersive healthcare platform;

•the timing and impact of market, reimbursement and regulatory developments, including our ability to obtain any required regulatory approvals or clearances outside the United States;

•our ability to expand into new markets; and

•our ability to obtain and maintain adequate intellectual property protection for our products and technologies.

If we are unsuccessful in developing and commercializing products using virtual reality technology, our business, financial conditions and results of operations could be materially and adversely affected.

Our future growth depends, in part, on our ability to further penetrate our current customer base and increase the frequency of use of our products by our customers.

We will need to continue to make specialist physicians and other healthcare providers aware of the benefits of our products to generate increased demand and frequency of use, and thus increase sales to our customers. Although we are attempting to increase the number of patients treated with our products through our established relationships and focused sales efforts, we cannot provide assurance that our efforts will increase the use of our products. If we are unable to increase the frequency of use of our products by specialist physicians and other healthcare providers, our business, results of operations, financial condition and cash flows could be materially adversely affected.

Our future growth depends, in part, on significantly expanding our user base to include additional specialist physicians and other healthcare providers in both our existing and future target end markets.

Currently, the primary users of our neuro and vascular products are specialist physicians, including interventional neuroradiologists, neurosurgeons, interventional neurologists, interventional radiologists, interventional cardiologists and

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vascular surgeons. We have in the past entered into new target end markets, including with respect to our immersive healthcare platform, and may from time to time enter new target end markets with different users in the future. Our revenue growth will depend in part on our ability to convince specialist physicians and other healthcare providers in our existing and future target end markets of our products’ efficacy, to educate them in the proper use of our products and to sell our products to their affiliated hospitals or other organizations. Convincing specialist physicians and other healthcare providers to use new products and to dedicate the time and energy necessary for adequate education in the use of our products is challenging, especially in new markets where treatments or therapies using our products are not established. Expanding our customer base in existing and new target end markets may require, among other things, additional clinical evidence supporting patient benefits, training in a manner to which we are not accustomed, or other resources that we do not readily have available or are not cost effective for us to provide. If we are unable to convert specialist physicians or other healthcare providers in existing or new target end markets to the use of our products, our sales growth will be limited, which could materially adversely affect our business, results of operations, financial condition or cash flows.

We may not have the resources to successfully market and sell our products, which would adversely affect our business and results of operations.

The marketing and sales of our products requires us to invest in training and education and employ a salesforce that is large enough to interact with the specialist physicians and other healthcare providers who use our products. Entering new markets also requires a significant amount of time and expense in order to identify and establish relationships with key opinion leaders among the specialist physicians and other healthcare providers who may use our products in those markets. We may not have adequate resources to market and sell our products successfully against larger competitors. If we cannot market and sell our products successfully, our business, results of operations, financial condition and cash flows could be materially adversely affected.

Third-party reimbursement may not be available or adequate for the procedures or sessions for which our products are used, and may be subject to change.

Our ability to commercialize new products successfully in both the United States and international markets depends in part on the availability of, and hospitals’ and other customers’ ability to obtain, adequate levels of third-party reimbursement for the procedures or sessions in which our products are used. In the United States, the cost of medical care is funded, in substantial part, by government insurance programs, such as Medicare and Medicaid, and private and corporate health insurance plans. Third-party payors may deny reimbursement if they determine that a device used in a procedure has not received appropriate FDA or other governmental regulatory clearances or approvals, is not used in accordance with cost-effective treatment methods as determined by the payor, or is experimental, unnecessary or inappropriate. Our ability to commercialize our products successfully will depend, in large part, on the extent to which adequate reimbursement levels for the cost of their use are obtained from government authorities, private health insurers and other organizations, such as health maintenance organizations. Further, healthcare in the United States and international markets is also being affected by economic pressure to contain reimbursement levels and costs, and various healthcare reform proposals have emerged and may continue to emerge at the U.S. state and federal level. Changing reimbursement models and the impact of healthcare reform laws, either domestically or internationally could materially adversely affect our business, results of operations, financial condition or cash flows.

We have generated a significant portion of our revenue and revenue growth from a limited number of product families, and our revenue and business prospects would be adversely affected if sales of any of these product families were to decline.

We have generated most of our revenue and revenue growth from a limited number of product families. If any one or more of these product families were adversely affected because of regulatory, third-party reimbursement or intellectual property issues or any other reason, or if one of our competitors introduced one or more products that specialist physicians or other healthcare providers believe are superior to our products, our revenue from one of these product families could decline. A significant decline in our sales of any of these product families could also negatively impact our financial condition and our ability to conduct product development activities, and therefore negatively impact our business prospects.

If specialist physicians or other healthcare providers do not recommend and endorse, or use, our products or if our relationships with specialist physicians or other healthcare providers deteriorate, our products may not be accepted or maintain acceptance in the marketplace, which would adversely affect our business and results of operations.

Our products are sold primarily to hospitals for use by specialist physicians and other healthcare providers practicing at their facilities. In order for us to sell our products, specialist physicians and other healthcare providers must recommend and endorse them for the hospital to purchase them, and must use them in treating their patients to generate follow-on sales. We may not obtain the necessary recommendations or endorsements for new products from specialist physicians and other healthcare providers, nor may we be able to maintain the current or future level of acceptance and usage of our products.

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Acceptance of our products depends on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of our products compared to products of our competitors or treatments that do not use our products, and on training specialist physicians and other healthcare providers in the proper application and use of our products. We invest in significant training and education of our sales representatives, specialist physicians and other healthcare providers to achieve market acceptance of our products, with no assurance of success. If we are not successful in obtaining and maintaining the recommendations or endorsements of specialist physicians and other healthcare providers for our products, if specialist physicians and other healthcare providers prefer our competitors’ products or other alternative treatments that do not use our products, or if our products otherwise do not gain or maintain market acceptance, our business could be adversely affected.

In addition, the research, development, marketing and sales of our products are dependent, in part, upon our working relationships with specialist physicians and other healthcare providers. We rely on them to provide us with knowledge and feedback regarding our products and the marketing of our products. If we are unable to develop or maintain strong relationships with specialist physicians and other healthcare providers and receive their advice and input, the development and marketing of our products could suffer, which could materially adversely affect our business, results of operations, financial condition or cash flows.

Our dependence on key suppliers puts us at risk of interruptions in the availability of our products, which could reduce our revenue and adversely affect our results of operations.

We require the timely delivery of sufficient amounts of components and materials to manufacture our products. For reasons of quality assurance, cost effectiveness or availability, we procure certain raw materials and components from a single or limited number of suppliers. We generally acquire such raw materials and components through purchase orders placed in the ordinary course of business, and as a result we may not have a significant inventory of these materials and components and generally do not have any guaranteed or contractual supply arrangements with many of these suppliers. Our reliance on these suppliers subjects us to risks that could harm our business, including, but not limited to, difficulty locating and qualifying alternative suppliers. For example, FDA and regulators outside of the United States may require additional testing of any raw materials or components from new suppliers prior to our use of these materials or components. In the case of a device with clearance under Section 510(k) of the FD&C Act, referred to as a 510(k), we may be required to submit a new 510(k) if a change in a raw material or component supplier results in a change in a material or component supplied that is not within the 510(k) cleared device specifications. If we need to establish additional or replacement suppliers for some of these materials or components, our access to the materials or components might be delayed while we qualify such suppliers and obtain any necessary FDA approvals or clearances. Our suppliers may also be subject to regulatory inspection and scrutiny. Any adverse regulatory finding or action against those suppliers could impact their ability to supply us with raw materials and components for our products. We may also face delays, yield issues and quality control problems if we are required to locate and secure new sources of supply.

Our dependence on third-party suppliers involves several other risks, including limited control over pricing, availability, quality and delivery schedules. Suppliers of raw materials and components may decide, or be required, for reasons beyond our control, to cease supplying raw materials and components to us or to raise their prices. Shortages of raw materials, quality control problems, production capacity constraints or delays by our suppliers could negatively affect our ability to meet our production requirements and result in increased prices for affected materials or components. Any material shortage, constraint or delay may result in delays in shipments of our products, which could materially adversely affect our results of operations.

Finally, some of our products are sterilized prior to use at a third-party sterilizer in the United States using ethylene oxide. The U.S. Environmental Protection Agency has proposed regulations aimed at reducing hazardous air pollutants, including emissions of ethylene oxide, and any future regulatory action that requires sterilization facilities to modify their sterilization processes to limit the use of ethylene oxide could impact the supply of sterilization services as well as the cost for such services. In addition, certain sterilization facilities in the United States have undergone temporary closures mandated by state agencies in recent years due to concerns over the impact of emissions of ethylene oxide from such facilities, and any future closures could lead to increased demand for sterilization services at the facilities we currently use to sterilize our products, which could prevent us from being able to sterilize our products at a pace sufficient to meet product demand and/or result in an increase in the cost of sterilization services. Any regulations that limit the use of ethylene oxide at, or any temporary or permanent closures of, sterilization facilities, including the facilities we currently use, could, due to the limited number of sterilization facilities and the time required to approve and license, and gain regulatory approval for us to use, a sterilization facility, impact our ability to obtain sterilization services on a timely basis, which could materially adversely affect our results of operations.

We may not be able to achieve or maintain satisfactory pricing and margins for our products.

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Manufacturers of medical devices have a history of price competition, and we can give no assurance that we will be able to achieve satisfactory prices for our products or maintain prices at the levels we have historically achieved. If we are unable to achieve or maintain our prices, or if our costs increase and we are unable to offset such increase with an increase in our prices, our margins could erode and we may be unable to achieve or maintain profitable operations in the future. For example, the COVID-19 pandemic and the response thereto have impacted global supply chains, resulting in an increase in the cost of certain raw materials and components used in our products. While we have taken steps to reduce our manufacturing costs and to increase efficiencies, there can be no assurance that such measures will be successful or will reduce our costs commensurate with the increase in the cost of raw materials and components. If we are unable to increase our pricing or reduce our manufacturing costs in response to increases in the cost of raw materials and components used in our products, our business, results of operations, financial condition and cash flows may be materially adversely affected.

We cannot be certain that we will be able to manufacture our products in high volumes at commercially reasonable costs.

We currently maintain our primary manufacturing operations at our facilities in Alameda and Roseville, California. We currently produce substantially all of our products at these facilities, and we can give no assurance that these facilities will be adequate for our future needs. We may need to expend significant capital resources and further increase the size of our manufacturing capabilities as we grow our business. We could, however, encounter problems related to:

•capacity constraints;

•production yields;

•quality control;

•equipment availability; and

•shortages of qualified personnel.

Our continuous product innovation may limit our ability to identify and implement manufacturing efficiencies. Failure to do so may reduce our ability to manufacture our products at commercially reasonable costs. If we are unable to manufacture our products in high volumes at commercially reasonable costs, it could materially affect our ability to adequately increase production of our products and fulfill customer orders on a timely basis, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

We are required to maintain high levels of inventory, which consume a significant amount of our working capital and could lead to permanent write-downs or write-offs of our inventory.

We maintain a significant inventory of raw materials, components and finished goods, which subjects us to a number of risks and challenges. Our hospital customers typically maintain only small quantities of our products at their facilities, so as products are used, they order replacements that typically require prompt delivery. As a result, we must maintain sufficient levels of finished goods to permit rapid shipment of products following receipt of a customer order. In turn, we must also maintain a sufficient supply of raw materials and components inventory to permit rapid manufacturing and re-stocking of finished goods. Furthermore, our coil inventory is supplied to hospital customers on a consignment basis, which means that it is classified as part of our inventory for financial reporting purposes but is maintained at the hospital location until it is used. We have built, and will continue to build, a significant inventory of coils in order to support the introduction of and to provide adequate consignment stock for our new and existing coil products.

Maintaining a significant inventory of raw materials, components and finished goods, including coils, consumes a significant amount of our working capital. This working capital could be used for other purposes, such as research and development or sales and marketing activities. As we grow our business, we may need substantial additional capital to fund higher levels of inventory, which may materially adversely affect our liquidity or result in dilution to our stockholders if we sell additional equity securities or leverage if we raise debt capital to finance our working capital requirements.

Maintaining a significant inventory of raw materials, components and finished goods, including coils, also subjects us to the risk of inventory excess and obsolescence, which may lead to a permanent write-down or write-off of our inventory. While in inventory, our components and finished goods may become obsolete, and we may over-estimate the amount of inventory needed, which may lead to excessive inventory. In these circumstances we would write-down or write-off our inventory and may be required to expend additional resources or be constrained in the amount of end product that we can produce. Furthermore, our products have a limited shelf life due to sterilization requirements, and part or all of a given product or component may expire, resulting in a decrease in value and potentially a permanent write-down of our inventory. In the event

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that a substantial portion of our inventory becomes excess or obsolete, it could materially adversely affect our results of operations.

Defects or failures or alleged defects or failures associated with our products could lead to recalls, safety alerts, or product-related or securities litigation, as well as significant costs and negative publicity.

Manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to, our products and result in significant costs, negative publicity and adverse competitive pressure. While we have had product recalls, including the recall of the JET 7 Reperfusion Catheter with Xtra Flex technology in December 2020, they have all been voluntary. The circumstances giving rise to recalls are, however, unpredictable, and any recalls of existing or future products could materially adversely affect our business, results of operations, financial condition or cash flows.

The medical device industry has historically been subject to extensive litigation over product liability claims. There are high rates of mortality and other complications associated with some of the medical conditions suffered by the patients whom specialist physicians use our devices to treat, and we may be subject to product liability claims if our products cause, or merely appear to have caused, an injury or death. In addition, an injury or death that is caused by the activities of our suppliers, such as those that provide us with components and raw materials, or by an aspect of a treatment used in combination with our products, such as a complementary drug or anesthesia, may be the basis for a claim against us by patients, hospitals, health-care providers or others purchasing or using our products, even if our products were not the actual cause of such injury or death. An adverse outcome involving one of our products could result in reduced market acceptance and demand for all of our products, and could harm our reputation and our ability to market our products in the future. In some circumstances, adverse events arising from or associated with the design, manufacture or marketing of our products could result in the suspension or delay of regulatory reviews of our premarket notifications or applications for marketing. Any of the foregoing problems could disrupt our business and have a material adverse effect on our business, results of operation, financial condition or cash flows.

Although we carry product liability insurance in the United States and in other countries in which we conduct business, including for clinical trials and product marketing, we can give no assurance that such coverage will be available or adequate to satisfy any claims. Product liability insurance is expensive, subject to significant deductibles and exclusions, and may not be available on acceptable terms, if at all. If we are unable to obtain or maintain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we could be exposed to significant liabilities. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could materially adversely affect our business, financial condition and results of operations. Defending a product liability suit, regardless of its merit or eventual outcome, could be costly, could divert management’s attention from our business and might result in adverse publicity, which could result in reduced acceptance of our products in the market, product recalls or market withdrawals.

In addition, the occurrence of an adverse event relating to our products, a product recall or a product liability claim against us may cause our stock price to decline, which could result in securities class action litigation claims against us. We were involved in one such lawsuit in 2021, which was voluntary dismissed without prejudice in March 2021, and we may be the target of this type of litigation in the future. Any such litigation could result in substantial costs and a diversion of our management’s attention and resources.

Our products are continually the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may be unfavorable, or perceived as unfavorable, which could materially adversely affect our business, financial condition and results of operations.

As a part of the regulatory process of obtaining marketing clearance or approval for new products and new indications for existing products, as well as to provide specialist physicians and other healthcare providers with ongoing information regarding the efficacy of our products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints. Our competitors and third parties also conduct clinical trials of our products without our participation. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, our competitors or third parties, or the market’s or regulators’ perception of clinical data, could materially adversely affect our business, results of operations, financial condition or cash flows.

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Any data that is gathered in the course of clinical trials may be significantly more favorable than the typical results achieved by practicing specialist physicians and other healthcare providers, which could negatively impact rates of adoption of our products.

Even if the data collected from clinical trials indicates positive results, each specialist physician’s or other healthcare providers’ actual experience with our products will vary. Clinical trials often involve procedures performed by specialist physicians or other healthcare providers who are technically proficient and high volume users. Consequently, the results reported in clinical trials may be significantly more favorable than typical results of other users. If specialist physicians’ or other healthcare providers’ experiences indicate, or they otherwise believe, that our products are not as safe or effective as other treatment options with which they are more familiar, or clinical trial data indicates the same, adoption of our products may suffer, which could materially adversely affect our business, results of operations, financial condition or cash flows.

Negative publicity regarding our products or marketing tactics by competitors or other third parties could reduce demand for our products, which would adversely affect sales and our financial performance.

We may experience, from time to time, negative exposure in clinical publications or in marketing campaigns of our competitors. Such publications or campaigns may present negative individual physician experience regarding the safety or effectiveness of our products or may suggest our competitors’ products are superior to ours, based on studies or clinical trials conducted or funded by competitors or that involved competitive products.

Our reputation and competitive position may also be harmed by other publicly available information suggesting that our products are not safe. For example, we file adverse event reports under Medical Device Reporting (“MDR”) obligations with the FDA that are publicly available on the FDA’s website. We are required to file MDRs if our products may have caused or contributed to a serious injury or death or malfunctioned in a way that could likely cause or contribute to a serious injury or death if it were to recur. Our approach has been to file MDRs even in cases where reporting might not otherwise be required out of an abundance of caution. Any such MDR could result in negative publicity and could harm our reputation and future sales.

In addition, our reputation may be adversely impacted by other third parties, including parties engaged in the short selling of our stock. Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third-party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. We have been in the past, and may be in the future, subject to such attacks by short sellers.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovative approach, creativity, and teamwork fostered by our culture, and our business may be harmed.

We believe that a critical contributor to our success has been our corporate culture, which we believe fosters innovation, teamwork, and a focus on execution, as well as facilitates critical knowledge transfer and knowledge sharing. As we grow, we may find it difficult to maintain these important aspects of our corporate culture, which could limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain and recruit personnel or execute on our business strategy.

If our facilities were to become inoperable, we would be unable to continue to develop and manufacture our products until we were able to restore full research, manufacturing and administrative capabilities at our facilities or secure a new facility, and as a result, our business would be harmed.

We currently maintain our research and development, administrative and primary manufacturing operations in buildings located at our campus in Alameda, California. Alameda is situated on or near earthquake fault lines, and our facilities are built on filled land, which could be prone to liquefaction in a major earthquake. Should one or more of our buildings be significantly damaged or destroyed by natural or man-made disasters, such as earthquakes, fires or other events, it could take months to relocate or rebuild, during which time our employees may seek other positions, our research, development and manufacturing would cease or be delayed and our products may be unavailable. While we have additional manufacturing capacity at our Roseville, California facility, such space may not be sufficient to replace lost manufacturing capacity in the event one or more of our Alameda buildings are damaged or destroyed. Moreover, in the event we are required to obtain additional production capacity due to one or more of our Alameda buildings being damaged or destroyed, because of the time required to approve and license a manufacturing facility under FDA and non-U.S. regulatory requirements, we may not be able to resume production on

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a timely basis even if we are able to obtain replacement production capacity. While we maintain property and business interruption insurance, such insurance has limits and would only cover the cost of rebuilding and relocating and lost profits, but not losses we may suffer due to our products being replaced by competitors’ products. The inability to perform our research, development and certain of our manufacturing activities, combined with our limited inventory of raw materials and components and manufactured products, may cause specialist physicians or other healthcare providers to discontinue using our products or harm our reputation, and we may be unable to reestablish relationships with those specialist physicians or other healthcare providers in the future. Consequently, a catastrophic event at our Alameda facility could materially adversely affect our business, results of operations, financial condition or cash flows.

Natural disasters and other events beyond our control could harm our business.

Natural disasters or other catastrophic events, such as earthquakes, flooding, wildfires, power shortages, pandemics such as COVID-19, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, drought, sea level rise and other events beyond our control may cause damage or disruption to our operations, the operations of our suppliers and service providers, international commerce and the global economy, and could seriously harm our revenue and financial condition and increase our costs and expenses. The geographic location of our Alameda, California headquarters and production facilities, as well as the facilities of certain of our key suppliers and service providers, subject them to earthquake and wildfire risks. If a major earthquake, wildfire or other natural disaster were to damage our facilities or the facilities of suppliers and service providers, or impact the ability of our employees or the employees of our suppliers and service providers to travel to their workplace, we may experience potential impacts ranging from production and shipping delays to lost revenues and increased costs, which could significantly harm our business. Moreover, planned widespread blackouts during the peak wildfire season, such as those instituted in October 2019 by Pacific Gas and Electric, the public electric utility in the Northern California region, to avoid and contain wildfires sparked during strong wind events by downed power lines or equipment failure, particularly if prolonged or frequent, could impact our operations and the operations of our suppliers and service providers located in the Northern California region. Many of our employees and the employees of such suppliers and service providers reside in Alameda County or surrounding counties and may be unable to travel to work or perform their duties remotely for the duration of any power shut off. We do not have multiple-site capacity for all of our operations in the event of a business disruption, and our insurance may not be sufficient to cover losses or additional expense that we may sustain. Furthermore, other parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen, and severe adverse events. A natural disaster or other catastrophic event in any of our major markets could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

To successfully market and sell our products internationally, we must address a number of unique challenges applicable to international markets.

For the years ended December 31, 2022, 2021 and 2020, we derived 30.2%, 29.4% and 28.6%, respectively, of our revenue from international sales. To accommodate our international sales, we have invested significant financial and management resources to develop an international infrastructure that will meet the needs of our customers. We anticipate that a significant portion of our revenue will continue to be derived from sales of our products in foreign markets and that the percentage of our overall revenue that is derived from these markets may increase in the future. This revenue and related operations will continue to be subject to the risks and challenges associated with international operations, including:

•reliance on distributors;

•varying coverage and reimbursement policies, processes and procedures;

•difficulties in staffing and managing international operations from which sales are conducted;

•difficulties in penetrating markets in which our competitors’ products or alternative procedures that do not use our products are more established;

•reduced protection for intellectual property rights in some countries;

•export licensing requirements or restrictions, trade regulations and foreign tax laws;

•fluctuating foreign currency exchange rates;

•foreign certification, regulatory requirements and legal requirements;

•lengthy payment cycles and difficulty in collecting accounts receivable;

•customs clearance and shipping delays;

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•reliance on third-party logistics providers who warehouse and distribute finished products to our international customers;

•pricing pressure in international markets;

•political and economic instability;

•preference for locally produced products;

•higher incidence of corruption or unethical business practices; and

•events resulting in negative impacts to, or uncertainty regarding, global trade, such as the COVID-19 pandemic, the reversal or renegotiation of international trade agreements and partnerships or the imposition of tariffs.

If we are unable to successfully address these challenges, we may not be able to grow our international sales and our results of operations may suffer as a result. For example, certain unique macroeconomic and geopolitical factors, including those as a result of the Russian invasion of Ukraine, may cause instability and volatility in the global financial markets and disruptions within the healthcare industry that may negatively impact our business.

Over the long term, we intend to grow our business internationally and to do so, we will need to spend substantial sums to expand or develop direct sales capabilities in existing and new geographic areas, generate additional sales through existing distributors or attract additional distributors, or enter into other arrangements with third parties in international markets to commercialize our products in such markets. In December 2020, we agreed to license the technology for certain of our products to our partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022. We can provide no assurance that this arrangement, which is novel for us, will be successful, or that we will benefit commercially from licensing our technology to a third party in exchange for fixed payments as opposed to selling our products through a distributor. In addition, transferring a portion of our technology to a partner based in China carries risks relating to the intellectual property being transferred. Historically, China has not protected intellectual property rights to the same extent as the United States, and infringement of intellectual property rights continues to pose a serious risk in doing business in China. Monitoring and preventing unauthorized use is difficult, and the measures we may take to protect our intellectual property rights may not be adequate to prevent misappropriation.

As a result of our international operations, we are required to comply with tax requirements in multiple jurisdictions, the scope and impact of which may be unclear. Moreover, tax authorities in jurisdictions in which we do business could disagree with tax positions that we take, including, for example, our inter-company pricing policies, or could assert that we owe more taxes than we currently pay due to the level and nature of our activities in such jurisdictions.

The June 2016 referendum by British voters to exit the European Union and the commencement of the official withdrawal process by the United Kingdom government in March 2017 has created uncertainties affecting business operations in the United Kingdom and the European Union. In December 2020, the United Kingdom and the European Union entered into a trade agreement governing commercial relations after the United Kingdom’s exit from the European Union, which occurred on January 31, 2021. While it is difficult to predict the full extent of the impact of the United Kingdom’s exit from the European Union, changes in the legal and regulatory environments to which our business is subject, trade relations between the United Kingdom and the European Union and other parties, and economic uncertainty in the region could adversely impact our business and results of operations. For example, in connection with its exit from the European Union, the United Kingdom introduced separate medical device regulations, with a transition period for devices that had previously been registered under applicable European Union regulations. While we are actively updating technical documentation supporting our medical devices to meet these requirements and have submitted and obtained our first approvals for some of our product lines, there can be no assurance that we will be able to maintain compliance with such regulations, and any further regulatory changes could adversely impact our ability to market our products in the United Kingdom.

Similarly, following the full implementation of EU MDR on May 26, 2021, Switzerland and the European Union failed to renew the Mutual Recognition Agreement between the parties, resulting in the requirement to register CE-marked devices in Switzerland, and appoint and label a Swiss Authorized Representative and an importer in Switzerland. While we have addressed these requirements and successfully passed an audit by our certifying body to implement the required labeling changes to warrant business continuity in Switzerland, there can be no assurance that we will be able to maintain compliance with such regulations, and any further regulatory changes could adversely impact our ability to market our products in Switzerland.

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The United States federal government has imposed tariffs on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs or other pricing pressures that we may not be able to offset or may otherwise adversely impact our business and results of operations.

We rely on our distributors to market and sell our products in certain international markets.

We have established a direct sales capability in the United States, most of Europe, Canada and Australia, which we have complemented with distributors in certain other international markets. Sales to distributors represented 18.7%, 16.6% and 14.2% of our revenue in 2022, 2021 and 2020, respectively. Our success outside of the United States, most of Europe, Canada and Australia depends largely upon marketing arrangements with distributors, in particular their sales expertise and their relationships with specialist physicians and affiliated hospitals in their geographic areas. Distributors may terminate their relationship with us, sell competitive products or devote insufficient sales efforts or other resources to our products. We do not control our distributors, and they may not be successful in implementing our marketing plans. In addition, many of our distributors initially obtain and maintain foreign regulatory approval for the sale of our products in their respective countries, and their efforts in obtaining and maintaining regulatory approval may not be as robust as we desire or expect. As our business grows, we may seek to expand or otherwise modify our arrangements with our existing distributors and/or retain the services of additional distributors. For example, in December 2020, we entered into an agreement to license the technology for certain of our products to our partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022. However, there can be no assurances that this arrangement, which is novel for us, or other similar arrangements that we may enter into in the future, will be successful. Our failure to maintain our relationships with our existing distributors, or our failure to recruit and retain additional skilled distributors in existing or new international markets, could have an adverse effect on our operations. If current or future distributors do not perform adequately, or if we lose a significant distributor, we may not be able to maintain existing levels of international revenue or realize expected long term international revenue growth. We have in the past experienced turnover with some of our distributors that has adversely affected sales in the countries in which those distributors operate. Similar occurrences could happen in the future.

Most of our customer relationships outside of the United States are with governmental entities, and we could be materially adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in non-U.S. jurisdictions.

The FCPA, the United Kingdom Bribery Act, the Chinese Anti-Unfair Competition Law, and similar anti-bribery laws in other non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Because of the predominance of government-sponsored healthcare systems around the world, most of our customer relationships outside of the United States are with governmental entities, and physicians practicing in those systems are considered “government officials.” Therefore, our sales to these entities are subject to such anti-bribery laws. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption, and we have operations in certain countries, including working with a distributor in Russia and a local partner in China, where strict compliance with anti-bribery laws may be at variance with local customs and practices. Despite our training and compliance programs, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees, distributors or agents. Violations of the FCPA or other anti-bribery laws, or allegations of such violations, could disrupt our business and materially adversely affect our business, results of operations, financial condition or cash flows.

Foreign currency exchange rates may adversely affect our results.

We are exposed to the effects of changes in foreign currency exchange rates, and we have not historically hedged our foreign currency exposure. Approximately 30.2%, 29.4%, and 28.6% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively, were derived from sales in non-U.S. markets, and we expect sales from non-U.S. markets to continue to represent a significant portion of our revenue. For direct sales in our international markets, we are paid by our customers in their local currency, which is primarily euros. For sales to distributors in our international markets, we are paid in either U.S. dollars, euros or Japanese yen, with some sales being denominated in other currencies. Therefore, when the U.S. dollar strengthens relative to the euro, yen or other local currency, our U.S. dollar reported revenue from non-U.S. dollar denominated sales will decrease, or we will need to increase our non-U.S. dollar denominated prices, which may not be commercially practical. Conversely, when the U.S. dollar weakens relative to the euro, yen or other local currency, our U.S. dollar reported expenses from non-U.S. dollar denominated operating costs will increase. Global markets and foreign currencies, including the Euro and the British Pound, were adversely impacted, as a result of the June 2016 referendum by

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British voters to exit the European Union and volatility in foreign currencies is expected to continue as the United Kingdom executes its exit from the European Union. Changes in the relative values of currencies occur regularly and, in some instances, could materially adversely affect our business, results of operations, financial condition or cash flows. For example, during 2022 the U.S. dollar strengthened relative to many local currencies in the non-U.S. markets where we do business, which adversely affected our U.S. dollar reported revenue.

We have experienced rapid growth in recent periods, and if we fail to manage our growth effectively, our business and results of operations may suffer.

We have significantly expanded our overall business, research and development, customer base, product portfolio, employee headcount and operations in recent periods. We have also established new operations in other countries. We have increased our total number of full-time employees from approximately 1,100 as of December 31, 2015, to approximately 3,900 as of December 31, 2022. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, operational, product development, sales and marketing, administrative, financial and other resources.

We plan to continue to increase our salesforce. Our experience has been that it takes at least six months, and often longer, before new sales personnel generate enough sales to cover their costs, resulting in increased costs without offsetting revenue during periods in which we are increasing the size of our salesforce.

More systems, facilities, processes and management employees are needed to allow us to continue to grow successfully. We are expanding and renovating our existing facilities around the world but particularly in Alameda, California, driven by our need to expand the space available for our product development and test capacities, as well as our need for additional information technology and office space. The expansion and renovation of our facilities entail risks that could cause disruption in the operations of our business. Such risks include potential interruption in data flow; unforeseen construction, scheduling, engineering, environmental, or geological problems; and unanticipated cost increases. To meet anticipated demand for our products, we will also have to continue to buy additional equipment and hire additional research and development and manufacturing employees, including quality control personnel and other personnel involved in the production process. This expansion could result in operating difficulties including, but not limited to, difficulties in hiring the appropriate number of research and development and manufacturing employees, training and managing an increasing number of employees, delays in production and shipments, manufacturing inefficiencies and employees not working at capacity. In addition, at certain times we may need to rely on third party consultants, which may cost more than employees and may create operating inefficiencies and difficulties. If we do not adapt to meet these evolving challenges and if we are unable to manage our growth successfully, it could have a material and adverse effect on our business, results of operations, financial condition or cash flows.

We have experienced robust growth in the market for our products and we believe the demand for our products may not continue to grow at these rates.

Annual revenue from our neuro products and vascular products increased by $286.7 million, or 51.2%, over a two-year period from 2020 to 2022. This growth was the result of many factors, including but not limited to continued investment in our sales force, a shift to endovascular treatment as the standard of care in treatment of stroke and increased adoption of our products, particularly in the vascular market. As we continue to grow and scale our business, our future growth rates may be more gradual.

We depend on key personnel to operate our business and develop our products, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe that our future success is highly dependent on the contributions of our executive officers, particularly Adam Elsesser, our chief executive officer and president, as well as our ability to attract and retain highly skilled and experienced sales and marketing, technical and other personnel in the United States and in international markets. Each of these persons’ efforts will be critical to us as we continue to develop our products and business. If we were to lose one or more of our key employees, including to competitors, we may experience difficulties in competing effectively, developing our products and implementing our business strategies.

Our research and development and sales and marketing programs depend on our ability to attract and retain highly skilled technicians, engineers and salespeople. In general, we may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among life science businesses, particularly in the San Francisco Bay Area, where our corporate headquarters, research and development and primary manufacturing facility is located. In addition to the competition for personnel, the San Francisco Bay Area in particular is characterized by a high cost of living. Although we historically have not had any material difficulty attracting qualified experienced personnel to our company, we could in the future have such difficulties and may be required to expend significant financial resources in our employee recruitment and

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retention efforts. If we are not able to identify, recruit and retain highly qualified personnel, we may experience constraints that will adversely affect our ability to support our research, development, manufacturing and sales programs, and ultimately our ability to compete. If we are unable to identify, recruit and retain qualified salespeople, there could be a delay or decline in the adoption of our products. If key personnel were to leave Penumbra, either to join our competitors or otherwise, we may not be able to attract and retain equally qualified personnel to replace them, which could harm our ability to develop and successfully grow our business.

We depend on information technology systems to operate our business, and issues with maintaining, upgrading or implementing these systems, could have a material adverse effect on our business.

We rely on the efficient and uninterrupted operation of information technology systems to process, transmit and store electronic information in our day-to-day operations. All information technology systems are vulnerable to damage or interruption from a variety of sources. Our business has grown in size and complexity; this has placed, and will continue to place, significant demands on our information technology systems. To effectively manage this growth, our information systems and applications require an ongoing commitment of significant resources to maintain, protect, enhance and upgrade existing systems and develop and implement new systems to keep pace with changing technology and our business needs. In 2020, we began planning for a new enterprise resource planning (“ERP”) software system implementation which will replace certain existing business, operational, and financial processes and systems. This ERP implementation project, the first phase of which began in April 2022, has required and will continue to require investment of capital and human resources, the re-engineering of business processes, and the attention of many employees who would otherwise be focused on other areas of our business. This system change entails certain risks, including difficulties with changes in business processes that could disrupt our operations, such as our ability to track orders and timely ship products, manage our supply chain and aggregate financial and operational data. During the transition, we continue to rely on a combination of our existing and new ERP systems for financial statement reporting purposes, which may be costly or inefficient, while the implementation of the new system may not achieve the anticipated benefits and may divert management’s attention from other operational activities, negatively affect employee morale, or have other unintended consequences. Delays in integration or disruptions to our business from implementation of new or upgraded systems could have a material adverse impact on our financial condition and operating results. Additionally, if we are not able to accurately forecast expenses and capitalized costs related to system upgrades and changes, this may have an adverse impact on our financial condition and operating results.

If we fail to maintain or are unable to assert that our internal control over financial reporting is effective under the new ERP system, we could adversely affect our ability to accurately report our financial condition, operating results or cash flows. If we have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

If the information we rely upon to run our businesses were to be found to be inaccurate or unreliable, if we fail to maintain or protect our information technology systems and data integrity effectively, if we fail to develop and implement new or upgraded systems to meet our business needs in a timely manner, or if we fail to anticipate, plan for or manage significant disruptions to these systems, our competitive position could be harmed, we could have operational disruptions, we could lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, specialist physicians and other health-care providers, have regulatory sanctions or penalties imposed or other legal problems, incur increased operating and administrative expenses, lose revenues as a result of a data privacy breach or theft of intellectual property or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Cost-containment efforts of our customers, purchasing groups and governmental organizations could have a material adverse effect on our sales and ability to achieve or maintain profitability.

In an effort to reduce costs, many hospitals within the United States are members of Group Purchasing Organizations (“GPOs”) and Integrated Delivery Networks (“IDNs”). GPOs and IDNs negotiate pricing arrangements with medical device companies and distributors and offer the negotiated prices to affiliated hospitals and other members. GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding process. Bids are generally solicited from multiple providers with the intention of driving down pricing or reducing the number of vendors. Due to the highly competitive nature of the GPO and IDN contracting processes, we may not be able to obtain or maintain contract positions with major GPOs and IDNs. Furthermore, the increasing leverage of organized buying groups may reduce market prices for our products, thereby reducing our profitability.

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While having a contract with a GPO or IDN for a given product category can facilitate sales to members of that GPO or IDN, such contract positions can offer no assurance that any level of sales will be achieved, as sales are typically made pursuant to purchase orders. Even when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN generally are free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause by the GPO or IDN upon 60 to 90 days’ notice. Accordingly, although we have multiple contracts with many major GPOs and IDNs, the members of such groups may choose to purchase from our competitors due to the price or quality offered by such competitors, which could result in a decline in our sales and profitability.

If we are unable to educate specialist physicians or other healthcare providers in the proper use of our products, which may be more complex than competitive products or alternative treatments that do not use our products, our business may be material adversely affected and we may experience a high risk of product liability.

The successful use of our products depends, in part, on our ability to educate specialist physicians or other healthcare providers in the proper use of our products, which may be more complex than competitive products or alternative treatments that do not use our products. We educate specialist physicians or other healthcare providers on the proper techniques in using our products to achieve the intended outcome. However, our products may be more complicated to operate than competitive products or alternative treatments that do not use our products. In the event that specialist physicians or other healthcare providers perceive that our products are complex relative to alternative products or established treatments that do not use our products, we may have difficulty gaining or increasing adoption of our products. Further, we may be unable to provide adequate education on the use of our products to specialist physicians or other healthcare providers, and some specialist physicians or other healthcare providers may not be willing to invest the time required to become properly educated on the use of our products. If we are unable to educate specialist physicians or other healthcare providers to properly use our products, this may lead to inadequate demand for our products and materially adversely affect our business, results of operations, financial condition or cash flows.

In addition, if we do not adequately educate specialist physicians or other healthcare providers on the use of our products, and our products are used incorrectly during procedures, we may be subject to claims against us by such specialist physicians or other healthcare providers, their hospitals or their patients. Our business, including our reputation, may consequently be adversely affected by any litigation that may occur based on error in the use of our products, and such litigation could also materially adversely affect our results of operations, financial condition or cash flows.

Regulatory Risks

We are subject to stringent domestic and foreign medical device regulations, which may impede the approval or clearance process for our products, hinder our development activities and manufacturing processes and, in some cases, result in the recall or seizure of previously approved or cleared products.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by FDA and by comparable regulatory authorities in foreign countries and by other regulatory agencies and governing bodies. Manufacturers of medical devices must comply with certain regulations that cover the composition, labeling, testing, clinical study, manufacturing, packaging and distribution of medical devices. In addition, most medical devices (Class II & III) must receive FDA clearance or approval before they can be commercially marketed in the United States. FDA may require testing and surveillance programs to monitor the effects of cleared or approved products that have been commercialized and can prevent or limit further marketing of a product based on the results of these post-marketing programs. Furthermore, most major markets for medical devices outside the United States require clearance, approval or compliance with certain standards and requirements before a medical device can be commercially marketed. The process of obtaining marketing approval or clearance from the FDA and foreign regulatory authorities for new products could take a significant period of time, require the expenditure of substantial resources, involve rigorous pre-clinical and clinical testing, require changes to our products and result in limitations on the indicated uses of our products. We cannot provide assurance that we will receive the required approval or clearance from FDA and foreign regulatory authorities for future products on a timely basis. Results from pre-clinical studies and early clinical trials may not allow us to predict results in later-stage testing. We cannot be certain that our future clinical trials will demonstrate the safety and effectiveness of any of our future products or will result in clearance or approval to market any of these products. In addition, our development activities could be harmed or delayed by a shutdown of the U.S. government, including FDA. The failure to receive approval or clearance for significant new products on a timely basis could have a material adverse effect on our business, results of operation, financial condition or cash flows.

FDA and other foreign regulatory authorities worldwide also conduct periodic inspections of our facilities to determine compliance with FDA’s QSR requirements, MDR regulations and all comparable foreign regulations. Product approvals or clearances by FDA can be withdrawn, and new product approvals or clearances by FDA and foreign regulatory bodies can be delayed, due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial

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approval or clearance of a product. In addition, state or federal legislation or regulations may impact key manufacturing processes, such as sterilization, which could require expensive and time-consuming changes to our manufacturing processes as well as the need for additional regulatory clearances or approvals. Failure to comply with regulatory requirements or the discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory approvals or clearances, seizures or recalls of products (with the attendant expenses and adverse competitive impact), the banning of a particular device, an order to replace or refund the cost of any device previously manufactured or distributed, operating restrictions and criminal prosecution, as well as decreased sales as a result of negative publicity and product liability claims, all of which could have a material adverse effect on our business, results of operation, financial condition or cash flows.

If we modify our FDA cleared products, we may need to seek and obtain new clearances, which, if not granted, would prevent us from selling our modified products or require us to redesign our products.

A component of our strategy is to continue to modify and upgrade our medical devices that have been cleared by FDA. FDA requires device manufacturers to make a determination of whether a modification requires a clearance; however, FDA can review a manufacturer’s decision not to submit for additional clearances. Any modifications to an FDA cleared device that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use may require a new 510(k) clearance or possibly a PMA. We may not be able to obtain additional 510(k) clearances or PMAs for new products or for modifications to, or additional indications for, our existing products in a timely manner, or at all. There can be no assurance that FDA will agree with our decisions not to seek clearances for particular device modifications. Delays in obtaining future clearances would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and future profitability. We have made minor modifications to our medical devices in the past and may make additional minor modifications in the future that we believe do not or will not require additional clearances and are well documented within our design control procedure. If FDA requires new clearances or approvals for any modifications, and we fail to obtain such approvals or clearances or fail to secure approvals or clearances in a timely manner, we may be required to recall and to stop the manufacturing and marketing of the modified device until we obtain FDA approval or clearance, and we may be subject to significant regulatory fines or penalties, all of which could harm our results of operations and require us to redesign our products.

We may not receive necessary foreign regulatory approvals or clearances or otherwise comply with foreign regulations.

For the years ended December 31, 2022, 2021 and 2020, sales outside the United States accounted for approximately 30.2%, 29.4%, and 28.6%, respectively, of our total sales, and this percentage may increase in future years. Foreign regulatory bodies have established varying regulations. Specifically, the European Union has promulgated rules that require that medical device products receive the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. Although we have received CE markings for all of the medical devices we currently sell in the European Union, we can give no assurance that we will be able to obtain European Union approval for any of our future products. Our inability or failure, or the inability or failure of our international distributors, to comply with varying foreign regulations or the imposition of new regulations could restrict or, in certain countries, result in the prohibition of the sale of our products, and thereby adversely affect our business, financial condition and results of operations.

Our global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining regulatory approvals for our products, as well as the clinical and regulatory costs of supporting those approvals. Many countries that did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have expanded existing regulations. Certain regulators are exhibiting less flexibility by requiring, for example, the collection of local preclinical and/or clinical data prior to approval. While harmonization of global regulations has been pursued, requirements continue to differ significantly among countries. We expect the global regulatory environment to continue to evolve, which could impact our ability to obtain future approvals for our products and increase the cost and time to obtain such approvals. By way of example, the European Union regulatory bodies have instituted EU MDR, which changed many aspects of the existing regulatory framework, such as clinical data requirements, and introduced new ones, such as Unique Device Identification. EU MDR imposes increased compliance obligations for many parts of our business in order to access the EU market. The notified bodies that oversee compliance with EU MDR face uncertainties as EU MDR is enforced, creating risks in several areas, including the CE Marking process, data transparency and application review timetables.

We may not be able to meet regulatory quality requirements applicable to our manufacturing process.

We are required to register with FDA as a device manufacturer and as a result, we are subject to periodic inspection by FDA for compliance with FDA’s QSR requirements, which requires manufacturers of medical devices to adhere to certain requirements, including testing, quality control and documentation procedures. In addition, the federal MDR regulations require us to provide information to FDA whenever there is evidence that reasonably suggests that a device may have caused or

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contributed to a death or serious injury, or has malfunctioned, and if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by FDA. In the European Community, we are required to maintain certain ISO certifications in order to sell products and we undergo periodic inspections by notified bodies to obtain and maintain these certifications. On March 1, 2016, the ISO issued a new Quality Management System (“QMS”) standard for medical device manufacturers, ISO 13485:2016. We received certification to ISO 13485:2016 in 2018 and successfully completed our most recent surveillance audit in 2022. Compliance with this standard is subject to continual review and is monitored through periodic inspections by our notified body. Some foreign countries, most notably Japan and Brazil, have similar requirements or may require inspections of our manufacturing facilities before approving a product for sale in their country. We participate in the Medical Device Single Audit Program (“MDSAP”) which allows for certification and review of compliance to standards and regulations required in the United States, Canada, Brazil, Australia, and Japan. We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2022. Some of our suppliers are subject to the same or similar scrutiny. If we or our suppliers fail to adhere to QSR, ISO or other regulatory requirements, this could delay production of our products and lead to fines, difficulties in obtaining regulatory clearances or approvals, recalls or other consequences, which could in turn have a material adverse effect on our business, results of operation, financial condition or cash flows.

Notices of inspectional observations or deficiencies from FDA or other regulatory bodies could require us to undertake corrective and preventive actions or other actions in order to address FDA’s or other regulatory body’s concerns, which could be expensive and time-consuming to complete and could impose additional burdens and expenses.

We are subject to periodic inspections by FDA and other regulatory bodies related to regulatory requirements that apply to medical devices designed and manufactured, and clinical trials sponsored, by us. If we receive a notice of inspectional observations or deficiencies from FDA following an inspection, we may be required to undertake corrective and preventive actions or other actions in order to address FDA’s concerns, which could be expensive and time-consuming to complete and could impose additional burdens and expenses. We have previously received and could in the future receive notices of inspectional observations or deficiencies from FDA. Failure to adequately address FDA’s concerns could expose us to enforcement and administrative actions.

We are subject to federal, state and foreign healthcare laws and regulations that could result in significant liability, require us to change our business practices and restrict our operations in the future.

We are subject to various federal, state and foreign healthcare fraud and abuse laws and regulations, which could significantly impact our business. The laws that may affect our ability to operate include, but are not limited to:

•the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it;

•federal civil and criminal false claims laws and civil monetary penalty laws, including civil whistleblower or qui tam actions, that prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the federal government;

•HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. A person or entity does not need to have actual knowledge of these statutes or specific intent to violate them;

•HIPAA, as amended by HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements;

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•the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), teaching hospitals, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives, and ownership and investment interests held by physicians and their immediate family members; and

•state and foreign law equivalents of each of the above federal laws, such as foreign and state anti-kickback, anti-benefit and false claims laws, as well as state and foreign laws and regulations governing interactions with healthcare professionals and requiring disclosure of payments and interactions with healthcare professionals and state and foreign laws governing the privacy and security of health information in certain circumstances.

The scope and enforcement of each of these laws is uncertain and subject to rapid change, which may make it challenging to maintain compliance with such laws. In addition, federal and state enforcement bodies continue to closely scrutinize interactions between healthcare companies and healthcare providers, which may lead to an increased number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, exclusion from governmental health-care programs, and the curtailment or restructuring of our operations, any of which could have a material adverse effect on our business, results of operation, financial condition or cash flows.

If we are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability.

FDA and other regulatory agencies strictly regulate the promotional claims that may be made about medical devices. For example, devices cleared under section 510(k) cannot be marketed for any intended use that is outside of FDA’s substantial equivalence determination for such devices. Physicians nevertheless may use our products on their patients in a manner that is inconsistent with the intended use cleared by FDA. If we are found to have promoted such “off-label” uses, we may become subject to significant government fines and other related liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

Regulations and customer demands related to conflict minerals may force us to incur additional expenses and may make our supply chain more complex.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) imposes disclosure requirements regarding the use in components of our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether the components of our products are manufactured by us or third parties. This requirement could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. In addition, there are additional costs associated with complying with the disclosure requirements and customer requests related to the use of conflict minerals in components of our products, such as costs related to our due diligence to determine the source of any conflict minerals used in our products. Compliance with these requirements could adversely affect the sourcing, supply and pricing of materials used in those products and we may face reputational challenges if we are unable to verify the origins for all “conflict minerals” used in our products through the procedures we have implemented.

Risks Related to Our Intellectual Property

We rely on a variety of intellectual property rights, and if we are unable to maintain or protect our intellectual property, our business and results of operations will be harmed.

Our commercial success will depend, in part, on our ability to obtain and maintain intellectual property protection for our products and related technologies both in the United States and elsewhere, successfully defend our intellectual property rights against third-party challenges and successfully enforce our intellectual property rights to prevent third-party infringement. While we rely primarily upon a combination of patents, trademarks and trade secret protection, as well as nondisclosure,

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confidentiality and other contractual agreements to protect the intellectual property related to our brands, products and other proprietary technologies, protection derived from patents is relatively limited.

The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations or products and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope and, in any event, any patent protection we obtain may be limited. As a result, some of our products are not, and in the future may not be, protected by patents. We generally apply for patents in those countries where we intend to make, have made, use or sell products and where we assess the risk of infringement to justify the cost of seeking patent protection. However, we do not seek protection in all countries where we sell products and we may not accurately predict all the countries where patent protection would ultimately be desirable. If we fail to timely file a patent application in any such country or major market, we may be precluded from doing so at a later date. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories in which we have patent protection that may not be sufficient to terminate infringing activities.

Furthermore, we cannot guarantee that any patents will be issued from any pending or future owned or licensed patent applications, or if any current or future patents will provide us with any meaningful protection or competitive advantage. Even if issued, existing or future patents may be challenged, including with respect to ownership, narrowed, invalidated, held unenforceable or circumvented, any of which could limit our ability to prevent competitors and other third parties from developing and marketing similar products or limit the length of terms of patent protection we may have for our products and technologies. Other companies may also design around technologies we have patented, licensed or developed. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our products or practicing our own patented technology.

The patent positions of medical device companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. The standards that the U.S. Patent and Trademark Office (“USPTO”) and its foreign counterparts use to grant patents are not always applied predictably or uniformly. Changes in either the patent laws, implementing regulations or the interpretation of patent laws may diminish the value of our rights. The legal systems of certain countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions.

Because patent applications in the United States, Europe and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or applications. We can give no assurance that all of the potentially relevant art relating to our patents and patent applications has been found; overlooked prior art could be used by a third party to challenge the validity, enforceability and scope of our patents or prevent a patent from issuing from a pending patent application. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the validity, enforceability and scope of our patents in the United States, Europe and in other countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against our competitors.

Third parties may challenge any existing patent or future patent we own or license through adversarial proceedings in the issuing offices or in court proceedings, including as a response to any assertion of our patents against them. In any of these proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable, or even if valid and enforceable, insufficient to provide protection against competing products and services sufficient to achieve our business objectives. We may be subject to a third-party pre-issuance submission of prior art to the USPTO, or reexamination by the USPTO if a third party asserts a substantial question of patentability against any claim of a U.S. patent we own or license. The adoption of the Leahy-Smith America Invents Act (“Leahy-Smith Act”) in September 2011 established additional opportunities for third parties to invalidate U.S. patent claims, including inter partes review and post-grant review proceedings. Outside of the United States, patents we own or license may become subject to patent opposition or similar proceedings, which may result in loss of scope of some claims or the entire patent. In addition, such proceedings are very complex and expensive, and may divert our management’s attention from our core business. If any of our patents are challenged, invalidated, circumvented by third parties or otherwise limited or expire prior to the commercialization of our product candidates, and if we do not own or have exclusive rights to other enforceable patents protecting our products or other technologies, competitors and other third parties could market products and use processes that are substantially similar to, or superior to, ours and our business would suffer.

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The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep a competitive advantage. For example:

•others may be able to develop products that are similar to, or better than, ours in a way that is not covered by the claims of our patents;

•we might not have been the first to make the inventions covered by our patents or pending patent applications;

•we might not have been the first to file patent applications for these inventions;

•any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or

•we may not develop additional proprietary technologies that are patentable.

We may file lawsuits or initiate other proceedings to protect or enforce our patents or other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect our competitive business position, business prospects and financial condition.

Our commercial success depends significantly on our ability to operate without infringing upon the intellectual property rights of third parties.

The medical device industry is subject to rapid technological change and substantial litigation regarding patent and other intellectual property rights. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. Numerous third-party patents exist in the fields relating to our products, and it is difficult for industry participants, including us, to identify all third-party patent rights relevant to our products and technologies. Moreover, because some patent applications are maintained as confidential for a certain period of time, we cannot be certain that third parties have not filed patent applications that cover our products and technologies.

Patents could be issued to third parties that we may ultimately be found to infringe. Third parties may also have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain or maintain a license to any technology that we require may materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation.

From time to time, we may be party to, or threatened with, litigation or other proceedings with third parties, including non-practicing entities, who allege that our products, components of our products and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. The types of situations in which we may become a party to such litigation or proceedings include:

•we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;

•we or our collaborators may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products;

•if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;

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•if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings;

•if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us, we will need to defend against such proceedings;

•we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products; and

•if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

These lawsuits and proceedings, regardless of merit, are time-consuming and expensive to initiate, maintain, defend or settle, and could divert the time and attention of managerial and technical personnel, which could materially adversely affect our business. Any such claim could also force use to do one or more of the following:

•incur substantial monetary liability for infringement or other violations of intellectual property rights, which we may have to pay if a court decides that the product or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the third party’s attorneys’ fees;

•pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology;

•stop manufacturing, selling, using, exporting or licensing the product or technology incorporating the allegedly infringing technology or stop incorporating the allegedly infringing technology into such product or technology;

•obtain from the owner of the infringed intellectual property right a license, which may require us to pay substantial upfront fees or royalties to sell or use the relevant technology and which may not be available on commercially reasonable terms, or at all;

•redesign our products and technology so they do not infringe or violate the third party’s intellectual property rights, which may not be possible or may require substantial monetary expenditures and time;

•enter into cross-licenses with our competitors, which could weaken our overall intellectual property position;

•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;

•find alternative suppliers for non-infringing products and technologies, which could be costly and create significant delay; or

•relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.

Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us from manufacturing, marketing or otherwise commercializing our products and technology. Any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operation, financial condition or cash flows.

In addition, we may indemnify our customers and distributors against claims relating to the infringement of intellectual property rights of third parties related to our products. Third parties may assert infringement claims against our customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers, suppliers or distributors, or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. The occurrence of any of these events may have a material adverse effect on our business, results of operation, financial condition or cash flows.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our existing and future products.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. For example, the Leahy-Smith Act included a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, and may also affect patent litigation. The USPTO developed new regulations and procedures to govern administration of the Leahy-Smith Act, including switching the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operation, financial condition or cash flows.

In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions. In addition, periodic maintenance fees on our owned and in-licensed patents are due to be paid to governmental patent agencies over the lifetime of the patents. Future maintenance fees will also need to be paid on other patents that may be issued to us. We have systems in place to remind us to pay these fees, and we employ outside firms to remind us or our licensor to pay annuity fees due to patent agencies on our patents and pending patent applications. In certain cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business, results of operation, financial condition or cash flows.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

We own 40 trademarks, related to our company name, logo, products and technology, that are registered with the USPTO as well as 171 trademarks registered outside of the United States as of December 31, 2022. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks or names. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential customers in our markets of interest. There is no guarantee we will be able to secure registration for any of our pending trademark applications with the USPTO or comparable foreign authorities. In addition, third parties have registered trademarks similar or identical to our trademarks, and may in the future file for registration of such trademarks. If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries where such third parties have registered such trademarks or obtained such common law rights. In any case, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.

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In addition, we may be involved in litigation or other proceedings to protect our trademark rights associated with our company name or the names used with our products. Any objections we receive from the USPTO, foreign trademark authorities or third parties relating to our pending applications could require us to incur significant expense in defending the objections or establishing alternative names. Names used with our products may be claimed to infringe names held by others or to be ineligible for proprietary protection. If we have to change the name of our company or any product, we may experience a loss in goodwill associated with our brand name, customer confusion or a loss of sales.

If we are unable to protect the confidentiality of our trade secrets and other proprietary information, our business and competitive position may be harmed.

In addition to patent protection, we also rely on confidential proprietary information, including trade secrets and know-how, to develop and maintain our competitive position. We seek to protect our confidential proprietary information, in part, by entering into confidentiality agreements with our employees, consultants, collaborators, strategic partners and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreements, such inventions may become assigned to third parties. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.

We may also employ individuals who were previously or concurrently employed at research institutions and/or other medical device companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our products, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to Our Finances and Capital Requirements

We may require additional financing in the future and may not be able to obtain such financing on favorable terms, if at all, which could force us to delay, reduce or eliminate our research and development activities or otherwise harm our business.

Since our initial public offering in September 2015, we have financed our business primarily through our operations and sales of our equity securities. We are unable to predict the extent of any future operating cash flows or whether we will be able to achieve, maintain or grow our profitability in the future. If we require additional financing to continue or expand our operations, for research and development, for acquisitions or for other purposes, we may determine to engage in equity or debt financings or incur other indebtedness. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could suffer significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If needed funds are not available in adequate amounts or on acceptable terms from additional financing sources, our business will be materially adversely affected.

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By engaging in acquisitions and other business development arrangements, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.

We have in the past, and expect in the future, to seek to acquire additional businesses, assets, technologies or products to enhance our business if appropriate opportunities become available. In connection with any acquisitions, we could issue additional equity securities or convertible debt or equity-linked securities, which would dilute our stockholders, cause us to incur substantial debt to fund the acquisitions, or assume significant liabilities. For example, in October 2021, we acquired Sixense for $251.0 million, which was paid in the form of shares of our common stock and options to purchase our common stock.

Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core businesses, adverse effects on existing business relationships with current and/or prospective customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. Acquisitions may also require us to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur write-offs and restructuring and other related expenses, any of which could harm our results of operations and financial condition. If we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business and financial condition may be adversely affected.

Fluctuations in our effective tax rate and changes to tax laws may adversely affect us.

As an international company, we are subject to taxation in numerous countries, states and other jurisdictions. Our effective tax rate is derived from a combination of statutory tax rates in the various jurisdictions in which we operate. In preparing our financial statements, our effective tax rate is based on estimates of the amount of tax that will become payable in each of these jurisdictions. Our effective tax rate may, however, differ from estimates due to numerous factors, including a change in the mix of our profitability from country to country and changes in tax laws. The fluctuations in our effective tax rate could have an adverse effect on our business, financial condition and results of operations and cash flows.

Our excess tax benefits and deficiencies are required to be recorded in the income statement when stock awards vest or are settled and as discrete items on the tax rate in the period in which they occur. The amount of excess tax benefits and deficiencies can fluctuate from period to period based on the price of our stock, the volume of share-based grants settled or vested, and the fair value assigned to equity awards under U.S. GAAP. For interim reporting purposes, we are required to exclude the excess tax benefits and deficiencies from the annual estimated tax rate and not to forecast the potential impact to our rate. As a result, we could experience an effective tax rate significantly different from previous periods or from our expectations.

In addition, changes in tax law or declines in our underlying profitability may negatively or positively impact our financial outlook of operations, which could lead to a corresponding charge or benefit to income taxes attributable to adjustments to the valuation allowance recorded against our deferred tax assets (“DTAs”) on our consolidated balance sheets. The tax charge or benefit resulting from such change in valuation allowance could result in fluctuations in our effective tax rate and have a material negative impact on our financial condition and results of operations.

Risks Relating to Securities Markets and Investment in Our Common Stock

The price of our common stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock has been and is likely to continue to be volatile. From January 1, 2022 through December 31, 2022, our closing stock price as reported on The New York Stock Exchange (“NYSE”) has ranged from $116.09 to $283.98. Stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, limited trading volume of our stock may contribute to its future volatility. Price declines in our common stock could result from general market and economic conditions, some of which are beyond our control, and a variety of other factors, including any of the risk factors described in this Form 10-K or those that we have not anticipated. These broad market and industry factors may harm the market price of our common stock, regardless of our operating performance, and could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid for such shares. Factors that could cause fluctuations in the market price of our common stock include the following:

•the COVID-19 pandemic and measures taken in response thereto;

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

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•volatility in the market prices and trading volumes of medical device company stocks;

•changes in operating performance and stock market valuations of other medical device companies generally, or those in our industry in particular;

•sales of shares of our common stock by us or our stockholders;

•failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;

•announcements by us or our competitors of new products or services;

•the public’s reaction to our press releases, other public announcements and filings with the SEC;

•rumors and market speculation involving us or other companies in our industry;

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

•actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

•litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

•developments or disputes concerning our intellectual property or other proprietary rights;

•announced or completed acquisitions of businesses or technologies by us or our competitors;

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•changes in accounting standards, policies, guidelines, interpretations or principles;

•any significant change in our management; and

•general economic conditions and slow or negative growth of our markets.

In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. We were involved in one such lawsuit in 2021, which was voluntary dismissed without prejudice in March 2021, and we may be the target of this type of litigation in the future. This litigation could result in substantial costs and a diversion of our management’s attention and resources.

If our executive officers, directors and largest stockholders choose to act together, they may be able to significantly influence our management and operations, acting in their own best interests and not necessarily those of other stockholders.

As of December 31, 2022, our executive officers, directors and holders of 5% or more of our outstanding stock and their affiliates beneficially owned approximately 46.1% of our voting stock in the aggregate. These stockholders, acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

A sale of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of December 31, 2022, our directors, executive officers and holders of 5% or more of our outstanding stock

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beneficially owned approximately 46.1% of our outstanding stock in the aggregate. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline.

We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans. As of December 31, 2022, approximately 8,200,000 shares of common stock that are either subject to outstanding options or other equity awards or reserved for future issuance under our equity incentive plans have been registered on Form S-8 registration statements and may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Techniques employed by short sellers have in the past and may in the future drive down the market price of our common stock.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third-party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. These short attacks have led to selling of shares in the market. We have been in the past, and may be in the future, subject to such attacks by short sellers. In November and December 2020, we were the subject of reports by a short seller that contained incorrect and misleading information, which led to a decline in our stock price. Although we timely responded to these false and misleading allegations, we cannot assure you that such similar false and misleading articles will not be published again in the future. The publication of any such articles regarding us in the future may bring about a decline in the market price of our common stock. If we are the subject of unfavorable allegations, we may have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could be distracting for our management team.

Our restated certificate of incorporation, our amended and restated bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

Provisions of Delaware law (where we are incorporated), our restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. In addition, 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 or remove our board of directors. These provisions include:

•authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

•requiring supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and amended and restated bylaws;

•eliminating the ability of stockholders to call and bring business before special meetings of stockholders;

•prohibiting stockholder action by written consent;

•establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;

•dividing our board of directors into three classes so that only one third of our directors will be up for election in any given year; and

•providing that our directors may be removed by our stockholders only for cause.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which may have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that could have resulted in a premium over the market price for shares of our common stock.

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These provisions apply even if a takeover offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our and our stockholders’ best interests and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware) as the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to access a favorable judicial forum for disputes with us or our directors, officers or employees

Our amended and restated bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, as the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This forum selection provision will not apply to any causes of action arising under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or, in each case, the rules and regulations thereunder, or for any other claim for which the U.S. federal courts have exclusive jurisdiction. The 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. In addition, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock, which may never occur, would provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.

An additional valuation allowance against our deferred tax assets could require a charge to earnings, which could result in a negative impact on our results of operations.

Primarily as a result of net operating losses, stock-based compensation, various accruals and reserves, and tax credits, we maintain foreign and domestic DTAs. DTAs reflect an expected benefit to be realized in the future that may be used to reduce the amount of tax that we would otherwise be required to pay in future periods. DTAs are reduced by a valuation allowance when it is more likely than not that the future realization of all or some of the DTAs will not be achieved. Valuation allowances related to DTAs can be affected by changes to tax laws, statutory tax rates, future taxable income levels and input from our tax advisors or regulatory authorities. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the benefits of the domestic DTAs we maintain as of December 31, 2022, exclusive of our federal research and development tax credit and California DTAs. However, it is possible that some of our foreign or domestic DTAs could ultimately expire unused, or future DTAs could be created, due to vesting or settlement of stock awards or other book to tax differences, in which we will not have sufficient taxable income in the future to fully utilize these and which will result in us recording a valuation allowance. Therefore, unless we are able to generate sufficient taxable income, a substantial valuation allowance to reduce our DTAs may be required, which would materially increase our tax expense in the period the valuation allowance is recorded and could have a material adverse impact on our financial condition and results of operations.

General Risk Factors

It is difficult to forecast future performance, which may cause our financial results to fluctuate unpredictably.

A number of factors over which we have limited or no control may contribute to fluctuations in our financial results, such as:

•the COVID-19 outbreak and measures taken in response thereto;

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•variations in revenue due to the unavailability of specialist physicians who use our products during certain times of the year, such as those periods when there are major conferences on conditions they treat or those periods when high volume users of our products take time off of work;

•positive or negative media coverage of our products or the procedures or products of our competitors or our industry;

•publication of clinical trial results or studies by us or our competitors;

•changes in our sales process due to industry changes, such as changes in the stroke care pathway;

•delays in receipt of anticipated purchase orders;

•delays in customers receiving products;

•performance of our independent distributors;

•our ability to obtain further regulatory clearances or approvals;

•the timing of product development and clinical trial activities, including the pace of enrollment;

•delays in, or failure of, product and component deliveries by our suppliers;

•changes in reimbursement policies or levels;

•the number of procedures performed in any given period using our products, which can sometimes vary significantly between periods;

•customer response to the introduction of new products or alternative treatments, and the degree to we which we are effective in transitioning customers to our products; and

•fluctuations in foreign currency.

In the event our actual revenue and results of operations do not meet our or others’ forecasts for a particular period, the market price of our common stock may decline substantially.

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions, or data corruption could significantly disrupt our operations and adversely affect our business and operating results.

We rely on information technology, telephone networks and systems, including the internet, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities, including sales, billing, marketing, procurement and supply chain, manufacturing, and distribution. We use enterprise information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory, financial reporting, legal, and tax requirements. Our information technology systems are vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other significant disruption. Any such successful attacks could result in the theft of intellectual property or other misappropriation of assets, data breach, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the target of malware and other cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. We can give no assurances that these measures and efforts will prevent interruptions or breakdowns. If we are unable to detect or prevent a security breach or cyber-attack or other disruption from occurring, then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others; and we could sustain damage to our reputation and customer and employee relationships, suffer disruptions to our business and incur increased operating costs including costs to mitigate any damage caused and protect against future damage, and be exposed to additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, our information technology may be susceptible to damage, disruptions or shutdowns due to power outages, user errors, implementation of new operational systems or software or upgrades to existing systems and software, or catastrophes or other unforeseen events. Such events could result in the disruption of business processes, network degradation and system downtime,

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along with the potential that a third party will exploit our critical assets such as intellectual property, proprietary business information and data related to our customers, suppliers and business partners. To the extent that such disruptions occur, our customers and partners may lose confidence in our solutions and we may lose business or brand reputation, resulting in a material and adverse effect on our business, financial condition, results of operations or cash flows.

Our operations are subject to environmental, health and safety, and data privacy laws and regulations, compliance with which may be costly.

Our business is subject to federal, state, and local laws and regulations relating to the protection of the environment, worker health and safety and the use, management, storage, and disposal of hazardous substances and wastes. Failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions. In addition, environmental laws and regulations could require us to pay for environmental remediation and response costs, or subject us to third-party claims for personal injury, natural resource or property damage, relating to environmental contamination. Liability may be imposed whether or not we knew of, or were responsible for, such environmental contamination. The cost of defending against environmental claims, of compliance with environmental, health and safety regulatory requirements or of remediating contamination could materially adversely affect our business, results of operations, financial condition or cash flows.

Additionally, we are subject to laws and regulations with respect to the collection, use, disclosure, transfer and storage of personal data that we may collect from our employees, customers, third parties that we do business with, or patients or in conjunction with clinical trials, or that we may receive in connection with the use of our products, including our immersive healthcare products. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues that may affect our business. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, established new, and in some cases more stringent, requirements for data protection in Europe. Under the GDPR, enhanced data protection requirements as well as substantial fines for breaches of personal data will apply and increase our obligations and potential liabilities for the personal data that we process or control. Several other privacy laws have recently been adopted in domestic and foreign jurisdictions where we do business that could present similar issues. We have modified and will continue to modify our practices in order to comply with these and other requirements, which requires us to incur costs and expenses, and we may face difficulties in complying with all privacy and data protection legal requirements that apply to us now or in the future, as well as financial penalties and liabilities if we are unable to do so.

We incur significant costs and devote substantial management time as a result of operating as a public company.

As a public company, we incur significant legal, accounting and other expenses as we devote resources to comply with the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly.

We plan to continue to invest resources to comply with the evolving laws, regulations and standards applicable to public companies, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. Operating as a public company and being subject to these rules and regulations makes it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. As a result, it may be difficult for us to attract and retain qualified members of our board of directors or executive officers.

The costs associated with operating as a public company may decrease our net income or increase any future net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products to offset the effect of such costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, results of operation, financial condition or cash flows.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Exchange Act, Sarbanes-Oxley Act, and the listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

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The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

Our current controls and any new controls that we develop may become inadequate because of changes in our business. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in financial statements that may not accurately reflect the results of our business and operations. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is required to audit the effectiveness of our internal control over financial reporting. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and results of operations, and cause a decline in the price of our common stock.

If securities or industry analysts publish inaccurate or unfavorable research about our business or cease publishing research, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We maintain approximately 600,000 square feet of office, research and development, manufacturing and administrative facilities in nine buildings at our campus in Alameda, California as of December 31, 2022. The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years. From time to time through February 1, 2035, if any space in any of the buildings located in the same business park as our campus becomes vacant, that space will be added to the lease. The maximum additional space that could be added under this provision of the lease as of December 31, 2022 is approximately 30,000 square feet. The Company has a right of first offer to lease any space that becomes available after such date. We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years. An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon completion of certain improvements to the premises, which is not expected to occur in 2023. In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore warehouse spaces expire at various times in 2025 to 2028. The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years.

We also lease office and warehouse space in Germany, Italy, Australia, Brazil, and Singapore as of December 31, 2022. The offices in Germany and Australia support our direct sales operations in Europe and Australasia, respectively, with the Germany office also supporting distributor relationships in Europe and the Middle East; the offices in Brazil and Singapore support our sales and marketing efforts, including through our distribution partners, in Latin America and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland. We also warehouse and distribute finished products to our international customers utilizing a third-party logistics provider in the Netherlands.

ITEM 3. LEGAL PROCEEDINGS.

For information with respect to Legal Proceedings, see Note “10. Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock has been listed on the NYSE under the symbol “PEN” since September 18, 2015. Prior to that date, there was no established public trading market for our common stock. As of February 9, 2023, there were 34 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Performance Graph

The following graph illustrates a comparison of the total cumulative stockholder return on our common stock with the total return for (i) the S&P Healthcare Equipment and (ii) the NYSE Composite for the period from December 29, 2017 through December 30, 2022. The figures represented below assume an investment of $100 in our common stock on December 29, 2017 and in the S&P Healthcare Equipment and NYSE Composite and the reinvestment of dividends into shares of common stock for the years ended December 31, 2018, 2019, 2020, 2021 and 2022. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

$100 investment in stock or index	Ticker	12/29/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021		12/30/2022
Penumbra	PEN	$	100.00	$	129.86	$	174.57	$	185.97	$	305.33	$	236.41
NYSE Composite	NYA	100.00		88.80		108.62		113.40		134.00		118.55
S&P 500 Healthcare Equipment Index	XHE	100.00		108.90		133.19		177.03		182.41		139.84

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.

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Issuer Purchases of Equity Securities

None.

Recent Sales of Unregistered Securities

None.

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ITEM 6. [Reserved]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements.

Overview

Penumbra is a global healthcare company focused on innovative therapies. We design, develop, manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. Our team focuses on developing, manufacturing and marketing novel products for use by specialist physicians and healthcare providers to drive improved clinical outcomes and health. We believe that the cost-effectiveness of our products is attractive to our customers.

Since our founding in 2004, we have invested heavily in our product development capabilities in our major markets: neuro, vascular, and immersive healthcare. We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the neurovascular market since 2007, vascular market since 2013, neurosurgical market since 2014, and immersive healthcare market since 2020, respectively. We continue to expand our portfolio of product offerings, while developing and iterating on our currently available products.

We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization and access and immersive technologies. Generally, when we introduce a next generation product or a new product designed to replace a current product, sales of the earlier generation product or the product replaced decline. Our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products.

We sell our products to hospitals and other healthcare providers primarily through our direct sales organization in the United States, most of Europe, Canada and Australia, as well as through distributors in select international markets. In 2022, 30.2% of our revenue was generated from customers located outside of the United States. Our sales outside of the United States are denominated principally in the euro and Japanese yen, with some sales being denominated in other currencies. As a result, we have foreign exchange exposure, but do not currently engage in hedging.

We generated revenue of $847.1 million, $747.6 million and $560.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. This represents an annual increase of 13.3% and of 33.4%, respectively. We generated income from operations of $6.1 million for the year ended December 31, 2022, and losses from operations of $7.5 million and $38.9 million for the years ended December 31, 2021 and 2020, respectively.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which spread throughout the U.S. and the world. In response, governments issued orders restricting certain activities, and while our business falls within the category of healthcare operations, which are essential businesses that have generally been permitted to continue operating during the COVID-19 pandemic, we have experienced, and may continue to experience, disruptions to our operations as a result of the pandemic. For example, at times during the pandemic, hospital resources have been diverted to fight the pandemic, and many government agencies, in conjunction with healthcare systems, have recommended the deferral of elective and semi-elective medical procedures. In addition, the pandemic and the response thereto have impacted global supply chains and labor markets, resulting in cost inflation and raw material supply constraints, as well as an increase in employee turnover rates in certain jurisdictions, which has impacted, and may continue to impact, our business.

In order to navigate the pandemic, we made certain changes to how we manufacture, inspect and ship our products to prioritize the health and safety of our employees and to operate under the protocols mandated by our local and state governments. We took steps to strengthen our liquidity position, which included the issuance and sale of an aggregate of 865,963 shares of our common stock at a public offering price of $166.00 per share in an underwritten public offering in June 2020, pursuant to which we received approximately $134.8 million in net cash proceeds after deducting underwriting discounts and commissions of $8.6 million and other offering expenses of $0.4 million. We also entered into a Credit Agreement (the “Credit Agreement”) in April 2020 with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders, which is secured and provides for up to $100 million in available revolving

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borrowing capacity beyond the $188.0 million in cash, cash equivalents and marketable investments on our balance sheet as of December 31, 2022 with an option, subject to certain conditions, for us to increase the aggregate borrowing capacity to up to $150 million. The Credit Agreement originally matured on April 23, 2021 and was subsequently amended during the three months ended March 31, 2021, 2022 and 2023 to extend the maturity date and make other changes to the terms of the Credit Agreement. The Credit Agreement currently matures on February 16, 2024. Refer to Part II, Item 9B, “Other Information” and Note “8. Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information.

While the acute phase of the pandemic has subsided due to the development and widespread availability of vaccines for COVID-19, we are unable to reliably predict the full impact that COVID-19 will have on our business due to numerous uncertainties, including the severity and duration of the pandemic, the global resurgences of cases, particularly as new variants of the virus spread, additional actions that may be taken by governmental authorities in response to the pandemic, the impact of the pandemic on the business of our customers, distributors and suppliers, other businesses and worldwide economies in general, our ability to have access to our customers to provide training and case support, and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, and financial condition

Factors Affecting Our Performance

There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:

•The COVID-19 pandemic and measures taken in response thereto, which have negatively affected, and may continue to negatively affect, our revenues and results of operations. For example, as a result of the pandemic and the response thereto, global supply chains have been impacted, and we may experience significant and unpredictable fluctuations in the availability and cost of components and raw materials used in our products.

•The rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth.

•Our industry is intensely competitive and, in particular, we compete with a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’ existing and future products and their resources to successfully market to the specialist physicians who use our products.

•We must continue to successfully introduce new products that gain acceptance with specialist physicians and other healthcare providers and successfully transition from existing products to new products, ensuring adequate supply. In addition, as we introduce new products and expand our production capacity, we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our operating results and financial condition.

•Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and the degree to which, our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition.

•The specialist physicians who use our interventional products may not perform procedures during certain times of the year, such as those periods when they are at major medical conferences or are away from their practices for other reasons, the timing of which occurs irregularly during the year and from year to year.

•Most of our sales outside of the United States are denominated in the local currency of the country in which we sell our products. As a result, our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates.

•The availability and levels of reimbursement within the relevant healthcare payment system for healthcare providers for procedures in which our products are used.

In addition, we have experienced and expect to continue to experience meaningful variability in our quarterly revenue, gross profit and gross margin percentage as a result of a number of factors, including, but not limited to: the impact of COVID-19, the number of available selling days, which can be impacted by holidays; the mix of products sold; the geographic mix of where products are sold; the demand for our products and the products of our competitors; the timing of or failure to obtain regulatory approvals or clearances for products; increased competition; the timing of customer orders; inventory write-offs due to obsolescence; costs, benefits and timing of new product introductions; costs, benefits and timing of the acquisition and integration of businesses and product lines we may acquire; the availability and cost of components and raw materials; and

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fluctuations in foreign currency exchange rates. We may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth. Additionally, we may experience quarters in which operating expenses, in particular research and development expenses, fluctuate depending on the stage and timing of product development. For example, during the year ended December 31, 2021, we incurred $15.0 million of non-recurring personnel-related expenses associated with the development of our Thunderbolt product.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition.

We believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements.

Leases

We determine if an arrangement is a lease at inception. In addition, we determine whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of December 31, 2022, our lease population consisted of operating and finance real estate, equipment and vehicle leases.

Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheet. Finance leases are included in finance lease right-of-use assets, current finance lease liabilities, and non-current finance lease liabilities in our consolidated balance sheet. ROU assets represent the our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate which requires our management’s judgement as the rate implicit in the lease is generally not readily determinable. The determination of the our incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as we currently does not carry any debt. The lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Finance lease cost is recognized as depreciation expense on a straight-line basis over the expected lease term and interest expense using the accelerated interest method of recognition. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our consolidated balance sheet. For more information about our leases, refer to Note “9. Leases.”

Revenue Recognition

Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that we consign to hospitals, which primarily consist of coils, we recognize revenue at the time hospitals utilize products in a procedure. Refer to Note “16. Revenues” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information and disclosures on our revenue.

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Certain arrangements with customers contain multiple performance obligations. For these contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which we separately sell the products or services. If a standalone selling price is not directly observable, then we estimate the standalone selling prices considering market conditions and entity-specific factors including, but not limited to, the expected cost and margin of the products and services, geographies, and other market conditions. The use of alternative estimates could result in a different amount of revenue deferral.

We defer revenue for amounts that we have already invoiced our customers for and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met.

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. During the year ended December 31, 2022, we made no material changes in estimates for variable consideration.

Our terms and conditions permit product returns and exchanges. We base our estimates for sales returns on actual historical returns over the prior three years and they are recorded as reductions in revenue at the time of sale. Upon recognition, we reduce revenue and cost of revenue for the estimated return. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns.

Income Taxes

We account for income taxes using the asset and liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance to reduce the net deferred tax assets (“DTAs”) to their estimated realizable value.

The calculation of our DTAs involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. DTAs are reduced to their estimated realizable value by a valuation allowance when it is more likely than not that the future realization of all or some of the DTAs will not be achieved. Valuation allowances related to DTAs can be affected by changes to tax laws, statutory tax rates, and projections of future taxable income.

The calculation of our current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. We have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although we believe our estimates, assumptions and judgments to be reasonable, any changes in tax law or interpretation of tax law and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

We follow FASB ASC 740-10 “Accounting for Uncertainty in Income Taxes” that prescribes a financial statement recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on our income tax returns, and also provides guidance on derecognition, classification, interest and penalty accrual, accounting in interim periods, and disclosure requirements. We include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations.

As of December 31, 2022, our net DTA balance on a consolidated basis was $63.3 million, after reduction of a valuation allowance of $46.7 million. We had approximately $148.9 million and $93.6 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized. The state NOL carryforwards have various carryover periods and will begin to expire as early as 2023. As of December 31, 2022, we had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years. We maintained a full valuation allowance against our federal research and development tax credit DTAs net of ACS 740-10 reserve. We had California state research and development tax credits of $24.9 million that may be carried forward indefinitely.

Significant domestic DTAs were generated in recent years, primarily due to excess tax benefits from stock option exercises and vesting of restricted stock, as well as operating expenditures including research and development. The recent Sixense acquisition also generated significant domestic DTAs in the year ended December 31, 2021. We assess the ability to realize the benefits of our DTAs in each reporting period by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3)

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estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitation on NOL utilization against taxable income. Despite the domestic pretax loss in the year ended December 31, 2022, we determined that we would be in a three-year cumulative adjusted taxable income position, had it not been for the impact of excess tax deductions from stock-based compensation. We also measured our current DTA balances against estimates of future income based on objectively verifiable operating results from our recent history.

We considered our projection of future taxable income in conjunction with relevant provisions of the Tax Reform Act, including but not limited to, the indefinite carryforward period for NOL generated in years beginning on or after January 1, 2018. After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, we concluded that sufficient future taxable income will be generated to realize the benefits of our domestic DTAs prior to expiration, other than our federal research and development tax credit DTAs. The tax attribute ordering rules provide that to offset taxable income, NOL must be used prior to the utilization of tax credits. NOL utilization will be limited to 80% of taxable income, which may provide an opportunity for us to use a portion of our tax credits. Accordingly, we cannot assert, at the required more-likely-than-not level of certainty, that we will be able to realize the full benefit of our federal research and development tax credit DTAs, with a limited 20-year carryforward period that will begin to expire in 2026. As a result, we maintained a full valuation allowance against our federal research and development tax credit DTAs net of ASC 740-10 reserve as of December 31, 2022. We intend to continue maintaining this full valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, due to the change of IRC Section 174 requiring qualified research expenditures to be capitalized and amortized over 5 or 15 years for tax purposes, in the future, we may accelerate our NOL utilization in the coming years. As a consequence, we determined there is a reasonable possibility that a portion of this valuation allowance may no longer be needed. The exact timing and amount of the valuation allowance release is highly dependent on the level of taxable income in future years. We will continue to closely monitor the need for this valuation allowance in each subsequent reporting period.

As of December 31, 2022, we do not maintain valuation allowance against any of our foreign DTAs as we believe, at the required more-likely-than-not level of certainty, that our foreign subsidiaries will generate sufficient future taxable income to realize the benefit of their DTAs in full. A full valuation allowance also remains against our California DTA balances.

Goodwill

Goodwill represents the excess of the purchase price of an acquired business or assets over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment at least annually, or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may have occurred. Circumstances that could trigger an impairment test include, but are not limited to, a significant adverse change in the business climate or legal factors, an adverse action or assessment by a regulator, change in customers, target market and strategy, unanticipated competition, loss of key personnel, or change in reporting units. We operate as one segment, which is considered to be the sole reporting unit, and therefore goodwill is tested for impairment at the consolidated level.

The authoritative guidance allows an entity to assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If an entity determines that as a result of the qualitative assessment that it is more likely than not (i.e. greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The quantitative goodwill impairment test requires us to estimate and compare the fair value of our reporting unit with its carrying value.

Application of the goodwill impairment test requires judgments, including: identification of the reporting units, assigning goodwill to reporting units, a qualitative assessment to determine whether there are any impairment indicators, and determining the fair value of each reporting unit. Qualitative factors may include, but are not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, cost factors, and entity specific factors such as strategies, overall financial performance (both current and projected) and market capitalization. In the fourth quarter of 2022 and 2021, we performed qualitative assessments for goodwill impairment and determined there were no indicators of impairment. Refer to Note “7. Goodwill” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.

Valuation of Assets Acquired and Liabilities Assumed in a Business Combination

For material acquisitions, of which there were none in 2022, we may engage independent appraisers to assist with the determination of the fair value of certain assets acquired and liabilities assumed using recognized business valuation methodologies and information and assumptions provided by our management.

In determining the fair value of certain identifiable assets acquired or liabilities assumed, management may utilize valuation techniques consistent with the income approach, market approach, or cost approach and provide its best estimates of

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inputs and assumptions that a market participant would use. Certain estimates used in the cost approach include the total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence, a developer’s expected profit margin, and any opportunity costs lost over the period to reconstruct the substitute asset. Certain estimates used in the income approach may include the amount and timing of projected future cash flows, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.

Impairment of Intangible Assets

Indefinite-lived intangible assets consist of in-process research and development as of December 31, 2021. Indefinite-lived intangible assets are tested for impairment at least annually in the fourth quarter of each year, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. In conducting the annual impairment test for its indefinite-lived intangible assets, we may first perform a qualitative assessment to determine whether it is more likely than not (i.e. greater than 50% likelihood) that an indefinite-lived intangible asset is impaired. In accordance with the authoritative guidance, we may elect to bypass the qualitative assessment and proceed directly to the quantitative test to compare the fair value of the indefinite-lived intangible asset to the carrying amount. If the fair value of the asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference between the carrying amount and the fair value.

During the third quarter of 2022, the in-process research and development indefinite-lived intangible asset acquired in the fourth quarter of 2021 in connection with the Sixense acquisition was reclassified to a finite-lived developed technology intangible asset upon the completion of the in-process research and development project. In the second quarter of 2020, due to a triggering event, the acquired exclusive right to licensed technology indefinite-lived intangible asset was determined to be impaired and we wrote-off the full carrying amount of the asset. Refer to Note “6. Intangible Assets” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.

Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. We review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset will be written down to the determined fair value based on discounted cash flows. We also periodically review the useful lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the underlying intangible asset. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. Refer to Note “6. Intangible Assets” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.

Components of Results of Operations

Revenue. We sell our products directly to hospitals and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets: neuro and vascular disease. We sell our products through purchase orders, and we do not have long-term purchase commitments from our customers. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that we consign to hospitals, which primarily consist of coils, we recognize revenue at the time hospitals utilize products in a procedure. Revenue also includes shipping and handling costs that we charge to customers.

Cost of Revenue. Cost of revenue consists primarily of the cost of raw materials and components, personnel costs, including stock-based compensation, inbound freight charges, receiving costs, inspection and testing costs, warehousing costs, royalty expense, shipping and handling costs and other labor and overhead costs incurred in the manufacturing of products. We manufacture substantially all of our products in our manufacturing facilities in Alameda and Roseville, California.

Operating Expenses

Research and Development (“R&D”). R&D expenses primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of our products. R&D expenses also include salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants. We expense R&D costs as they are incurred.

Sales, General and Administrative (“SG&A”). SG&A expenses primarily consist of salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants engaged in sales, marketing, finance, legal, compliance, administrative, facilities and information technology and human resource activities. Our SG&A expenses also include

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marketing trials, medical education, training, commissions, generally based on sales, to direct sales representatives, amortization of acquired intangible assets and acquisition-related costs.

Income Tax Expense. We are taxed at the rates applicable within each jurisdiction in which we operate. The composite income tax rate, tax provisions, deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net DTAs. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the DTAs will not be achieved.

Results of Operations

The following table sets forth the components of our consolidated statements of operations in U.S. dollars and as a percentage of revenue for the periods presented:

	Year Ended December 31,
	2022				2021				2020
	(in thousands, except for percentages)
Revenue	$	847,133	100.0	%	$	747,590	100.0	%	$	560,412	100.0	%
Cost of revenue	311,926		36.8	%	272,208		36.4	%	222,237		39.7	%
Gross profit	535,207		63.2	%	475,382		63.6	%	338,175		60.3	%
Operating expenses:
Research and development	79,407		9.4	%	104,552		14.0	%	90,049		16.1	%
Sales, general and administrative	449,718		53.1	%	378,331		50.6	%	287,068		51.2	%
Total operating expenses	529,125		62.5	%	482,883		64.6	%	377,117		67.3	%
Income (loss) from operations	6,082		0.7	%	(7,501)		(1.0)	%	(38,942)		(6.9)	%
Interest income, net	137		—	%	938		0.1	%	1,267		0.2	%
Other expense, net	(2,327)		(0.3)	%	(3,939)		(0.5)	%	(343)		(0.1)	%
Income (loss) before income taxes	3,892		0.5	%	(10,502)		(1.4)	%	(38,018)		(6.8)	%
Provision for (benefit from) income taxes	5,894		0.7	%	(13,125)		(1.8)	%	(18,761)		(3.3)	%
Consolidated net (loss) income	$	(2,002)	(0.2)	%	$	2,623	0.4	%	$	(19,257)	(3.4)	%
Net loss attributable to non-controlling interest	—		—	%	(2,661)		(0.4)	%	(3,555)		(0.6)	%
Net (loss) income attributable to Penumbra, Inc.	$	(2,002)	(0.2)	%	$	5,284	0.7	%	$	(15,702)	(2.8)	%

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue

	Year Ended December 31,				Change
	2022		2021			%
	(in thousands, except for percentages)
Vascular	$	499,389	$	408,878		22.1	%
Neuro	347,744		338,712		9,032	2.7	%
Total	$	847,133	$	747,590		13.3	%

All values are in US Dollars.

Revenue increased $99.5 million, or 13.3%, to $847.1 million in 2022, from $747.6 million in 2021. The increase in overall revenue was primarily due to an increase in sales of new and existing products within our vascular and neuro businesses.

Revenue from our vascular products increased $90.5 million, or 22.1%, to $499.4 million in 2022, from $408.9 million in 2021. This increase in revenue from our vascular products was primarily attributable to increased revenue in the United States and China and was driven by sales of our vascular thrombectomy products and peripheral embolization products, which globally increased by 27.7% and 13.6%, respectively, in the year ended December 31, 2022. These increases were primarily due to higher sales volume as a result of sales of new products and further market penetration of our existing products. Prices for our vascular medical devices remained substantially unchanged during the period.

Revenue from our neuro products increased $9.0 million, or 2.7%, to $347.7 million in the year ended December 31, 2022, from $338.7 million in the year ended December 31, 2021. This increase in revenue from our neuro products was primarily attributable to increased revenue in the United States, sales of new products, and further market penetration of our existing products. This increase was driven by an increase in sales of our neuro access products and neuro thrombectomy products, which globally increased by 7.2% and 2.8%, respectively, partially offset by a decrease in sales of our neuro embolization products of 14.1% in the year ended December 31, 2022. Prices for our neuro medical devices remained substantially unchanged during the period.

Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customers’ shipping destinations:

	Year Ended December 31,								Change
	2022				2021					%
	(in thousands, except for percentages)
United States	$	591,715	69.8	%	$	527,789	70.6	%		12.1	%
International	255,418		30.2	%	219,801		29.4	%	35,617	16.2	%
Total	$	847,133	100.0	%	$	747,590	100.0	%		13.3	%

All values are in US Dollars.

Revenue from sales in international markets increased $35.6 million, or 16.2%, to $255.4 million in 2022, from $219.8 million in 2021. Revenue from international sales represented 30.2% and 29.4% of our total revenue in 2022 and 2021, respectively.

Gross Margin

	Year Ended December 31,						Change
	2022			2021				%
	(in thousands, except for percentages)
Cost of revenue	$	311,926		$	272,208			14.6	%
Gross profit	$	535,207		$	475,382			12.6	%
Gross margin %	63.2		%	63.6		%

All values are in US Dollars.

Gross margin remained relatively flat, decreasing by 0.4% percentage points to 63.2% in 2022, from 63.6% in 2021. Gross margin is impacted by our ability to scale production capacity to support our expanding portfolio of products, which enabled us to navigate through some macroeconomic factors such as labor shortages, inflation, and supply chain headwinds. We may see continued productivity improvements to offset inflation and supply chain pressures resulting in expansion of our gross margin in the future.

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Research and Development (“R&D”)

	Year Ended December 31,						Change
	2022			2021				%
	(in thousands, except for percentages)
R&D	$	79,407		$	104,552			(24.1)	%
R&D as a percentage of revenue	9.4		%	14.0		%

All values are in US Dollars.

R&D expenses decreased by $25.1 million or 24.1%, to $79.4 million in 2022, from $104.6 million in 2021. The decrease was primarily due to $17.6 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition in 2021 and a $6.3 million decrease in product development and testing costs. This was partially offset by a $1.7 million increase in infrastructure costs to support our growth.

We have continued to make investments, and plan to continue to make investments, in the development of our products. As part of our ongoing investment in the development of our products, we may make future payments related to research and development milestones. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

Sales, General and Administrative (“SG&A”)

	Year Ended December 31,						Change
	2022			2021				%
	(in thousands, except for percentages)
SG&A	$	449,718		$	378,331			18.9	%
SG&A as a percentage of revenue	53.1		%	50.6		%

All values are in US Dollars.

SG&A expenses increased by $71.4 million, or 18.9%, to $449.7 million in 2022, from $378.3 million in 2021. Excluding the $8.2 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition in 2021, the increase was primarily due to a $20.3 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth, a $11.9 million increase in infrastructure costs, a $8.8 million increase in travel and other in-person expenses, a $7.9 million increase in costs related to marketing events, a $6.3 million amortization expense of finite lived intangible assets acquired in connection with the Sixense acquisition, and a $5.8 million increase in information technology expenses and other professional services primarily associated with our ERP system implementation.

As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees in critical roles that support our strategic initiatives. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments to support the business.

Provision for (Benefit from) Income Taxes

	Year Ended December 31,						Change
	2022			2021				%
	(in thousands, except for percentages)
Provision for (benefit from) income taxes	$	5,894		$	(13,125)			(144.9)	%
Effective tax rate	151.4		%	125.0		%

All values are in US Dollars.

Our provision for income taxes was $5.9 million in 2022, which was primarily due to income taxes imposed on our worldwide profits, combined with tax deficiencies (shortfalls) from stock-based compensation attributable to our U.S. jurisdiction as a result of stock price fluctuation. Our benefit from income taxes was $13.1 million in 2021, which was primarily due to tax benefits from our worldwide losses, combined with excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. Our effective tax rate was 151.4% in 2022, compared to 125.0% in 2021. Our change in effective tax rate was primarily attributable to larger tax expenses over small worldwide profits for the year ended December 31, 2022, compared to larger tax benefits over small worldwide losses for the year ended December 31, 2021.

Our effective tax rate is driven by (1) income or loss before taxes, (2) permanent differences in taxable income for tax and financial reporting purposes, (3) tax expense attributable to our foreign jurisdictions, (4) changes to the valuation allowance

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maintained against our deferred tax assets, and (5) discrete tax adjustments such as excess tax expenses or benefits related to stock-based compensation. Our income tax provision is subject to volatility as the amount of excess tax expenses and benefits can fluctuate from period to period based on the price of our stock, the volume of share-based grants settled or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could cause us to experience an effective tax rate significantly different from previous periods.

We maintained a full valuation allowance against our federal research and development tax credit DTAs net of ASC 740-10 reserve as of December 31, 2022. We intend to continue maintaining this full valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, due to the change of IRC section 174 requiring qualified research expenditures to be capitalized and amortized over 5 or 15 years for tax purposes, in the future, we may accelerate our NOL utilization. As a consequence, we determined there is a reasonable possibility that a portion of this valuation allowance may no longer be needed. The exact timing and amount of the valuation allowance release is highly dependent on the level of taxable income in future years. We will continue to closely monitor the need for this valuation allowance in each subsequent reporting period.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue

	Year Ended December 31,				Change
	2021		2020			%
	(in thousands, except for percentages)
Vascular	408,878		267,783		141,095	52.7	%
Neuro	$	338,712	$	292,629		15.7	%
Total	747,590		560,412		187,178	33.4	%

All values are in US Dollars.

Revenue increased $187.2 million, or 33.4%, to $747.6 million in 2021, from $560.4 million in 2020. The increase in overall revenue was primarily due to an increase in sales of new and existing medical devices within our vascular and neuro businesses as well as a higher number of elective procedures performed as COVID-19 vaccination rates increased. Given the current state of vaccinations and the spread of new variants of the virus, it is possible that the increase in elective cases will begin to normalize in future quarters.

Revenue from our vascular medical devices increased $141.1 million, or 52.7%, to $408.9 million in 2021, from $267.8 million in 2020. This increase was driven by sales of our vascular thrombectomy medical devices and peripheral embolization medical devices, which globally increased by 65.6% and 36.9%, respectively, in the year ended December 31, 2021. These increases were primarily due to high sales volume as a result of sales of new medical devices, further market penetration of our existing medical devices, and an increase in the number of elective procedures. Prices for our vascular medical devices remained substantially unchanged during the period.

Revenue from our neuro medical devices increased $46.1 million, or 15.7%, to $338.7 million in the year ended December 31, 2021, from $292.6 million in the year ended December 31, 2020. This increase was primarily attributable to increased revenue in China due to the license agreement entered into in December 2020, sales of new medical devices, and further market penetration of our existing medical devices. This increase was driven by an increase in sales of our neuro access medical devices, neuro embolization medical devices and neuro thrombectomy medical devices which globally increased by 45.4%, 10.0% and 5.2%, respectively, in the twelve months ended December 31, 2021. Prices for our neuro medical devices remained substantially unchanged during the period.

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Revenue by Geographic Area

The following table presents revenue by geographic area and from countries that exceeded 10% of our total revenue, based on our customers’ shipping destinations:

	Year Ended December 31,								Change
	2021				2020					%
	(in thousands, except for percentages)
United States	$	527,789	70.6	%	$	400,270	71.4	%		31.9	%
Other International	219,801		29.4	%	160,142		28.6	%		37.3	%
Total	$	747,590	100.0	%	$	560,412	100.0	%		33.4	%

All values are in US Dollars.

Revenue from sales in international markets increased $59.7 million, or 37.3%, to $219.8 million in 2021, from $160.1 million in 2020. Revenue from international sales represented 29.4% and 28.6% of our total revenue in 2021 and 2020, respectively.

Gross Margin

	Year Ended December 31,						Change
	2021			2020				%
	(in thousands, except for percentages)
Cost of revenue	$	272,208		$	222,237			22.5	%
Gross profit	$	475,382		$	338,175			40.6	%
Gross margin %	63.6		%	60.3		%

All values are in US Dollars.

Gross margin increased by 3.3% percentage points to 63.6% in 2021, from 60.3% in 2020, which included a one-time, non-recurring $18.4 million reduction in gross profit as a result of the December 2020 voluntary recall of our JET 7 Reperfusion Catheter with Xtra Flex technology (“JET 7 Xtra Flex”). While gross margin is impacted by higher labor and logistics costs due to the impact of inflation, our ability to scale production capacity to support our expanding portfolio of medical devices as well as our continued investments in COVID-19 related safety measures allowed the Company to navigate the labor and supply chain disruptions. As such, with our accelerated investments in our production capacity, our gross margin may be positively impacted in the future.

Research and Development (“R&D”)

	Year Ended December 31,						Change
	2021			2020				%
	(in thousands, except for percentages)
R&D	$	104,552		$	90,049			16.1	%
R&D as a percentage of revenue	14.0		%	16.1		%

All values are in US Dollars.

R&D expenses increased by $14.5 million or 16.1%, to $104.6 million in 2021, from $90.0 million in 2020. The increase was primarily due to $17.6 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition and a $11.0 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth. This was partially offset by a $15.4 million decrease in product development and testing costs.

We have made investments, and plan to continue to make investments, in the development of our products, which may include hiring additional research and development employees. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

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Sales, General and Administrative (“SG&A”)

	Year Ended December 31,						Change
	2021			2020				%
	(in thousands, except for percentages)
SG&A	$	378,331		$	287,068			31.8	%
SG&A as a percentage of revenue	50.6		%	51.2		%

All values are in US Dollars.

SG&A expenses increased by $91.3 million, or 31.8%, to $378.3 million in 2021, from $287.1 million in 2020. The increase was primarily due to a $48.4 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth, a $9.5 million increase in cost related to marketing events as well as a $9.4 million increase in travel-related expense as most domestic travel and other in-person activities returned to pre-COVID-19 levels in 2021, $8.2 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition, and a $4.9 million increase in infrastructure costs.

As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments in infrastructure to support the business.

(Benefit from) Provision for Income Taxes

	Year Ended December 31,						Change
	2021			2020				%
	(in thousands, except for percentages)
(Benefit from) provision for income taxes	$	(13,125)		$	(18,761)			(30.0)	%
Effective tax rate	125.0		%	49.3		%

All values are in US Dollars.

Our benefit from income taxes was $13.1 million in 2021, compared to $18.8 million in 2020. Our effective tax rate was 125.0% in 2021, compared to 49.3% in 2020. Our effective tax rate in 2021 and 2020 included tax benefits attributable to our worldwide losses, combined with excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. Our change in effective tax rate was primarily due to smaller worldwide losses recorded for the year ended December 31, 2021, compared to the year ended December 31, 2020 with consistent tax benefit between the two years. The effective tax rate in 2021 was amplified by the relatively smaller worldwide loss.

Our effective tax rate is driven by (1) income or loss before taxes, (2) permanent differences in taxable income for tax and financial reporting purposes, (3) tax expense attributable to our foreign jurisdictions, (4) changes to the valuation allowance maintained against our deferred tax assets, and (5) discrete tax adjustments such as excess tax benefits related to stock-based compensation. Our income tax provision is subject to volatility as the amount of excess tax benefits can fluctuate from period to period based on the price of our stock, the volume of share-based grants settled or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could cause us to experience an effective tax rate significantly different from previous periods.

Quarterly Results of Operations

For our unaudited quarterly results of operations for the eight quarters ended December 31, 2022, please see Note “17. Selected Quarterly Financial Data (Unaudited)” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

Our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year. Our unaudited quarterly results tables include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our consolidated financial position and operating results for the quarters presented. Seasonal fluctuations, underlying business trends have affected, and are likely to continue to affect, our business. Commercial queries typically increase significantly in the fourth quarter of each year. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.

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However, we may have quarters for which we experience significant revenue and gross profit growth followed by quarters with limited revenue and gross profit growth due to a number of factors, including mix of products sold, limited growth in demand and the effects of hiring and integrating new sales people and their transition into existing or new sales territories. Other factors affecting our revenue and gross profit growth include acceptance of new products by specialist physicians and successfully transitioning these physicians to new products from existing products, buildup of inventory of new products and write downs or write offs of inventory of older products, introduction of new products by competitors, publication of clinical results that may influence specialist physicians and the fact that the specialist physicians who use our products may not perform procedures during certain times of the year due to their attendance at major medical conferences or for other reasons, the time of which occurs irregularly during the year and from year to year.

Liquidity and Capital Resources

As of December 31, 2022, we had $610.8 million in working capital, which included $69.9 million in cash and cash equivalents and $118.2 million in marketable investments. As of December 31, 2022, we held approximately 21.2% of our cash and cash equivalents in foreign entities.

In June 2020, we issued and sold an aggregate of 865,963 shares of our common stock at a public offering price of $166.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering. We received approximately $134.8 million in net cash proceeds after deducting underwriting discounts and commissions of $8.6 million and other offering expenses of $0.4 million. The net proceeds from this offering is to support general corporate purposes, including working capital, continued development of our products, including research and development and clinical trials, potential acquisitions and other business opportunities. Pending the use of the net proceeds from this offering, we invested the net proceeds in investment grade, interest bearing securities.

In addition to our existing cash and cash equivalents and marketable investment balances, our principal source of liquidity is our accounts receivable. In order to further strengthen our liquidity position and financial flexibility during the COVID-19 pandemic, on April 24, 2020 we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $150 million, and originally matured on April 23, 2021. During the three months ended March 31, 2021, 2022 and 2023, the Credit Agreement was amended to extend the maturity date and make other changes to the terms of the Credit Agreement. The Credit Agreement currently matures on February 16, 2024.

As of December 31, 2022, the Company was in compliance with the requirements in the Credit Agreement to maintain a minimum fixed charge coverage ratio and to not exceed a maximum leverage ratio. As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement. Refer to Part II Item 9B “Other Information” and Note “8. Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information.

We believe these sources of liquidity will be sufficient to meet our liquidity requirements for at least the next 12 months. Our principal liquidity requirements are to fund our operations, expand manufacturing operations which includes, but is not limited to, maintaining sufficient levels of inventory to meet the anticipated demand of our customers, fund research and development activities and fund our capital expenditures. We may also lease or purchase additional facilities to facilitate our growth. We expect to continue to make investments as we launch new products, expand our manufacturing operations and information technology infrastructures and further expand into international markets. We may, however, require or elect to secure additional financing as we continue to execute our business strategy. If we require or elect to raise additional funds, we may do so through equity or debt financing, which may not be available on favorable terms, could result in dilution to our stockholders and could require us to agree to covenants that limit our operating flexibility.

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The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of December 31, 2022 and December 31, 2021:

	Year Ended December 31,
	2022		2021
	(in thousands)
Cash and cash equivalents	$	69,858	$	59,379
Marketable investments	118,172		195,496
Accounts receivable, net	203,384		133,940
Accounts payable	26,679		13,421
Accrued liabilities	106,300		99,796
Working capital(1)	610,767		558,277

(1) Working capital consists of total current assets less total current liabilities.

The following table sets forth, for the periods indicated, our beginning balance of cash and cash equivalents, net cash flows provided by (used in) operating, investing and financing activities and our ending balance of cash and cash equivalents:

	Year Ended December 31,
	2022		2021		2020
	(in thousands)
Cash and cash equivalents at beginning of year	$	59,379	$	69,670	$	72,779
Net cash (used in) provided by operating activities	(55,661)		9,502		(33,242)
Net cash provided by (used in) investing activities	54,790		(21,735)		(104,149)
Net cash provided by financing activities	11,622		836		134,917
Cash and cash equivalents at end of year	69,858		59,379		69,670

Net Cash (Used In) Provided By Operating Activities

Net cash (used in) provided by operating activities consists primarily of net income adjusted for certain non-cash items (including depreciation and amortization, stock-based compensation expense, inventory write-offs and write-downs, changes in deferred tax balances, and the effect of changes in working capital and other activities).

Net cash used in operating activities was $55.7 million in 2022 and consisted of net loss of $2.0 million and net changes in operating assets and liabilities of $121.5 million offset by non-cash items of $67.9 million. The change in operating assets and liabilities includes an increase in inventories of $74.6 million to support our revenue growth, an increase in accounts receivable of $69.9 million, and an increase in prepaid expenses and other current and non-current assets of $1.2 million. This was partially offset by an increase in accounts payable of $13.4 million, an increase in accrued expenses and other non-current liabilities of $10.5 million primarily as a result of the growth in our business activities and proceeds of $0.3 million received related to lease incentives from operating leases.

Net cash provided by operating activities was $9.5 million in 2021 and consisted of net income of $2.6 million and non-cash items of $73.6 million offset by net changes in operating assets and liabilities of $66.7 million. The change in operating assets and liabilities includes an increase in inventories of $51.6 million to support our revenue growth, an increase in accounts receivable of $21.3 million, an increase in prepaid expenses and other current and non-current assets of $13.0 million, and a decrease in accounts payable of $1.6 million. This was partially offset by an increase in accrued expenses and other non-current liabilities of $17.1 million primarily as a result of the growth in our business activities and proceeds of $3.7 million received related to lease incentives from operating leases.

Net cash used in operating activities was $33.2 million in 2020 and consisted of net loss of $19.3 million and non-cash items of $37.2 million offset by net changes in operating assets and liabilities of $51.2 million. The change in operating assets and liabilities includes an increase in inventories of $57.0 million to support our revenue growth, an increase in prepaid expenses and other current and non-current assets of $8.9 million, an increase in accounts receivable of $8.3 million, and a decrease in accounts payable of $0.3 million. This was partially offset by an increase in accrued expenses and other non-current liabilities of $23.3 million primarily as a result of the growth in our business activities as well as liabilities incurred related to our voluntary recall in December 2020.

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Net Cash Provided By (Used In) Investing Activities

Net cash provided by (used in) investing activities relates primarily to purchases of marketable investments, capital expenditures, payments for leases that have not yet commenced, partially offset by proceeds from maturities and sales of marketable investments.

Net cash provided by investing activities was $54.8 million in 2022 and primarily consisted of proceeds from maturities and sales of marketable investments of $74.1 million, partially offset by capital expenditures of $19.3 million.

Net cash used in investing activities was $21.7 million in 2021 and primarily consisted of capital expenditures of $21.2 million and purchases of marketable investments, net of proceeds from maturities and sales, of $3.1 million. This was partially offset by $2.9 million cash acquired in connection with the Sixense acquisition.

Net cash used in investing activities was $104.1 million in 2020 and primarily consisted of purchases of marketable investments, net of proceeds from maturities and sales, of $76.3 million and capital expenditures of $24.8 million.

Net Cash Provided By Financing Activities

Net cash provided by financing activities primarily relates to proceeds from issuance of common stock upon

underwritten public offering, payments of employee taxes related to vested restricted stock units, payments towards the reduction of our finance lease obligations and certain acquisition-related payments, and proceeds from exercises of stock options and issuances of common stock.

Net cash provided by financing activities was $11.6 million in 2022 and primarily consisted of proceeds from the issuance of stock under our employee stock purchase plan of $13.8 million and proceeds from exercises of stock options of $7.8 million. This was partially offset by $8.0 million of payments of employee taxes related to vested restricted stock units and payments related to finance lease obligations of $1.8 million.

Net cash provided by financing activities was $0.8 million in 2021 and primarily consisted of proceeds from the issuance of stock under our employee stock purchase plan of $13.7 million and proceeds from exercises of stock options of $4.7 million. This was partially offset by $15.8 million of payments of employee taxes related to vested restricted stock units and payments related to finance lease obligations of $1.5 million.

Net cash provided by financing activities was $134.9 million in 2020 and primarily consisted of proceeds from the issuance of common stock, net of issuance costs, of $134.8 million, proceeds from the issuance of stock under our employee stock purchase plan of $11.3 million and proceeds from exercises of stock options of $5.2 million. This was partially offset by $10.1 million of payments of employee taxes related to vested restricted stock units, payments related to finance lease obligations of $3.4 million and payments related to contingent consideration in connection with our acquisition in 2017 of $0.7 million.

Contractual Obligations and Commitments

In the normal course of business, the Company enters into contracts and commitments that obligate us to make payments in the future. Our contractual obligations consist primarily of: non-cancelable operating and finance leases and purchase commitments. Information regarding our obligations relating to lease arrangements and purchase commitments, as well as amounts recorded for uncertain tax positions, are provided in Part II, Item 8, “Financial Statements and Supplementary Data”of this Form 10-K in Note “9. Leases”, Note “10. Commitments and Contingencies”, and Note “14. Income Taxes”, respectively.

The Company is also subject to certain royalty obligations under a license agreement with amounts due thereunder fluctuating depending on sales levels. Royalty expense included in cost of sales for the years ended December 31, 2022, 2021 and 2020 was $2.5 million, $2.3 million and $2.5 million, respectively. For more information on these royalty obligations, refer to Note “10. Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

Recently Issued Accounting Standards

For information with respect to recently issued accounting standards and the impact of these standards on our consolidated financial statements, refer to Note “2. Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents and/or our marketable investments.

Interest Rate Risk. We had cash and cash equivalents of $69.9 million as of December 31, 2022, which consisted of funds held in general checking, savings, and money market accounts. In addition, we had marketable investments of $118.2 million, which consisted primarily of corporate bonds, U.S. agency and government sponsored securities, and U.S. states and municipalities. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. The revolving loans under our Credit Agreement bear interest at: (1) the adjusted EURIBOR rate, plus an applicable rate, for euro currency revolving borrowing; or (2) an alternate base rate, daily simple SOFR, or adjusted term SOFR rate, as applicable, plus an applicable rate, for revolving borrowing in U.S. dollars. As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement. A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments.

Foreign Exchange Risk Management. We operate in countries other than the United States, and, therefore, we are exposed to foreign currency risks. We bill most sales outside of the United States in local currencies, primarily euro and Japanese yen, with some sales being denominated in other currencies. We expect that the percentage of our sales denominated in foreign currencies may increase in the foreseeable future as we continue to expand into international markets. When sales or expenses are not denominated in U.S. dollars, a fluctuation in exchange rates could affect our net income. For example, changes in exchange rates negatively affected our revenue as expressed in U.S. dollars for the year ended December 31, 2022. Additionally, changes in exchange rates reduced our expenses as expressed in U.S. dollars for the year ended December 31, 2022, which largely offset the impact to net income for the year resulting from changes in exchange rates that reduced revenue as expressed in U.S. dollars. We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future.

While our gross margin for the year ended December 31, 2022 was primarily impacted by higher labor and logistics costs as a result of manufacturing transfer activities and higher labor absenteeism due to the Omicron variant during the three months ended March 31, 2022, changes in prices did not have a significant impact on our results of operations for any periods presented on our consolidated financial statements.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PENUMBRA, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)	73
Consolidated Balance Sheets	75
Consolidated Statements of Operations	76
Consolidated Statements of Comprehensive(Loss)Income	77
Consolidated Statements of Stockholders’ Equity	78
Consolidated Statements of Cash Flows	79
Notes to Consolidated Financial Statements	80

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Penumbra, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Penumbra, Inc. and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, 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, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

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 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. 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes – Realizability of Deferred Tax Assets — Refer to Notes 2 and 14 to the financial statements

The Company recognizes deferred income taxes based on differences between the financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates and laws in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets (“DTAs”) to the amounts expected to be realized based on estimates of future taxable income. The Company’s net DTA as of December 31, 2022 was $63.3 million after a reduction of a valuation allowance of $46.7 million.

We identified management’s determination that a valuation allowance is necessary to reduce certain deferred tax assets to their estimated realizable value as a critical audit matter because management utilized significant judgments and estimates in their evaluation, including estimates of future taxable income, cumulative results of operations in recent years, and respective carryforward periods of tax attributes available to date. This in turn led to a high degree of auditor judgment and subjectivity in applying procedures relating to assessing such positive and negative evidence, including assessing how management’s assumptions may be affected by the future operations of the Company, market, and/or economic conditions.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to estimated future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized included the following, among others:

•We tested the effectiveness of controls over deferred tax assets, including management’s controls over the estimates of taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized.

•We evaluated the reasonableness of the methods and assumptions used by management to determine whether a valuation allowance is necessary.

•With the assistance of our income tax specialists, we considered the following sources of information used in management’s evaluation of whether deferred taxes are more likely than not to be realized:

–Estimates of future taxable income.

–The length of net operating loss carryforward periods.

–The ability to carryback losses to prior years.

–Tax credit carryforward and consideration of when those will expire.

•We evaluated whether the taxable income in historical periods was of the appropriate character and available under the tax law.

•We evaluated management’s assessment of the positive and negative evidence utilized to conclude whether a valuation allowance was necessary.

/s/ Deloitte & Touche LLP

San Francisco, California

February 23, 2023

We have served as the Company's auditor since 2008.

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Penumbra, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	69,858	$	59,379
Marketable investments	118,172		195,496
Accounts receivable, net of allowance for credit losses of $862 and $2,092 at December 31, 2022 and 2021, respectively	203,384		133,940
Inventories	334,006		263,504
Prepaid expenses and other current assets	30,279		29,155
Total current assets	755,699		681,474
Property and equipment, net	65,015		58,856
Operating lease right-of-use assets	192,636		131,955
Finance lease right-of-use assets	33,323		36,276
Intangible assets, net	81,161		90,618
Goodwill	166,046		166,388
Deferred taxes	64,213		65,698
Other non-current assets	12,793		12,985
Total assets	$	1,370,886	$	1,244,250
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	26,679	$	13,421
Accrued liabilities	106,300		99,796
Current operating lease liabilities	10,033		8,267
Current finance lease liabilities	1,920		1,713
Total current liabilities	144,932		123,197
Non-current operating lease liabilities	198,955		137,045
Non-current finance lease liabilities	24,865		26,523
Other non-current liabilities	3,276		3,558
Total liabilities	372,028		290,323
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.001 par value per share - 5,000,000 shares authorized, none issued and outstanding at December 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value per share - 300,000,000 shares authorized, 38,107,977 issued and outstanding at December 31, 2022; 300,000,000 shares authorized, 37,578,483 issued and outstanding at December 31, 2021	38		37
Additional paid-in capital	963,040		910,614
Accumulated other comprehensive loss	(8,124)		(2,630)
Retained earnings	43,904		45,906
Total stockholders’ equity	998,858		953,927
Total liabilities and stockholders’ equity	$	1,370,886	$	1,244,250

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

	Year Ended December 31,
	2022		2021		2020
Revenue	$	847,133	$	747,590	$	560,412
Cost of revenue	311,926		272,208		222,237
Gross profit	535,207		475,382		338,175
Operating expenses:
Research and development	79,407		104,552		90,049
Sales, general and administrative	449,718		378,331		287,068
Total operating expenses	529,125		482,883		377,117
Income (loss) from operations	6,082		(7,501)		(38,942)
Interest income, net	137		938		1,267
Other expense, net	(2,327)		(3,939)		(343)
Income (loss) before income taxes	3,892		(10,502)		(38,018)
Provision for (benefit from) income taxes	5,894		(13,125)		(18,761)
Consolidated net (loss) income	$	(2,002)	$	2,623	$	(19,257)
Net loss attributable to non-controlling interest	—		(2,661)		(3,555)
Net (loss) income attributable to Penumbra, Inc.	$	(2,002)	$	5,284	$	(15,702)
Net (loss) income attributable to Penumbra, Inc. per share:
Basic	$	(0.05)	$	0.14	$	(0.44)
Diluted	$	(0.05)	$	0.14	$	(0.44)
Weighted average shares outstanding:
Basic	37,841,874		36,764,290		35,766,892
Diluted	37,841,874		37,881,180		35,766,892

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

	Year Ended December 31,
	2022		2021		2020
Consolidated net (loss) income	$	(2,002)	$	2,623	$	(19,257)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax	(2,589)		(3,929)		4,456
Net change in unrealized (losses) gains on available-for-sale securities, net of tax	(2,905)		(1,242)		409
Total other comprehensive (loss) income, net of tax	$	(5,494)	$	(5,171)	$	4,865
Consolidated comprehensive loss	$	(7,496)	$	(2,548)	$	(14,392)
Net loss attributable to non-controlling interest	$	—	$	(2,661)	$	(3,555)
Comprehensive (loss) income attributable to Penumbra, Inc.	$	(7,496)	$	113	$	(10,837)

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

	Common Stock			Additional Paid-in Capital		Accumulated<br>Other<br>Comprehensive<br>(Loss) Income		Retained Earnings (Accumulated<br>Deficit)		Total Penumbra, Inc. Stockholders’ Equity		Non-Controlling Interest		Total<br>Stockholders’<br>Equity
	Shares	Amount
Balance at December 31, 2019	35,001,581	$	35	$	430,659	$	(2,324)	$	57,522	$	485,892	$	(279)	$	485,613
Issuance of common stock	520,185	—		5,115		—		—		5,115		124		5,239
Issuance of common stock under employee stock purchase plan	77,528	—		11,300		—		—		11,300		—		11,300
Issuance of common stock upon underwritten public offering, net of issuance cost	865,963	1		134,758		—		—		134,759		—		134,759
Shares held for tax withholding	(50,525)	—		(10,066)		—		—		(10,066)		—		(10,066)
Stock-based compensation	—	—		26,533		—		—		26,533		—		26,533
Cumulative effect adjustment(1)	—	—		—		—		(1,198)		(1,198)		—		(1,198)
Other comprehensive income	—	—		—		4,865		—		4,865		—		4,865
Net loss	—	—		—		—		(15,702)		(15,702)		(3,555)		(19,257)
Balance at December 31, 2020	36,414,732	$	36	$	598,299	$	2,541	$	40,622	$	641,498	$	(3,710)	$	637,788
Issuance of common stock	498,185	—		4,507		—		—		4,507		157		4,664
Issuance of common stock under employee stock purchase plan	64,852	—		13,705		—		—		13,705		—		13,705
Issuance of common stock in connection with Sixense acquisition(2)	661,877	1		174,133		—		—		174,134		—		174,134
Replacement share-based awards issued in connection with Sixense acquisition(2)	—	—		80,693		—		—		80,693		—		80,693
Acquisition of subsidiary stock from noncontrolling interests(2)	—	—		(10,375)		—		—		(10,375)		6,214		(4,161)
Shares held for tax withholdings	(61,163)	—		(15,832)		—		—		(15,832)		—		(15,832)
Stock-based compensation	—	—		65,484		—		—		65,484		—		65,484
Other comprehensive loss	—	—		—		(5,171)		—		(5,171)		—		(5,171)
Net income (loss)	—	—		—		—		5,284		5,284		(2,661)		2,623
Balance at December 31, 2021	37,578,483	$	37	$	910,614	$	(2,630)	$	45,906	$	953,927	$	—	$	953,927
Issuance of common stock	460,177	1		7,786						7,787				7,787
Issuance of common stock under employee stock purchase plan	113,893			13,766						13,766				13,766
Shares held for tax withholdings	(44,576)			(8,042)						(8,042)				(8,042)
Stock-based compensation				38,916						38,916				38,916
Other comprehensive loss						(5,494)				(5,494)				(5,494)
Net loss								(2,002)		(2,002)				(2,002)
Balance at December 31, 2022	38,107,977	$	38	$	963,040	$	(8,124)	$	43,904	$	998,858	$	—	$	998,858

(1) Cumulative effect adjustments relate to the adoption of Accounting Standard Update (“ASU”) No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

(2) Refer to Note "5. Business Combinations” and “11. Stockholders’ Equity” for more information on the impact of the acquisition of Sixense Enterprises Inc. during the year ended December 31, 2021.

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2022		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(2,002)	$	2,623	$	(19,257)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	24,321		16,408		12,891
Stock-based compensation	37,378		65,763		25,541
Inventory write-offs and write-downs	3,445		2,818		10,571
Deferred taxes	1,458		(14,091)		(18,818)
Impairment of intangible asset	—		—		2,500
Other	1,274		2,692		4,520
Changes in operating assets and liabilities:
Accounts receivable	(69,857)		(21,344)		(8,295)
Inventories	(74,631)		(51,554)		(56,981)
Prepaid expenses and other current and non-current assets	(1,237)		(13,032)		(8,865)
Accounts payable	13,385		(1,565)		(308)
Accrued expenses and other non-current liabilities	10,542		17,076		23,259
Proceeds from lease incentives	263		3,708		—
Net cash (used in) provided by operating activities	(55,661)		9,502		(33,242)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in a business combination	—		2,919		—
Purchases of marketable investments	—		(126,794)		(153,061)
Proceeds from sales of marketable investments	1,180		2,000		7,897
Proceeds from maturities of marketable investments	72,908		121,720		68,831
Purchases of property and equipment	(19,298)		(21,180)		(24,756)
Other	—		(400)		(3,060)
Net cash provided by (used in) investing activities	54,790		(21,735)		(104,149)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon underwritten public offering, net of issuance cost	—		—		134,759
Proceeds from exercises of stock options	7,786		4,664		5,239
Proceeds from issuance of stock under employee stock purchase plan	13,766		13,705		11,300
Payment of employee taxes related to vested common and restricted stock	(8,042)		(15,832)		(10,066)
Payments of finance lease obligations	(1,751)		(1,451)		(3,418)
Payment of acquisition-related obligations	—		—		(683)
Other	(137)		(250)		(2,214)
Net cash provided by financing activities	11,622		836		134,917
Effect of foreign exchange rate changes on cash and cash equivalents	(272)		1,106		(635)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	10,479		(10,291)		(3,109)
CASH AND CASH EQUIVALENTS—Beginning of period	59,379		69,670		72,779
CASH AND CASH EQUIVALENTS—End of period	$	69,858	$	59,379	$	69,670
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	2,919	$	1,496	$	1,414
NONCASH INVESTING AND FINANCING ACTIVITIES:
Right-of-use assets obtained in exchange for operating lease obligations	$	72,279	$	101,510	$	1,515
Right-of-use assets obtained in exchange for finance lease obligations	305		1,346		1,632
Fair value of common stock issued as consideration in connection with an acquisition (Note 5)	—		174,133		—
Fair value of replacement options issued as consideration in connection with an acquisition (Note 5)	—		80,693		—
Purchase of property and equipment funded through accounts payable and accrued liabilities	2,293		2,330		1,407

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Notes to Consolidated Financial Statements

1. Organization and Description of Business

Penumbra, Inc. (the “Company”) is a global healthcare company focused on innovative therapies. The Company designs, develops, manufactures and markets novel products and has a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. The Company focuses on developing, manufacturing and marketing novel products for use by specialist physicians and other healthcare providers to drive improved clinical and health outcomes. The Company believes that the cost-effectiveness of our products is attractive to our customers.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity accounts; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to marketable investments, allowances for credit losses, standalone selling prices used to allocate revenue to performance obligations which are not directly observable, the amount of variable consideration included in the transaction price, warranty reserve, valuation of inventories, useful lives of intangible assets and property and equipment, operating and finance lease right-of-use (“ROU”) assets and liabilities, income taxes, contingent consideration and other contingencies, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed 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 data. Actual results could differ from those estimates.

Segments

The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity: the design, development, manufacturing and marketing of innovative medical products, and operates as one operating segment. The Company’s chief operating decision-maker (“CODM”), its Chief Executive Officer, reviews its consolidated operating results for the purpose of allocating resources and evaluating financial performance. The Company’s entity-wide disclosures are included in Note “16. Revenues.”

Foreign Currency Translation

The Company’s consolidated financial statements are prepared in United States Dollars (“USD”). Its foreign subsidiaries use their local currency as their functional currency and maintain their records in the local currency. Accordingly, the assets and liabilities of these subsidiaries are translated into USD using the current exchange rates in effect at the balance sheet date and equity accounts are translated into USD using historical rates. Revenues are translated using the exchange rate as of the date of transaction and expenses are translated using the average exchange rates in effect for the year involved. The resulting foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) in the consolidated balance sheets. Transactions denominated in currencies other than the respective functional currencies are translated at exchange rates as of the date of transaction with foreign currency gains and losses recorded in other expense, net in the consolidated statements of operations. The Company realized net foreign currency transaction losses of $3.2 million, $0.5 million and a nominal amount during the years ended December 31, 2022, 2021, and 2020, respectively.

As the Company’s international operations grow, its risks associated with fluctuation in currency rates will become greater, and the Company will continue to reassess its approach to managing this risk. In addition, currency fluctuations or a weakening USD can increase the costs of the Company’s international expansion. To date, the Company has not entered into any foreign currency hedging contracts.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable investments (as described in greater detail in this footnote under the header “Cash, Cash Equivalents and Marketable Investments” below) and accounts receivable. The majority of the Company’s cash is held by one financial institution in the U.S. in excess of federally insured limits. The Company maintained investments in money market funds that were not federally insured during the year ended December 31, 2022 and held cash in foreign entities of approximately $14.8 million and $20.2 million at December 31, 2022 and 2021, respectively, which was not federally insured.

The Company’s revenue has been derived from sales of its products in the United States and international markets. The Company uses both its own salesforce and independent distributors to sell its products. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising the Company’s customer base. The Company performs ongoing credit evaluations of its customers, including its distributors, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.

During the years ended December 31, 2022, 2021, and 2020, no customer accounted for greater than 10% of the Company’s revenue. During the year ended December 31, 2022, one customer accounted for greater than 10% of the Company’s receivable balance while no customer accounted for greater than 10% of the Company’s accounts receivable balance as of December 31, 2021.

Significant Risks and Uncertainties

The Company is subject to risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third-party suppliers, in some cases single-source suppliers.

There can be no assurance that the Company’s products will continue to be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company sells its products. If the Company is denied such approvals or clearances or such approvals or clearances are delayed, it may have a material adverse impact on the Company’s results of operations, financial position and liquidity.

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.

Cash, Cash Equivalents and Marketable Investments

The Company invests its cash primarily in highly liquid corporate debt securities, debt instruments of U.S. federal, state and municipal governments, and their agencies, in money market funds and in commercial paper. All highly liquid investments with stated maturities of three months or less from the date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks.

The Company determines the appropriate classification of its investments in marketable investments at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable investments have been classified and accounted for as available-for-sale. Investments with remaining maturities of more than one year are viewed by the Company as available to support current operations and are classified as current assets under the caption marketable investments in the accompanying consolidated balance sheets. Investments in marketable investments are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive loss. Any realized gains or losses on the sale of marketable investments are determined on a specific identification method, and such gains and losses are reflected as a component of other income (expense), net.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Impairment of Marketable Investments

As a result of the of the adoption of ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) during the year ended December 31, 2020, the Company is exposed to credit losses through its investments in available-for-sale securities. An investment is impaired if the fair value of the investment is less than its amortized cost basis. The Company reviews each impaired available-for-sale security held in its portfolio to determine whether the decline in fair value below its amortized cost basis is the result of credit losses or other factors. An allowance for credit losses is to be recorded as a charge to net income in an amount equal to the difference between the impaired security’s amortized cost basis and the amount expected to be collected over the lifetime of security, limited by the amount that the fair value is less than its amortized cost basis. Any remaining difference between its amortized cost basis and fair value is deemed not to be due to expected credit losses and is recorded as a component of accumulated other comprehensive loss. The Company’s impairment review considers several factors to determine if an expected credit loss is present including the discounted present value of expected cash flows of the security, the capacity to hold a security or sell a security before recovery of the decline in amortized cost, the credit rating of the security and forecasted and historical factors that affect the value of the security.

In fiscal years prior to the adoption of ASU 2016-13, unrealized gains or losses on these securities were recorded to accumulated other comprehensive loss until either the security was sold or the Company determined that the decline in value was other-than-temporary. The primary differentiating factors the Company considered when classifying impairments as either temporary or other-than-temporary impairments was the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment had been less than cost, the financial condition, and near-term prospects of the issuer.

During the years ended December 31, 2022, 2021 and 2020, the Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and is recoverable. Accordingly, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss.

Accounts Receivable

As a result of the adoption of ASU 2016-13 on January 1, 2020, accounts receivable are measured at amortized cost less the allowance for credit losses. The Company measures expected credit losses for its accounts receivables utilizing a loss-rate approach. The allowance for expected credit losses assessment requires a degree of estimation and judgement. The expected loss-rate is calculated by utilizing historical credit losses incurred as a percentage of the Company’s historical accounts receivable balances, pooled by customers with similar geographic credit risk characteristics. The loss-rate is adjusted for management’s expectations regarding current conditions and forecasts about future conditions which impact expected credit losses. The Company considers factors such as customers credit risk, geographic related risks and economic conditions that may affect a customer’s credit quality classification.

Prior to the adoption of ASU 2016-13, the Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. In fiscal years prior to the adoption of ASU 2016-13, accounts receivable were stated at invoice value less estimated allowances for doubtful accounts. The Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. The Company monitored customer payments and maintained a reserve for estimated losses resulting from its customers’ inability to make required payments considering factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay.

Inventories

Inventories are stated at the lower of cost (determined under the first-in first-out method) or net realizable value. Write-downs are provided for raw materials, components or finished goods that are determined to be excessive or obsolete. The Company regularly reviews inventory quantities in consideration of actual loss experience, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. As a result of these evaluations, the Company recognized total write-offs and write-downs of $3.4 million, $2.8 million, and $10.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. Machinery and equipment and furniture and fixtures are depreciated over a five to ten year period and computers and software are depreciated over two to seven years. Upon retirement or sale, the cost and the related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to consolidated statements of operations as incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There was no impairment of long-lived assets during the years ended December 31, 2022, 2021 or 2020.

Contingent Consideration

Certain agreements the Company enters into involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved. Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies are resolved. The resulting changes in fair values are recognized generally within sales, general and administrative expense, depending on the nature of the contingent consideration liability, in the consolidated statements of operations. Asset acquisitions are accounted for using a cost accumulation and allocation model and the cost of the acquisition is allocated to the assets acquired and liabilities assumed. Contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated.

Intangible Assets

Intangible assets primarily consist of developed technology, in-process research and development, purchased rights to licensed technology, customer relationships, and trade secrets and processes.

Indefinite-lived intangible assets consist of in-process research and development as of December 31, 2021. Indefinite-lived intangible assets are tested for impairment at least annually, in the fourth quarter, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. In conducting the annual impairment test for its indefinite-lived intangible assets, the Company may first perform a qualitative assessment to determine whether it is more likely than not (i.e. greater than 50% likelihood) that an indefinite-lived intangible asset is impaired. In accordance with the authoritative guidance, the Company may elect to bypass the qualitative assessment and proceed directly to the quantitative test to compare the fair value of the indefinite-lived intangible asset to the carrying amount. If the fair value of the asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference between the carrying amount and the fair value.

During the third quarter of 2022, the in-process research and development indefinite-lived intangible asset acquired in the fourth quarter of 2021 in connection with the Sixense acquisition was reclassified to a finite-lived developed technology intangible asset upon the completion of the in-process research and development project. In the second quarter of 2020, due to a triggering event, the acquired exclusive right to licensed technology indefinite-lived intangible asset was determined to be impaired and the Company wrote-off the full carrying amount of the asset. Refer to Note “6. Intangible Assets” for more information on the Company’s intangible assets.

Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. If such an event occurs, the Company determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset will be written down to the determined fair value based on discounted cash flows. The Company also periodically reviews the useful lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the underlying intangible asset. If a change were to

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. Refer to Note “6. Intangible Assets” for more information on the Company’s intangible assets.

Goodwill

Goodwill represents the excess of the purchase price of an acquired business or assets over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually in the fourth quarter, or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may have occurred. The Company operates as one segment, which is considered to be the sole reporting unit, and therefore goodwill is tested for impairment at the consolidated level.

The authoritative guidance allows an entity to assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If an entity determines that as a result of the qualitative assessment that it is more likely than not (i.e. greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The quantitative goodwill impairment test requires the Company to estimate and compare the fair value of its reporting unit with its carrying value.

Application of the goodwill impairment test requires judgments, including: identification of the reporting units, assigning goodwill to reporting units, a qualitative assessment to determine whether there are any impairment indicators, and determining the fair value of each reporting unit. Qualitative factors may include, but are not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, cost factors, and entity specific factors such as strategies, overall financial performance (both current and projected) and market capitalization. In the fourth quarter of 2022 and 2021, the Company performed qualitative assessments for goodwill impairment and determined there were no indicators of impairment. Refer to Note “5. Business Combinations” and Note “7. Goodwill” for more information.

Revenue Recognition

Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates. Under ASC 606, the Company recognizes revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that the Company consigns to hospitals, which primarily consist of coils, the Company recognizes revenue at the time hospitals utilize products in a procedure.

Certain arrangements with customers contain multiple performance obligations. For these contracts, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling prices considering entity-specific factors including, but not limited to, the expected cost and margin of the products and services, geographies, and other market conditions. The use of alternative estimates could result in a different amount of revenue deferral.

Deferred revenue represents amounts that the Company has already invoiced and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met. As of December 31, 2022 and December 31, 2021, respectively, the Company's deferred revenue balance was primarily relating to the license agreement revenue with our partner in China.

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The Company’s terms and conditions permit product returns and exchanges. The Company bases its estimates for sales returns on actual historical returns over the prior three years and they are recorded as reductions in revenue at the time of sale. Upon recognition, the Company reduces revenue and cost of revenue for the estimated return. Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate expected future product returns.

For more information and disclosures on the Company’s revenue, refer to Note “16. Revenues.”

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Shipping Costs

Shipping and handling costs charged to customers are recorded as revenue. Shipping and handling costs are included in cost of revenue.

Research and Development (“R&D”) Costs

R&D costs primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of the Company’s products. R&D costs also include related personnel and consultants’ salaries, benefits and related costs, including stock-based compensation. The Company expenses R&D costs as they are incurred.

The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites. The Company estimates preclinical and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

Internal Use Software

The Company capitalizes certain costs incurred for the development of computer software for internal use. These costs generally relate to third-party software as well as the internal development of software associated with our REAL Immersive System offerings. The Company capitalizes these costs when it is determined that it is probable that the project will be completed and the software will be used to perform the function intended, and the preliminary project stage is completed. Capitalized internal use software development costs are included in Property and equipment, net within the consolidated balance sheets.

Capitalized internal use software is amortized on a straight-line basis over its estimated useful life. For software that supports our REAL Immersive System, the amortization expense is recorded in cost of revenue within the consolidated statements of operations. Costs related to the preliminary project stage, post-implementation, training and maintenance are expensed as incurred.

Cloud Computing Arrangements

The Company capitalizes certain implementation costs incurred in agreements that qualify as cloud computing arrangements. The cost expenditures for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor are capitalized and are recorded in prepaid expenses and other current assets and other non-current assets in our consolidated balance sheets. Such costs are amortized over the life of the related cloud computing arrangement.

As of December 31, 2022 and 2021, approximately $4.6 million and $2.4 million, associated with these arrangements are included in prepaids and other current assets in our consolidated balance sheets, respectively, while approximately $5.1 million and $5.8 million are included in other non-current assets in our consolidated balance sheets, respectively.

Advertising Costs

Advertising costs are included in sales, general and administrative expenses and are expensed as incurred. Advertising costs were $1.1 million, $1.1 million and $0.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Stock-Based Compensation

The Company recognizes the cost of stock-based compensation in the financial statements based upon fair value. The fair value of restricted stock and restricted stock unit (“RSU”) awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The fair value of each purchase under the employee stock purchase plan (“ESPP”) is estimated at the beginning of the offering period using the Black-Scholes option pricing model. The fair value of stock options is determined as of the grant date using the Black-Scholes option pricing model. The Company’s determination of the fair value of equity-settled awards is impacted by the price of the Company’s common stock as well as changes in assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to,

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

the expected term that awards will remain outstanding, expected common stock price volatility over the term of the awards, risk-free interest rates and expected dividends.

The fair value of an award is recognized over the requisite service period (usually the vesting period) on a straight-line basis. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. To the extent actual forfeiture results differ from the estimates, the difference is recorded as a cumulative adjustment in the period forfeiture estimates are revised. No compensation cost is recorded for awards that do not vest.

The Company accounts for stock-based compensation issued to non-employees by recognizing the fair value of non-employee awards over the requisite service period (usually the vesting period) on a straight-line basis. Therefore, equity instruments issued to non-employees are recorded at their fair value on the grant date in the same manner as employee awards. The fair value of these equity instruments is expensed over the service period.

Estimates of the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, are affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value of the award and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. For all stock options granted prior to the Company’s IPO, the Company estimated the volatility data based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. For all stock options granted prior to the IPO, the Company used the Staff Accounting Bulletin, No. 110 (“SAB 110”) simplified method to calculate the expected term, which is the average of the contractual term and vesting period. For stock options granted post-IPO, the Company used its historical data to calculate the expected term and volatility used in the valuation of options.

Income Taxes

The Company accounts for income taxes using the asset and liability method, whereby deferred tax asset (“DTA”) and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce the net DTAs to their estimated realizable value.

The calculation of the Company’s current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. The Company has established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although the Company believes its estimates, assumptions and judgments to be reasonable, any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in the Company’s consolidated financial statements.

The calculation of the Company’s DTA balance involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from the Company’s estimates, assumptions and judgments thereby impacting the Company’s financial position and results of operations.

The Company follows the guidance relating to accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

The Company includes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations.

Comprehensive Loss

Comprehensive (loss) income consists of net (loss) income, unrealized gains or losses on available-for-sale investments and the effects of foreign currency translation adjustments. The Company presents comprehensive (loss) income and its components in the consolidated statements of comprehensive (loss) income.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Net (Loss) Income Per Share of Common Stock

The Company’s basic net (loss) income attributable to Penumbra, Inc. per share is calculated by dividing the net (loss) income attributable to Penumbra, Inc. per share by the weighted average number of shares of common stock outstanding for the period. The diluted net (loss) income per share attributable to Penumbra, Inc. is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock and restricted stock units are considered common stock equivalents.

Leases

The Company determines if an arrangement is a lease at inception. In addition, the Company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of December 31, 2022, the Company's lease population consisted of operating and finance real estate, equipment and vehicle leases.

Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheet. Finance leases are included in finance lease right-of-use assets, current finance lease liabilities, and non-current finance lease liabilities in our consolidated balance sheet. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate which requires management’s judgement as the rate implicit in the lease is generally not readily determinable. The determination of the Company’s incremental borrowing rate requires management judgment including, the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Finance lease cost is recognized as depreciation expense on a straight-line basis over the expected lease term and interest expense using the accelerated interest method of recognition. Lease agreements that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a non-cancelable term of less than 12 months are not recorded on the Company’s consolidated balance sheet. For more information about the impact of adoption and disclosures on the Company’s leases, refer to Note “9. Leases.”

3. Investments and Fair Value of Financial Instruments

Marketable Investments

The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of December 31, 2022 and 2021 were as follows (in thousands):

	December 31, 2022
			Securities with net gains or losses in accumulated other comprehensive income (loss)
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value
U.S. treasury	14,482		—		(478)		—		14,004
U.S. agency and government sponsored securities	6,999		—		(176)		—		6,823
U.S. states and municipalities	23,460		—		(501)		—		22,959
Corporate bonds	76,731		—		(2,345)		—		74,386
Total	$	121,672	$	—	$	(3,500)	$	—	$	118,172

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

	December 31, 2021
			Securities with net gains or losses in accumulated other comprehensive income (loss)
	Cost		Gross Unrealized<br>Gains		Gross Unrealized<br>Losses		Allowance for Credit Loss		Fair Value
Commercial paper	$	20,286	$	—	$	(10)	$	—	$	20,276
U.S. treasury	14,464		—		(77)		—		14,387
U.S. agency securities and government sponsored securities	11,553		1		(19)		—		11,535
U.S. states and municipalities	39,436		39		(89)		—		39,386
Corporate bonds	110,354		49		(491)		—		109,912
Total	$	196,093	$	89	$	(686)	$	—	$	195,496

As of December 31, 2022, the total amortized cost basis of the Company’s available-for-sale securities in an unrealized loss position exceeded its fair value by $3.5 million. The Company reviewed its available-for-sale securities in an unrealized loss position and concluded that the decline in fair value was not related to credit losses and is recoverable. During the year ended December 31, 2022, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss.

The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than and more than twelve months as of December 31, 2022 and 2021 (in thousands):

	December 31, 2022
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. treasury	—		—		14,004		(478)		14,004		(478)
U.S. agency securities and government sponsored securities	—		—		6,823		(176)		6,823		(176)
U.S. states and municipalities	4,567		(68)		13,772		(433)		18,339		(501)
Corporate bonds	15,327		(101)		59,059		(2,244)		74,386		(2,345)
Total	$	19,894	$	(169)	$	93,658	$	(3,331)	$	113,552	$	(3,500)			December 31, 2021
---	---	---	---	---	---	---	---	---	---	---	---	---
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Commercial paper	$	16,977	$	(10)	$	—	$	—	$	16,977	$	(10)
U.S. treasury	14,387		(77)		—		—		14,387		(77)
U.S. agency securities and government sponsored securities	6,985		(19)		—		—		6,985		(19)
U.S. states and municipalities	21,924		(89)		—		—		21,924		(89)
Corporate bonds	85,513		(491)		—		—		85,513		(491)
Total	$	145,786	$	(686)	$	—	$	—	$	145,786	$	(686)

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The contractual maturities of the Company’s marketable investments as of December 31, 2022 were as follows (in thousands):

	December 31, 2022
Marketable Investments	Amortized Cost		Fair Value
Due in one year	$	58,033	$	56,791
Due in one to five years	63,639		61,381
Total	$	121,672	$	118,172

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The Company did not hold any Level 3 marketable investments as of December 31, 2022 or December 31, 2021. Additionally, the Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2022 and 2021.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The following tables set forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy (in thousands):

	As of December 31, 2022
	Level 1		Level 2		Level 3		Fair Value
Financial Assets
Cash equivalents:
Money market funds	$	21,521	$	—	$	—	$	21,521
Marketable investments:
U.S. treasury	14,004		—		—		14,004
U.S. agency and government sponsored securities	—		6,823		—		6,823
U.S. states and municipalities	—		22,959		—		22,959
Corporate bonds	—		74,386		—		74,386
Total	$	35,525	$	104,168	$	—	$	139,693
	As of December 31, 2021
---	---	---	---	---	---	---	---	---
	Level 1		Level 2		Level 3		Fair Value
Financial Assets
Cash equivalents:
Money market funds	10,509		—		—		10,509
Marketable investments:
Commercial paper	—		20,276		—		20,276
U.S. treasury	14,387		—		—		14,387
U.S. agency and government sponsored securities	—		11,535		—		11,535
U.S. states and municipalities	—		39,386		—		39,386
Corporate bonds	—		109,912		—		109,912
Total	$	24,896	$	181,109	$	—	$	206,005

4. Balance Sheet Components

Accounts Receivable, Net

The Company’s allowance for credit losses related to accounts receivable balances was comprised of the following (in thousands):

	Balance At <br>Beginning Of Year	Write-offs	Provision for (Benefit from) Expected Credit Losses (1)		Recoveries	Balance At <br>End Of Year
For the year ended:
December 31, 2020	2,946	(2,361)	$	1,613	—	2,198
December 31, 2021	2,198	—	$	—	(106)	2,092
December 31, 2022	2,092	—	$	(1,230)	—	862

(1) On January 1, 2020, the Company recorded a $1.3 million adjustment to opening retained earnings upon the adoption of ASU 2016-13.

Inventories

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The components of inventories consisted of the following (in thousands):

	December 31,
	2022		2021
Raw materials	$	90,786	$	68,374
Work in process	26,793		18,678
Finished goods	216,427		176,452
Inventories	$	334,006	$	263,504

In the fourth quarter of 2020, the Company reclassified $17.7 million of REAL Immersive System products and components from Property and equipment, net to Inventories as a result of changes in its go to market strategy. The Company classified cash flows associated with its REAL Immersive System prior to its change in its go to market strategy during the fourth quarter of 2020 as investing activities, which is consistent with the Company's intent when the cash flows occurred.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

	December 31,
	2022		2021
Machinery and equipment	$	37,160	$	30,429
Furniture and fixtures	16,042		14,360
Leasehold improvements	25,611		23,934
Software	16,863		7,989
Computers	9,841		9,457
Construction in progress	7,523		11,101
Total property and equipment	113,040		97,270
Less: Accumulated depreciation and amortization	(48,025)		(38,414)
Property and equipment, net	$	65,015	$	58,856

Depreciation and amortization expense, excluding intangible assets and software, was $9.8 million, $9.3 million and $8.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Software amortization expense was $1.7 million, $1.0 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company had accumulated software amortization of $6.3 million and $4.9 million for the years ended December 31, 2022 and 2021, respectively.

Accrued Liabilities

The following table shows the components of accrued liabilities as of December 31, 2022 and 2021 (in thousands):

	December 31, 2022		December 31, 2021
Payroll and employee-related expenses	$	60,480	$	60,015
Accrued expenses	10,902		12,245
Deferred revenue	9,158		—
Other accrued liabilities	25,760		27,536
Total accrued liabilities	$	106,300	$	99,796

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The following table shows the changes in the Company’s estimated product warranty accrual, included in accrued liabilities, as of December 31, 2022, 2021 and 2020 (in thousands):

	December 31,
	2022		2021		2020
Balance at the beginning of the year	$	4,310	$	2,896	$	2,318
Accruals of warranties issued	2,451		2,973		1,589
Settlements of warranty claims	(1,391)		(1,559)		(1,011)
Balance at the end of the year	$	5,370	$	4,310	$	2,896

5. Business Combinations

Acquisition of Sixense Enterprises Inc.

Transaction Overview

On October 1, 2021 (the “Closing Date”), the Company closed the acquisition of Sixense Enterprises Inc. (“Sixense”) pursuant to the Agreement and Plan of Merger, dated September 17, 2021 (the “Merger Agreement”), among the Company, Sixense, Seychelles Merger Corporation, a wholly owned subsidiary of the Company, and a stockholders’ agent (the “Merger”). Sixense, a privately held company, specializes in enterprise use of virtual reality hardware and software and has been an integral partner on the development of the Company’s REAL Immersive System portfolio. The Merger allows the Company to streamline its efforts and collaborate more closely on its Immersive healthcare offerings.

The Company and Sixense formed a joint venture, MVI Health Inc. (“MVI”), in 2017 for the purpose of exploring healthcare applications of virtual reality technology. At the time of MVI’s formation, the Company contributed cash and in-kind services to MVI and Sixense contributed an exclusive license to use its technology for healthcare applications, each for a 50% equity interest in MVI. In 2018, the Company acquired 40% of the outstanding shares of MVI from Sixense and consolidated the financial results of MVI into the accompanying consolidated financial statements, with the amounts attributable to the non-controlling interest classified separately. As of the Closing Date, the Company and Sixense owned a 90% and 10% equity interest in MVI, respectively.

As a result of the Merger, Sixense became a wholly owned subsidiary of the Company and the Company acquired, among other things, the remaining 10% equity interest in MVI held by Sixense.

The Company accounted for the acquired assets and liabilities assumed from Sixense in accordance with ASC 805 and for its changes in ownership interest in MVI as an equity transaction in accordance with ASC 810. The carrying amount of the noncontrolling interest was adjusted to zero, and the difference between the acquisition date fair value of the equity interest acquired of $4.2 million and its carrying amount of $(6.2) million was recognized within additional paid in capital.

Fair Value of Consideration Transferred

The following table summarizes the Closing Date fair value of the consideration transferred (in thousands):

Fair value of common stock issued (1)	$	174,133
Fair value of replacement stock options(2)	80,693
Consideration for settlement of pre-existing liabilities due to Sixense(3)	(3,810)
Total purchase price	$	251,016

(1) The fair value of the 661,877 shares of common stock issued as part of consideration transferred was determined based on the acquisition date closing market price of the Company’s common stock of $263.09.

(2) Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718. As a result of the Company’s obligation to issue replacement awards, a portion of the fair-value-based measure of replacement awards is included in measuring the purchase consideration transferred in the business combination. To determine the portion of the replacement awards that is part of the purchase consideration, the Company measured the fair value of both the replacement awards and the historical awards as of the Closing Date, in accordance with ASC 718. The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services had been

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

rendered. The fair value of replacement stock options assumed for which pre-acquisition services were rendered of $80.7 million was allocated to the purchase consideration and $25.8 million was recognized immediately in the post-combination financial statements as pre-acquisition services were not rendered but the vesting of all stock options was accelerated in connection with the Merger. Refer to Note “11. Stockholders’ Equity” for more information.

(3) In the connection with the Merger, the Company effectively settled pre-existing liabilities due to or on behalf of Sixense.

Fair Value of Consideration Transferred

The purchase price measurement period was closed as of September 30, 2022. The following table presents the allocation of the purchase price, reflecting immaterial measurement period adjustments recorded during the three months ended September 30, 2022 (in thousands):

	Acquisition-Date Fair Value		Estimated Useful Life of Finite-Lived Intangible Assets
Tangible assets acquired and (liabilities) assumed:
Cash and cash equivalents	$	2,919
Prepaid expenses and other current and non-current assets	1,971
Deferred tax assets	20,678
Deferred tax liabilities	(19,398)
Accrued liabilities and other current liabilities	(1,341)
Intangible assets acquired:
Developed technology	62,466		8.75 years
In-process research and development	20,823
Net assets acquired	88,118
Fair value of subsidiary stock indirectly acquired through the Merger	4,161
Total net assets acquired	92,279
Goodwill	158,737
Total purchase price	$	251,016

The intangible assets acquired and the fair value of the privately-held subsidiary stock indirectly acquired are Level 3 fair value measurements for which fair value is derived from valuations using inputs that are unobservable and significant to the overall fair value measurement.

The value of the intangible assets was determined based on the replacement cost method, assuming the highest and best use by a market participant which was determined to be a company outside of the healthcare industry due to the intangibles acquired relating to non-healthcare applications. This is due to Sixense having previously licensed the healthcare rights prior to the acquisition to MVI. Since there were no standalone forecasts available due to the early stage of the non-healthcare business, the Company determined the cost approach provides the most reasonable approach to determine fair value of the intangible assets. The fair value of the intangible assets acquired was based on the following significant inputs: (i) total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence; (ii) a developer’s expected profit margin; and (iii) the opportunity cost lost over the period to reconstruct the substitute asset.

The acquired in-process research and development (“IPR&D”) intangible asset is accounted for as an indefinite-lived asset until the completion or abandonment of the associated research and development effort. If the research and development effort associated with the IPR&D is successfully completed and commercial feasibility is reached, then the IPR&D intangible asset will be amortized over its estimated useful life to be determined at the date the effort is completed. At the time of acquisition, we expected the acquired IPR&D would reach technological feasibility, but there can be no assurance that the commercial viability of these products will actually be achieved. During the three months ended September 30, 2022, the Company reclassified the $20.8 million in-process research and development (“IPR&D”) asset from the Sixense acquisition to a finite-lived developed technology intangible asset upon the completion of the IPR&D project and began amortizing the intangible asset over its useful life of 8.8 years. Refer to Note “6. Intangible Assets” for more information.

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Notes to Consolidated Financial Statements (Continued)

The finite lived developed technology intangible assets are amortized on a straight-line basis over their assigned estimated useful lives. The acquired intangible assets will not be amortized for tax purposes. As a result, a $19.4 million deferred tax liability was recorded as of December 31, 2021.

The goodwill arising from the Sixense acquisition is primarily attributed to the assembled workforce and expected synergies from future growth, which does not qualify for separate recognition as an identifiable intangible asset. Goodwill will not be deductible for tax purposes.

The fair value of the noncontrolling interest of $4.2 million was valued using the income approach and an option pricing model. The fair value of the noncontrolling interest was based on the following significant inputs: (i) the amount and timing of projected future cash flows; (ii) the discount rate used to discount those cash flows to present value; and (iii) the discount for lack of marketability.

The amount of Sixense’s net revenue and net loss included in the Company’s consolidated statements of operations was not material for the year ended December 31, 2022.

The following table presents certain unaudited pro forma information, for illustrative purposes only, for the years ended December 31, 2021 and 2020, as if Sixense had been acquired on January 1, 2020 (“Pro Forma Closing Date”). The unaudited estimated pro forma information combines the historical results of Sixense with the Company’s consolidated historical results and includes the following pro forma adjustments for the respective periods, net of tax effects: (i) the elimination of pre-acquisition transactions between Sixense and the Company; (ii) the reclassification of MVI’s losses historically presented in “Net loss attributable to non-controlling interest” to “Net loss attributable to Penumbra, Inc.,” (iii) adjustments to reflect the immediately recognized stock-based compensation expense related to the fair value of fully vested replacement stock options outstanding but for which services had not been rendered as of the Pro Forma Closing Date; and (iv) intangible asset amortization. Additionally, transaction costs incurred are assumed to have occurred on the Pro Forma Closing Date.

The pro forma information may not be indicative of what would have occurred had the acquisition taken place on January 1, 2020, and may not be indicative of the Company’s future consolidated results. Additionally, the pro forma financial information does not include the impact of possible business model changes and does not reflect the impact of synergies or business integration costs. The unaudited pro forma information is presented below (unaudited, in thousands):

	Year Ended December 31, 2021		Year Ended December 31, 2020
	(unaudited, in thousands)
Pro forma revenues	$	747,840	$	560,779
Proforma net income (loss) attributable to Penumbra, Inc.	$	17,552	$	(30,188)
Proforma net loss attributable to non-controlling interest	$	—	$	—

Payments Related to the 2017 Crossmed Acquisition

On July 3, 2017, the Company completed the acquisition of Crossmed, a joint stock company organized under the laws of Italy, engaged in the business of distributing medical supplies and equipment in Italy, San Marino, Vatican City and Switzerland. In connection with the acquisition of Crossmed, the Company was obligated to pay additional consideration in the form of milestone payments based on Crossmed’s net revenue and incremental net revenue for each of the years ended December 31, 2017, 2018, and 2019. There was no limit on the milestone payments that could be paid out.

During the year ended December 31, 2020, the Company made its final milestone payment of $1.2 million, of which $0.5 million is presented in operating activities and $0.7 million is presented in financing activities in the consolidated statements of cash flows.

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Notes to Consolidated Financial Statements (Continued)

6. Intangible Assets

The following table presents details of the Company’s acquired intangible assets as of December 31, 2022 and 2021 (in thousands, except weighted-average amortization period):

As of December 31, 2022	Weighted-Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
Finite-lived intangible assets:
Developed technology	8.8 years	$	83,289	$	(10,113)	$	73,176
Customer relationships	15.0 years	6,383		(2,340)		4,043
Trade secrets and processes	20.0 years	5,256		(1,314)		3,942
Other	5.0 years	1,646		(1,646)		—
Total intangible assets	9.6 years	$	96,574	$	(15,413)	$	81,161		As of December 31, 2021	Weighted-Average <br>Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
---	---	---	---	---	---	---	---
Finite-lived intangible assets:
Developed technology	8.8 years	$	62,466	$	(1,784)	$	60,682
Customer relationships	15.0 years	6,762		(2,029)		4,733
Trade secrets and processes	20.0 years	5,256		(1,051)		4,205
Other	5.0 years	1,744		(1,569)		175
Total intangible assets subject to amortization	9.8 years	$	76,228	$	(6,433)	$	69,795
Indefinite-lived intangible assets:
In-process research and development		$	20,823	$	—	$	20,823
Total intangible assets		$	97,051	$	(6,433)	$	90,618

The gross carrying amount and accumulated amortization of the customer relationships and other intangible assets are subject to foreign currency translation effects. The Company’s $5.3 million trade secrets and processes intangible asset was recognized in connection with a royalty buyout agreement during the first quarter of 2018, which is discussed further in Note “10. Commitments and Contingencies” and Note “11. Stockholders’ Equity.”

The Company reviews indefinite-lived intangible assets for impairment annually during the fourth quarter or more frequently if events or circumstances indicate that an impairment loss may have occurred. During the three months ended September 30, 2022, the Company reclassified a $20.8 million in-process research and development (“IPR&D”) asset from the Sixense acquisition to a finite-lived developed technology intangible asset upon the completion of the IPR&D project and began amortizing the intangible asset over its useful life of 8.8 years. Prior to reclassifying the IPR&D asset to a finite-lived intangible asset during the three months ended September 30, 2022, the Company performed an impairment analysis and determined that the IPR&D asset was not impaired.

The following table presents the amortization recorded related to the Company’s finite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020 (in thousands):

	Year Ended December 31,
		2022		2021		2020
Cost of revenue		$	263	$	263	$	263
Sales, general and administrative		8,917		2,618		804
Total		$	9,180	$	2,881	$	1,067

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Notes to Consolidated Financial Statements (Continued)

As of December 31, 2022, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in thousands):

	Amortization Expense
2023	$	10,207
2024	10,207
2025	10,207
2026	10,207
2027	10,207
Thereafter	30,126
Total amortization	$	81,161

Licensed technology

During 2017, the Company entered into an exclusive technology license agreement (the “License Agreement”) that required the Company to pay an upfront payment to the licensor of $2.5 million and future revenue milestone-based payments on sales of products covered by the licensed intellectual property. The Company accounted for the transaction as an asset acquisition and recorded an indefinite-lived intangible asset as it was determined to have alternative future use. The Company recorded an indefinite-lived intangible asset equal to the total payments made and expected to be made under the License Agreement and a corresponding contingent liability for the probable future milestone payments not yet paid.

At the end of each reporting period the Company adjusted the contingent liability to reflect the amount of future milestone payments that were probable to be paid. Prior to the commercialization of products utilizing the underlying technology, any changes in the contingent liability were recorded as an adjustment between the liability balances and the gross carrying amount of the indefinite-lived intangible asset. As of December 31, 2020, there was no contingent liability balance related to probable future milestone payments under the License Agreement. As of December 31, 2019, the balance of the contingent liability related to probable future milestone payments under the License Agreement was $11.7 million, of which $0.8 million and $10.9 million were included in accrued liabilities and other non-current liabilities on the consolidated balance sheet, respectively.

Indefinite-lived intangible assets are tested for impairment at least annually during the fourth quarter or more frequently if events or changes in circumstances between annual tests indicate that it is more likely than not that the asset is impaired. During the fourth quarter of 2019, the Company completed an annual impairment analysis of the indefinite-lived intangible asset and determined that there was no impairment. The Company determined that an impairment existed in the second quarter of 2020 as a result of a triggering event in July that provided additional information about a condition that existed as of the June 30, 2020 balance sheet date. As a result, in the second quarter of 2020, the Company wrote-off the full carrying value of the indefinite-lived intangible asset and its related contingent liability, and recognized an impairment loss of $2.5 million in research and development expense in the consolidated statement of operations.

7. Goodwill

The following table presents the changes in goodwill during the year ended December 31, 2022 (in thousands):

	Total Company
Balance as of December 31, 2021	$	166,388
Foreign currency translation and other adjustments1	(342)
Balance as of December 31, 2022	$	166,046

(1) Other adjustments represent measurement period adjustments to the preliminary purchase price allocation in connection with the Sixense acquisition. Refer to Note “5. Business Combinations” for more information.

Goodwill Impairment Review

The Company reviews goodwill for impairment annually during the fourth quarter, or more frequently if events or circumstances indicate that an impairment loss may have occurred. During the fourth quarter of 2022 and 2021, the Company reviewed goodwill for impairment and no impairment was identified.

8. Indebtedness

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Notes to Consolidated Financial Statements (Continued)

Credit Agreement

On April 24, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $150 million, and originally matured on April 23, 2021. During the three months ended March 31, 2021, 2022 and 2023, the Credit Agreement was amended to extend the maturity date and make other changes to the terms of the Credit Agreement. The Credit agreement currently matures on February 16, 2024. Refer to Part II, Item 9B “Other Information” in this Annual Report on Form 10-K for more information.

The revolving loans under the Credit Agreement will be available for general corporate purposes, including working capital and capital expenditures. In addition to allowing borrowings in US dollars, the Credit Agreement provides for borrowings in euros, Pounds Sterling and any other currency that is subsequently approved by JPMorgan and each lender. The initial commitment of the lenders under the Credit Agreement is $100 million. Subject to customary conditions and the approval of any lender whose commitment would be increased, the Company has the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $50 million, resulting in a maximum available principal amount under the Credit Agreement of $150 million. The Credit Agreement provides a sublimit of up to $10 million for letters of credit, a sublimit of up to $10 million for swing-line loans, and a sublimit of up to $15 million for borrowings in available foreign currencies.

The Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio and to not exceed a maximum leverage ratio. As of December 31, 2022, the Company was in compliance with these requirements. As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement.

9. Leases

As of December 31, 2022, 2021 and 2020, the Company’s contracts that contained a lease consisted of real estate, equipment and vehicle leases.

The Company leases real estate for office and warehouse space under non-cancelable operating and finance leases that expire at various dates through 2036, subject to the Company’s option to renew certain leases for an additional five to fifteen years. The Company also leases other equipment and vehicles primarily under non-cancelable operating and finance leases that expire at various dates through 2027.

The following table presents the components of the Company’s lease cost, lease term and discount rate during the years ended December 31, 2022, 2021 and 2020 (in thousands, except years and percentages):

	Year Ended December 31,
	2022			2021			2020
Lease Cost
Operating lease cost	$	20,305		$	11,646		$	7,602
Finance lease cost:
Amortization of right-of-use assets	3,253			3,082			2,787
Interest on lease liabilities	1,439			1,495			1,517
Variable lease cost(1)	10,012			6,699			5,139
Total lease costs	$	35,009		$	22,922		$	17,045
Weighted Average Remaining Lease Term
Operating leases	13.4 years			13.1 years			9.1 years
Finance leases	11.4 years			12.2 years			13.5 years
Weighted Average Discount Rate
Operating leases	4.94		%	4.92		%	6.16		%
Finance leases	5.30		%	5.30		%	5.36		%

(1) Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease cost primarily relates to common area maintenance charges for its real estate leases as the Company does not separate lease from non-lease components.

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Notes to Consolidated Financial Statements (Continued)

In the second quarter of 2021, the fifteen-year term 1310 Harbor Bay Lease commenced once the building was made ready and available for its intended use. The Company determined that the 1310 Harbor Bay lease is a non-cancelable operating lease which will expire in 2036.

During the third quarter of 2021, we signed a lease for approximately thirteen years for additional space located at 620 Roseville Parkway, Roseville, California. Per the terms of the lease, improvements will be constructed and permanently affixed to the property in two phases. Phase 1 of the 620 Roseville Parkway Lease commenced once the Phase 1 premises were made ready and available for their intended use, which occurred during the first quarter of 2022. Phase 2 has not yet commenced as of December 31, 2022, and it is not anticipated to be completed in 2023 The Company determined that the 620 Roseville Parkway Lease is a non-cancelable operating lease which will expire in 2035. Upon completion of the second phase (“Phase 2”) of improvements, the Phase 2 premises will be added to the 620 Roseville Parkway Lease.

During the year ending December 31, 2022, additional office space was made available for the Company’s use at its headquarters and certain existing property leases were modified. This resulted in an increase of right-of-use (“ROU”) assets in exchange for operating leases liabilities.

The following table is a schedule, by years, of maturities of the Company's operating and finance lease liabilities as of December 31, 2022 (in thousands):

	Operating Lease Payments(1)		Finance Lease Payments
Year Ending December 31:
2023	$	19,760	$	3,277
2024	19,986		3,288
2025	19,827		3,216
2026	19,931		2,848
2027	19,828		2,739
Thereafter	192,639		20,807
Total undiscounted lease payments	291,971		36,175
Less imputed interest	(82,983)		(9,390)
Present value of lease liabilities	$	208,988	$	26,785

(1) The table above excludes the estimated future minimum lease payments of Phase 2 of the 620 Roseville Parkway Lease due to uncertainty around when Phase 2 lease will commence and payments will be due. The total estimated lease payments of the Phase 2 lease is approximately $10.3 million.

Supplemental cash flow information related to leases during the years ended December 31, 2022, 2021 and 2020 are as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,554	$	9,690	$	7,561
Financing cash flows from finance leases	$	1,751	$	1,451	$	3,418
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	72,279	$	101,510	$	1,515
Finance leases	$	305	$	1,346	$	1,632

10. Commitments and Contingencies

Purchase Commitments

As of December 31, 2022, the Company had non-cancelable purchase obligations of $7.0 million, which primarily consisted of contracts with suppliers to purchase raw materials to be used to manufacture products, of which $6.4 million were due within one year.

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Notes to Consolidated Financial Statements (Continued)

Royalty Obligations

In March 2005, the Company entered into a license agreement that requires the Company to make minimum royalty payments to the licensor on a quarterly basis. As of December 31, 2018, the license agreement requires minimum annual royalty payments of $0.1 million in equal quarterly installments. In July 2019, the Company amended the license agreement to extend its term for an additional ten years and to increase the required minimum annual royalty payments by $0.2 million for a required minimum annual royalty payment of $0.3 million payable in equal quarterly installments. Unless terminated earlier, the term of the amended license agreement shall expire June 30, 2029.

In April 2012, the Company entered into an agreement that requires the Company to pay, on a quarterly basis, a 5% royalty on sales of products covered under applicable patents. The first commercial sale of covered products occurred in April 2014. Unless terminated earlier, the royalty term for each applicable product shall continue for fifteen years following the first commercial sale of such patented product, or when the applicable patent covering such product has expired, whichever is sooner.

In April 2015, the Company entered into a royalty agreement that required the Company to pay a 2% royalty on sales of certain products covered by the agreement, on a quarterly basis, in exchange for certain trade secrets and processes which were used to develop such covered products. The Company began the first commercial sale of the covered products in July 2015. In the first quarter of 2018, the Company entered into a buyout of this agreement (the “Buyout Agreement”) in which future royalty payments were canceled in exchange for shares of the Company’s common stock with a fair value of $5.3 million. The Company recorded an intangible asset equal to the $5.3 million buyout amount which will be amortized into cost of revenue over the period in which the Company receives future economic benefit. After determining that the pattern of future cash flows associated with this intangible asset could not be reliably estimated with a high level of precision, the Company concluded that the intangible asset will be amortized on a straight-line basis over its estimated useful life.

Royalty expense included in cost of sales for the years ended December 31, 2022, 2021 and 2020 was $2.5 million, $2.3 million and $2.5 million, respectively.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Refer to Note “3. Investments and Fair Value of Financial Instruments,” Note “5. Business Combinations” and Note “6. Intangible Assets” for more information on contingent liabilities recorded on the consolidated balance sheet.

Indemnification

The Company enters into standard indemnification arrangements in the ordinary course of business. In many such arrangements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The Company also agrees to indemnify many indemnified parties for product defect and similar claims. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.

The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with any of these indemnification requirements has been recorded to date.

Litigation

From time to time, the Company is subject to other claims and assessments in the ordinary course of business. The Company is not currently a party to any such litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

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Notes to Consolidated Financial Statements (Continued)

11. Stockholders’ Equity

Stockholders’ Equity

Preferred Stock

The Company has 5,000,000 of authorized preferred stock issuable. There is no preferred stock outstanding as of December 31, 2022 and 2021.

Common Stock

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding.

Issuance of Common Stock in Public Offerings

In June 2020, the Company issued and sold an aggregate of 865,963 shares of common stock at a public offering price of $166.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering. The Company received approximately $134.8 million in net cash proceeds after deducting underwriting discounts and commissions of $8.6 million and other offering expenses of $0.4 million.

Issuance of Common Stock in Connection with the Acquisition of Sixense

As consideration for the acquisition of Sixense, the Company issued 661,877 shares of its common stock as partial consideration. Additionally, on October 1, 2021, the Company converted all stock options held by Sixense service providers that would continue as service providers after the Merger into fully vested options to purchase an aggregate amount of 447,017 shares of the Company’s common stock. Please see Note “5. Business Combinations” for more information.

Stock-Based Benefit Plans

2005 Stock Plan

The Company adopted the Penumbra, Inc. 2005 Stock Plan (the “2005 Plan”) in January 2005. The 2005 Plan was subsequently amended and restated in 2006, 2007, 2008 and 2010. Under the 2005 Plan, the board of directors could grant incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), and/or stock awards to eligible persons, including employees, non-employees, directors, consultants and other independent advisors who provide services to the Company. Stock purchase rights could also be granted under the 2005 Plan. The board of directors had the authority to determine to whom options would be granted, the number of options, the term and the exercise price. ISOs could only be granted to Company employees, which include officers and directors of the Company. NSOs and stock purchase rights could be granted to employees and consultants. For individuals holding more than 10% of the voting rights of all classes of stock, the exercise price for an ISO could not be less than 110% of the fair market value of a share of common stock on the date of grant. Options granted under the 2005 Plan permitted an optionee to exercise options immediately upon grant irrespective of the vesting term. Options generally vest annually at a rate of 1/4 after the first year and 1/48 per month thereafter. The term of the options is no longer than five years for ISOs, for which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than 10 years for all other options. On September 17, 2015, the Penumbra, Inc. 2014 Equity Incentive Plan (as amended and restated, the “2014 Plan”) replaced the 2005 Plan and no further equity awards may be granted under the 2005 Plan. The remaining 564 shares of common stock available for issuance from the 2005 Plan were transferred to and may be granted under the 2014 Plan. As of December 31, 2022, 8,622 shares of common stock were reserved for issuance under the 2005 Plan.

2011 Equity Incentive Plan

The Company adopted the Penumbra, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) in October 2011. Under the 2011 Plan, the board of directors could grant ISOs, NSOs, restricted stock, and/or RSUs to eligible persons, including employees, directors and consultants who provide services to the Company. Stock Appreciation Rights (“SAR”) could also be granted under the 2011 Plan. The board of directors had the authority to determine to whom options would be granted, the number of options, the term and the exercise price. ISOs could only be granted to Company employees, which include officers and directors of the Company. NSOs, SARs, restricted stock and RSUs could be granted to employees and consultants. For individuals holding more than 10% of the voting rights of all classes of stock, the exercise price for an ISO could not be less than 110% of the fair market value of a share of common stock on the date of grant. Stock options granted under the 2011 Plan generally have a contractual life of ten years, and generally vest over a period of four years. On September 17, 2015, the 2014

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Plan replaced the 2011 Plan and no further equity awards may be granted under the 2011 Plan. The remaining 89,559 shares of common stock available for issuance under the 2011 Plan were transferred to and may be granted under the 2014 Plan. As of December 31, 2022, 58,000 shares of common stock were reserved for issuance under the 2011 Plan.

Amended and Restated 2014 Equity Incentive Plan

The Company adopted the Penumbra, Inc. 2014 Equity Incentive Plan in May 2014. The plan was amended and restated as of September 17, 2015 (as amended and restated, the “2014 Plan”). The 2014 Plan replaced the 2011 Plan and the 2005 Plan and no further equity awards may be granted under the 2011 Plan or the 2005 Plan. As of December 31, 2022, 7,321,161 shares of common stock were reserved for issuance and 6,050,161 shares of common stock were available for grant under the 2014 Plan.

Employee Stock Purchase Plan

The Penumbra, Inc. Employee Stock Purchase Plan (the “ESPP”), became effective on September 17, 2015. The ESPP initially reserved 600,000 shares of common stock for purchase under the ESPP, with the number of shares reserved for purchase increasing each year pursuant to an “evergreen” provision set forth in the ESPP. As of December 31, 2022, 839,422 shares of common stock were reserved and available for issuance under the plan. All qualifying employees of the Company and its designated subsidiaries are eligible to participate in the ESPP. Each offering to the Company’s employees to purchase stock under the ESPP will begin on each May 20 and November 20 and will end on the following November 19 and May 19, respectively, each referred to as offering periods except that the first offering period under the ESPP began on September 17, 2015 and ended on May 19, 2016. Under the ESPP, each employee may purchase shares by authorizing payroll deductions at a minimum of 1% and up to 15% of his or her eligible compensation for each pay period during the offering period. Unless the participating employee withdraws from the offering, his or her accumulated payroll deductions will be used to purchase the Company’s common stock on the last business day of the offering period at a price equal to 85% of the fair market value of the common stock on either the first or the last day of the offering period, whichever is lower, provided that no more than 2,000 shares of the Company’s common stock or such other lesser maximum number established by the ESPP administrator may be purchased by any one employee during each offering period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of common stock, valued at the start of the purchase period (corresponding to an offering period), under the ESPP in any calendar year.

Early Exercises

The 2005 Plan and 2011 Plan allowed the board of directors to grant stock options that provide employee option holders the right to elect to exercise unvested options in exchange for restricted common stock. As of December 31, 2022 and 2021, there were no such early exercised unvested shares.

Stock-Based Benefit Plan Activity and Stock-Based Compensation

Stock Options

Activity of stock options under the 2005 Plan, 2011 Plan and 2014 Plan (collectively, the “Plans”) is set forth below:

	Number of Shares	Weighted-Average<br>Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value <br>(in thousands)
Balance at December 31, 2021	1,141,814	$	27.02
Grants	10,120	$	197.74
Exercised	(309,004)	$	25.25
Canceled/Forfeited	(1,157)	$	22.04
Balance at December 31, 2022	841,773	$	29.73
Vested and expected to vest—December 31, 2022	841,046	$	29.59	2.85	$	162,213
Exercisable—December 31, 2022	829,678	$	27.38	2.77	$	161,856

The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and 2020 was $48.2 million, $81.1 million and $70.1 million, respectively. The intrinsic value is calculated as the difference between the estimated fair value of the Company’s common stock at the exercise date and the exercise price of the stock option.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The weighted average grant date fair value of stock options for the years ended December 31, 2022 and 2021 was $197.74 and $263.09 per share, respectively. The Company did not grant stock options during the year ended December 31, 2020.

Restricted Stock and Restricted Stock Units

The activity of unvested restricted stock units (“RSU”) under the Plans is set forth below:

	Number<br>of Shares	Weighted Average<br>Grant Date<br>Fair Value
Unvested at December 31, 2021	409,482	$	210.41
Granted	275,910	187.38
Released/Vested	(151,173)	192.66
Canceled/Forfeited	(38,370)	212.44
Unvested at December 31, 2022	495,849	$	202.84

The fair value of the RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $28.1 million, $44.5 million and $32.1 million, respectively. As of December 31, 2022, 468,337 RSUs are expected to vest.

Employee Stock Purchase Plan

Under the ESPP, employees purchased 113,893 shares, 64,852 shares, and 77,528 shares for $13.8 million, $13.7 million, and $11.3 million during the years ended December 31, 2022, 2021, and 2020, respectively.

Stock-based Compensation

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and ESPP rights. The valuation model for stock compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted average period of time that the options granted are expected to be outstanding); expected volatility of the Company’s common stock and an assumed risk-free interest rate.

The Company used the following assumptions in its Black-Scholes option pricing model to determine the fair value of stock options and ESPP rights:

	Stock Options				ESPP Rights
	Year Ended December 31,				Year Ended December 31,
	2022		2021			2022	2021	2020
Expected term (in years)	5.62		2.85			0.50	0.50	0.50
Expected volatility	42	%	42	%		46%	43%	48%
Risk-free interest rate	2.76	%	0.38	%		1.30%	0.10%	0.70%
Expected dividend yield	—	%	—	%		0%	0%	0%

The Company did not grant stock options during the year ended December 31, 2020. All stock options granted by the Company during the year ended December 31, 2021, were granted as replacement stock options in connection with the Merger. Refer to Note “5. Business Combinations” for more information.

Weighted Average Expected Term. The Company’s expected term for stock options and ESPP rights is based on historical data.

Volatility. In 2022, 2021 and 2020, volatility assumptions used in the valuation of options and ESPP rights were calculated based on the historical volatility of the Company’s stock.

Risk-Free Interest Rate. The risk-free interest rate is based upon U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the stock options or ESPP rights.

Dividend Yield. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation model.

Forfeitures. The Company estimates forfeitures at the time of grant, and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and record

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

stock-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period that the estimates are revised.

The following table sets forth the stock-based compensation expense included in the consolidated statements of operations (in thousands):

	Year Ended December 31,
	2022		2021(1)		2020
Cost of sales	$	3,882	$	2,898	$	2,304
Research and development	5,908		30,037		3,686
Sales, general and administrative	27,588		32,828		19,551
	$	37,378	$	65,763	$	25,541

(1) The Company recorded a $25.8 million charge to stock-based compensation related to the acceleration of vesting of all replacement stock options in connection with the Merger. Refer to Note “5. Business Combinations” for more information.

As of December 31, 2022, total unrecognized compensation cost was $101.5 million related to unvested stock-based compensation arrangements which is expected to be recognized over a weighted average period of 3.1 years.

The total stock-based compensation cost capitalized in inventory was $2.2 million, $1.8 million and $1.2 million as of December 31, 2022, 2021 and 2020, respectively.

12. Accumulated Other Comprehensive Loss

Other comprehensive (loss) income consists of two components: unrealized gains or losses on the Company’s available-for-sale marketable investments and gains or losses from foreign currency translation adjustments. Until realized and reported as a component of consolidated net (loss) income, these comprehensive loss items accumulate and are included within accumulated other comprehensive loss. Unrealized gains and losses on our marketable investments are reclassified from accumulated other comprehensive loss into earnings when realized upon sale, and are determined based on specific identification of securities sold. Gains and losses from the translation of assets and liabilities denominated in non-U.S. dollar functional currencies are included in accumulated other comprehensive loss.

The following table summarizes the changes in the accumulated balances during the period, and includes information regarding the manner in which the reclassifications out of accumulated other comprehensive loss into earnings affect our consolidated statements of comprehensive loss (in thousands):

	Year Ended December 31, 2022						Year Ended December 31, 2021
	Marketable<br>Investments		Currency Translation<br>Adjustments		Total		Marketable<br>Investments		Currency Translation<br>Adjustments		Total
Balance, beginning of the year	$	(595)	$	(2,035)	$	(2,630)	$	647	$	1,894	$	2,541
Other comprehensive (loss) income before reclassifications:
Unrealized (losses) gains — marketable investments	(2,905)		—		(2,905)		(1,437)		—		(1,437)
Foreign currency translation losses	—		(2,590)		(2,590)		—		(3,930)		(3,930)
Income tax effect — expense	—		1		1		195		1		196
Net of tax	(2,905)		(2,589)		(5,494)		(1,242)		(3,929)		(5,171)
Amounts reclassified from accumulated other comprehensive loss to consolidated net income:
Realized (loss) gain — marketable investments	—		—		—		—		—		—
Income tax effect — (expense) benefit	—		—		—		—		—		—
Net of tax	—		—		—		—		—		—
Net current-year other comprehensive loss	(2,905)		(2,589)		(5,494)		(1,242)		(3,929)		(5,171)
Balance, end of the year	$	(3,500)	$	(4,624)	$	(8,124)	$	(595)	$	(2,035)	$	(2,630)

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

13. Employee Benefit Plan

The Company offers a retirement savings plan under Section 401(k) of the Internal Revenue Code (“IRC”) to its eligible U.S. employees whereby they may contribute up to the maximum amount permitted by the IRC. The Company makes 401(k) matching contributions of eligible compensation under the plan, subject to a maximum dollar threshold. Contribution expense was $6.7 million, $5.6 million, and $4.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

14. Income Taxes

The Company’s income tax (benefit) expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax (benefit) expense.

The Company is incorporated in the United States and operates in various countries with different tax laws and rates. A portion of the Company’s income or (loss) before taxes and the (benefit from) provision for income taxes are generated from international operations.

Income (loss) before income taxes and equity in losses of unconsolidated investee for the years ended December 31, 2022, 2021 and 2020 is summarized as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
United States	$	(1,837)	$	(15,155)	$	(40,278)
Foreign	5,729		4,653		2,260
Total income (loss) before income taxes	$	3,892	$	(10,502)	$	(38,018)

Income tax (benefit) or provision in 2022, 2021 and 2020 is comprised of federal, state, and foreign taxes.

The components of the (benefit from) provision for income taxes are summarized as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Current:
Federal	$	1,672	$	44	$	(302)
State	1,428		439		357
Foreign	1,725		1,345		907
Total current	$	4,825	$	1,828	$	962
Deferred:
Federal	1,905		(13,698)		(18,129)
State	(360)		(1,131)		(1,488)
Foreign	(476)		(124)		(106)
Total deferred	$	1,069	$	(14,953)	$	(19,723)
Provision for (benefit from) income taxes	$	5,894	$	(13,125)	$	(18,761)

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The Company’s actual (benefit from) or provision for tax differed from the amounts computed by applying the Company’s U.S. federal statutory income tax rate to pretax income as a result of the following:

	Year Ended December 31,
	2022		2021(1)		2020(1)
Income tax at federal statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	15.9		7.6		3.2
Rate differential on foreign operations	(11.7)		(2.7)		(0.3)
Foreign taxes	(6.9)		1.3		(1.0)
Mutual agreement procedure adjustment	—		2.1		—
Prepaid tax ASC 810-10	51.9		(0.3)		0.8
Stock-based compensation	72.9		86.1		26.8
Global intangible low-taxed income (“GILTI”)	—		(6.5)		—
Non-deductible parking expenses	6.9		(1.5)		(0.4)
Permanent differences	(3.3)		(1.2)		(1.5)
Other	4.7		0.9		0.7
Change in valuation allowance	—		18.2		—
Effective tax rate	151.4	%	125.0	%	49.3	%

(1) The 2020 and 2021 effective tax rate reconciliations have been updated to conform to the 2022 presentation.

Deferred income tax assets and liabilities consist of the following (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	37,290	$	55,461
Tax credits	41,934		31,969
Accruals and reserves	9,236		9,521
Capitalized research expenses	22,960		—
Stock-based compensation	12,478		21,886
Translation adjustment	174		173
UNICAP adjustments	10,810		8,715
ASC 842 Lease Liabilities	57,161		41,919
Other	2,727		1,688
Gross deferred tax assets	194,770		171,332
Valuation allowance	(46,693)		(37,110)
Total deferred tax assets	148,077		134,222
Deferred tax liabilities:
Depreciation and amortization	(29,781)		(28,159)
ASC 842 Lease ROU Assets	(54,786)		(40,645)
Other	(257)		(1,171)
Total deferred tax liabilities	(84,824)		(69,975)
Net deferred tax assets	$	63,253	$	64,247

As of December 31, 2022, the Company had approximately $148.9 million and $93.6 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized. The state NOL carryforwards have various carryover periods and will begin to expire as early as 2023. As of December 31, 2022, the Company had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years. The Company maintained a full valuation allowance against its federal research and development tax credit DTAs net of ASC 740-10 reserve.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The Company had California state research and development tax credits of $24.9 million that may be carried forward indefinitely.

The Company generated significant domestic DTAs in recent years, primarily due to the excess tax benefits from stock option exercises and vesting of restricted stock, as well as operating expenditures including research and development. The Company assessed its ability to realize the benefits of its domestic DTAs by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitations on NOL utilization against taxable income. Despite the domestic pretax loss in the year ended December 31, 2022, the Company determined that it would be in a three-year cumulative adjusted taxable income position, had it not been for the impact of excess tax deductions from stock-based compensation. The Company also measured its current DTA balances against estimates of future income based on objectively verifiable operating results from the Company’s recent history.

The Company considered its projections of future taxable income in conjunction with relevant provisions of the Tax Reform Act, including but not limited to, the indefinite carryforward period for NOL generated in years beginning on or after January 1, 2018. After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded that sufficient future taxable income will be generated to realize the benefits of its federal DTAs prior to expiration other than its federal research and development tax credit DTAs. The tax attribute ordering rules provide that NOL must be used to offset taxable income prior to the utilization of tax credits. NOL utilization will be limited to 80% of taxable income, which may provide an opportunity to use a portion of the tax credits. Accordingly, the Company could not assert, at the required more-likely-than-not level of certainty, that it will be able to realize the full benefit of its federal research and development tax credit DTAs, with a limited 20-year carryforward period that will begin to expire in 2026. As a result, the Company maintained a full valuation allowance against its federal research and development tax credit DTAs net of ASC 740-10 reserve as of December 31, 2022. The Company intends to continue maintaining this full valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, due to the change of IRC Section 174 requiring qualified research expenditures to be capitalized and amortized over 5 or 15 years for tax purposes, in the future, the Company may accelerate their NOL utilization. As a consequence, the Company determined there is a reasonable possibility that a portion of this valuation allowance may no longer be needed. The exact timing and amount of the valuation allowance release is highly dependent on the level of taxable income in future years. The Company will continue to closely monitor the need for this valuation allowance in each subsequent reporting period.

For years ended December 31, 2022, 2021 and 2020, a full valuation allowance remains against the Company’s California DTA balances.

The change in the Company’s deferred tax valuation allowance against net DTAs from January 1, 2020 to December 31, 2022, is as follows (in thousands):

	Beginning Balance		Additions Charged To Expenses or Other Accounts(1)		Deductions Credited to Expenses or Other Accounts(2)		Ending Balance
For the year ended:
December 31, 2020	$	21,558	$	7,322	$	(112)	$	28,768
December 31, 2021	28,768		10,386		(2,044)		37,110
December 31, 2022	37,110		9,583		—		46,693

(1) Additions include current year additions charged to expenses and current year build due to increases in net DTAs, return to provision true-ups, and other adjustments.

(2) Deductions include current year releases credited to expenses and current year reductions due to decreases in net DTAs, return to provision true-ups, and other adjustments.

The Company maintains that all foreign earnings, with the exception of a portion of the earnings of its German subsidiary, are permanently reinvested outside the U.S. and therefore deferred taxes attributable to such are not provided for in the Company’s financial statements as of December 31, 2022.

IRC Sections 382 and 383 limit the use of NOL and business credits if there is a change in ownership. In 2009, the Company determined there were changes in ownership in 2004 and 2008, which did not cause any impairment of tax attributes. The NOL and tax credits gained from the 2021 Sixense Acquisition would be subject to IRC Section 382 and 383 limitations.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The Company does not believe such limitations would cause any impairment of those tax attributes. Their full tax benefit is anticipated to be realized in future years.

A reconciliation of the change in the gross unrecognized tax benefits from January 1, 2020 to December 31, 2022, is as follows (in thousands):

	December 31,
	2022		2021		2020
Beginning Balance	$	9,026	$	8,625	$	6,075
Gross increase for tax positions of current year	1,842		1,935		2,389
Gross increase for tax positions of prior years	481		216		304
Gross decrease for tax positions of prior years	(112)		(1,411)		(143)
Settlement with taxing authority	—		(339)		—
Ending Balance	$	11,237	$	9,026	$	8,625

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022, 2021 and 2020, the Company had approximately $0.2 million, $0.2 million, and $0.3 million, respectively, of accrued interest and penalties attributable to uncertain tax positions. Included in the $11.2 million balance of unrecognized tax benefits as of December 31, 2022 is $0.9 million of tax benefit that, if recognized, would affect the effective tax rate.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to NOL and tax credit carryovers, the tax years ending December 31, 2004 through December 31, 2022 remain subject to examination by federal and state tax authorities. In Australia and Canada, tax years ending December 31, 2009 through December 31, 2022 generally remain subject to examination by tax authorities. In Germany, tax years ending December 31, 2018 through December 31, 2022 remain subject to examination by tax authorities.

The Company does not anticipate significant changes in the balance of gross unrecognized tax benefits over the next 12 months.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

15. Net (Loss) Income Attributable to Penumbra, Inc.

The Company computed basic net (loss) income attributable to Penumbra, Inc. per share based on the weighted average number of shares of common stock outstanding during the period. The Company computed diluted net (loss) income attributable to Penumbra, Inc. per share based on the weighted average number of shares of common stock outstanding plus potentially dilutive common stock equivalents outstanding during the period. For the purposes of this calculation, stock options, restricted stock, restricted stock units and stock sold through the ESPP are considered common stock equivalents.

A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net (loss) income attributable to Penumbra, Inc. is as follows (in thousands, except share and per share amounts):

	Year Ended December 31,
	2022		2021		2020
Numerator:
Net (loss) income attributable to Penumbra, Inc.	$	(2,002)	$	5,284	$	(15,702)
Denominator:
Weighted average shares used to compute net (loss) income attributable to common stockholders:
Basic	37,841,874		36,764,290		35,766,892
Potential dilutive stock-based options and awards, as calculated using treasury stock method	—		1,116,890		—
Diluted	37,841,874		37,881,180		35,766,892
Net (loss) income attributable to Penumbra, Inc. per share from:
Basic	$	(0.05)	$	0.14	$	(0.44)
Diluted	$	(0.05)	$	0.14	$	(0.44)

For the years ended December 31, 2022 and 2020, outstanding stock-based awards of 2.0 million and 2.0 million shares, respectively, were excluded from the computation of diluted net loss attributable to Penumbra, Inc. per share because their effect would have been anti-dilutive. For the year ended December 31, 2021 outstanding stock-based awards of 15.0 thousand shares were excluded from the computation of diluted net income attributable to Penumbra, Inc. per share because their effect would have been anti-dilutive.

16. Revenues

Revenue Recognition

Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for goods or services. All revenue recognized in the consolidated statements of operations is considered to be revenue from contracts with customers.

The Company’s revenues, disaggregated by geography, based on the destination to which the Company ships its products, for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
		2022		2021		2020
United States		$	591,715	$	527,789	$	400,270
International		255,418		219,801		160,142
Total		$	847,133	$	747,590	$	560,412

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The Company’s revenues disaggregated by product category, for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

	Year Ended December 31,
		2022		2021		2020
Vascular		$	499,389	$	408,878	$	267,783
Neuro		347,744		338,712		292,629
Total		$	847,133	$	747,590	$	560,412

China Distribution and Technology Licensing Agreement

In December 2020, the Company entered into a distribution and technology licensing arrangement (the “China Distribution and Technology Licensing Agreement”) with its existing distribution partner in China. In addition to modifying the Company’s standard distribution agreement with its partner in China, the Company agreed to license the technology for certain products to its partner in China to permit the manufacturing and commercialization of such products in China as well as provide certain regulatory support. During the three months ended March 31, 2022, the Company further amended the distribution agreement and entered into an additional license agreement, pursuant to which the Company agreed to license the technology for additional products to its partner in China on substantially the same terms as the existing license agreement. Apart from the standard distribution agreement, the Company will receive fixed payments upon transferring its distinct licensed technology and providing related regulatory support and receive royalty payments on the downstream sales of the licensed products. During the years ended December 31, 2022 and 2021 the Company recognized $48.6 million and $46.9 million, respectively, under the China Distribution and Technology Licensing Agreement based on the relative standalone fair value of the performance obligations satisfied.

Performance Obligations

Delivery of products - The Company’s contracts with customers typically contain a single performance obligation, delivery of the Company’s products. Satisfaction of that performance obligation occurs when control of the promised goods transfers to the customer, which is generally upon shipment for non-consignment sale agreements and upon utilization for consignment sale agreements.

Payment terms - Our payment terms vary by the type and location of our customer. The timing between fulfillment of performance obligations and when payment is due is not significant and does not give rise to financing transactions. The Company did not have any contracts with significant financing components as of December 31, 2022.

Product returns - The Company may allow customers to return products purchased at the Company’s discretion. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period in which the related product revenue is recognized. The Company currently estimates product return liabilities using its own historic sales information, trends, industry data, and other relevant data points.

Warranties - The Company offers its standard warranty to all customers and it is not available for sale on a standalone basis. The Company’s standard warranty represents its guarantee that its products function as intended, are free from defects, and comply with agreed-upon specifications and quality standards. This assurance does not constitute a service and is not a separate performance obligation.

Transaction Price

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price. When determining if variable consideration should be constrained, management considers whether there are factors that could result in a significant reversal of revenue and the likelihood of a potential reversal. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are reassessed each reporting period as required. During the year ended December 31, 2022, the Company made no material changes in estimates for variable consideration. When the Company performs shipping and handling activities after control of goods is transferred to the customer, they are considered as fulfillment activities, and costs are accrued for when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Contract liabilities, net

The following information summarizes the Company’s contract assets and liabilities (in thousands):

	December 31,
	2022		2021
Contract liabilities, net	$	8,783	$	5,671

Contract liabilities represents amounts that the Company has already invoiced and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met and is recognized as the associated performance obligations are satisfied. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Revenue recognized during the year ended December 31, 2022 relating to contract liabilities as of December 31, 2021 was $5.7 million.

17. Selected Quarterly Financial Data (Unaudited)

The following tables provide the selected quarterly financial data for 2022 and 2021 (in thousands, except share and per share amounts):

	2022 Quarters Ended
Selected Statement of Operations Data:	March 31(1)		June 30		September 30		December 31
Revenue	$	203,895	$	208,344	$	213,678	$	221,216
Cost of revenue	76,477		74,309		78,351		82,789
Gross profit	127,418		134,035		135,327		138,427
Total operating expenses	131,464		134,174		129,893		133,594
Loss before (benefit from) for income taxes	(5,104)		(1,167)		3,035		7,128
Provision for (benefit from) income taxes	(5,183)		2,520		5,306		3,251
Consolidated net income (loss)	79		(3,687)		(2,271)		3,877
Net loss attributable to non-controlling interest	—		—		—		—
Net income (loss) attributable to Penumbra, Inc.	$	79	$	(3,687)	$	(2,271)	$	3,877
Net income (loss) attributable to Penumbra, Inc. per share:
Basic	$	—	$	(0.10)	$	(0.06)	$	0.10
Diluted	$	—	$	(0.10)	$	(0.06)	$	0.10
Weighted average shares used to compute net income (loss) per share:
Basic	37,646,122		37,767,519		37,918,452		38,030,344
Diluted	38,708,657		37,767,519		37,918,452		38,896,940

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

	2021 Quarters Ended
Selected Statement of Operations Data:	March 31		June 30		September 30		December 31
Revenue	$	169,204	$	184,258	$	190,117	$	204,011
Cost of revenue	57,867		65,572		70,205		78,564
Gross profit	111,337		118,686		119,912		125,447
Total operating expenses	97,874		108,374		111,131		165,504
Income before provision for (benefit from) income taxes	12,467		10,203		7,782		(40,954)
(Benefit from) income taxes	1,541		1,904		(249)		(16,321)
Consolidated net income	10,926		8,299		8,031		(24,633)
Net loss attributable to non-controlling interest	(910)		(932)		(819)		—
Net income attributable to Penumbra, Inc.	$	11,836	$	9,231	$	8,850	$	(24,633)
Net income per share:
Basic	$	0.32	$	0.25	$	0.24	$	(0.66)
Diluted	$	0.32	$	0.25	$	0.24	$	(0.66)
Weighted average shares used to compute net income (loss) per share:
Basic	36,455,712		36,523,011		36,617,961		37,451,145
Diluted	37,533,520		37,582,348		37,611,355		37,451,145

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. Based on this review, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 9A of this Form 10-K.

Changes in Internal Control Over Financial Reporting

During the quarterly period ended June 30, 2022, we began a multi-stage implementation of a new Enterprise Resource Planning (“ERP”) system, which will replace our existing core financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance the flow of financial information, improve data management, and provide timely information to our management team. Accordingly, as the phased implementation occurs, we continue to rely upon a combination of our existing and new ERP systems for financial statement reporting purposes. Except for the implementation of the new ERP system and related controls, there was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarterly period ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Penumbra, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Penumbra, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets and related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows as of and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

San Francisco, CA

February 23, 2023

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ITEM 9B. OTHER INFORMATION.

On February 17, 2023, the Company and JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders (the “Lenders”), entered into Amendment No. 3 to the Credit Agreement, dated April 24, 2020, between the Company and the Lenders (as previously amended, the “Credit Agreement”; refer to Note “8. Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information). Pursuant to the amendment, (i) the maturity date of the Credit Agreement was extended from February 17, 2023 to February 16, 2024, (ii) certain changes were made to the reference benchmark interest rates, applicable margins and borrowing mechanics under the Credit Agreement, which have the overall effect of increasing the interest rates payable by the Company on amounts borrowed under the Credit Agreement, and (iii) the commitment fee payable on the average daily unused amount under the Credit Agreement was increased to 0.35% per annum.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item is incorporated by reference to the information set forth in our Definitive Proxy Statement to be filed with the SEC in connection with our Annual Meeting of Stockholders to be held in June 2023 (the “Proxy Statement”).

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference to the information in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item is incorporated by reference to the information in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information required by this item is incorporated by reference to the information in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this item is incorporated by reference to the information in the Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

1.Financial Statements: The financial statements included in “Index to Consolidated Financial Statements” in Part II, Item 8 are filed as part of this Form 10-K.

2.Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

ITEM 16. FORM 10-K SUMMARY.

None.

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EXHIBIT INDEX

		Incorporation by Reference
Exhibit Number	Description	Form	File No.	Exhibit(s)	Filing Date
3.1	Restated Certificate of Incorporation of Penumbra, Inc.	8-K	001-37557	3.3	September 29, 2015
3.2	Second Amended and Restated Bylaws of Penumbra, Inc.	8-K	001-37557	3.1	August 5, 2022
4.1	Specimen Common Stock Certificate	S-1/A	333-206412	4.1	September 8, 2015
4.2	Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10.1Ψ	Lease for facilities at 1321 and 1351 Harbor Bay Parkway, Alameda, California, dated January 1, 2022
10.2	Lease for facilities at 1301, 1311, 1401 and 1431 Harbor Bay Parkway, Alameda, California, dated December 17, 2015	10-K	001-37557	10.4	March 8, 2016
10.3	First Amendment to Lease Agreement for facilities at 1301, 1311, 1401 and 1431 Harbor Bay Parkway, Alameda, California, dated July 14, 2021	10-K	001-37557	10.7	February 22, 2022
10.4	Second Amendment to Lease Agreement for facilities at 1301, 1311, 1401 and 1431 Harbor Bay Parkway, Alameda, California, dated September 1, 2021	10-K	001-37557	10.8	February 22, 2022
10.5†	Amended and Restated 2014 Equity Incentive Plan, and forms of Restricted Stock Agreement, Stock Option Agreement and Early Exercise Stock Option Agreement	S-1	333-206412	10.19	August 14, 2015
10.6†	Amended and Restated 2014 Equity Incentive Plan - Restricted Stock Agreement	10-Q	001-37557	10.1	November 12, 2015
10.7†	Amended and Restated 2014 Equity Incentive Plan - Stock Option Agreement	10-Q	001-37557	10.2	November 12, 2015
10.8†	Amended and Restated 2014 Equity Incentive Plan - Restricted Stock Unit Agreement	10-K	001-37557	10.9	March 8, 2016
10.9†	2014 Equity Incentive Plan, and forms of Restricted Stock Agreement, Stock Option Agreement and Early Exercise Stock Option Agreement	S-1	333-206412	10.5	August 14, 2015
10.10†	2011 Equity Incentive Plan, and forms of Restricted Stock Agreement, Stock Grant Agreement, Stock Option Agreement and Early Exercise Stock Option Agreement	S-1	333-206412	10.6	August 14, 2015
10.11†	2005 Stock Plan, and forms of Notice of Grant and Early Exercise Stock Option Agreement	S-1	333-206412	10.7	August 14, 2015
10.12†	Amended and Restated 2014 Equity Incentive Plan - Form of Restricted Stock Unit Agreement	10-K	001-37557	10.13	February 26, 2019
10.13†	Amended and Restated 2014 Equity Incentive Plan - Form of Performance-Based Restricted Stock Unit Agreement	10-K	001-37557	10.14	February 26, 2019
10.14†	Amended and Restated 2014 Equity Incentive Plan – Form of Stock Option Agreement	10-K	001-37557	10.19	February 22, 2022
10.15†	Form of Indemnification Agreement by and between Penumbra, Inc. and each of its directors and executive officers	S-1	333-206412	10.9	August 14, 2015
10.16†	Offer Letter with Adam Elsesser	S-1	333-206412	10.10	August 14, 2015
10.17†	Offer Letter with Johanna Roberts	10-K	001-37557	10.19	February 26, 2020
10.18†	Offer Letter with Maggie Yuen	10-K	001-37557	10.22	February 26, 2020
10.19†	Form of Employee Nondisclosure and Assignment Agreement	S-1	333-206412	10.17	August 14, 2015

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10.20†	Employee Stock Purchase Plan	S-1/A	333-206412	10.18	August 31, 2015
10.21	Amended and Restated Lease for facilities at 630 Roseville Parkway, Roseville, California, dated January 29, 2019 and amended on July 31, 2019	10-K	001-37557	10.25	February 26, 2020
10.22	Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated September 3, 2019	10-Q	001-37557	10.1	November 7, 2019
10.23Ψ	First Amendment to Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated April 10, 2020	10-K	001-37557	10.30	February 22, 2022
10.24	Second Amendment to Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated August 5, 2020	10-K	001-37557	10.31	February 22, 2022
10.25	Third Amendment to Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated July 29, 2021	10-K	001-37557	10.32	February 22, 2022
10.26	Fourth Amendment to Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated October 15, 2021	10-K	001-37557	10.33	February 22, 2022
10.27	Fifth Amendment to Lease for facilities at 1310 Harbor Bay Parkway, Alameda, California, dated April 1, 2022
10.28Ψ	Lease for facilities at 1070 South 3800 West, Salt Lake City, Utah, dated April 26, 2019 and amended on April 4, 2022
10.29Ψ	Credit Agreement, dated as of April 24, 2020, by and among Penumbra, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent and Lender, Citibank, N.A., as Lender, and Bank of America, N.A., as Lender	8-K	001-37557	10.1	April 24, 2020
10.30	Amendment No. 1, dated as of February 22, 2021, to Credit Agreement, dated as of April 24, 2020, by and among Penumbra, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent and Lender, Citibank, N.A., as Lender, and Bank of America, N.A., as Lender	10-Q	001-37557	10.1	May 4, 2021
10.31	Amendment No. 2, dated as of February 18, 2022, to Credit Agreement, dated as of April 24, 2020, by and among Penumbra, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent and Lender, Citibank, N.A., as Lender, and Bank of America, N.A., as Lender	10-Q	001-37557	10.1	May 3, 2022
21.1	Subsidiaries of the Registrant
23.1	Consent of Deloitte & Touche LLP
24.1	Power of Attorney (included on signature page)
31.1	Certification of Principal Executive Officer required under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of Principal Financial Officer required under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1*	Certification of Principal Executive Officer and Principal Financial Officer required under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350

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101

The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021, (ii) Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021, and 2020, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020, and (v) Notes to Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as iXBRL with applicable taxonomy extension information contained in Exhibit 101)

* Furnished herewith.

ψ Certain schedules and exhibits to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K promulgated under the Securities Act. The registrant agrees to furnish a copy of any omitted schedule or exhibit to the SEC upon request.

† Indicates a management contract or compensatory plan or arrangement.

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SIGNATURES

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.

		PENUMBRA, INC.
Date: February 23, 2023
	By:	/s/ Maggie Yuen
		Maggie Yuen
		Chief Financial Officer
		(Principal Financial Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Adam Elsesser and Maggie Yuen, and each of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual 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 his or her substitutes, may do or cause to be done by virtue of 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.

Signature	Title	Date
/s/ Adam Elsesser	Chairman, Chief Executive Officer and President	February 23, 2023
Adam Elsesser	(Principal Executive Officer)
/s/ Maggie Yuen	Chief Financial Officer	February 23, 2023
Maggie Yuen	(Principal Financial Officer)
/s/ Lambert Shiu	Chief Accounting Officer	February 23, 2023
Lambert Shiu	(Principal Accounting Officer)
/s/ Arani Bose	Director	February 23, 2023
Arani Bose
/s/ Don Kassing	Director	February 23, 2023
Don Kassing
/s/ Harpreet Grewal	Director	February 23, 2023
Harpreet Grewal
/s/ Thomas C. Wilder	Director	February 23, 2023
Thomas C. Wilder
/s/ Bridget O’Rourke	Director	February 23, 2023
Bridget O’Rourke
/s/ Janet Leeds	Director	February 23, 2023
Janet Leeds
/s/ Surbhi Sarna	Director	February 23, 2023
Surbhi Sarna

120

Document

Exhibit 4.2

DESCRIPTION OF SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

Penumbra, Inc. (“Penumbra,” the “Company,” “we,” “us” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our common stock, par value $0.001 per share.

The following description of our capital stock is based upon our restated Certificate of Incorporation (the “Certificate of Incorporation”), our Second Amended and Restated Bylaws (the “Bylaws”) and applicable provisions of law. We have summarized certain portions of the Certificate of Incorporation and Bylaws below. The summary is not complete and is qualified by reference to the provisions of the Certificate of Incorporation and Bylaws, each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit is a part. You should read the Certificate of Incorporation and Bylaws for the provisions that are important to you.

General

Our authorized capital stock consists of 300,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of undesignated preferred stock, par value $0.001 per share.

Common Stock

Voting rights. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.

Dividend rights. Subject to preferences that may be applicable to any outstanding series of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor.

Rights upon liquidation. In the event of liquidation, dissolution or winding-up of Penumbra, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of any series of preferred stock, if any, then outstanding.

Other rights. The holders of our common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.

Listing. Our common stock is listed on the New York Stock Exchange under the symbol “PEN.”

Transfer Agent. The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.

Preferred Stock

Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders.

The existence of authorized but unissued and unreserved shares of capital stock may make it more difficult for or discourage an attempt by a potential acquirer to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and the issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Penumbra without further action by the stockholders. The issuance of preferred stock may also adversely affect the voting and other rights of the holders of common stock.

Election and Removal of Directors

The Bylaws provide that our board of directors will consist of between five and nine directors. The exact number of directors will be fixed from time to time by resolution of the board, and is currently set at eight. No director may be removed except for cause, and directors may be removed for cause by an affirmative vote of shares representing a majority of the shares then entitled to vote at an election of directors. Any vacancy occurring on the board of directors and any newly created directorship may be filled only by a majority of the remaining directors in office.

Staggered Board

Our board of directors is divided into three classes serving staggered three-year terms. At each annual meeting of stockholders, directors will be elected to succeed the class of directors whose terms have expired. This classification of our board of directors could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors.

Limits on Written Consents

The Certificate of Incorporation and Bylaws provide that holders of our common stock are not able to act by written consent without a meeting.

Stockholder Meetings

The Certificate of Incorporation and Bylaws provide that special meetings of our stockholders may be called only by our board of directors acting pursuant to a resolution adopted by a majority of the board of directors.

Amendment of Certificate of Incorporation

The provisions of the Certificate of Incorporation described under the sections titled “Common Stock—Voting rights,” “Amendment of Bylaws,” “Election and Removal of Directors,” “Stockholder Meetings” and “Limits on Written Consents” may be amended only by the affirmative vote of holders of at least 66⅔% of the voting power of our outstanding shares of voting stock, voting together as a single class. The affirmative vote of holders of at least a majority of the voting power of our outstanding shares of voting stock is generally required to amend other provisions of the Certificate of Incorporation.

Amendment of Bylaws

The Bylaws may generally be altered, amended or repealed, and new bylaws may be adopted, with (i) the affirmative vote of a majority of directors present at any regular or special meeting of the board of directors called for that purpose, or without a meeting if all members of the board of directors consent to the taking of the action, or (ii) the affirmative vote of holders of 66⅔% of the voting power of our outstanding shares of voting stock, voting together as a single class.

Other Limitations on Stockholder Actions

The Bylaws also impose procedural requirements on stockholders who wish to make nominations in the election of directors, propose any amendment to the Bylaws, or propose any other business to be brought before an annual or special meeting of stockholders.

Limitation of Liability of Directors and Officers

The Certificate of Incorporation provides that no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except as required by applicable law, as in effect from time to time. Currently, Delaware law requires that liability be imposed for the following:

•any breach of the director’s duty of loyalty to our company or our stockholders;

•any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law;

•unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”); and

•any transaction from which the director derived an improper personal benefit.

As a result, neither we nor our stockholders have the right, through stockholders’ derivative suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above.

The Certificate of Incorporation also provides that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against all damages, claims and liabilities arising out of the fact that the person is or was our director or officer, or served any other enterprise at our request as a director, officer, employee, agent or fiduciary. We will reimburse the expenses, including attorneys’ fees, incurred by a person indemnified by this provision when we receive an undertaking to repay such amounts if it is ultimately determined that the person is not entitled to be indemnified by us. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment.

Forum Selection

The Bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, as the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or the Bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This forum selection provision will not apply to any causes of action arising under the Securities Act of 1933, as amended, or the Exchange Act or, in each case, the rules and regulations thereunder, or for any other claim for which the U.S. federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise

acquiring any interest in shares of our capital stock will be deemed to have notice of and consented to the foregoing forum selection provision.

Delaware Business Combination Statute

We have elected in the Certificate of Incorporation to be subject to Section 203 of the Delaware General Corporation Law (“Section 203”), which regulates corporate acquisitions. Section 203 prevents an “interested stockholder,” which is defined generally as a person owning 15% or more of a corporation’s voting stock, or any affiliate or associate of that person, from engaging in a broad range of “business combinations” with the corporation for three years after becoming an interested stockholder unless:

•the board of directors of the corporation had previously approved either the business combination or the transaction that resulted in the stockholder’s becoming an interested stockholder;

•upon completion of the transaction that resulted in the stockholder’s becoming an interested stockholder, that person owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than statutorily excluded shares; or

•following the transaction in which that person became an interested stockholder, the business combination is approved by the board of directors of the corporation and holders of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

Under Section 203, the restrictions described above also do not apply to specific business combinations proposed by an interested stockholder following the announcement or notification of designated extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors, if such extraordinary transaction is approved or not opposed by a majority of the directors who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.

Section 203 may make it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. Section 203 also may have the effect of preventing changes in our management and could make it more difficult to accomplish transactions that our stockholders may otherwise deem to be in their best interests.

Anti-Takeover Effects of Some Provisions

Some provisions of the Certificate of Incorporation and Bylaws could make an acquisition of control of us by means of a proxy contest or otherwise more difficult, including those described above such as our staggered board and ability to issue preferred stock. These provisions are designed to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms.

Document

Exhibit 10.1

LEASE AGREEMENT

By and Between

1321 & 1351 HARBOR BAY LLC,

a Delaware limited liability company

(“Landlord”)

and

PENUMBRA, INC., a Delaware corporation

(“Tenant”)

January 1, 2022

3489-00015

TABLE OF CONTENTS

Page

ARTICLE 1 PREMISES; COMMON AREAS	2
ARTICLE 2 TERM AND CONDITION OF PREMISES	4
ARTICLE 3 USE, NUISANCE, OR HAZARD	4
ARTICLE 4 RENT	6
ARTICLE 5 RENT ADJUSTMENT	7
ARTICLE 6 SERVICES TO BE PROVIDED BY LANDLORD	21
ARTICLE 7 REPAIRS AND MAINTENANCE BY LANDLORD	23
ARTICLE 8 REPAIRS AND CARE OF PREMISES BY TENANT	25
ARTICLE 9 TENANT'S EQUIPMENT AND INSTALLATIONS	26
ARTICLE 10 FORCE MAJEURE	27
ARTICLE 11 CONSTRUCTION, MECHANICS' AND MATERIALMAN'S LIENS	28
ARTICLE 12 ARBITRATION	28
ARTICLE 13 INSURANCE	29
ARTICLE 14 QUIET ENJOYMENT	33
ARTICLE 15 ALTERATIONS	33
ARTICLE 16 FURNITURE, FIXTURES, AND PERSONAL PROPERTY	35
ARTICLE 17 PERSONAL PROPERTY AND OTHER TAXES	37
ARTICLE 18 ASSIGNMENT AND SUBLETTING	38
ARTICLE 19 DAMAGE OR DESTRUCTION	43
ARTICLE 20 CONDEMNATION	47
ARTICLE 21 HOLD HARMLESS	48
ARTICLE 22 DEFAULT BY TENANT	49
ARTICLE 23 [INTENTIONALLY OMITTED]	54
ARTICLE 24 [INTENTIONALLY OMITTED]	54
ARTICLE 25 ATTORNEYS' FEES	54
ARTICLE 26 NON-WAIVER	54
ARTICLE 27 RULES AND REGULATIONS	55
ARTICLE 28 ASSIGNMENT BY LANDLORD; RIGHT TO LEASE	55
ARTICLE 29 LIABILITY OF LANDLORD	55
ARTICLE 30 SUBORDINATION AND ATTORNMENT	56
ARTICLE 31 HOLDING OVER	58
ARTICLE 32 SIGNS; ADDRESSES	59
ARTICLE 33 HAZARDOUS SUBSTANCES	59
ARTICLE 34 COMPLIANCE WITH LAWS AND OTHER REGULATIONS	62
ARTICLE 35 SEVERABILITY	64
ARTICLE 36 NOTICES	64
ARTICLE 37 OBLIGATIONS OF, SUCCESSORS, PLURALITY, GENDER	64
ARTICLE 38 ENTIRE AGREEMENT	65
ARTICLE 39 CAPTIONS	65
ARTICLE 40 CHANGES	65

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3489-00015

ARTICLE 41 AUTHORITY	65
ARTICLE 42 BROKERAGE	66
ARTICLE 43 EXHIBITS	66
ARTICLE 44 APPURTENANCES	66
ARTICLE 45 PREJUDGMENT REMEDY, REDEMPTION, COUNTERCLAIM, AND
JURY	67
ARTICLE 46 RECORDING	67
ARTICLE 47 MORTGAGEE PROTECTION	67
ARTICLE 48 OTHER LANDLORD CONSTRUCTION	67
ARTICLE 49 PARKING	68
ARTICLE 50 ELECTRICAL CAPACITY	69
ARTICLE 51 OPTIONS TO EXTEND LEASE	69
ARTICLE 52 TELECOMMUNICATIONS LINES AND EQUIPMENT	75
ARTICLE 53 ERISA	75
ARTICLE 54 TENANT'S RIGHT OF FIRST OFFER TO PURCHASE	75
ARTICLE 55 TENANT'S RIGHT OF FIRST OFFER TO LEASE	76
ARTICLE 56 TENANT'S ROOFTOP RIGHTS	76
ARTICLE 57 EXISTING LEASE TERMINATION	79

EXHIBITS

EXHIBIT A - THE PROJECT

EXHIBIT B - TENANT WORK LETTER

EXHIBIT C - RULES AND REGULATIONS

EXHIBIT D - FORM OF TENANT'S ESTOPPEL CERTIFICATE

EXHIBIT E - STANDARDS FOR UTILITIES AND SERVICES

EXHIBIT F - FORM OF NON-DISCLOSURE AGREEMENT

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3489-00015

LEASE AGREEMENT

THIS LEASE AGREEMENT, (this “Lease”) is made and entered into as of January 1, 2022 (the “Effective Date”) by and between 1321 & 1351 HARBOR BAY LLC, a Delaware limited liability company (“Landlord”), and Tenant identified in the Basic Lease Information below.

BASIC LEASE INFORMATION

Tenant: Penumbra, Inc., a Delaware corporation

Premises: 148,157 rentable square feet of space

Buildings: the buildings commonly known as 1321 and 1351 Harbor Bay Parkway, Alameda, California, containing approximately 148,157 square feet of rentable area (collectively, the “Building”).

Base Rent: +

Period	Approximate Monthly Rate Per Rentable<br><br>Square Foot	Monthly Base Rent
1/1/22 – 12/31/22	$2.20	$325,945.40
1/1/23 – 12/31/23	$2.27	$335,723.76
1/1/24 – 12/31/24	$2.33	$345,795.47
1/1/25 – 12/31/25	$2.40	$356,169.34
1/1/26 – 12/31/26	$2.48	$366,854.42
1/1/27 – 12/31/27	$2.55	$377,860.05
1/1/28 – 12/31/28	$2.63	$389,195.85
1/1/29 – 12/31/29	$2.71	$400,871.73
1/1/30 – 12/31/30	$2.79	$412,897.88
1/1/31 – 12/31/31	$2.87	$425,284.82
1/1/32 – 12/31/32	$2.96	$438,043.36
1/1/33 – 12/31/33	$3.05	$451,184.66
1/1/34 – 12/31/34	$3.14	$464,720.20
1/1/35 – 12/31/35	$3.23	$478,661.81
1/1/36 – 12/31/36	$3.33	$493,021.66

All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.

Security Deposit Amount: None.

Tenant's Building Percentage: 100%.

Tenant's Common Area Building Percentage: 100%.

Commencement Date: January 1, 2022.

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Expiration Date: December 31, 2036.

Landlord's Address: 1321 & 1351 Harbor Bay LLC

c/o Paceline Investors LLC

595 Market Street

Suite 2525

San Francisco, CA 94105

Tenant's Address:

One Penumbra Place 1351 Harbor Bay Parkway Alameda, California 94502 Attention: General Counsel

With a copy to:

Shartsis Friese LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Attention:    Jonathan M. Kennedy/ David H. Kremer/Scott A. Schneider

Landlord's Broker: None

Tenant's Broker: Cushman & Wakefield.

Maximum Parking Allocation: all designated parking for the entire Building.

Tenant Improvement Allowance: $5,203,268.90

The Basic Lease Information is incorporated into and made part of this Lease. Each reference in this Lease to any Basic Lease Information shall mean the applicable information set forth in the Basic Lease Information, except that in the event of any conflict between an item in the Basic Lease Information and this Lease, this Lease shall control. Additional terms used but not defined in the Basic Lease Information shall have the meanings given those terms in this Lease.

ARTICLE 1 PREMISES; COMMON AREAS

1.1    Subject to all of the terms and conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. The property shown on Exhibit A to this Lease and all improvements thereon and appurtenances on that land thereto, including, but not limited to, the Building, other office buildings, access roadways, and all other related areas, shall be collectively hereinafter referred to as the “Project.” The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises and the general layout of the Project and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises or the Project, the precise area of the Premises or the Project or the specific location of the Building, “Common Areas,” as that term is defined in Section 1.3, below, or the elements thereof

3489-00015<br><br>1321/1351 Harbor Bay Pkwy	-2-

or of the accessways to the Premises, or the Project, or the identity or existence of any other tenant or occupant of the Project.

1.2    For purposes of this Lease, (1) ”rentable area” and “usable area” shall be calculated pursuant to the Gross Area 1 Leasing Method for Measuring Floor Area in Office Buildings (ANSI/BOMA Z65.1, 2018) (the “BOMA Standard”); (2) ”rentable square feet” and “rentable footage” and “RSF” shall have the same meaning as the term “rentable area;” and (3) ”usable square feet” and “usable square footage” shall have the same meaning as the term “usable area.”. Notwithstanding anything to the contrary in this Lease, the recital of the rentable area herein above set forth is for descriptive purposes only. Tenant shall have no right to terminate this Lease or receive any adjustment or rebate of any Base Rent or Additional Rent (as hereinafter defined) payable hereunder if said recital is incorrect. For purposes of this Lease the rentable area of the Premises will not be subject to remeasurement by either party hereto at any time.

1.3    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 27 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its reasonable discretion, after the Effective Date including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “Common Areas”). Tenant shall have the nonexclusive right, in common with others, to use the Common Areas subject to the terms and conditions of this Lease. As used herein, the Common Areas include any other portion of the Project not leased or designated for lease to tenants from time to time that are provided for use in common by Landlord, Tenant and other tenants of the Project, whether or not any such area is open to the general public, including all landscaping located in or used in connection with those areas of the Project, and including without limitation and pedestrian walkways, parking areas and roads located in the Project. The manner in which the Common Areas are maintained and operated shall, except as set forth below, be at the reasonable discretion of Landlord; but subject to the standards set forth in Article 7, and the use thereof shall be subject to such reasonable rules, regulations and restrictions as Landlord may make from time to time. Landlord reserves the right to close certain Common Areas temporarily to make alterations or additions to or change the location of elements of the Project and the Common Areas; provided that in exercising its rights under this sentence, Landlord shall make commercially reasonable efforts to minimize the disruption to Tenant's business operations during standard business hours. Except in the event of an emergency, Landlord will not materially alter (or agree to any material alteration of) the maintenance standards for the Common Areas or construct or demolish (or agree to the construction or demolition of) of any aspect of the Common Areas, in each case, to the extent under the control of Landlord, without first consulting with Tenant. Subject to “Applicable Laws,” as that term is defined in Section 5.1(a) of this Lease, except when and where Tenant's right of access is specifically excluded in this Lease, and except in the event of an emergency, Tenant shall have the right of access to the Premises, the Building, and the parking facilities servicing the Building twenty-four (24) hours per day, seven (7) days per week during the “Term,” as that term is defined in Section 2.1, below.

3489-00015<br><br>1321/1351 Harbor Bay Pkwy	-3-

ARTICLE 2 TERM AND CONDITION OF PREMISES

2.1    The term of this Lease (the “Term”) shall commence on the Commencement Date and end on the Expiration Date, unless sooner terminated (the “Termination Date”) as hereinafter provided. The Commencement Dates of this Lease and the obligation of Tenant to pay Base Rent, Additional Rent and all other charges hereunder shall not be delayed or postponed by reason of any delay by Tenant in performing changes or alteration in the Premises not required to be performed by Landlord. In the event that any Commencement Date is a day other than the first day of a month, then the Base Rent shall be immediately paid for such partial month prorated in accordance with Section 4.4 below, subject to Tenant’s abatement rights set forth in the Basic Lease Information.

2.2    Except as expressly set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “Tenant Work Letter”), Landlord shall not be obligated to provide or pay for any improvement, remodeling or refurbishment work or services related to the improvement, remodeling or refurbishment of the Premises, Building or Project, and Tenant shall accept the Premises, Building and Project in their “As Is” condition on the Commencement Date.

2.3    Neither Landlord nor Landlord's agents have made any representations or promises with respect to the condition of the Building, the Premises, the land upon which the Building is constructed, or any other matter or thing affecting or related to the Building or the Premises, except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in this Lease.

ARTICLE 3 USE, NUISANCE, OR HAZARD

3.1    The Premises shall be used and occupied by Tenant solely for research and development (including clean rooms), general office and light manufacturing/assembly purposes and any other purposes which are legally permissible and do not materially adversely impact the value of the Project (including the operation of cafeterias (not open to general public or available for use by employees of other Project tenants). As part of Tenant's use, Tenant shall have the right to use one or more portions of the Premises for the operation of, and include in the Tenant Improvements (or subsequent Alterations) the construction of, a kitchen/cooking facility (including a gas line of adequate capacity with gas lines stubbed to the Premises) for Tenant's employees and guests only (in no event shall such kitchen/cooking facility be open to or serve the general public), on and subject to the following terms and conditions: (i) Tenant shall be responsible, at its sole cost and expense (subject to the application of the Tenant Improvement Allowance), for obtaining all applicable permits, licenses and governmental approvals necessary for the use of the Premises for such kitchen/cooking facility uses (including, without limitation, any necessary approvals from the applicable health and/or fire departments, permits required in connection with any venting or other air-removal/circulation system, and any required fire-suppression systems), copies of which shall be delivered to Landlord prior to Tenant's installation of any alterations in the Premises in connection with such kitchen/cooking facility uses; (ii) in the event such use requires any alterations to the Base Building (specifically including, without limitation, in connection with the installation of any venting or other air-removal/circulation system), Tenant shall be solely responsible for all costs incurred in connection therewith (subject to the application of the Tenant Improvement Allowance),

3489-00015<br><br>1321/1351 Harbor Bay Pkwy	-4-

and (iii) Landlord shall have consented to such use, which consent shall not be unreasonably withheld. Tenant will additionally have the right to devote a reasonable portion of the Premises towards the operation of a fitness/wellness center for Tenant's employees only (including shower and locker facilities) subject to such reasonable rules and regulations regarding such operations as Landlord may implement for such fitness center.

3.2    Tenant shall not use, occupy, or permit the use or occupancy of the Premises for any purpose which is illegal or which Landlord, in its reasonable discretion, deems to be dangerous; permit any public or private nuisance; do or permit any act or thing which may unreasonably disturb the quiet enjoyment of any other tenant of the Project; keep any substance or carry on or permit any operation which might introduce offensive odors or conditions into other portions of the Project, use any apparatus which might make undue noise or set up vibrations in or about the Project; permit anything to be done which would increase the premiums paid by Landlord for special causes of loss form property insurance on the Project or its contents (unless Tenant agrees to pay such increased premium) or cause a cancellation of any insurance policy covering the Project or any part thereof or any of its contents; or permit anything to be done which is prohibited by or which shall in any way conflict with any law, statute, ordinance, or governmental rule, regulation or covenants, conditions and restrictions affecting the Project, including without limitation the CC&R's (as defined below) now or hereinafter in force. Should Tenant do any of the foregoing without the prior written consent of Landlord, and the same is not cured within ten (10) business days after notice from Landlord (which ten (10) business day period shall be subject to extension if the nature of the breach is such that it is not possible to cure the same within such ten (10) business day period so long as the Tenant commences the cure of such breach within such ten (10) business day period and diligently prosecutes the same to completion) at Landlord's option, it shall constitute an Event of Default (as hereinafter defined) and shall enable Landlord to resort to any of its remedies hereunder.

3.3    The ownership, operation, maintenance and use of the Project shall be subject to certain conditions and restrictions contained in an instrument (“CC&R's”) recorded or to be recorded against title to the Project. Tenant agrees that regardless of when those CC&R's are so recorded, this Lease and all provisions hereof shall be subject and subordinate thereto and Tenant shall comply therewith; provided, however, that except as required by Applicable Laws (as defined below), Tenant's obligation to comply with CC&R's recorded after the date of this Lease shall be subject to Tenant's prior consent, which will not be withheld unless the same would materially adversely affect Tenant's rights or materially increase Tenant's obligations under this Lease. Accordingly, as a consequence of that subordination, during any period in which the entire Project is not owned by Landlord, (a) the portion of Operating Expenses and Taxes (each as defined below) for the Common Areas shall be allocated among the owners of the Project as provided in the CC&R's, and (b) the CC&R's shall govern the maintenance and insuring of the portions of the Project not owned by Landlord. Tenant shall, promptly upon request of Landlord, sign all documents reasonably required to carry out the foregoing into effect.

ARTICLE 4 RENT

4.1    Tenant hereby agrees to pay Landlord the Base Rent. For purposes of Rent adjustment hereunder, the number of months is measured from the first day of the calendar month in which the Commencement Date falls. Each monthly installment (the “Monthly Rent”) shall be payable by check or by money order or by

3489-00015<br><br>1321/1351 Harbor Bay Pkwy	-5-

Federal Reserve Automated Clearing House (ACH) deposit to an account as directed by Landlord by written notice to Tenant on or before the first day of each calendar month. Landlord agrees to accept payment by Federal Reserve Automated Clearing House (ACH) deposit only so long as such system is available for Landlord's use. In addition to the Base Rent, Tenant also agrees to pay Tenant's Share of Operating Expenses and Taxes (each as hereinafter defined), and any and all other sums of money as shall become due and payable by Tenant as set forth in this Lease, all of which shall constitute additional rent under this Lease (the “Additional Rent”). All non-recurring payments of Additional Rent will be due and payable as of the date that is thirty (30) days after Landlord's delivery of an invoice therefor. Landlord expressly reserves the right to apply any payment received to Base Rent or any other items of Rent that are not paid by Tenant. The Base Rent, the Monthly Rent and the Additional Rent are sometimes hereinafter collectively called “Rent” and shall be paid when due in lawful money of the United States without demand, deduction, abatement, or offset, except to the extent expressly set forth herein, to the addresses for the rental payment set forth in the Basic Lease Information, or via ACH transfer or as Landlord may designate from time to time by written notice delivered at least thirty (30) days prior to the effective date of the address change.

4.2    In the event any Monthly Rent or Additional Rent or other amount payable by Tenant hereunder is not paid within five (5) days after its due date, Tenant shall pay to Landlord a late charge (the “Late Charge”), as Additional Rent, in an amount of five percent (5%) of the amount of such late payment. Failure to pay any Late Charge following notice and the passage of the cure period described in Section 22.1(a) below shall be deemed a Monetary Default (as hereinafter defined). Provision for the Late Charge shall be in addition to all other rights and remedies available to Landlord hereunder, at law or in equity, and shall not be construed as liquidated damages or limiting Landlord's remedies in any manner. Failure to charge or collect such Late Charge in connection with any one (1) or more such late payments shall not constitute a waiver of Landlord's right to charge and collect such Late Charges in connection with any other similar or like late payments. Notwithstanding the foregoing provisions of this Section 4.2, the Late Charge shall not be imposed with respect to the first late payment in the twelve (12) months following the Commencement Date or with respect to the first late payment in any succeeding twelve (12) month period during the Term unless the applicable payment due from Tenant is not received by Landlord within five (5) days following written notice from Landlord that such payment was not received when due. Following the first such written notice from Landlord in the twelve (12) months following the Commencement Date and the first such written notice in any succeeding twelve (12) month period during the Term (but regardless of whether such payment has been received within such five (5) day period), the Late Charge will be imposed without notice for any subsequent payment due from Tenant during such applicable twelve (12) month period which is not received within five (5) days after its due date.

4.3    All Rents and any other amount payable by Tenant to Landlord hereunder, if not paid when due, shall bear interest from the date due until paid at a rate equal to the prime commercial rate established from time to time by Bank of America, plus four percent (4%) per annum; but not in excess of the maximum legal rate permitted by law. Failure to charge or collect such interest in connection with any one (1) or more delinquent payments shall not constitute a waiver of Landlord's right to charge and collect such interest in connection with any other or similar or like delinquent payments.

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ARTICLE 5 RENT ADJUSTMENT

5.1    Definitions.

(a)    “Operating Expenses”, as said term is used herein, shall, subject to the exclusions and limitations set forth herein, mean all expenses, costs, and disbursements of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the ownership, operation, management, security, repair, restoration, replacement, or maintenance of the Project, or any portion thereof. Operating Expenses shall be computed in accordance with generally accepted property management practices prevailing among owners of Comparable Buildings (“Prevailing Management Practices”), consistently applied, and shall include, but not be limited to, the items as listed below:

(i)    Wages, salaries, other compensation and any and all taxes, insurance and benefits of, the Project manager and of all other persons engaged in the operation, maintenance and security of the Project (prorated, in the case of employees performing services for one or more properties, on the basis of the estimated number of hours spent performing services for the Project);

(ii)    Payments under any equipment rental agreements or management agreements, including without limitation the cost of any actual or charged management fee and all expenses for the Project management office including rent, office supplies, and materials therefor;

(iii)    Costs of all supplies, equipment, materials, and tools and amortization (including interest at the rate described in clause (vii) below on the unamortized cost) 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;

(iv)    All costs incurred in connection with the operation, maintenance, and repair of the Project including without limitation, the following: (A) the cost of operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project; (B) the cost of Common Area janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (C) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which are reasonably anticipated by Landlord to increase Operating Expenses, and the cost incurred in connection with a transportation system management program or similar program; (D) the cost of landscaping, decorative lighting, and relamping, the cost of maintaining fountains, sculptures, bridges; (E) 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 “Taxes” as that term is defined below; and (F) costs and expenses of complying with, or participating in, conservation, recycling, sustainability, energy efficiency, waste reduction or other programs or practices implemented or enacted from time to time at the Building, including, without limitation, in connection with any LEED (Leadership in Energy and Environmental Design) rating or compliance system or program, including that currently coordinated through the U.S. Green Building council or Energy Star

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rating and/or compliance system or program (collectively, “Conservation Costs”); provided, however, that Operating Expenses will not include any capital costs incurred by Landlord in order to initially meet or achieve any LEED or similar certification or rating, as opposed to the annual costs associated with maintaining a previously obtained or achieved rating.

(v)    The cost of supplying all utilities, the cost of operating, maintaining, repairing, replacing, renovating and managing the utility systems, mechanical systems, sanitary, storm drainage systems, communication systems and escalator and elevator systems, and the cost of supplies, tools, and equipment and maintenance and service contracts in connection therewith (however, if and to the extent that any portion of the Premises, from time to time, is metered for any utility consumption such that Tenant pays for the cost of Tenant's utility consumption in such portion of the Premises, either directly to the utility provider or to Landlord, then, with respect to the rentable area of such portion of the Premises, Operating Expenses will not include the cost of the provision of such utilities to any other occupied or occupiable space in the Project).

(vi)    The cost of all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord, including without limitation commercial general liability insurance, physical damage insurance covering damage or other loss caused by fire, earthquake, flood or other water damage, explosion, vandalism and malicious mischief, theft or other casualty, rental interruption insurance and such insurance as may be required by any lessor under any present or future ground or underlying lease of any of the Buildings or of the Project or any holder of a mortgage, deed of trust or other encumbrance now or hereafter in force against any of the Buildings or the Project or any portion thereof, and any deductibles payable thereunder; including, without limitation, Landlord's cost of any self-insurance deductible or retention; provided, however, that if and to the extent Landlord incurs a deductible payment under any policy of earthquake or terrorism insurance coverage, then for the purposes of including such deductible payment in Operating Expenses, such deductible payment shall be treated as if it is a Permitted Capital Expenditure (defined below) with an associated useful life of seven (7) calendar years;

(vii)    Capital improvements or capital renovations made to or capital assets or capital replacements acquired for the Project, or any portion thereof that (1) are intended for the primary purpose of causing a net reduction in Operating Expenses (“Cost Saving Capital Items”), or (2) are necessary for the health, safety and/or security of the Project, its occupants and visitors and are deemed advisable in the reasonable judgment of Landlord and are commensurate with the practices of owners of Comparable Buildings, or (3) are Conservation Costs (subject to the limitation set forth in clause (F) of Section 5.1(a)(iv) above), or (4) are required under any and all applicable laws, statutes, codes, ordinances, orders, rules, regulations, conditions of approval and requirements of all federal, state, county, municipal and governmental authorities and all administrative or judicial orders or decrees and all permits, licenses, approvals and other entitlements issued by governmental entities, and rules of common law, relating to or affecting the Project, the Premises or the Buildings or the use or operation thereof, whether now existing or hereafter enacted, including, without limitation, the Americans with Disabilities Act of 1990, 42 USC 12111 et seq. as the same may be amended from time to time (the “ADA”), all Environmental Laws (as hereinafter defined), and any CC&R's, or any corporation, committee or association formed in connection therewith, or any supplement thereto recorded in

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any official or public records with respect to the Project or any portion thereof (collectively, “Applicable Laws”) (except for capital repairs, replacements or other improvements to remedy a condition existing prior to the Commencement Date which an applicable governmental authority, if it had knowledge of such condition prior to the Commencement Date, would have then required to be remedied pursuant to then-current governmental laws or regulations in their form existing as of the Commencement Date and pursuant to the then-current interpretation of such governmental laws or regulations by the applicable governmental authority as of the Commencement Date); and the cost described in this Section 5.1(a)(vii) being referred to as “Permitted Capital Expenditures”. The cost of Permitted Capital Expenditures shall, for the purpose of inclusion in Operating Expenses, be amortized by Landlord on a straight line basis over the economic useful life of the capital item in question, as reasonably determined by Landlord using generally accepted accounting principles (“GAAP”), consistently applied, and Prevailing Management Practices. The amortized cost of Permitted Capital Expenditures may include interest at the rate paid or payable by Landlord on any funds borrowed for such expenditures from an unaffiliated third-party financial institution, but in no event in excess of the market rate of interest customarily paid on such borrowed funds for such purposes. However, with respect to Cost Saving Capital Items, the monthly inclusion of the amortized cost of such Cost Saving Capital Item shall be further subject to the following limitation: such inclusion shall not exceed an amount that Landlord, anticipated in good faith to be the net reduction in Operating Expenses resulting from such Cost Saving Capital Item;

(viii)    fees, charges and other costs, including management fees, consulting fees, legal fees and accounting fees, of all contractors, engineers, consultants and other persons engaged by Landlord or otherwise incurred by or charged by Landlord in connection with the management, operation, maintenance and repair of the Buildings and the Project; and

(ix)    payments, fees or charges under the CC&R's and any easement, license, operating agreement, declaration, restricted covenant, or instrument pertaining to the sharing of costs by the Project, or any portion thereof (including without limitation costs with respect to the installation and/or replacement of a fountain payable under the CC&R's).

Expressly excluded from Operating Expenses are the following items:

1.    Advertising and leasing commissions;

2.    If, at any time, Landlord elects to self-insure for all or any portion of the insurance coverage required to be maintained by Landlord pursuant to the provisions of Article 13 below, the amount which Landlord would have recovered from any event or circumstance if Landlord had maintained the full amount of insurance coverage described in Article 13 below in lieu of any such self-insurance program;

3.    Principal, interest, and other costs directly related to financing the Project or ground lease rental or depreciation;

4.    The cost of special services to tenants (including Tenant) for which a special charge is made;

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5.    The costs of any capital expenditures except (i) Permitted Capital Expenditures and (ii) any capital expenditures assessed or payable under any CC&R's;

6.    The costs, including permit, license and inspection costs and supervision fees, incurred with respect to the installation of tenant improvements within the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space within the Project or promotional or other costs in order to market space to potential tenants;

7.    The legal fees and related expenses and legal costs incurred by Landlord (together with any damages awarded against Landlord) due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Project;

8.    Costs incurred: (x) to comply with Applicable Laws with respect to any Hazardous Materials (as defined below) which were in existence in, on, under or about the Project (or any portion thereof) prior to the Initial Commencement Date, and were of such a nature that a federal, state or municipal governmental or quasi-governmental authority, if it had then had knowledge of the presence of such Hazardous Materials, in the state, and under the conditions that they then existed in, on, under or about the Project, would have then required the removal, remediation or other action with respect thereto; and/or (y) with respect to Hazardous Materials which are disposed of or otherwise introduced into, on, under or about the Project after the date hereof by Landlord or Landlord's agents or employees and are of such a nature, at time of disposition or introduction, that a federal, state or municipal governmental or quasi-governmental authority, if it had then had knowledge of the presence of such Hazardous Materials, in the state, and under the conditions, that they then existed in, on, under or about the Project, would have then required the removal, remediation or other action with respect thereto; provided, however, Operating Expenses shall include costs incurred in connection with the clean-up, remediation, monitoring, management and administration of (and defense of claims related to) the presence of (1) Hazardous Materials used by Landlord (provided such use is not negligent and is in compliance with Applicable Laws) in connection with the operation, repair and maintenance of the Project to perform Landlord's obligations under this Lease (such as, without limitation, fuel oil for generators, cleaning solvents, and lubricants) and which are customarily found or used in Comparable Buildings and (2) Hazardous Materials created, released or placed in the Premises, Buildings or the Project by Tenant (or Tenant's affiliates or their tenants, contractors, employees or agents) prior to or after the Commencement Date;

9.    The attorneys' fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Project;

10.    The expenses in connection with services or other benefits which are not available to Tenant;

11.    The overhead and profit paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Project to the extent the

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same exceeds the costs of such goods and/or services rendered by qualified, unaffiliated third parties on a competitive basis;

12.    Landlord's charitable or political contributions;

13.    The costs (other than ordinary maintenance and insurance) for sculpture, paintings and other objects of art;

14.    Interest and penalties resulting from Landlord's failure to pay any items of Operating Expense or Taxes when due;

15.    The Landlord's general corporate overhead and general and administrative expenses, costs of entertainment, dining, automobiles or travel for Landlord's employees, and costs associated with the operation of the business of the partnership or entity which constitutes Landlord as the same are distinguished from the costs of the operation of the Project, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord's interest in the Project, costs of any disputes between Landlord and its employees (if any) not engaged in the operation of the Project, disputes of Landlord with management, or outside fees paid in connection with disputes with other Project tenants or occupants (except to the extent such dispute is based on Landlord's good faith efforts to benefit Tenant or meet Landlord's obligations under this Lease);

16.    The costs arising from the gross negligence or willful misconduct of Landlord;

17.    The management office rental to the extent such rental exceeds the fair market rental for such space;

18.    The costs of correction of latent defects in the Project to the extent covered by warranties;

19.    The costs of Landlord's membership in professional organizations (such as, by way of example and without limitation, BOMA) in excess of $2,500.00 per year.

20.    Repairs or other work occasioned by casualty to the extent that Landlord shall receive proceeds of such insurance or would have received such proceeds had Landlord maintained the insurance coverage required under this Lease;

21.    Salaries of individuals who hold a position which is generally considered to be higher in rank than the position of the manager of the Project or the chief engineer of the Project;

22.    The cost of any service sold to any tenant or occupant of the Building for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease or occupancy agreement with that tenant or other occupant;

23.    Any amounts paid to any person, firm or corporation related or otherwise affiliated with Landlord or any general partner, officer or

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director of Landlord or any of its general partners, to the extent same materially exceeds arms-length competitive prices paid in the Alameda, California, metropolitan area for services and goods comparable to the services or goods provided;

24.    Costs incurred in removing and storing the property of former tenants or occupants of the Building;

25.    The cost of installing, operating and maintaining any specialty service, observatory, broadcasting facilities, luncheon club, museum, athletic or recreational club, or child care facility, and the cost of installing, operating and maintaining any other service operated or supplied by or normally operated or supplied by a third party under an agreement between a third party and a landlord;

26.    The entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates (other than travel expenses specifically related to Landlord or its property manager performing its obligations under this Lease);

27.    Costs incurred in connection with any bankruptcy proceedings; and

28.    Consulting costs and consulting expenses paid by Landlord unless they relate exclusively to the management or operation of the Project.

29.    That portion, if any, of the management fees paid to Landlord or any affiliate of Landlord that are materially in excess of management fees charged in connection with the management of Comparable Buildings, providing services similar to, and to the same level as, those provided for the Building or are otherwise in excess of three percent (3.0%) of the gross rental revenue derived from the Premises;

(b)    “Taxes” shall mean all real property taxes, ad valorem taxes, personal property taxes, and all other taxes, assessments, embellishments, use and occupancy taxes, transit taxes, water, sewer and pure water charges not included in Section 5.1.(a)(v) above, excises, levies, license fees or taxes, and all other similar charges, levies, penalties, or taxes, if any, which are levied, assessed, or imposed, by any Federal, State, county, or municipal authority, whether by taxing districts or authorities presently in existence or by others subsequently created, upon, or due and payable in connection with, or a lien upon, all or any portion of the Project, or facilities used in connection therewith, and rentals or receipts therefrom and all taxes of whatsoever nature that are imposed in substitution for or in lieu of any of the taxes, assessments, or other charges included in its definition of Taxes, and any costs and expenses of contesting the validity of same. Taxes 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

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occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Taxes 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 assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises, the tenant improvements in 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; (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; (v) All of the real estate taxes and assessments imposed upon or with respect to the Buildings and all of the real estate taxes and assessments imposed on the land and improvements comprising the Project, and (vi) assessments attributable to the Project by any governmental or quasi-governmental agency that Landlord is required to pay. For purposes of this Lease, Taxes shall be calculated as if the tenant improvements in the Buildings were fully constructed and the Project, the Buildings, and all tenant improvements in the Buildings were fully assessed for real estate tax purposes, and accordingly, Taxes shall be deemed to be increased appropriately. Notwithstanding anything to the contrary contained in this Section 5.1(b), there shall be excluded from Taxes (1) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state net income taxes, and other taxes to the extent applicable to Landlord's net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 17.1 of this Lease and similar amounts payable by other Project tenants under similar terms of their leases. If Landlord receives a refund of Taxes, or a credit against future Taxes, for any calendar year, Landlord shall, at its election, either pay to Tenant, or credit against subsequent payments of Rent due hereunder, an amount equal to Tenant's Common Area Building Percentage of the refund (not to exceed the amount paid by Tenant for Taxes for the applicable year), net of any reasonable expenses incurred by Landlord in achieving such refund; provided, however, if this Lease shall have expired or is otherwise terminated, Landlord shall refund in cash any such refund or credit due to Tenant within thirty (30) days after Landlord's receipt of such refund or its receipt of such credit against future Taxes. Landlord's obligation to so refund to Tenant any such refund or credit of Taxes shall survive such expiration or termination. If any Tax can be paid by Landlord in installments, then, for the purpose of calculating Tenant's obligation to pay Taxes, any such Tax shall be deemed to be paid by Landlord in the maximum allocable number of installments, regardless of the manner in which Landlord actually pays such Taxes. Tenant, at Tenant's sole cost and expense, may retain a reputable consultant to review pertinent information related to Taxes assessed against the Project, including valuations, tax bills and other information (“Tax Information”), including review of Tax Information for similar projects in the vicinity of the Project. If, based on that consultant's written recommendation, Tenant believes that it would be appropriate to contest or seek recovery of Taxes, Tenant may give Landlord notice thereof together with a copy of all reports provided by Tenant's consultant and Landlord will meet and confer with Tenant in good faith to discuss whether a contest or other appeal or challenge of Taxes is appropriate. If and to the extent Landlord reasonably believes that it is a prudent business decision to contest or seek recovery of Taxes as recommended by Tenant's consultant, Landlord will take reasonable action to pursue such contest and/or recovery. However if the Building is located on a separate tax parcel (i.e., the Building does not share a tax parcel with any other building) and Tenant leases eighty percent (80%) or more of the rentable area in the Building, then, if Landlord declines to proceed with any

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such contest or other challenge or appeal of Taxes which was recommended by Tenant's tax consultant, Tenant may elect by written request (the “Tax Notice”) to Landlord to require Landlord to proceed with such contest or other challenge or appeal of Taxes, in which event, so long as Tenant continues to pay all Rent (including all Taxes as assessed) as required under this Lease, Landlord agrees to undertake such contest or other challenge or appeal as requested by Tenant in the Tax Notice and Tenant shall reimburse Landlord for all costs and expenses incurred by Landlord in connection with such contest, challenge or appeal within thirty (30) days after Landlord's written demand given from time to time. In the event that as a result of such contest, challenge or appeal undertaken by Landlord in response to a Tax Notice it is determined that Taxes have been overpaid or that the taxpayer is entitled to a reimbursement or retroactive decrease, then any refund or credit shall first be applied to reimburse Tenant for the cost of such proceedings paid by Tenant, but in no event more than the cumulative tax savings to Landlord achieved as a result of such contest, challenge or appeal, and the balance thereof shall be paid or credited to Tenant as provided above in this Section 5.1(b).

(c)    “Lease Year” shall mean the twelve (12) month period commencing January 1st and ending December 31st.

(d)    “Tenant's Building Percentage” shall mean Tenant's percentage of the Building as determined by dividing the rentable area of the Premises by the total rentable area of the Building. If there is a change in the total of the Building rentable area as a result of an addition to the Building, partial destruction, modification or similar cause, which event causes a reduction or increase on a permanent basis, Landlord shall cause adjustments in the computations as shall be necessary to provide for any such changes; any such adjustments shall be calculated in accordance with the BOMA Standard. Landlord shall segregate Operating Expenses on an equitable basis into two (2) separate categories, one (1) such category, to be applicable only to Operating Expenses incurred for the Building and the other category applicable to Operating Expenses incurred for the Common Areas and/or the Project as a whole. As a consequence, two (2) Tenant's Building Percentages shall apply, one (1) such Tenant's Building Percentage shall be calculated by dividing the rentable area of the Premises by the total rentable area in the Building (“Tenant's Building Only Percentage”), and the other Tenant's Building Percentage to be calculated by dividing the rentable area of all Premises by the total rentable area of all buildings in the Project (“Tenant's Common Area Building Percentage”). Consequently, any reference in this Lease to “Tenant's Building Percentage” shall mean and refer to both Tenant's Building Only Percentage and Tenant's Common Area Building Percentage of Operating Expenses. Tenant's Building Percentage shall be determined separately for each individual Building in which a portion of the Premises may be located.

(e)    “Tenant's Tax Percentage” shall mean the percentage determined by dividing the rentable area of the Premises by the total rentable area of all buildings in the Project.

(f)    “Market Area” shall mean Alameda, California (the “City”).

(g)    “Comparable Buildings” shall mean comparable office/R&D use buildings owned by institutions in the Market Area.

5.2    Tenant shall pay to Landlord, as Additional Rent, Tenant's Share (as hereinafter defined) of the Operating Expenses. “Tenant's Share” shall be determined by multiplying Operating Expenses for any Lease Year or pro rata portion thereof, by Tenant's Building Percentage. Landlord shall, in advance of each Lease

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Year, deliver to Tenant a written estimate of what Tenant's Share will be for such Lease Year based, in part, on Landlord's operating budget for such Lease Year, Landlord's annual statement of estimated Operating Expenses for any year shall be set forth in reasonable detail, and shall contain (i) a line-item breakdown of component costs comparable to that described in Section 5.3 and (ii) the method of calculation of any so-called “gross-up” performed by Landlord in estimating Operating Expenses. Tenant shall pay Tenant's Share as so estimated each month (the “Monthly Escalation Payments”). The Monthly Escalation Payments shall be due and payable at the same time and in the same manner as the Monthly Rent.

5.3    Landlord shall, within one hundred fifty (150) days after the end of each Lease Year, or as soon thereafter as reasonably possible, provide Tenant with a written statement of the actual Operating Expenses incurred during such Lease Year for the Project and such statement shall set forth Tenant's Share of such Operating Expenses (“Landlord's Statement”). Landlord's Statement shall be set forth in reasonable detail, and shall contain a line-item breakdown showing at least the following major categories and subcategories of costs:

(i)    maintenance and repairs;

(ii)    utilities;

(iii)    security;

(iv)    common area association dues and assessments;

(v)    grounds;

(vi)    management fees;

(vii)    insurance; and

(viii)    administrative fees.

Without the necessity of exercising Tenant's rights described in Section 5.4 below, Tenant may at any time following delivery of Landlord's Statement, request that Landlord meet with Tenant to review such Landlord's Statement including, without limitation, for the purpose of allowing Tenant to receive an explanation of any other items reasonably requested by Tenant, including:

1)    the method of calculation of any “gross-up” of Operating Expenses performed by Landlord;

2)    the anticipated savings to be realized in the subject calendar year by any Cost Saving Capital Item the cost of which is included as a portion of Operating Expenses;

3)    the method of prorating the wages, salaries and payroll burden of employees engaged primarily, but not solely, in the management, operation or maintenance of the Project; and/or

4)    any proportionate cost attributable to a Building which represents a proration of costs shared by one or more buildings.

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Tenant shall pay Landlord, as Additional Rent, the difference between Tenant's Share of Operating Expenses and the amount of Monthly Escalation Payments made by Tenant attributable to said Lease Year, such payment to be made within thirty (30) days of the date of Tenant's receipt of said statement (except as provided in Section 5.4 below); similarly, Tenant shall receive a credit if Tenant's Share is less than the amount of Monthly Escalation Payments collected by Landlord during said Lease Year, such credit to be applied to future Monthly Escalation Payments to become due hereunder (or, if the Term expires prior to the full crediting of such overpayment, any such remaining overpayment will be delivered by Landlord to Tenant within thirty (30) days following the delivery of the statement). If utilities, janitorial services or any other components of Operating Expenses increase during any Lease Year, Landlord may revise Monthly Escalation Payments due during such Lease Year by giving Tenant written notice to that effect; and thereafter, Tenant shall pay, in each of the remaining months of such Lease Year commencing as of the first (1st) day of the calendar month which next occurs at least thirty (30) days following the date of Landlord's delivery to Tenant of such revised estimate, a sum equal to the amount of the revised difference in Operating Expenses multiplied by Tenant's Building Percentage divided by the number of months remaining in such Lease Year.

5.4    Within one hundred fifty (150) days following Tenant's receipt of Landlord's Statement or Landlord's Tax Statement, Tenant may give Landlord notice (the “Review Notice”) stating that Tenant elects to review Landlord's calculation of the amount of Operating Expenses and/or Taxes payable by Tenant for the Lease Year to which such Statement applies. Tenant may not deliver more than one (1) Review Notice with respect to Operating Expenses or Taxes for any Lease Year (for avoidance of doubt, however, Tenant may deliver one (1) Review Notice with respect to Tenant's desire to review Landlord's books and records regarding Operating Expenses, and subsequently deliver a second (2nd) Review Notice with respect to Tenant's desire to review Landlord's books and records with respect to Taxes, provided that each such Review Notice is delivered within the time period described in the second (2nd) sentence of this Section 5.4). If Tenant fails to give Landlord such a Review Notice within the one hundred fifty (150) day period, Tenant shall be deemed to have approved the applicable Statement. If Tenant timely gives the Review Notice, Tenant shall be entitled to conduct or require an audit to be conducted, provided that (a) not more than one (1) such audit of each category of pass-through (i.e., Operating Expenses and Taxes) may be conducted with respect to any Lease Year, (b) the records for each Lease Year may be audited only once with respect to each category and pass through (i.e., Operating Expenses and Taxes), (c) such audit is commenced within thirty (30) days following the date upon which Landlord makes Landlord's applicable books and records available to Tenant for review, and (d) such audit is completed and a copy thereof is delivered to Landlord within thirty (30) days following the commencement of such audit. Tenant's auditor must be a member of a nationally recognized accounting firm and must not charge a fee based on the amount that the accountant is able to save Tenant by the inspection. As a condition precedent to any inspection by Tenant's accountant, Tenant shall deliver to Landlord a copy of Tenant's written agreement with such accountant, which agreement shall include provisions which state that (i) Landlord is an intended third party beneficiary of such agreement, (ii) such accountant will not in any manner solicit or agree to represent any other tenant of the Project with respect to an audit or other review of Landlord's accounting records at the Project, and (iii) such accountant shall maintain in strict confidence any and all information obtained in connection with the review and shall not disclose such information to any person or entity other than to the management personnel of Tenant or as may be necessary in any judicial or arbitration proceeding between Landlord and Tenant regarding the accurate calculation and payment of Operating Expenses or Taxes, or as otherwise mandated by law. An overcharge of Operating Expenses or Taxes by Landlord shall not entitle Tenant to terminate this Lease. No subtenant shall have the right to audit. Any assignee's audit

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right will be limited to the period after the effective date of the assignment. No audit shall be permitted if an Event of Default by Tenant has occurred and is continuing under this Lease, including without limitation any failure by Tenant to pay any amount due under this Article 5. If Landlord responds to any such audit with an explanation of any issues raised in the audit, such issues shall be deemed resolved unless Tenant responds to Landlord with further written objections within thirty (30) days after receipt of Landlord's response to the audit. In no event shall payment of Rent ever be contingent upon the performance of such audit. For purposes of any audit, Tenant or Tenant's duly authorized representative, at Tenant's sole cost and expense, shall have the right, upon fifteen (15) days' written notice to Landlord, to inspect Landlord's books and records pertaining to Operating Expenses and Taxes at the offices of Landlord or Landlord's managing agent during ordinary business hours, provided that such audit must be conducted so as not to interfere with Landlord's business operations and must be reasonable as to scope and time. If, following any such audit, Tenant disputes Landlord's determination of Operating Expenses or Taxes, Tenant will provide a full and complete copy of Tenant's auditor's report and the parties shall, thereafter, diligently and in good faith, meet and confer in an attempt to resolve any differences. If, however, the parties are unable to resolve any differences within thirty (30) days after their initial meeting, at the election of either party hereto, the subject matter shall be referred to, and determined by, the arbitration procedure described in Article 12. If actual Operating Expenses or Taxes are determined to have been overstated or understated by Landlord for any calendar year, then the parties shall within thirty (30) days thereafter make such adjustment payment or refund as is applicable, and if actual Operating Expenses or Taxes are determined to have been overstated by Landlord for any calendar year by in excess of three percent (3%), then Landlord shall pay the reasonable cost of Tenant's audit and the overstated amount refundable to Tenant shall include interest at the prime rate charged by the largest state chartered bank in the State of California plus four percent (4%), but not exceeding the maximum rate permitted by law, from the date of Landlord's annual Operating Expense statement or Taxes statement described in Section 5.3 above until the date such refund is paid to Tenant (such payment will not be an Operating Expense). Notwithstanding the foregoing, in the event that Tenant identifies a material error or omission in Landlord's calculations that may relate to the prior Lease Year, Tenant shall have the right to re-audit or otherwise verify the existence or non-existence of such error for such prior Lease Year, and to the extent such error has occurred in such prior Lease Year, Landlord shall provide Tenant with full credit for such errors against the next payment(s) of Additional Rent due hereunder, or if beyond the end of the Term, refund such amount to Tenant.

5.5    If the occupancy of the Building during any part of any Lease Year is less than one hundred percent (100%), Landlord shall make an appropriate adjustment of the variable components of Operating Expenses for that Lease Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had the Building been one hundred percent (100%) occupied. This amount shall be considered to have been the amount of Operating Expenses for that Lease Year. For purposes of this Section 5.5, “variable components” include only those component expenses that are affected by variations in occupancy levels.

5.6    Tenant shall pay to Landlord, as Additional Rent, “Tenant's Tax Share” (as hereinafter defined) of the Taxes. “Tenant's Tax Share” shall be determined by multiplying Taxes for any Lease Year or pro rata portion thereof, by Tenant's Tax Percentage. Landlord shall, in advance of each Lease Year, deliver to Tenant a written estimate of what Tenant's Tax Share will be for such Lease Year and Tenant shall pay Tenant's Tax Share as so estimated each month (the “Monthly Tax Payments”). The

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Monthly Tax Payments shall be due and payable at the same time and in the same manner as the Monthly Rent.

5.7    Landlord shall, within one hundred fifty (150) days after the end of each Lease Year, or as soon thereafter as reasonably possible, provide Tenant with a written statement of the actual Taxes incurred during such Lease Year for the Project (“Landlord's Tax Statement”), shall set forth Tenant's Tax Share of such Taxes; without having to exercise Tenant's rights under Section 5.4 above, Tenant shall have the right, from time to time, upon reasonable advance written or telephonic notice to Landlord, to review, in the property management office for the Project, the Tax invoices upon which Landlord's Tax Statement is based. Tenant shall pay Landlord, as Additional Rent, the difference between Tenant's Tax Share of Taxes and the amount of Monthly Tax Payments made by Tenant attributable to said Lease Year, such payment to be made within thirty (30) days of the date of Tenant's receipt of said statement; similarly, Tenant shall receive a credit if Tenant's Tax Share is less than the amount of Monthly Tax Payments collected by Landlord during said Lease Year, such credit to be applied to future Monthly Tax Payments to become due hereunder. If Taxes increase during any Lease Year, Landlord may revise Monthly Tax Payments due during such Lease Year by giving Tenant written notice to that effect; and, thereafter, Tenant shall pay, in each of the remaining months of such Lease Year, a sum equal to the amount of revised difference in Taxes multiplied by Tenant's Tax Percentage divided by the number of months remaining in such Lease Year. Despite any other provision of this Article 5, Landlord may adjust Operating Expenses and/or Taxes and submit a corrected statement to account for Taxes or other government public-sector charges (including utility charges) that are for that given year but that were first billed to Landlord after the date that is ten (10) business days before the date on which the statement was furnished.

5.8    If the Taxes for any Lease Year are changed as a result of protest, appeal or other action taken by a taxing authority, the Taxes as so changed shall be deemed the Taxes for such Lease Year. Any expenses incurred by Landlord in attempting to protest, reduce or minimize Taxes shall be included in Taxes in the Lease Year in which those expenses are paid. Landlord shall have the exclusive right to conduct such contests, protests and appeals of the Taxes as Landlord shall determine is appropriate in Landlord's sole discretion.

5.9    Tenant's obligation with respect to Additional Rent and the payment of Tenant's Share of Operating Expenses and Tenant's Tax Share of Taxes as well as Landlord's obligation to reconcile Additional Rent and make payments of any overcharge of Operating Expenses or Taxes, shall survive the Expiration Date or Termination Date of this Lease and Landlord shall have the right to retain the Security Deposit, or so much thereof as it deems necessary, to secure payment of Tenant's Share of Operating Expenses and Tenant's Tax Share of Taxes for the final year of the Lease, or part thereof, during which Tenant was obligated to pay such expenses.

5.10    With respect to any particular service provided by Landlord to the Premises, the cost of which is included in the Operating Expenses payable by Tenant under this Lease, Landlord agrees that for the purpose of calculating the Operating Expenses payable by Tenant hereunder, the cost of any such service payable by Tenant shall be no higher than the lowest cost Landlord charges other tenants in the Project for the same service, calculated on a per unit, per square foot or other reasonable basis, with variations allowed to account for any material differences in the services provided to the Premises and those provided to other tenants of the Project. For illustrative purposes only, if (a) Landlord's cost of providing a particular service is included in the Operating Expenses payable by Tenant under this Lease, (b) the lowest amount Landlord charges

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any other tenant in the Project for such service is $0.25 per rentable square foot, and (c) there are no material differences in the service provided to the Premises and the service provided to such lowest-cost tenant, then that portion of the Operating Expenses payable by Tenant under this Lease with respect to such service shall be no higher than $0.25 per rentable square foot.

5.11    Notwithstanding the foregoing provisions of this Article 5, Tenant will not be responsible for any Operating Expenses or Taxes attributable to any year which is first billed to Tenant more than three (3) calendar years after the date of expiration of the expiration of the Lease Year to which such Operating Expenses or Taxes apply, provided that Tenant shall nonetheless be responsible for any such sums for any Lease Year if the same are first levied by any governmental authority or by any public utility companies following the date that is three (3) calendar years following the expiration of such Lease Year.

ARTICLE 6 SERVICES TO BE PROVIDED BY LANDLORD

6.1    Subject to Articles 5 and 10 herein, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services, attached hereto as Exhibit E, subject to the conditions and in accordance with the standards set forth herein.

6.2    Landlord shall not be liable for any loss or damage arising or alleged to arise in connection with the failure, stoppage, or interruption of any such services; nor shall the same be construed as an eviction of Tenant, work an abatement of Rent (except as set forth in Article 45), entitle Tenant to any reduction in Rent, or relieve Tenant from the operation of any covenant or condition herein contained; it being further agreed that Landlord reserves the right to discontinue temporarily such services or any of them at such times as may be necessary by reason of repair or capital improvements performed within the Project, accident, unavailability of employees, repairs, alterations or improvements, or whenever by reason of strikes, lockouts, riots, acts of God, or any other happening or occurrence beyond the reasonable control of Landlord. In the event of any such failure, stoppage or interruption of services, Landlord shall promptly use reasonable diligence to have the same restored. Neither diminution nor shutting off of light or air or both, nor any other effect on the Project by any structure erected or condition now or hereafter existing on lands adjacent to the Project, shall affect this Lease, abate Rent, or otherwise impose any liability on Landlord. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

6.3    Unless otherwise provided by Landlord, Tenant shall separately arrange with the applicable local public authorities or utilities, as the case may be, for the furnishing of and payment of all utilities as may be required by Tenant in the use of the Premises. Tenant shall directly pay for such utility services as may be required by Tenant in the use of the Premises, including the establishment and connection thereof, at the rates charged for such services by said authority or utility; and the failure of Tenant to obtain or to continue to receive such services for any reason whatsoever shall not relieve Tenant of any of its obligations under this Lease.

6.4    Tenant shall provide Landlord with keys and access codes to allow Landlord access to the Premises.

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6.5    At all times during the Term Landlord shall have the right to select the utility company or companies that shall provide electric, water and sewer services to the Premises and, subject to all Applicable Laws, Landlord shall have the right at any time and from time to time during the Term to either (a) contract for services from such utility service provider(s) other than the provider with which Landlord has a contract as of the date of this Lease (the “Current Provider”), or (b) continue to contract for services from the Current Provider. The cost of such utility services and any energy management and procurements services in connection therewith (other than costs paid directly by Tenant to the service provider) shall be Operating Expenses. Notwithstanding the foregoing, Tenant shall have the right to select alternative utility providers for that Building, subject to Landlord's approval, which shall not be unreasonably withheld.

6.6    If Tenant is billed directly by a public utility with respect to Tenant's electrical usage at the Premises, upon request from time to time, Tenant shall provide monthly electrical utility usage for the Premises to Landlord for the period of time requested by Landlord (in electronic or paper format) or, at Landlord's option, provide any written authorization or other documentation required for Landlord to request information regarding Tenant's electricity usage with respect to the Premises directly from the applicable utility company.

6.7    Notwithstanding anything to the contrary in Section 6.2 or elsewhere in this Lease, if Landlord enters any portion of the Premises and/or performs work outside of the Premises and such entry or work interferes with Tenant's reasonable use of or ability to have access to any portion of the Premises , (b) such failure or Landlord's entry is not due to any one or more Force Majeure Events or to an event covered by Article 19, (c) Tenant has given Landlord reasonably prompt written notice (which notice may, for the purposes of this Section 6.7, be delivered via personal delivery to the Project's property management office as long as a copy of that notice is concurrently sent as provided in Article 36) of such failure or that such entry or work by Landlord is unreasonably interfering with Tenant's use of or ability to have access to any portion of the Premises and (d) as a result of such failure, entry or work all or any part of the Premises is rendered unusable or inaccessible for Tenant's normal business purposes (and, as a result, all or such part of the Premises is not used by Tenant during the applicable period) for more than five (5) consecutive days, then Tenant shall be entitled to an abatement of Rent proportional to the extent to which the Premises are thereby rendered unusable or inaccessible by Tenant, commencing with the later of (i) the sixth business day during which such unusability or inaccessibility continues or (ii) the sixth business day after Landlord receives such notice from Tenant, until the Premises (or part thereof affected) are again usable or until Tenant again uses the Premises (or part thereof rendered unusable) in its business, whichever first occurs. The foregoing rental abatement shall be Tenant's exclusive remedy therefor, unless the foregoing rental abatement is due to Landlord's willful failure to provide the services in question, in which event the foregoing rental abatement shall be Tenant's exclusive monetary remedy therefor. Notwithstanding the foregoing, the provisions of Article 19 below and not the provisions of this subsection shall govern in the event of casualty damage to the Premises or Project and the provisions of Article 20 below and not the provisions of this subsection shall govern in the event of condemnation of all or a part of the Premises or Project.

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ARTICLE 7 REPAIRS AND MAINTENANCE BY LANDLORD

7.1    Landlord shall provide for the cleaning, maintenance and landscaping of the Common Areas in keeping with the ordinary standard for Comparable Buildings as part of Operating Expenses; as described in Section 1.3 above. As of the date of this Lease, Empire Parkway Centre Owners Association provides such services of the Common Areas on behalf of Landlord and such costs are included in Operating Expenses. Landlord will not materially alter (or agree to the material alteration of) the maintenance standards for the Common Areas and/or construct or demolish (or agree to the construction or demolition of) any aspect of the Common Areas (in each case, to the extent under the control of Landlord) without first consulting with Tenant. Landlord shall be responsible for maintaining and repairing and keeping in good condition and repair, commensurate with the standards of maintenance and repair at Comparable Buildings, the structure and the structural exterior of the Building.

7.2    Landlord or Landlord's officers, agents, and representatives (subject to any security regulations imposed by any governmental authority) shall have the right to enter all parts of the Premises at all reasonable hours upon reasonable prior notice to Tenant (other than in an emergency) to inspect, clean, make necessary repairs, alterations, and additions to the Project or the Premises to make repairs to adjoining spaces, to cure any Event of Default of Tenant hereunder that Landlord elects to cure pursuant to Section 22.5, below, to post notices of nonresponsibility, to show the Premises to prospective tenants (during the final nine (9) months of the Term or at any time after the occurrence of an Event of Default that remains uncured), mortgagees or purchasers of the Building (provided that Tenant shall have the right to require that any such prospective tenant, mortgagee or purchaser execute a nondisclosure agreement in the form of Exhibit F attached hereto prior to any entry into the Premises), or to provide any service which it is obligated or elects to furnish to Tenant; and, except as set forth in Section 6.8, Tenant shall not be entitled to any abatement or reduction of Rent by reason thereof. Landlord shall have the right to enter the Premises at any time and by any means in the case of an emergency. Landlord will endeavor to provide Tenant with at least fifteen (15) days prior notice of any of the actions set forth in this Section 7.2, to be taken by Landlord if such action could substantially interfere with Tenant's ability to (i) conduct business in any portion of the Premises, (ii) gain access to and from any portion of the Premises, or (iii) use or have access to and egress from the parking area. Tenant shall have the right to require that Landlord be accompanied by a representative of Tenant during any such entry, but in no event shall Landlord be required to wait for such representative if entry is in response to an emergency and the emergency requires immediate access to prevent imminent harm to person or property, and Tenant agrees to use reasonable efforts to make such a representative available at such commercially reasonable times as Landlord requests. Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use of the Premises (or any portion thereof) for Tenant's business purposes in connection with that access (such efforts to include limiting the performance of any such work (other than in an emergency) which might be disruptive to weekends or the evening and the cleaning of any work area prior to the commencement of the next business day; provided that notwithstanding anything to the contrary and others Lease, the additional cost of performing such work on weekends or outside of normal business hours shall be an Operating Expense). For clarity, such fifteen (15) day notice shall never be required in connection with Landlord's inspection of the Premises or to show the Premises to prospective tenants, mortgagees or purchasers of the Building, but in those instances at least one (1) business day's prior written notice will be required. To the extent that Landlord installs, maintains, uses, repairs or replaces pipes, cables, ductwork, conduits, utility lines, and/or wires through

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hung ceiling space, exterior perimeter walls and column space, adjacent to and in demising partitions and columns, in or beneath the floor slab or above, below, or through any portion of the Premises, then in the course of making any such installation or repair: (w) Landlord will not interfere unreasonably with or interrupt the business operations of Tenant within the Premises; (x) Landlord will not reduce Tenant's usable space, except to a de minimus extent, if the same are not installed behind existing walls or ceilings; (y) Landlord will box in any of the same installed adjacent to existing walls with construction materials substantially similar to those existing in the affected area(s) of the Premises; and (z) Landlord will repair all damage caused by the same and restore such area(s) of the Premises to substantially the condition existing immediately prior to such work. Notwithstanding anything to the contrary set forth in this Article 17, Tenant may designate in writing certain reasonable areas of the Premises as “Secured Areas” should Tenant require such areas for the purpose of securing certain valuable property or confidential information. In connection with the foregoing, Landlord shall not enter such Secured Areas except in the event of an emergency. Landlord shall only maintain or repair such secured areas to the extent (i) as required by Applicable Law, or (ii) in response to specific requests by Tenant and in accordance with a schedule reasonably designated by Tenant, subject to Landlord's reasonable approval. If Landlord has not been provided with keys to the Secured Area, Tenant shall provide a system for making a key available to the fire department and other emergency responders and Tenant shall be responsible for any damage to the Premises or Building arising from Landlord not having been provided with keys to the Secured Area.

7.3    Except as otherwise expressly provided in this Lease, Landlord shall not be liable for any failure to make any repairs or to perform any maintenance and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Project, Building or the Premises or in or to fixtures, and equipment therein. Tenant hereby waives all rights it would otherwise have under California Civil Code Sections 1932(1) and 1942(a), or any similar law, statute or ordinance now or hereafter in effect, to make repairs at Landlord's expense, to deduct repair costs from Rent and/or terminate this Lease as the result of any failure by Landlord to maintain or repair.

ARTICLE 8 REPAIRS AND CARE OF PREMISES BY TENANT

8.1    Tenant shall, at Tenant's sole cost and expense, be responsible for the full maintenance and repair of the non-structural portions of the Building, including without limitation all corridors, windows, roof membrane, Building Systems, all other Base Building elements and equipment (i.e., other than the Common Areas, which shall be the obligation of Landlord as part of Operating Expenses).  Tenant's obligations under this Article 8 shall include all work, whether ordinary or extraordinary, including capital expenditures as needed, so that the Building is maintained and repaired to a condition which is consistent with Comparable Buildings. If the Building, the Project, or any portion thereof, including but not limited to, the elevators, boilers, engines, pipes, and other apparatus, or members of elements of the Building used for the purpose of climate control of the Buildings or operating of the elevators, or of the water pipes, drainage pipes, electric lighting, or other equipment of the Buildings (collectively, the “Building Systems”) or the roof or outside walls of the Buildings and also the Premises improvements, including but not limited to, the carpet, wall coverings, doors, and woodwork, become damaged or are destroyed through the negligence, carelessness, or misuse of Tenant, its servants, agents, employees, or anyone permitted by Tenant to be in the Building (other than Landlord and Landlord's agents, contractors, employees or

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representatives), or through it or them, then, subject to Section 13.4 below, the reasonable cost of the necessary repairs, replacements, or alterations shall be borne by Tenant who shall pay the same to Landlord as Additional Rent within thirty (30) days after demand accompanied by reasonably detailed backup documentation. Landlord shall have the exclusive right, but not the obligation, to make any repairs necessitated by such damage. As used in this Lease, the “Base Building” shall mean the public restrooms, elevators, exit stairwells and the Building Systems.

8.2    Subject to Section 13.4 below, Tenant agrees, at its sole cost and expense, to repair or replace any damage or injury done to the Project, or any part thereof, caused by Tenant, Tenant's agents, employees, licensees, or invitees which Landlord elects not to repair. Tenant shall not injure the Project or the Premises and, at Tenant's sole cost and expense, shall maintain the interior non-structural portions of the Premises, including without limitation all improvements, fixtures and furnishings therein, and the floor or floors on which the Premises are located, in good order, repair and condition at all times during the Term. If Tenant fails to keep such elements of the Premises in such good order, condition, and repair as required hereunder to the reasonable satisfaction of Landlord and such failure continues for ten (10) business days following Landlord's notice to Tenant (except in the case of emergency, in which no such cure period shall apply), Landlord may, upon notice to Tenant, restore the Premises to such good order and condition and make such repairs without liability to Tenant for any loss or damage that may accrue to Tenant's property or business by reason thereof, and within thirty (30) days after Landlord's delivery of a detailed invoice for the cost associated therewith, accompanied by reasonably detailed backup documentation, Tenant shall pay to Landlord, as Additional Rent, upon demand, the cost of restoring the Premises to such good order and condition and of the making of such repairs, plus an additional charge of five percent (5%) thereof; provided, however, that, except in the case of emergency, if any such work of repairs is anticipated to cost in excess of one hundred thousand dollars ($100,000.00), Landlord shall first competitively bid such work to at least three (3) qualified contractors and shall select the lowest responsible bid. Upon the Expiration Date or the Termination Date, Tenant shall surrender and deliver up each portion of the Premises to Landlord in the same condition in which it existed at the applicable Commencement Date for such Premises, excepting only ordinary wear and tear, damage arising from any cause not required to be repaired by Tenant, any alterations approved by Landlord (or permitted to be made by Tenant without the need for Landlord approval) pursuant to Article 15, and the initial Tenant Improvements made to any portion of the Premises by Tenant in accordance with the Tenant Work Letter. Upon the Expiration Date or the Termination Date, Landlord shall have the right to re-enter and take possession of the Premises.

8.3    Tenant shall provide its own janitorial and cleaning services to the Premises at Tenant's sole cost and expense. Landlord is not obligated to provide any janitorial or cleaning services to the Premises.

ARTICLE 9 TENANT'S EQUIPMENT AND INSTALLATIONS

9.1    If heat-generating machines or equipment, including telephone equipment, cause the temperature in any portion of the Premises, or any part thereof, to exceed the temperatures the Building's air conditioning system would be able to maintain in the Premises were it not for such heat-generating equipment, then Landlord may notify Tenant of such circumstance, and the parties shall promptly meet and confer in good faith in an attempt to determine the most economically efficient method of mitigating the impact of Tenant's machines or equipment, which either Landlord or, at

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Landlord's option, Tenant, will then implement upon agreement; however, if the parties are unable to agree on any such effective mitigation measure, then Landlord, upon notice to Tenant, shall have the right to install supplementary air conditioning units in the Premises as reasonably necessary to mitigate the effect of Tenant's machinery or equipment, and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, including water, shall be paid by Tenant to Landlord within thirty (30) days after demand by Landlord.

9.2    Except for office equipment consistent with office use in Comparable Buildings, Tenant shall not install within the Premises any equipment which consumes high volumes of electricity or produces heat that may affect the temperature of the Premises without the specific written consent of Landlord, subject to Article 15, below. Tenant shall not, without the specific written consent of Landlord (which consent shall not be unreasonably withheld, conditioned, or delayed), install or maintain any apparatus or device within the Premises which shall increase the usage of electrical power or water for the Premises to an amount materially greater than would be normally required for general office use for space of comparable size in Comparable Buildings; and if any such apparatus or device is so installed, Tenant agrees to furnish Landlord a written agreement to pay for any additional costs of utilities as the result of said installation.

ARTICLE 10 FORCE MAJEURE

10.1    It is understood and agreed that with respect to any service or other obligation to be furnished or obligations to be performed by either party, in no event shall either party be liable for failure to furnish or perform the same when prevented from doing so by strike, lockout, breakdown, accident, supply, or inability by the exercise of reasonable diligence to obtain supplies, parts, or employees necessary to furnish such service or meet such obligation; or because of war or other emergency; or for any cause beyond the reasonable control with the party obligated for such performance; or for any cause due to any act or omission of the other party or its agents, employees, licensees, invitees, or any persons claiming by, through, or under the other party; or because of the failure of any public utility to furnish services; or because of order or regulation of any federal, state, county or municipal authority (collectively, “Force Majeure Events”). Nothing in this Section 10.1 shall limit or otherwise modify or waive a party's obligation to pay any amount payable hereunder as and when due pursuant to the terms of this Lease. The provisions of this Article 10 will not, however, serve to delay except as expressly set forth in Article 19 below, the date upon which Tenant may terminate this Lease in accordance with the provisions of Article 19. If either party hereto is delayed in the performance of any obligation hereunder by Force Majeure Event(s), such party shall promptly notify the other of the nature of, obligation and the Force Majeure Event causing such delay, and shall keep the other party apprised, from time to time of the delayed party's reasonable estimate (without warranty) of the extent of the remaining delay.

ARTICLE 11 CONSTRUCTION, MECHANICS' AND MATERIALMAN'S LIENS

11.1    Tenant shall not suffer or permit any construction, mechanics' or materialman's lien to be filed against the Premises or any portion of the Project by reason of work, labor services, or materials supplied or claimed to have been supplied to Tenant. Nothing herein contained shall be deemed or construed in any way as constituting the consent or request of Landlord, expressed or implied, by inference or

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otherwise, for any contractor, subcontractor, laborer, or materialman to perform any labor or to furnish any materials or to make any specific improvement, alteration, or repair of or to the Premises or any portion of the Project; nor of giving Tenant any right, power, or authority to contract for, or permit the rendering of, any services or the furnishing of any materials that could give rise to the filing of any construction, mechanics' or materialman's lien against the Premises or any portion of the Project.

11.2    If any such construction, mechanics' or materialman's lien shall at any time be filed against the Premises or any portion of the Project as the result of any act or omission of Tenant, Tenant covenants that it shall, within twenty (20) days after Tenant has notice of the claim for lien, procure the discharge thereof by payment or by giving security or in such other manner as is or may be required or permitted by law or which shall otherwise satisfy Landlord. If Tenant fails to take such action, Landlord, in addition to any other right or remedy it may have, may take such action as may be reasonably necessary to protect its interests. Any amounts paid by Landlord in connection with such action, all other expenses of Landlord incurred in connection therewith, including reasonable attorneys' fees, court costs, and other necessary disbursements shall be repaid by Tenant to Landlord within thirty (30) days after demand.

ARTICLE 12 ARBITRATION

12.1    In the event that a dispute arises under Section 5.3 above, Section 18.3 below, or Section 2.3 of the Tenant Work Letter, the same shall be submitted to arbitration in accordance with the provisions of applicable state law, if any, as from time to time amended. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the Streamlined Arbitration Rules of JAMS. Both parties agree to proceed with any such arbitration in good faith and to refrain from taking any actions which will unreasonably delay any such arbitration proceedings. Prior written notice of application by either party for arbitration shall be given to the other at least ten (10) days before submission of the application to the JAMS office in the city wherein the Building is situated (or the nearest other city having a JAMS office). The award of the arbitrator may be entered as a judgment in the appropriate Federal or Superior court, and the parties consent to the jurisdiction of such court and further agree that any service of process or notice of motion or other application to the court or a judge thereof may be served outside the state wherein the Building is situated by registered mail or by personal service, provided a reasonable time for appearance is allowed. The costs and expenses of each arbitration hereunder and their apportionment between the parties shall be determined by the arbitrator in his or her award or decision, subject to the penultimate sentence of this section. No arbitrable dispute shall be deemed to have arisen under this Lease (a) prior to the expiration of the period of twenty (20) days after the date of the giving of written notice by the party asserting the existence of the dispute, together with a description thereof sufficient for an understanding thereof, and (b) where Tenant disputes the amount of a Tenant payment required hereunder (e.g., Operating Expense excess under Section 5.3 hereof), prior to Tenant paying in full the amount billed by Landlord, including the disputed amount. The prevailing party in such arbitration shall be reimbursed for its expenses, including reasonable attorneys' fees. Notwithstanding the foregoing, in no event shall this Article 12 affect or delay Landlord's unlawful detainer rights under California law.

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ARTICLE 13 INSURANCE

13.1    Landlord shall maintain, as a part of Operating Expenses, special causes of loss form property insurance on the Project (excluding, at Landlord's option, the property required to be insured by Tenant pursuant to Section 13.2(e), below) in an amount equal to the full replacement cost of the Project, subject to such deductibles as Landlord may determine. Such coverage will be inclusive of standard fire and extended coverage insurance, including endorsements (or coverage in the policy) against vandalism, malicious mischief and other perils, will contain at least twelve (12) months of “rental income loss” coverage payable in instances in which Tenant is entitled to Rent abatement hereunder, and shall include (i) an “extended coverage” endorsement (or coverage in the policy), (ii) a “building laws” and/or “law and ordinance” coverage endorsement (or coverage in the policy) that covers “costs of demolition,” “increased costs of construction” due to changes in building codes and “contingent liability” with respect to undamaged portions of the Building, and (iii) an “earthquake sprinkler leakage” endorsement (or coverage in the policy). Landlord shall not be obligated to insure, and shall not assume any liability of risk of loss for, any of Tenant's furniture, equipment, machinery, goods, supplies, improvements or alterations upon the Premises. Such insurance shall be maintained with an insurance company selected, and in amounts desired, by Landlord or Landlord's mortgagee, and payment for losses thereunder shall be made solely to Landlord subject to the rights of the holder of any mortgage or deed of trust which may now or hereafter encumber the Project. Additionally Landlord may maintain such additional insurance, including, without limitation, earthquake insurance, flood insurance, liability insurance and/or rent insurance, as Landlord may in its sole discretion elect. The cost of all such additional insurance shall also be part of the Operating Expenses. Any or all of Landlord's insurance may be provided by blanket coverage maintained by Landlord or any affiliate of Landlord under its insurance program for its portfolio of properties, and in such event Operating Expenses shall include the portion of the reasonable cost of blanket insurance that is allocated to the Project. Landlord may elect to meet some or all of its insurance obligations under this Lease pursuant to a program of self-insurance, including loss reserves derived in accordance with accepted standards of the insurance industry and accrued or otherwise funded, that is comparable the self-insurance programs of other comparable owners of Comparable Buildings with respect to such Comparable Buildings, and in such event Operating Expenses shall include the portion of the reasonable cost of self-insurance that is allocated to the Project. If Landlord so elects to self-insure, then the following shall apply:

(a)    Landlord shall have, and shall promptly perform each and every of the duties of, an insurer issuing the policy which Landlord has elected to self-insure (and Landlord shall have no defense to such duties arising from or in connection with this Lease, except to the extent that such defense would be available to an unrelated third-party insurer issuing the required policy of insurance and issuing a waiver of subrogation as to Tenant), including all fiduciary duties and duties of good faith and fair dealing implied by law with respect to insurance carriers.

(b)    Any self-insurance by Landlord shall comply with all insurance requirements of Landlord otherwise required by the provisions of this Lease and shall provide coverage no less restrictive than as provided by standard Insurance Services Office, Inc. policy form commercially available during the Term and, as to property insurance, equivalent in coverage to that provided by a “Causes of Loss - Special Form” policy as of the Effective Date.

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(c)    Landlord shall have no claim, and Landlord hereby waives all rights of recovery, against Tenant, its agents, officers, directors, shareholders, members, managers, constituent partners or employees, for any damage, loss, or injury which would have been covered by any policy of property insurance policy required under this Lease, even if Landlord is self-insuring for all or a portion of the perils or risks which would have been covered by such policy of insurance had it been carried with a third party insurance carrier, rather than self-insured; provided that Landlord shall have all defenses that would be available to an unrelated third-party insurer issuing the required policy of insurance and issuing a waiver of subrogation as to Tenant.

13.2    Tenant, at its own expense, shall maintain with insurers authorized to do business in the State of California and which are rated A- or better and have a financial size category of at least VII in the most recent Best's Key Rating Guide, or any successor thereto (or if there is none, an organization having a national reputation), (a) commercial general liability insurance, including Broad Form Property Damage and Contractual Liability with the following minimum limits: General Aggregate $3,000,000.00; Products/Completed Operations Aggregate $2,000,000.00; Each Occurrence $2,000,000.00; Personal and Advertising Injury $1,000,000.00; Medical Payments $5,000.00 per person, (b) Umbrella/Excess Liability on a following form basis with the following minimum limits: General Aggregate $10,000,000.00; Each Occurrence $10,000,000.00; (c) Workers' Compensation with statutory limits; (d) Employer's Liability insurance with the following limits: Bodily injury by disease per person $1,000,000.00; Bodily injury by accident policy limit $1,000,000.00; Bodily injury by disease policy limit $1,000,000.00; (e) property insurance on special causes of loss insurance form covering (i) all office furniture, business and 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, (ii) the “Tenant Improvements,” as that term is defined in Section 2.1 of the Tenant Work Letter, and any other improvements which exist in the Premises as of the Commencement Date (excluding the Base Building) (the “Original Improvements”), and (iii) all other improvements, alterations and additions to the Premises (such insurance shall be for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include 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); (f) business interruption insurance including coverage up to one year of annual rent under this Lease; and (g) business auto liability insurance having a combined single limit of not less than One Million Dollars ($1,000,000.00) per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance or use of any owned, hired or non-owned automobiles. Notwithstanding the foregoing, the minimum limit for the General Aggregate of commercial general liability insurance, including Broad Form Property Damage and Contractual Liability shall be reduced to $2,000,000.00 so long as Tenant maintains the minimum limits of both the General Aggregate and Each Occurrence of Umbrella/Excess Liability at $20,000,000.00. At all times during the Term, such insurance shall be maintained, and Tenant shall cause a current and valid certificate of such policies to be deposited with Landlord. If Tenant fails to have a current and valid certificate of such policies on deposit with Landlord at all times during the Term and such failure is not cured within three (3) business days following Tenant's receipt of notice thereof from Landlord, Landlord shall have the right, but not the obligation, to obtain such an insurance policy, and Tenant shall be obligated to pay Landlord the amount of the premiums applicable to such insurance within thirty (30) days after Tenant's receipt of Landlord's request for payment thereof. Said policy of liability

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insurance, including the general liability, umbrella and auto policies, shall designate Landlord and Landlord's managing agent as additional insureds and Tenant as the insured and shall be noncancellable with respect to Landlord except after thirty (30) days' written notice from the insurer to Landlord; notwithstanding the foregoing, Landlord acknowledges that, as of the Effective Date, many insurers are unwilling to provide third parties (such as Landlord) with notice of cancellation and agrees that if Tenant is unable to obtain such commitment from its insurer, then Tenant's obligation pursuant to the provisions of this sentence will be to promptly notify Landlord following Tenant's receipt of any notice of cancellation from Tenant's insurer.

13.3    Tenant shall adjust the amount of coverage established in Section 13.2 hereof to such amount as in Landlord's reasonable opinion, adequately protects Landlord's interest; provided that (i) the same is consistent with the amount of coverage customarily required of comparable tenants in Comparable Buildings and (ii) Landlord shall not have the right to require Tenant to adjust its insurance coverage more than once in any twenty four (24) calendar month period.

13.4    Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action, or cause of action against the other, its agents, employees, licensees, or invitees for any loss or damage to or at the Premises or the Project or any personal property of such party therein or thereon by reason of fire, the elements, or any other cause which would be insured against under the terms of (i) special causes of loss form property insurance or (ii) the liability insurance referred to in Section 13.2, to the extent of such insurance, regardless of cause or origin, including omission of the other party hereto, its agents, employees, licensees, or invitees. Landlord and Tenant covenant that no insurer shall hold any right of subrogation against either of such parties with respect thereto. This waiver shall be ineffective against any insurer of Landlord or Tenant to the extent that such waiver is prohibited by the laws and insurance regulations of the State of California. The parties hereto agree that any and all such insurance policies required to be carried by either shall provide that such party's insurer waives any right of recovery against the other party in connection with any such loss or damage. For avoidance of doubt, if at any time Landlord elects to self-insure for any of its obligations as described in Section 13.1, above, then for the purposes of this Section 13.4, Landlord shall be deemed to have maintained all of the insurance coverage described in Section 13.1 above. Tenant acknowledges and agrees that Tenant’s insurance is primary and any insurance or self-insurance maintained by the additional insureds hereunder is excess only and non-contributory. Tenant and Landlord will reasonably cooperate to agree upon a mutually satisfactory table of levels and types of coverage to be required from various types of vendors, contractors, subcontractors and agents used by Tenant, reasonably consistent with the levels and types of coverage required in Comparable Buildings, and Tenant will be responsible for insuring that such entities meet such coverage requirements prior to their entry into the Building. Tenant will keep records of each such entity’s insurance coverage and such records will be available for Landlord’s review at Landlord’s request. If either party in good faith deems it necessary to revise or update the required levels or types of coverage, both parties will cooperate in good faith to agree upon suitable revisions or updates.

13.5    In the event Tenant's occupancy or conduct of business in or on the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance carried from time to time by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as Rent within thirty (30) days after bills for such additional premiums shall be rendered by Landlord. In determining whether increased premiums are a result of Tenant's use or occupancy of the Premises, a

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schedule issued by the organization computing the insurance rate on the Building showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or of any insurer now or hereafter in effect relating to the Premises.

13.6    If Landlord or Tenant has been or at any time hereafter is granted the right to self-insure or if either party breaches this agreement by its failure to carry required insurance, such failure shall automatically be deemed to be a covenant and agreement by Landlord or Tenant, respectively, to self-insure to the full extent of such required coverage, with full waiver of subrogation. For clarity, Tenant does not have the right to self-insure.

ARTICLE 14 QUIET ENJOYMENT

14.1    Provided No Event of Default on the part of Tenant exists under this Lease, including, but not limited to, the payment of Rent and all other sums due hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term, without hindrance by Landlord, subject to the provisions and conditions set forth in this Lease.

ARTICLE 15 ALTERATIONS

15.1    Tenant agrees that, except as set forth herein, it shall not make or allow to be made any alterations, physical additions, or improvements in or to the Premises without first obtaining the written consent of Landlord in each instance, which will not be unreasonably withheld. As used herein, the term “Minor Alteration” refers to an alteration that (a) does not affect the outside appearance of the Building and is not visible from the Common Areas, (b) is non-structural and does not impair the strength or structural integrity of the Building, and (c) does not adversely affect the Building Systems in any material way. Landlord agrees not to unreasonably withhold, condition or delay its consent to any Minor Alteration. Landlord's consent to any other alteration may be conditioned, given, or withheld in Landlord's sole discretion. Notwithstanding the foregoing, (x) Landlord consents to any Alteration, so long as (i) the cost of such work is less than $150,000.00, (ii) such work constitutes a Minor Alteration and (iii) no building permit is required in connection therewith and (y) subject to Landlord's reasonable review and approval of Tenant's plans therefor, Landlord agrees that Tenant shall have the right to install clean rooms, testing areas, laboratories and other uses that support Tenant's business operations provided that the same are legally permitted and comply with all Applicable Laws. At the time of said request, Tenant shall submit to Landlord plans and specifications of the proposed alterations, additions, or improvements; and Landlord shall have a period of not less than ten (10) business days therefrom in which to review and approve or disapprove said plans; provided that if Landlord determines in good faith that Landlord requires a third party to assist in reviewing such plans and specifications, Landlord shall instead have a period of not less than twenty (20) business days in which to review and approve or disapprove said plans. If Landlord fails to notify Tenant of Landlord's approval or disapproval of any plans pursuant to Section 15.1 within the applicable time period set forth in Section 15.1, Tenant shall have the right to provide Landlord with a second written request for approval (a “Second Request”) that contains the following statement in bold and capital letters: “THIS IS A SECOND REQUEST FOR APPROVAL OF PLANS PURSUANT TO THE PROVISIONS OF SECTION 15.1 OF THE LEASE. IF

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LANDLORD FAILS TO RESPOND WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF THIS NOTICE, THEN LANDLORD SHALL BE DEEMED TO HAVE APPROVED THE WORK DESCRIBED HEREIN. If Landlord fails to respond to such Second Request within five (5) business days after receipt by Landlord, the works in question shall be deemed approved by Landlord. If Landlord timely delivers to Tenant notice of Landlord's disapproval, Tenant may revise Tenant's plans to incorporate the changes suggested by Landlord in Landlord's notice of disapproval, and resubmit such plans to Landlord; in such event, the scope of Landlord's review shall be limited to Tenant's correction of the items in which Landlord had previously objected in writing. Landlord's review and approval (or deemed approval) of such revised plans shall be governed by the provisions set forth above in this Section 15.1). The procedure set out above for approval of Tenant's plans will also apply to any change, addition or amendment to Tenant's plans. Tenant shall pay to Landlord upon demand the actual, commercially reasonable third party cost and expense of Landlord in (A) reviewing said plans and specifications, and (B) inspecting the alterations, additions, or improvements to determine whether the same are being performed in accordance with the approved plans and specifications and all laws and requirements of public authorities, including, without limitation, the fees of any architect or engineer employed by Landlord for such purpose; provided the costs and expenses described in subclause (A) above shall be limited to the lesser of $25,000 or three percent (3%) of the contracted improvement cost of the applicable alterations. In any instance where Landlord grants such consent, and permits Tenant to use its own contractors, laborers, materialmen, and others furnishing labor or materials for Tenant's construction (collectively, “Tenant's Contractors”), Landlord's consent shall be deemed conditioned upon each of Tenant's Contractors (1) working in harmony and not interfering with any laborer utilized by Landlord, Landlord's contractors, laborers, or materialmen; and (2) furnishing Landlord with evidence of acceptable liability insurance, worker's compensation coverage and if required by Landlord, completion bonding, and if at any time such entry by one or more persons furnishing labor or materials for Tenant's work shall cause such disharmony or interference, the consent granted by Landlord to Tenant may be withdrawn immediately upon written notice from Landlord to Tenant. Landlord agrees not to require completion bonding for any Alterations costing less than $250,000.00 so long as the initially named Tenant is the Tenant under this Lease. Tenant, at its expense, shall obtain all necessary governmental permits and certificates for the commencement and prosecution of alterations, additions, or improvements and for final approval thereof upon completion, and shall cause any alterations, additions, or improvements to be performed in compliance therewith and with all Applicable Laws (including without limitation, California Energy Code, Title 24) and all requirements of public authorities and with all applicable requirements of insurance bodies. All alterations, additions, or improvements shall be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to be better than (a) the original installations of the Building, or (b) the then standards for the Comparable Building. Upon the completion of work and upon request by Landlord, Tenant shall provide Landlord copies of all waivers or releases of lien from each of Tenant's Contractors. No alterations, modifications, or additions to the Project or the Premises shall be removed by Tenant either during the Term or upon the Expiration Date or the Termination Date without the express written approval of Landlord, which will not be unreasonably withheld, conditioned or delayed. Tenant shall not be entitled to any reimbursement or compensation resulting from its payment of the cost of constructing all or any portion of said improvements or modifications thereto unless otherwise expressly agreed by Landlord in writing.

15.2    Landlord's approval of Tenant's plans for work shall create no responsibility or liability on the part of Landlord for their completeness, design

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sufficiency, or compliance with all laws, rules, and regulations of governmental agencies or authorities, including, but not limited to, the Americans with Disabilities Act. Tenant's Contractors shall be subject to the prior written approval of Landlord, which shall not be unreasonably withheld, conditioned or delayed.

15.3    At least five (5) days prior to the commencement of any work permitted to be done by persons requested by Tenant on the Premises, Tenant shall notify Landlord of the proposed work and the names and addresses of Tenant's Contractors. During any such work on the Premises, Landlord, or its representatives, shall have the right to go upon and inspect the Premises at all reasonable times, provided that Landlord and Landlord's representatives shall use commercially reasonable efforts to minimize any interference with, or delay or, the process of construction of any such alterations or improvements resulting from such inspections, and shall have the right to post and keep posted thereon building permits and notices of non-responsibility or to take any further action which Landlord may deem to be proper for the protection of Landlord's interest in the Premises.

15.4    At the conclusion of any alteration, (i) Tenant shall cause the applicable architect and contractor (A) to update the applicable drawings approved by Landlord as necessary to reflect all changes made to the applicable drawings approved by Landlord during the course of construction, (B) to certify to the best of their knowledge that the “record-set” of as-built drawings are true and correct, (C) to deliver to Landlord two (2) sets of sepias of such as-built drawings within ninety (90) days following issuance of a certificate of occupancy for the applicable portion of the Premises, and (D) to deliver to Landlord a computer disk containing the applicable drawings in AutoCAD format, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the applicable portion of the Premises.

15.5    Tenant's initial improvement of each portion of the Premises shall be governed by Exhibit B and not the provisions of this Article 15.

ARTICLE 16 FURNITURE, FIXTURES, AND PERSONAL PROPERTY

16.1    Tenant, at its sole cost and expense, may remove its trade fixtures, office supplies and moveable office furniture and equipment not attached to the Project or Premises provided:

(a)    Such removal is made prior to the Expiration Date or the Termination Date; and

(b)    Tenant promptly repairs all damage caused by such removal.

16.2    If Tenant does not remove its trade fixtures, office supplies, and moveable furniture and equipment as herein above provided prior to the Expiration Date or the Termination Date (unless prior arrangements have been made with Landlord and Landlord has agreed in writing to permit Tenant to leave such items in the Premises for an agreed period), then, in addition to its other remedies, at law or in equity, Landlord shall have the right to have such items removed and stored at Tenant's sole cost and expense and all damage to the Project or the Premises resulting from said removal shall be repaired at the cost of Tenant; Landlord may elect that such items automatically become the property of Landlord upon the Expiration Date or the Termination Date, and Tenant shall not have any further rights with respect thereto or reimbursement therefor

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subject to the provisions of applicable law. All other property in the Premises, any alterations, or additions to the Premises (including wall-to-wall carpeting, paneling, wall covering, specially constructed or built-in cabinetry or bookcases), and any other article attached or affixed to the floor, wall, or ceiling of the Premises shall become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the Expiration or Termination Date regardless of who paid therefor; and Tenant hereby waives all rights to any payment or compensation therefor. If, and only if, however, concurrently with Landlord's approval of any Alteration which constitutes a Specialty Alteration (defined below), Landlord in writing, notifies Tenant that such Alteration constitutes a Specialty Alteration which, if installed or controlled by Tenant, will be required to be removed by Tenant at the expiration or sooner termination of this Lease, then Tenant shall, prior to the Expiration Date or the Termination Date, remove such Specialty Alterations other than the initial Tenant Improvements constructed prior to the Commencement Date pursuant to the Tenant Work Letter and shall repair any damage caused by such removal. As used herein, a “Specialty Alteration” shall mean any Alteration that cannot reasonably be categorized as a general office/research and development/light manufacturing improvement (it being agreed that clean room space and laboratory space similar to the clean room/lab space being operated by Tenant as of the Effective Date in other occupied portions of the Project will not be deemed a Specialty Alteration) including, but not limited to improvements which (i) require major penetrations of a floor slab (other than normal core drilling), (ii) consist of the dedication of any material portion of the Premises to non-office/research and development/light manufacturing usage (such as commercial kitchen improvements located in cafeterias such as exhaust hoods, ovens, cooktops, food preparation areas, food storage areas, and walk-in refrigeration units or laboratories or manufacturing facilities containing heavy infrastructure the existence of which would materially preclude the use of such space for normal office/research and development/light manufacturing purposes). For avoidance of doubt, (A) an open ceiling will not be considered a Specialty Alteration and (B) no improvements existing in the Premises as of the Effective Date or constructed by Tenant as part of the initial Tenant Improvements in any portion of the Premises prior to the Commencement Date will be considered a Specialty Alteration.

16.3    All the furnishings, fixtures, equipment, effects, and property of every kind, nature, and description of Tenant and of all persons claiming by, through, or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Project shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water, or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft, or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord unless due to the gross negligence or willful misconduct of Landlord or its employees, agents or contractors.

ARTICLE 17 PERSONAL PROPERTY AND OTHER TAXES

17.1    During the Term hereof, Tenant shall pay, prior to delinquency, all business and other taxes, charges, notes, duties, and assessments levied, and rates or fees imposed, charged, or assessed against or in respect of Tenant's occupancy of the Premises or in respect of the personal property, trade fixtures, furnishings, equipment, and all other personal and other property of Tenant contained in the Project (including without limitation taxes and assessments attributable to the cost or value of any leasehold improvements made in or to the Premises by or for Tenant (to the extent that the assessed value of those leasehold improvements exceeds the assessed value of

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standard office improvements in other space in the Project regardless of whether title to those improvements is vested in Tenant or Landlord)), and shall hold Landlord harmless from and against all payment of such taxes, charges, notes, duties, assessments, rates, and fees, and against all loss, costs, charges, notes, duties, assessments, rates, and fees, and any and all such taxes. Tenant shall cause said fixtures, furnishings, equipment, and other personal property to be assessed and billed separately from the real and personal property of Landlord; provided, however, that if Landlord does not at any time require all other tenants of the Project as to which Landlord has a clear contractual right to do so to similarly cause their fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real and personal property of Landlord, then this sentence shall not apply to Tenant. In the event any or all of Tenant's fixtures, furnishings, equipment, and other personal property shall be assessed and taxed with Landlord's real property, Tenant shall pay to Landlord Tenant's share of such taxes within thirty (30) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property accompanied by reasonable backup documentation. In addition, Tenant shall be liable for and shall pay ten (10) days before delinquency any (i) rent tax, gross receipts 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; or (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. If any of such taxes are billed to Landlord or included in bills to Landlord for taxes, then Tenant shall pay to Landlord all such amounts within thirty (30) days after receipt of Landlord's invoice therefor. If applicable law prohibits Tenant from reimbursing Landlord for any such taxes, but Landlord may lawfully increase the Base Rent to account for Landlord's payment of such taxes, the Base Rent payable to Landlord shall be increased to net to Landlord the same return without reimbursement of such taxes as would have been received by Landlord with reimbursement of such taxes.

ARTICLE 18 ASSIGNMENT AND SUBLETTING

18.1    Except as expressly set forth herein, Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed (except that Landlord shall in no event be obligated to consent to an encumbrance of this Lease or any transfer by operation of law): (a) assign, convey, mortgage or otherwise transfer this Lease or any interest hereunder, or sublease the Premises, or any part thereof, whether voluntarily or by operation of law; or (b) permit the use of the Premises or any part thereof by any person other than Tenant and its employees. Any such transfer, sublease or use described in the preceding sentence (a “Transfer”) occurring without the prior written consent of Landlord shall, at Landlord's option, be void and of no effect. Landlord's consent to any Transfer shall not constitute a waiver of Landlord's right to withhold its consent to any future Transfer. Landlord may require as a condition to its consent to any assignment of this Lease that the assignee execute an instrument in which such assignee assumes the remaining obligations of Tenant hereunder; provided that the acceptance of any assignment of this Lease by the applicable assignee shall automatically constitute the assumption by such assignee of all of the remaining obligations of Tenant that accrue following such assignment. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation hereof shall not work a merger and shall, at the option of Landlord, terminate all or any existing sublease or may, at the option of Landlord, operate as an assignment to Landlord of Tenant's interest in any or all such subleases.

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18.2    For purposes of this Lease, the term “Transfer” shall also include (i) if a Tenant is a partnership or limited liability company, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, members or managers thereof, or transfer of twenty-five percent (25%) or more of partnership or membership interests therein within a twelve (12) month period, or the dissolution of the partnership or the limited liability company without immediate reconstitution thereof, and (ii) if Tenant is a corporation whose stock is not publicly held and not traded through an exchange or over the counter or any other form of entity, (A) the dissolution, merger, consolidation or other reorganization of Tenant, the sale or other transfer of Control of Tenant (other than a transfer of shares to immediate family members by reason of gift or death), to an individual or entity who did not previously Control Tenant, or (B) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12) month period. As used herein “Control” means, with respect to any party, the direct or indirect power to direct the ordinary management and policies of such party, whether through the ownership of voting securities, by statute or by contract or otherwise (but not through the ownership of voting securities listed on a recognized securities exchange) and whether directly or indirectly through Affiliates. A public offering of Tenant's shares on any nationally recognized securities exchange will not be deemed a Transfer.

18.3    If Tenant desires the consent of Landlord to a Transfer, Tenant shall submit to Landlord, at least thirty (30) days prior to the proposed effective date of the Transfer, a written notice (the “Transfer Notice”) which includes (a) the name of the proposed sublessee or assignee, (b) the nature of the proposed sublessee's or assignee's business, (c) the terms and provisions of the proposed sublease or assignment, and (d) current financial statements and information on the proposed sublessee or assignee. Within five (5) business days following receipt of the Transfer Notice, Landlord may reasonably request additional information concerning the Transfer or the proposed sublessee or assignee (the “Additional Information”) if Landlord, in Landlord's reasonable discretion, deems such Additional Information could be necessary in order for Landlord to appropriately evaluate the Transfer described in the Transfer Notice. Subject to Landlord's rights under Section 18.6, Landlord shall not unreasonably withhold its consent to any assignment or sublease (excluding an encumbrance or transfer by operation of law), which consent or lack thereof shall be provided within twenty (20) business days of receipt of Tenant's Transfer Notice; provided, however, Tenant hereby agrees that it shall be a reasonable basis for Landlord to withhold its consent if Landlord has not received the Additional Information requested by Landlord. If Landlord fails to timely deliver to Tenant notice of Landlord's consent, or the withholding of consent, to a proposed Transfer, Tenant may send a second (2nd) notice to Landlord, which notice must contain the following inscription, in bold faced lettering: “SECOND NOTICE DELIVERED PURSUANT TO ARTICLE 18 OF LEASE - - FAILURE TO TIMELY RESPOND WITHIN FIVE (5) BUSINESS DAYS SHALL RESULT IN DEEMED APPROVAL OF ASSIGNMENT OR SUBLEASE.” If Landlord fails to deliver notice of Landlord's consent to, or the withholding of Landlord's consent, to the proposed assignment or sublease within such five (5) business day period, Landlord shall be deemed to have approved the assignment or sublease in question. If Landlord at any time timely delivers notice to Tenant or Landlord's withholding of consent to a proposed assignment or sublease, Landlord shall specify in reasonable detail in such notice, the basis for such withholding of consent. Without limiting any other reasonable basis for Landlord to withhold its consent to the proposed Transfer, Landlord and Tenant agree that for purposes of this Lease and any Applicable Law, Landlord shall not be deemed to have unreasonably withheld its consent if, in the judgment of Landlord: (i) the transferee is of

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a character or engaged in a business which is not in keeping with the standards generally provided at Comparable Buildings; (ii) the financial condition of the transferee is such that it may not be able to perform its obligations in connection with this Lease (or otherwise does not satisfy Landlord's standards for financial standing with respect to tenants under direct leases of comparable economic scope); (iii) the transferee, or any person or entity which directly or indirectly controls, is controlled by the transferee, is negotiating for space in the Project or has negotiated with Landlord within the preceding one hundred ninety (190) days (or is currently negotiating with Landlord) to lease space in the Project and in either case, Landlord then has sufficient available space in the Project to accommodate such proposed transferee's occupancy needs, (iv) the transferee has the power of eminent domain, is a governmental agency or an agency or subdivision of a foreign government; (v) an Event of Default by Tenant has occurred and is uncured at the time Tenant delivers the Transfer Notice to Landlord; (vi) in the judgment of Landlord, such a Transfer would violate any term, condition, covenant, or agreement of Landlord involving the Project or any other tenant's lease within it or would give an occupant of the Project a right to cancel or modify its lease; (vii) in Landlord's judgment, the use of the Premises by the proposed transferee would not be comparable to the types of use by other tenants in the Project, would result in more density of occupants per square foot of the Premises which materially exceeds the density for which the Building Systems in the Building were designed to accommodate, unless Tenant agrees to bear the cost of any upgrade to such Building Systems, would increase the burden on elevators or other Building Systems or equipment beyond the capacity for which they were designed, would require increased services by Landlord (unless Tenant or the transferee are willing to bear the cost of such increased services) or would require any alterations to the Project to comply with applicable laws (unless Tenant or the transferee are willing to bear the cost of such work); (viii) the transferee intends to use the space for purposes which are not permitted under this Lease; (ix) the terms of the proposed Transfer would allow the transferee to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Tenant (or will allow the transferee to occupy space leased by Tenant pursuant to any such right); (x) the proposed Transfer would result in more than five subleases on any full floor of the Premises being in effect at any one time during the Term; or (xi) any ground lessor or mortgagee whose consent to such Transfer is required fails to consent thereto. Tenant hereby waives any right to terminate the Lease and/or recover damages as remedies for Landlord wrongfully withholding its consent to any Transfer and agrees that Tenant's sole and exclusive remedy therefor shall be to seek specific performance of Landlord's obligation to consent to such Transfer. However, in the event that Tenant, in good faith, believes that Landlord's withholding of consent to any proposed transfer is not reasonable, at Tenant's option, the matter shall be submitted to arbitration pursuant to the provisions of Article 12 above.

18.4    Landlord and Tenant agree that, in the event of any approved assignment or subletting, the rights of any such assignee or sublessee of Tenant herein shall be subject to all of the terms, conditions, and provisions of this Lease, including, without limitation, restriction on use, assignment, and subletting and the covenant to pay Rent. In the event of any Event of Default by Tenant, Landlord may collect the rent owing by the sublessee directly from such sublessee and apply the amount so collected to the Rent herein reserved. No such consent to or recognition of any such assignment or subletting shall constitute a release of Tenant or any guarantor of Tenant's performance hereunder from further performance by Tenant or such guarantor of covenants undertaken to be performed by Tenant herein. Tenant and any such guarantor shall remain liable and responsible for all Rent and other obligations herein imposed upon Tenant, and Landlord may condition its consent to any Transfer upon the receipt of a written reaffirmation from each such guarantor in a form reasonably acceptable to

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Landlord (which shall not be construed to imply that the occurrence of a Transfer without such a reaffirmation would operate to release any guarantor). Consent by Landlord to a particular assignment, sublease, or other transaction shall not be deemed a consent to any other or subsequent transaction. In any case where Tenant desires to assign, sublease or enter into any related or similar transaction, whether or not Landlord consents to such assignment, sublease, or other transaction, Tenant shall pay any reasonable attorneys' fees incurred by Landlord in connection with such assignment, sublease or other transaction, including, without limitation, fees incurred in reviewing documents relating to, or evidencing, said assignment, sublease, or other transaction. All documents utilized by Tenant to evidence any subletting or assignment for which Landlord's consent has been requested and is required hereunder, shall be subject to prior approval (not to be unreasonably withheld, conditioned or delayed) by Landlord or its attorney.

18.5    Tenant shall be bound and obligated to pay Landlord a portion of any sums or economic consideration payable to Tenant by any sublessee, assignee, licensee, or other transferee, within thirty (30) days following receipt thereof by Tenant from such sublessee, assignee, licensee, or other transferee, as the case might be, as follows:

(a)    In the case of an assignment, fifty percent (50%) of any sums or other economic consideration received by Tenant as a result of such assignment shall be paid to Landlord after first deducting the unamortized cost of reasonable leasehold improvements paid for by Tenant in connection with such assignment, (whether paid directly by Tenant or as an allowance), any reasonable rental concessions granted by Tenant in connection with such assignment, and the reasonable cost of any real estate commissions, marketing costs, and legal fees incurred by Tenant in connection with such assignment.

(b)    In the case of a subletting, fifty percent (50%) of any sums or economic consideration received by Tenant as a result of such subletting shall be paid to Landlord after first deducting (i) the Rent due hereunder prorated to reflect only Rent allocable to the sublet portion of the Premises, (ii) any reasonable rental concessions granted by Tenant in connection with such subletting (which shall be amortized over the term of the sublease), and (iii) the reasonable cost of any real estate commissions leasehold improvements (whether paid directly by Tenant or as an allowance), marketing costs and legal fees incurred by Tenant in connection with such subletting, which shall be amortized over the term of the sublease.

(c)    Tenant shall provide Landlord with a detailed statement setting forth any sums or economic consideration Tenant either has or will derive from such Transfer, the deductions permitted under (a) and (b) of this Section 18.5, and the calculation of the amounts due Landlord under this Section 18.5. In addition, Landlord or its representative shall have the right at all reasonable times to audit the books and records of Tenant with respect to the calculation of the Transfer profits. If such inspection reveals that the amount paid to Landlord was incorrect, then within thirty (30) days of Tenant's receipt of the results of such audit, Tenant shall pay Landlord the deficiency and the cost of Landlord's audit.

18.6    If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. or any successor or substitute therefor (the “Bankruptcy Code”), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord, and shall

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not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any such monies or other consideration not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid or delivered to Landlord. Any person or entity to whom this Lease is so assigned shall be deemed, without further act or deed, to have assumed all of the remaining obligations arising under this Lease as of the date of such assignment. Any such assignee shall, upon demand therefor, execute and deliver to Landlord an instrument confirming such assumption.

18.7    Except in the case of a Permitted Transfer, Landlord shall have the following option with respect to (i) any assignment proposed by Tenant , and (ii) any subletting proposed by Tenant where such subletting is for more than fifty percent (50%) or more of the Premises, either in a single transaction or, in the aggregate, following a series of transactions, and the subletting is for more than fifty percent (50%) of the then remaining Term:

(a)    Notwithstanding any other provision of this Article (other than Section 18.8), Landlord has the option, by written notice to Tenant (the “Recapture Notice”) within thirty (30) days after receiving any Transfer Notice to recapture the space covered by the proposed sublease or the entire Premises in the case of an assignment (the “Subject Space”) by terminating this Lease for the Subject Space or taking an assignment or a sublease of the Subject Space from Tenant. A timely Recapture Notice will terminate this Lease with respect to the Subject Space, effective as of the date specified in the Transfer Notice. After such termination, Landlord may (but shall not be obligated to) enter into a lease with the party to the sublease or assignment proposed by Tenant.

(b)    To determine the new Base Rent under this Lease in the event Landlord recaptures the Subject Space, the original Base Rent under the Lease shall be multiplied by a fraction, the numerator of which is the rentable square feet of the Premises retained by Tenant after Landlord's recapture and the denominator of which is the total rentable square feet in the Premises before Landlord's recapture. The Additional Rent, to the extent that it is calculated on the basis of the rentable square feet within the Premises, shall be reduced to reflect Tenant's proportionate share based on the rentable square feet of the Premises retained by Tenant after Landlord's recapture. This Lease as so amended shall continue thereafter in full force and effect. Either party may require a written confirmation of the amendments to this Lease necessitated by Landlord's recapture of the Subject Space. If Landlord recaptures the Subject Space, Landlord shall, at Landlord's sole expense, construct any partitions required to segregate the Subject Space from the remaining Premises retained by Tenant. Tenant shall, however, pay for painting, covering or otherwise decorating the surfaces of the partitions facing the remaining Premises retained by Tenant.

18.8    Notwithstanding the foregoing, Tenant may Transfer all or part of its interest in this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of entities (a “Permitted Transferee”) without the written consent of Landlord: (a) any parent, subsidiary or affiliate corporation which Controls (as defined below), is Controlled by or is under common Control with Tenant (collectively, an “Affiliate”); (b) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity in which or with which Tenant, an Affiliate of Tenant, or their respective corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (i) in both cases (a) and (b), Tenant's obligations hereunder are assumed by the Permitted Transferee; and (ii) in the case of

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clause (b), the Permitted Transferee satisfies the Net Worth Threshold as of the effective date of the Permitted Transfer; or (c) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity which acquires all or substantially all of Tenant's assets and/or ownership interests, if the transferee satisfies the Net Worth Threshold as of the effective date of the Transfer. Tenant shall notify Landlord in writing of any such Permitted Transfer. Tenant shall remain liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer exists because of a merger, consolidation, or acquisition, the surviving or acquiring entity shall expressly assume in writing, the obligations of Tenant hereunder. Additionally, the Permitted Transferee shall comply with all of the terms and conditions of this Lease, whether accruing prior to and/or from and after the consummation of the Transfer. No later than ten (10) days prior to the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with (1) copies of the instrument effecting any of the foregoing Transfers, (2) documentation establishing Tenant's satisfaction of the requirements set forth above applicable to any such Transfer, and (3) evidence of insurance as required under this Lease with respect to the Permitted Transferee; provided, however, that if the furnishing of such information is precluded by applicable law or confidentiality agreement, then Tenant shall be obligated to provide such information as soon as the furnishing of such information is permissible. The occurrence of a Permitted Transfer shall not waive Landlord's rights as to any subsequent Transfers. As used herein, the term “Net Worth Threshold” shall mean the proposed Permitted Transferee has a tangible net worth equal to or greater than that of Tenant immediately prior to such transaction (determined in accordance with generally accepted accounting principles consistently applied and excluding from the determination of total assets all assets which would be classified as intangible assets under generally accepted accounting principles, including, without limitation, goodwill, licenses, trademarks, trade names, copyrights and franchises), and as evidenced by financial statements audited by a certified public accounting firm reasonably acceptable to Landlord.

ARTICLE 19 DAMAGE OR DESTRUCTION

19.1    If the Premises or the Building should be damaged or destroyed by fire or other casualty, Tenant shall give immediate written notice to Landlord. If the Premises or any Common Areas of the Building or the Project serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord will, within sixty (60) days following the date of the damage, deliver to Tenant an estimate of the time necessary to repair the damage in question such that the Premises may be used by and accessible to Tenant and the Building and Common Areas operable as before; such notice will be based upon the review and opinions of Landlord's architect and contractor (“Landlord's Repair Notice”). 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 19, restore the base, shell, and core (i.e., the Building structure and Building Systems) of the Premises and the Building and such Common Areas. Such restoration shall be to substantially the same condition of the base, shell, and core of the Premises and Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Project, or the lessor of a ground or underlying lease with respect to the Project and/or the Building, or any other modifications to the Common Areas reasonably deemed desirable by Landlord, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired and Tenant's use of the Premises is not substantially altered as a consequence. Landlord shall not be liable for any inconvenience or annoyance to

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Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy, and if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord shall allow Tenant a proportionate abatement of Base Rent and Tenant's Share of Operating Expenses and Tenant's Share of Taxes during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof. In addition, in the event of a period of partial or total rent abatement under the terms of this Section 19.1, Tenant's period of rent abatement shall include a reasonable period following the completion of such repairs for the re-installation of Tenant's furniture, fixtures and equipment in the Premises. In the event that Landlord shall not deliver the Landlord Repair Notice, Tenant's right to rent abatement pursuant to the preceding sentences shall terminate as of the date which is reasonably determined by Landlord to be the date Tenant should have completed repairs to the Premises assuming Tenant used reasonable due diligence in connection therewith, subject to delays caused by Force Majeure events, Landlord Delay (defined in the Work Letter) and/or other factors beyond Tenant's reasonable control. However, that if any portion of the Premises is damaged such that the remaining portion thereof is not sufficient to allow Tenant to conduct is business operations from such remaining portion and Tenant does not conduct its business operations therefrom, Landlord shall allow Tenant a total abatement of Rent within the report to the portion of the Premises during the time and to the extent such portion of the Premises is unfit for occupancy for the purposes permitted under this Lease and not occupied by Tenant as a result of the subject damage. If any such abatement right described herein occurs during any Abatement Period, then any Abatement Period which previously governed such portion of the Premises shall be suspended until the completion of the abatement described in this Section 19.1, whereafter such abatement shall once again be commenced.

19.2    Notwithstanding the terms of Section 19.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, the Building and/or any other portion of the Project and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of Landlord's discovery of such damage (the “Damage Discovery Date”), such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not any portion of the Premises is affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within one hundred eighty (180) days of the Damage Discovery Date (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Project or ground or underlying lessor with respect to the Project and/or the Building shall require that the insurance proceeds or any portion thereof in excess of the Threshold Amount (as defined below) be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; or (iii) the damage is not Substantially Covered (except for deductible amounts in the case of a casualty other than earthquake or flood) by Landlord's insurance policies (in the event that Landlord has elected to self-insure for any portion of Landlord's property insurance coverage described in Section 13.1 above, then for the purposes of this clause (iii), the analysis will be whether the damage would be Substantially Covered (except for deductible amounts) had Landlord maintained the insurance coverage described in Section 13.1) and provided that this clause (iii) will not apply to provide Landlord with a right to terminate if Landlord has failed to maintain the insurance coverage required hereunder. As used herein, “Substantially Covered” shall mean that no more than the Threshold Amount of the repair costs is not covered by proceeds of Landlord's property insurance policies plus Landlord's deductible payments.

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In addition, if the Premises or the Building, is destroyed or damaged to the extent that such space is not occupiable and the time necessary to repair such damage would exceed ninety (90) days when such repairs are made without the payment of overtime or other premiums (“Substantial Extent”) during the last twelve (12) months of the Term, then notwithstanding anything contained in this Article 19, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after the Damage Discovery Date, in which event this Lease shall cease and terminate with respect to the Premises as of the date of such notice. Upon any such termination of this Lease pursuant to this Section 19.2 or Section 19.3 below, Tenant shall pay the Base Rent and Additional Rent for the Premises, properly apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder with respect to the Premises, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Term. As used in this Section 19.2, the term “Threshold Amount” means an amount equal to five percent (5%) of the replacement cost of the Building, as reasonably determined by Landlord.

19.3    If any portion of the Premises is damaged by fire or other casualty and are rendered not reasonably usable for Tenant's business purposes thereby, or if the Building shall be so damaged that Tenant shall be deprived of reasonable access to the Premises, and if, pursuant to Landlord's Repair Notice, the restoration will not be substantially completed within nine (9) months following the date of such damage, Tenant shall have the right to terminate this Lease by giving written notice (the “Termination Notice”) to Landlord not later than thirty (30) days following receipt of Landlord's Repair Notice. If Tenant gives a Termination Notice, this Lease shall be deemed cancelled and terminated as of the date of the damage as if such date were the Expiration Date, and Rent shall be apportioned and shall be paid or refunded, as the case may be up to and including the date of such damage. Notwithstanding the foregoing, if Tenant was entitled to but elected not to exercise its right to terminate this Lease and Landlord does not substantially complete the repair and restoration of the Premises within two (2) months after the expiration of the estimated period of time set forth in Landlord's Repair Notice, which period shall be extended to the extent of any delays caused by Tenant and by Force Majeure (up to a maximum of sixty (60) days of delay due to Force Majeure), then Tenant may terminate this Lease by written notice to Landlord within thirty (30) days after the expiration of such period, as the same may be so extended. Additionally, if the Premises, or any part thereof, or any portion of the Building necessary for Tenant's use of the Premises, is damaged or destroyed to a Substantial Extent during the last twelve (12) months of the Term, or any extension thereof, Tenant may terminate this Lease by giving written notice thereof to Landlord within thirty (30) days after the date of the casualty, in which case this Lease shall terminate with respect to such space as of the later of the date of the casualty or the date of Tenant's vacation of the Premises.

19.4    If there is an occurrence of any damage to the Premises that does not result in the termination of this Lease pursuant to this Article 19, then upon notice (the “Landlord Repair Notice”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party reasonably designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Sections 13.2(e)(ii) and (iii) above with respect to any improvements in the Premises required to be insured by Tenant hereunder (excluding proceeds for Tenant's personal property), and Landlord shall repair any injury or damage to the Tenant Improvements, alterations and the Original Improvements installed in the Premises and shall return such Tenant Improvements, alterations and Original Improvements to their original condition; provided that (x) Tenant shall have the right to require that such Original Improvements

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be constructed pursuant to one or more alternate designs, provided the same are subject to Landlord's approval (as described in Article 15 above) and (y) if the cost of such repair by Landlord exceeds the sum of (A) amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, plus (B) any insurance proceeds received by Landlord with respect to such Tenant Improvements, alterations and Original Improvements (it being acknowledged and agreed that Tenant's insurance as to the Tenant Improvements, alterations and Original Improvements is primary in nature and Landlord's insurance, if any, with respect to same is secondary in nature), the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord's commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within forty-five (45) days following the Damage Discovery Date, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements, alterations, and the Original Improvements installed in the Premises and shall return such Tenant Improvements, alterations, and Original Improvements to their original condition (or such alternate condition as Tenant may elect, subject to Landlord's approval as described in Article 15 above). Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord's review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work.

19.5    In the event this Lease is terminated in accordance with the terms of this Article 19, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Sections 13.2(e)(ii) and (iii) with respect to the Premises subject to such termination.

19.6    The provisions of this Lease, including this Article 19, constitute an express agreement between Landlord and Tenant with respect to damage to, or destruction of, all or any portion of the Premises 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, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties (and any other statute or regulation now or hereafter in effect with respect to such rights or obligations), shall have no application to this Lease or to any damage or destruction to all or any portion of the Premises or the Project.

ARTICLE 20 CONDEMNATION

20.1    If all of the Premises is condemned by eminent domain, inversely condemned or sold under threat of condemnation for any public or quasi-public use or purpose (“Condemned”), this Lease shall terminate as of the earlier of the date the condemning authority takes title to or possession of the Premises, and Rent shall be adjusted to the date of termination.

20.2    If any portion of the Premises or if the Building is condemned and such partial condemnation materially impairs Tenant's ability to use the Premises for Tenant's business as reasonably determined by Landlord, Landlord shall have the option in Landlord's sole and absolute discretion of either (i) relocating Tenant to comparable space within the Premises or (ii) terminating this Lease as of the earlier of the date title vests in the condemning authority or as of the date an order of immediate possession is issued and Rent shall be adjusted to the date of termination. If such partial condemnation does not materially impair Tenant's ability to use the Premises for the

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business of Tenant, Landlord shall promptly restore the Premises to the extent of any condemnation proceeds recovered by Landlord, excluding the portion thereof lost in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting or order of immediate possession Rent shall be adjusted as reasonably determined by Landlord.

20.3    If the Premises is wholly or partially condemned, Landlord shall be entitled to the entire award paid for such condemnation, and Tenant waives any claim to any part of the award from Landlord or the condemning authority; provided, however, Tenant shall have the right to recover from the condemning authority such compensation as may be separately awarded to Tenant in connection with costs in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment to a new location. No condemnation of any kind shall be construed to constitute an actual or constructive eviction of Tenant or a breach of any express or implied covenant of quiet enjoyment. Tenant hereby waives the effect of Sections 1265.120 and 1265.130 of the California Code of Civil Procedure.

20.4    In the event of a temporary condemnation not extending beyond the Term, this Lease shall remain in effect, Tenant shall continue to pay Rent and Tenant shall receive any award made for such condemnation except damages to any of Landlord's property. If a temporary condemnation is for a period which extends beyond the Term, this Lease shall terminate as of the date of initial occupancy by the condemning authority and any such award shall be distributed in accordance with the preceding section. If a temporary condemnation remains in effect at the expiration or earlier termination of this Lease, Tenant shall pay Landlord the reasonable cost of performing any obligations required of Tenant with respect to the surrender the Premises.

ARTICLE 21 HOLD HARMLESS

21.1    Tenant agrees to defend, with counsel approved by Landlord, all actions against Landlord, any member, partner, trustee, stockholder, officer, director, employee, or beneficiary of Landlord (collectively, “Landlord Parties”), holders of mortgages secured by the Premises or the Project and any other party having an interest therein (collectively with Landlord Parties, the “Indemnified Parties”) with respect to, and to pay, protect, indemnify, and save harmless, to the extent permitted by law, all Indemnified Parties from and against, any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands, or judgments of any nature (collectively, “Losses”) to which any Indemnified Party is subject because of its estate or interest in the Premises or the Project arising from (a) subject to Section 13.4, injury to or death of any person, or damage to or loss of property on the Premises, the Project, on adjoining sidewalks, streets or ways, or, in any of the foregoing cases, connected with the use, condition, or occupancy of the Premises, the Project sidewalks streets, or ways, except to the extent, if any, caused by the negligence or willful misconduct of Landlord or its employees, contractors or agents, (b) any violation of this Lease by or attributable to Tenant, or (c) subject to Section 13.4, any act, fault, omission, or other misconduct of Tenant or its agents, contractors, licensees, sublessees, or invitees. Tenant agrees to use and occupy the Premises and other facilities of the Project at its own risk, and hereby releases the Indemnified Parties from any and all claims for any damage or injury to the fullest extent permitted by law.

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21.2    Subject to Section 13.4, Landlord shall indemnify and hold harmless Tenant and its agents, directors, officers, shareholders, partners, members, employees and invitees, from all Losses arising, wholly or in part, out of any negligence or willful misconduct of Landlord or Landlord's employees, agents, or contractors and not insured (or required to be insured) by Tenant under this Lease (provided, however, that Landlord's indemnity shall, in no event, extend to loss of profits, loss of business or other consequential damages incurred by Tenant). If Tenant shall without fault on its part, be made a party to any action commenced by or against Landlord, for which Landlord is obligated to indemnify Tenant hereunder, then Landlord shall protect and hold Tenant harmless from, and shall pay all costs and expenses, including reasonable attorneys' fees, of Tenant in connection therewith.

21.3    Tenant agrees that Landlord shall not be responsible or liable to Tenant, its agents, employees, or invitees for fatal or non-fatal bodily injury or property damage occasioned by the acts or omissions of any other tenant, or such other tenant's agents, employees, licensees, or invitees, of the Project. Landlord shall not be liable to Tenant for losses due to theft, burglary, or damages done by persons on the Project.

ARTICLE 22 DEFAULT BY TENANT

22.1    The term “Event of Default” refers to the occurrence of any one (1) or more of the following:

(a)    Failure of Tenant to pay when due any sum required to be paid hereunder which is not received by Landlord within seven (7) days after the date due (the “Monetary Default”);

(b)    Failure of Tenant, within thirty (30) days following written notice thereof, to perform any of Tenant's obligations, covenants, or agreements except a Monetary Default, provided that if the cure of any such failure is not reasonably susceptible of performance within such thirty (30) day period, then an Event of Default of Tenant shall not be deemed to have occurred so long as Tenant has promptly commenced and thereafter diligently prosecutes such cure to completion and completes that cure within ninety (90) days;

(c)    Tenant, or any guarantor of Tenant's obligations under this Lease (the “Guarantor”), admits in writing that it cannot meet its obligations as they become due; or is declared insolvent according to any law; or assignment of Tenant's or Guarantor's property is made for the benefit of creditors; or a receiver or trustee is appointed for Tenant or Guarantor or its property; or the interest of Tenant or Guarantor under this Lease is levied on under execution or other legal process; or any petition is filed by or against Tenant or Guarantor to declare Tenant bankrupt or to delay, reduce, or modify Tenant's debts or obligations; or any petition filed or other action taken to reorganize or modify Tenant's or Guarantor's capital structure if Tenant is a corporation or other entity. Any such levy, execution, legal process, or petition filed against Tenant or Guarantor shall not constitute a breach of this Lease provided Tenant or Guarantor shall vigorously contest the same by appropriate proceedings and shall remove or vacate the same within ninety (90) days from the date of its creation, service, or filing;

(d)    The abandonment (as defined in the California Civil Code) of the Premises where such abandonment has materially impaired Landlord's insurance coverage for the Building and Tenant fails to cure the same by either reoccupying the

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Premises or reinstating Landlord's insurance coverage within thirty (30) days after notice from Landlord;

(e)    The discovery by Landlord that any financial statement given by Tenant or any of its assignees, subtenants, successors-in-interest, or Guarantors was materially false; or

(f)    If Tenant or any Guarantor shall be dissolved or liquidated or become insolvent, or shall make a transfer in fraud of creditors.

22.2    In the event of any Event of Default by Tenant, Landlord, at its option, may pursue one or more of the following remedies without notice or demand in addition to all other rights and remedies provided for at law or in equity:

(a)    Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect Rent when due. Landlord may enter the Premises and relet it, or any part of it, to third parties for Tenant's account, provided that any Rent in excess of the Rent due hereunder shall be payable to Landlord. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs (“Costs of Reletting”). Reletting may be for a period shorter or longer than the remaining Term of this Lease. Notwithstanding the above, if Landlord relets the Premises for a term (the “Relet Term”) that extends past the Termination Date of this Lease (without consideration of any earlier termination pursuant to this Article 22), the Costs of Reletting which may be included in Landlord's damages under this Lease shall be limited to a prorated portion of the Costs of Reletting, based on the percentage that the length of the Term remaining on the date Landlord terminates this Lease or Tenant's right to possession bears to the length of the Relet Term. For example, if there are 2 years left on the Term at the time that Landlord terminates possession and, prior to the expiration of the 2 year period, Landlord enters into a lease with a Relet Term of 10 years with a new tenant, then only twenty percent (20%) of the Costs of Reletting shall be included when determining Landlord's damages. Tenant shall pay to Landlord the Rent and other sums due under this Lease on the dates the Rent is due, less the Rent and other sums Landlord receives from any reletting. No act by Landlord allowed by this Section 22.2(a) shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease.

“The lessor has the remedy described in Civil Code Section 1951.4 (lessor may continue the 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).”

(b)    Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect. No act by Landlord other than giving written notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord shall have the right to remove all personal property of Tenant and store it at Tenant's cost and to recover from Tenant as damages: (i) the worth at the time of award of unpaid Rent and other sums due and payable which had been earned at the time of termination; plus (ii) the worth at the time of award of the amount by which the unpaid Rent and other sums due and payable which would have

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been payable after termination until the time of award exceeds the amount of the Rent loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid Rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of the Rent loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord: (A) in retaking possession of the Premises, including reasonable attorneys' fees and costs therefor; (B) maintaining or preserving the Premises for reletting to a new tenant, including repairs or alterations to the Premises for the reletting; (C) leasing commissions; (D) any other costs necessary or appropriate to relet the Premises; and (E) 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 the laws of the State of California.

The “worth at the time of award” of the amounts referred to in Sections 22.2(b)(i) and 22.2(b)(ii) shall be calculated by allowing interest at the lesser of twelve percent (12%) per annum or the maximum rate permitted by law, on the unpaid Rent and other sums due and payable from the termination date through the date of award. The “worth at the time of award” of the amount referred to in Section 22.2(b)(iii) shall be calculated by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, if Tenant is evicted or Landlord takes possession of the Premises by reason of any Event of Default by Tenant.

22.3    If Landlord shall exercise any one or more remedies hereunder granted or otherwise available, it shall not be deemed to be an acceptance or surrender of the Premises by Tenant whether by agreement or by operation of law; it is understood that such surrender can be effected only by the written agreement of Landlord and Tenant. No alteration of security devices and no removal or other exercise of dominion by Landlord over the property of Tenant or others in the Premises shall be deemed unauthorized or constitute a conversion, Tenant hereby consenting to the aforesaid exercise of dominion over Tenant's property within the Premises after any Event of Default.

22.4    Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, including, but not limited to, suits for injunctive relief and specific performance. The exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity, or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord for any or all other rights or remedies provided for in this Lease or now or hereafter existing at or in equity or by statute or otherwise. All such rights and remedies shall be considered cumulative and non-exclusive. All costs incurred by Landlord in connection with collecting any Rent or other amounts and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, including reasonable attorneys' fees from the date such matter is turned over to an attorney, whether or not one or more actions are commenced by Landlord, shall also be recoverable by Landlord from Tenant. If any notice and grace period required under subparagraphs 22.1(a) or (b) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Tenant under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes

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required by subparagraphs 22.1(a) or (b). In such case, the applicable grace period under subparagraphs 22.1(a) or (b) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Tenant to cure the default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and an Event of Default entitling Landlord to the remedies provided for in this Lease and/or by said statute.

22.5    If Tenant should fail to make any payment or cure any default hereunder within the time herein permitted and such failure constitutes an Event of Default (except in the case where if Landlord in good faith believes that action prior to the expiration of any cure period under Section 22.1 is necessary to prevent damage to persons or property, in which case Landlord may act without waiting for such cure period to expire), Landlord, without being under any obligation to do so and without thereby waiving such default, may make such payment and/or remedy such default for the account of Tenant (and enter the Premises for such purpose), and thereupon, Tenant shall be obligated and hereby agrees to pay Landlord, upon demand, all reasonable costs, expenses, and disbursements, plus ten percent (10%) overhead cost incurred by Landlord in connection therewith.

22.6    In addition to Landlord's rights set forth above, if Tenant fails to pay any recurring installment of Rent on the due date thereof more than four (4) times during any calendar year during the Term, then upon the occurrence of the fifth (5th) or any subsequent default in the payment of monies during said calendar year, Landlord, at its sole option, shall have the right to require that Tenant, as a condition precedent to curing such default, pay to Landlord, in check or money order, in advance, the Rent and Landlord's estimate of all other amounts which will become due and owing hereunder by Tenant for a period of two (2) months following said cure. All such amounts shall be paid by Tenant within thirty (30) days after notice from Landlord demanding the same. All monies so paid shall be retained by Landlord, without interest, for the balance of the Term and any extension thereof, and shall be applied by Landlord to the last due amounts owing hereunder by Tenant. If, however, Landlord's estimate of the Rent and other amounts for which Tenant is responsible hereunder are inaccurate, when such error is discovered, Landlord shall pay to Tenant, or Tenant shall pay to Landlord, within thirty (30) days after written notice thereof, the excess or deficiency, as the case may be, which is required to reconcile the amount on deposit with Landlord with the actual amounts for which Tenant is responsible.

22.7    Nothing contained in this Article 22 shall limit or prejudice the right of Landlord to prove and obtain as damages in any bankruptcy, insolvency, receivership, reorganization, or dissolution proceeding, an amount equal to the maximum allowed by any statute or rule of law governing such a proceeding and in effect at the time when such damages are to be proved, whether or not such amount be greater, equal, or less than the amounts recoverable, either as damages or Rent, referred to in any of the preceding provisions of this Article 22. Notwithstanding anything contained in this Article to the contrary, any such proceeding or action involving bankruptcy, insolvency, reorganization, arrangement, assignment for the benefit of creditors, or appointment of a receiver or trustee, as set forth above, shall be considered to be an Event of Default only when such proceeding, action, or remedy shall be taken or brought by or against the then holder of the leasehold estate under this Lease.

22.8    Landlord is entitled to accept, receive, in check or money order, and deposit any payment made by Tenant for any reason or purpose or in any amount whatsoever, and apply them at Landlord's option to any obligation of Tenant, and such amounts shall not constitute payment of any amount owed, except that to which

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Landlord has applied them. No endorsement or statement on any check or letter of Tenant shall be deemed an accord and satisfaction or recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's rights to recover any and all amounts owed by Tenant hereunder and shall not be deemed to cure any other default nor prejudice Landlord's rights to pursue any other available remedy, Landlord's acceptance of partial payment of Rent does not constitute a waiver of any rights, including without limitation any right Landlord may have to recover possession of the Premises.

22.9    In the event that this Lease is terminated prior to the end of the initial Term by reason of an Event of Default by Tenant, then immediately upon such termination, an amount shall be due and payable by Tenant to Landlord equal to the unamortized portion as of that date (which amortization shall be based on an interest rate of eleven percent (11%) per annum) of the sum of (a) the Tenant Improvement Allowance (if any), (b) the value of any free Base Rent (i.e., the Base Rent stated in this Lease to be abated as an inducement to Tenant's entering into this Lease) enjoyed as of that date by Tenant, and (c) the amount of all commissions paid by Landlord in order to procure this Lease.

22.10    Tenant waives the right to terminate this Lease on Landlord's default under this Lease. Tenant's sole remedy on Landlord's default is an action for damages or injunctive or declaratory relief. Landlord's failure to perform any of its obligations under this Lease shall constitute a default by Landlord under this Lease if the failure continues for thirty (30) days after written notice of the failure from Tenant to Landlord. If the required performance cannot be completed within thirty (30) days, Landlord's failure to perform shall constitute a default under the Lease unless Landlord undertakes to cure the failure within thirty (30) days and diligently and continuously attempts to complete this cure as soon as reasonably possible. All obligations of each party hereunder shall be construed as covenants, not conditions.

ARTICLE 23 [INTENTIONALLY OMITTED]

ARTICLE 24 [INTENTIONALLY OMITTED]

ARTICLE 25 ATTORNEYS' FEES

25.1    All costs and expenses, including reasonable attorneys' fees (whether or not legal proceedings are instituted), involved in collecting rents, enforcing the obligations of Tenant, or protecting the rights or interests of Landlord under this Lease, whether or not an action is filed, including without limitation the cost and expense of instituting and prosecuting legal proceedings or recovering possession of the Premises after default by Tenant or upon expiration or sooner termination of this Lease, shall be due and payable by Tenant on demand, as Additional Rent. In addition, and notwithstanding the foregoing, if either party hereto shall file any action or bring any proceeding against the other party arising out of this Lease or for the declaration of any rights hereunder, the prevailing party in such action shall be entitled to recover from the other party all costs and expenses, including reasonable attorneys' fees incurred by the prevailing party, as determined by the trier of fact in such legal proceeding. For purposes of this provision, the terms “attorneys' fees” or “attorneys' fees and costs,” or “costs and expenses” shall mean the fees and expenses of legal counsel (including external counsel and in-house counsel) of the parties hereto, which include printing,

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photocopying, duplicating, mail, overnight mail, messenger, court filing fees, costs of discovery, and fees billed for law clerks, paralegals, investigators and other persons not admitted to the bar for performing services under the supervision and direction of an attorney. For purposes of determining in-house counsel fees, the same shall be considered as those fees normally applicable to a partner in a law firm with like experience in such field. In addition, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs incurred in enforcing any judgment arising from a suit or proceeding under this Lease, including without limitation post-judgment motions, contempt proceedings, garnishment, levy and debtor and third party examinations, discovery and bankruptcy litigation, without regard to schedule or rule of court purporting to restrict such award. This post-judgment award of attorneys' fees and costs provision shall be severable from any other provision of this Lease and shall survive any judgment/award on such suit or arbitration and is not to be deemed merged into the judgment/award or terminated with the Lease.

ARTICLE 26 NON-WAIVER

26.1    Neither acceptance of any payment by Landlord from Tenant nor, failure by a party hereto to complain of any action, non-action, or default of the other shall constitute a waiver of any of such party's rights hereunder. Time is of the essence with respect to the performance of every obligation of each party under this Lease in which time of performance is a factor. Waiver by either party of any right or remedy arising in connection with any default of the other party shall not constitute a waiver of such right or remedy or any other right or remedy arising in connection with either a subsequent default of the same obligation or any other default. No right or remedy of either party hereunder or covenant, duty, or obligation of any party hereunder shall be deemed waived by the other party unless such waiver is in writing, signed by the other party or the other party's duly authorized agent.

ARTICLE 27 RULES AND REGULATIONS

27.1    Such reasonable rules and regulations applying to all lessees in the Project for the safety, care, and cleanliness of the Project and the preservation of good order thereon are hereby made a part hereof as Exhibit C, and Tenant agrees to comply with all such rules and regulations. Landlord shall have the right at all times to change such rules and regulations or to amend them in any reasonable and non-discriminatory manner as may be deemed advisable by Landlord, all of which changes and amendments shall be sent by Landlord to Tenant in writing and shall be thereafter carried out and observed by Tenant. Landlord shall not have any liability to Tenant for any failure of any other lessees of the Project to comply with such rules and regulations. In the event of any conflict between the provisions of this Lease and the provisions of any such rules and regulations, the terms and conditions of this Lease shall control.

ARTICLE 28 ASSIGNMENT BY LANDLORD; RIGHT TO LEASE

28.1    Landlord shall have the right to transfer or assign, in whole or in part, all its rights and obligations hereunder and in the Premises and the Project. In such event, and upon the assumption by the transferee of the obligations of Landlord hereunder, no liability or obligation shall accrue or be charged to Landlord with respect to the period from and after such transfer or assignment and assumption of Landlord's obligations by the transferee or assignee.

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28.2    Subject to the provisions of this Lease, including, without limitation, provisions regarding Article 56 below, 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 Buildings or Project, subject to Tenant's rights set forth herein. 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 Buildings or Project.

ARTICLE 29 LIABILITY OF LANDLORD

29.1    It is expressly understood and agreed that the obligations of Landlord under this Lease shall be binding upon Landlord and its successors and assigns and any future owner of the Project only with respect to events occurring during its and their respective ownership of the Project. In addition, Tenant agrees to look solely to Landlord's interest in the Project for recovery of any judgment against Landlord arising in connection with this Lease, it being agreed that neither Landlord nor any successor or assign of Landlord nor any future owner of the Project, nor any partner, shareholder, member, or officer of any of the foregoing shall ever be personally liable for any such judgment. For purposes hereof, “the interest of Landlord in the Project” shall include rents due from tenants, proceeds from any sale of the Project, insurance proceeds, and proceeds from condemnation or eminent domain proceedings (prior to the distribution of same to any partner or shareholder of Landlord or any other third party). The limitations of liability contained in this Section 29.1 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 nor Tenant shall be liable under any circumstances for any indirect or consequential damages or any injury or damage to, or interference with, the other party's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring except, in the case of Tenant, with respect to Tenant's liability under Article 31 or Article 33; provided that Tenant hereby acknowledges and agrees that the foregoing shall not prevent Landlord from recovering any and all damages to which Landlord is entitled pursuant to California Civil Code Sections 1951.2 (except for Section 1951.2(a)(4) , but only to the extent Section 1951.2(a)(4) allows recovery of damages other than direct out-of-pocket costs to repair the Premises and lease the Premises) and 1951.4 following an Event of Default by Tenant hereunder.

ARTICLE 30 SUBORDINATION AND ATTORNMENT

30.1    This Lease, at Landlord's option, shall be subordinate to any present or future mortgage or deed of trust encumbering any Building included in the Premises (a “Mortgage”) (to the extent of the portion of the Premises encumbered by such Mortgage, ground lease or declaration of covenants regarding maintenance and use of any areas contained in any portion of the Buildings), and to any and all advances made under any present or future mortgage and to all renewals, modifications, consolidations, replacements, and extensions of any or all of same. Tenant agrees, with respect to any of the foregoing documents other than any SNDA required hereunder, that no documentation other than this Lease shall be required to evidence such subordination.

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If any holder of a Mortgage (“Holder”) shall elect for this Lease to be superior to the lien of its mortgage and shall give written notice thereof to Tenant, then this Lease shall automatically be deemed prior to such Mortgage whether this Lease is dated earlier or later than the date of said Mortgage or the date of recording thereof. Tenant agrees to execute (or make reasonable good faith corrective comments to) such documents as may be further required to evidence such subordination or to make this Lease prior to the lien of any Mortgage, as the case may be, and by failing to do so within ten (10) business days after written demand, Tenant does hereby make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place, and stead, to do so. This power of attorney is coupled with an interest. Tenant hereby attorns to all successor owners of the Building, whether or not such ownership is acquired as a result of a sale through foreclosure or otherwise. Notwithstanding the foregoing, as a condition to the subordination of this Lease to any Mortgage, Landlord shall provide a Non-Disturbance Agreement (“SNDA”) from any Holder in a commercially reasonable form acceptable to Tenant and such Holder in their sole discretion. Landlord represents to Tenant that as of the Effective Date, there is no (a) Mortgage encumbering any portion of the Project or (b) ground lease affecting any of the Buildings.

30.2    Tenant shall, at such time or times as Landlord may request, upon not less than ten (10) business days' prior written request by Landlord, sign (or make reasonable good faith corrective comments to) and deliver to Landlord an estoppel certificate, which shall be substantially in the form of Exhibit D, attached hereto (or such other commercially reasonable form as may be required by any prospective Holder or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain such other information and agreements as may be reasonably requested, it being intended that any such statement delivered pursuant to this Article may be relied upon by Landlord and by any prospective purchaser of all or any portion of the Project, or a holder or prospective holder of any mortgage encumbering the Project, or any portion thereof; provided, however, that in no event will any such certificate be deemed to amend, revise or modify the express written terms of this Lease. Tenant's failure to deliver such statement within five (5) days after Landlord's second written request therefor shall constitute an Event of Default (as that term is defined elsewhere in this Lease) and shall conclusively be deemed to be an admission by Tenant of the matters set forth in the request for an estoppel certificate. Similarly, within twenty (20) days following a request by Tenant (or ten (10) business days, if requested in connection with a proposed Transfer by Tenant), Landlord agrees to deliver to Tenant a similar statement (provided, that for the purposes of such statement, clause (c) shall be written to state that Landlord will state whether or not, to Landlord's actual knowledge, Tenant is in default under this Lease) which may be relied upon by any entity extending financing to Tenant, engaged in a merger or acquisition transaction with Tenant or proposing to engage in any Transfer with Tenant.

30.3    From time to time upon Landlord's written request to Tenant not more than once in each consecutive one (1) year period during the Term unless (i) an Event of Default then exists or (ii) the request is made in connection with a proposed sale or financing of the Building, and provided that Landlord (and any third party to whom Landlord intends to disclose the information described herein to) executes a commercially reasonable nondisclosure agreement, Tenant shall deliver to Landlord within a reasonable period, Tenant's current financial statements, including a balance sheet and profit and loss statement for the most recent prior year (collectively, the “Statements”), which Statements shall accurately and completely reflect the financial condition of Tenant. If audited financial statements are not then available, Tenant may instead provide unaudited financial statements certified by an officer of Tenant as

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accurately and completely reflecting the financial condition of Tenant. Landlord shall have the right to deliver the same to any proposed purchaser of the Building or the Project, and to any encumbrancer of all or any portion of the Building or the Project. The provisions of this Section 30.3 shall not apply if and for so long as the shares of Tenant's stock are traded on a nationally recognized securities exchange, Tenant's financial statements (i.e., Forms 10-K and 10Q) are available to the public, including Landlord, and Tenant is current on its reporting obligations under applicable federal securities laws.

30.4    Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material adverse change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. The Statements are represented and warranted by Tenant to be correct and to accurately and fully reflect Tenant's true financial condition as of the date of submission of any Statements to Landlord.

ARTICLE 31 HOLDING OVER

31.1    Tenant shall have the right to holdover in all or any portion of the Premises for up to ninety (90) days following the expiration or earlier termination of this Lease (the “Stub Period”) and the Base Rent payable during the Stub Period shall equal the lesser of (x) the then market rental value of the Premises as reasonably determined by Landlord assuming a new lease of the Premises of the then usual duration and other terms (the “Holdover Market Rental Value”), and (y) one hundred fifty percent (150%) of the Base Rent for the last period prior to the Stub Period, and Tenant shall also pay Additional Rent attributable to Operating Expenses and Taxes as provided in Article 5 of this Lease during the Stub Period, together with all other Additional Rent and other amounts payable pursuant to the terms of this Lease. Tenant shall also be liable for any and all damages sustained by Landlord as a result of such holdover after the expiration of such Stub Period. Subject to Tenant's right to hold over during the Stub Period, Tenant shall vacate the Premises and deliver same to Landlord immediately upon Tenant's receipt of notice from Landlord to so vacate. The Rent during such holdover period shall be payable to Landlord on demand. Landlord's acceptance of Rent if and after Tenant holds over shall not convert Tenant's tenancy at sufferance to any other form of tenancy or result in a renewal or extension of the Term of this Lease, unless otherwise specified by notice from Landlord to Tenant.

31.2    Subject to Section 31.1 above, in the event Tenant, or any party claiming under Tenant, retains possession of the Premises after the Expiration Date or Termination Date, such possession shall be that of a tenant at sufferance and an unlawful detainer. No tenancy or interest shall result from such possession, and such parties shall be subject to immediate eviction and removal. Tenant or any such party shall pay Landlord, as Base Rent for the period of such holdover, a monthly amount equal to the greater of (i) the sum of (a) one hundred fifty percent (150%) of the Base Rent for the last period prior to the date of such termination plus (b) one hundred percent (100%) of Additional Rent attributable to Operating Expenses and Taxes as provided in Article 5 of this Lease during the time of holdover, and (ii) the Holdover Market Rental Value, in either case, together with all other Additional Rent and other amounts payable pursuant to the terms of this Lease. Such tenancy at sufferance shall be subject to every other applicable term, covenant and agreement contained herein.

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ARTICLE 32 SIGNS; ADDRESSES

32.1    Except as expressly set forth below in Section 32.2, no sign, symbol, or identifying marks shall be put upon the Project, Buildings, in the halls, elevators, staircases, entrances, parking areas, or upon the doors or walls, without the prior written approval of Landlord in its reasonable discretion. All signs or lettering installed by Tenant which is visible from the exterior of the Premises shall conform in all respects to the sign and/or lettering criteria reasonably established by Landlord and Tenant and comply with the CC&R's and all Applicable Laws. Landlord, at Landlord's sole cost and expense, reserves the right to change the door plaques as Landlord deems reasonably desirable.

32.2    Notwithstanding the foregoing, Landlord hereby agrees that, subject to Tenant's compliance with the requirements set forth above, subject to existing (as of the Effective Date) rights of existing tenants and all relevant municipal and business park rules and regulations, Tenant shall have exclusive signage rights with respect to the Building if Tenant is the occupant of the entire Building and pro-rata signage rights for so long as the Building is a multi-tenant Building.

ARTICLE 33 HAZARDOUS SUBSTANCES

33.1    Except for Hazardous Material (as defined below) contained in products used by Tenant for ordinary cleaning and office purposes in quantities not violative of applicable Environmental Requirements, Tenant shall not permit or cause any party to bring any Hazardous Material upon the Premises and/or the Project or transport, store, use, generate, manufacture, dispose, or release any Hazardous Material on or from the Premises and/or the Project without Landlord's prior written consent. Tenant, at its sole cost and expense, shall operate its business in the Premises in strict compliance with all Environmental Requirements (as defined below) and all requirements of this Lease. Tenant shall complete and certify to disclosure statements as requested by Landlord from time to time relating to Tenant's transportation, storage, use, generation, manufacture, or release of Hazardous Materials on the Premises, and Tenant shall promptly deliver to Landlord a copy of any notice of violation relating to the Premises or the Project of any Environmental Requirement. Without limiting the generality of the foregoing, Tenant shall, at such intervals as Landlord may require, provide to Landlord or its designated consultant a list of all Hazardous Materials used by Tenant in the Premises. Tenant shall reimburse Landlord within thirty (30) days after demand for the actual costs and fees charged by Landlord's consultant to review the list of chemicals provided by the Tenant.

33.2    The term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, permits, authorizations, orders, policies or other similar requirements of any governmental authority, agency or court regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Clean Air Act; the Clean Water Act; the Toxic Substances Control Act and all state and local counterparts thereto; all applicable California requirements, including, but not limited to, Sections 25115, 25117, 25122.7, 25140, 25249.8, 25281, 25316 and 25501 of the California Health and Safety Code and Title 22 of the California Code of Regulations, Division 4.5, Chapter 11, and any policies or rules promulgated thereunder as well as

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any County or City ordinances that may operate independent of, or in conjunction with, the State programs, and any common or civil law obligations including, without limitation, nuisance or trespass, and any other requirements of Article 3 of this Lease. The term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant that is or could be regulated under any Environmental Requirement or that may adversely affect human health or the environment, including, without limitation, any solid or hazardous waste, hazardous substance, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, synthetic gas, polychlorinated biphenyls (PCBs), and radioactive material). For purposes of Environmental Requirements, to the extent authorized by law, Tenant is and shall be deemed to be the responsible party, including without limitation, the “owner” and “operator” of Tenant's “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

33.3    Tenant, at its sole cost and expense, shall remove all Hazardous Materials stored, disposed of or otherwise released by Tenant, its assignees, subtenants, agents, employees, contractors or invitees onto or from the Premises, in a manner and to a level satisfactory to Landlord in its sole discretion, but in no event to a level and in a manner less than that which complies with all Environmental Requirements and does not limit any future uses of the Premises or require the recording of any deed restriction or notice regarding the Premises. Tenant shall perform such work at any time during the Term of the Lease upon written request by Landlord or, in the absence of a specific request by Landlord, before Tenant's right to possession of the Premises terminates or expires. If Tenant fails to perform such work within the time period specified by Landlord or before Tenant's right to possession terminates or expires (whichever is earlier), Landlord may at its discretion, and without waiving any other remedy available under this Lease or at law or equity (including without limitation an action to compel Tenant to perform such work), perform such work at Tenant's cost. Tenant shall pay all costs incurred by Landlord in performing such work within ten (10) days after Landlord's request therefor. Such work performed by Landlord is on behalf of Tenant and Tenant remains the owner, generator, operator, transporter, and/or arranger of the Hazardous Materials for purposes of Environmental Requirements. Tenant agrees not to enter into any agreement with any person, including without limitation any governmental authority, regarding the removal of Hazardous Materials that have been disposed of or otherwise released onto or from the Premises without the written approval of Landlord.

33.4    Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without limitation, diminution in value of the Premises or the Project and loss of rental income from the Project), claims, demands, actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation, removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys' fees, consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought into the Premises or disturbed in breach of the requirements of this Article 33, regardless of whether such removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result of any release of Hazardous Materials or any breach of the requirements under this Article 33 by Tenant, its agents, employees, contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance. The obligations of Tenant under this Article 33 shall survive any termination of this Lease.

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33.5    Landlord shall have access to, and a right to perform inspections and tests of, the Premises to determine Tenant's compliance with Environmental Requirements, its obligations under this Article 33, or the environmental condition of the Premises. Access shall be granted to Landlord upon Landlord's prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant's operations. Such inspections and tests shall be conducted at Landlord's expense, unless such inspections or tests reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant. Tenant shall promptly notify Landlord of any communication or report that Tenant makes to any governmental authority regarding any possible violation of Environmental Requirements or release or threat of release of any Hazardous Materials onto or from the Premises. Tenant shall, within five (5) days of receipt thereof, provide Landlord with a copy of any documents or correspondence received from any governmental agency or other party relating to a possible violation of Environmental Requirements or claim or liability associated with the release or threat of release of any Hazardous Materials onto or from the Premises.

33.6    In addition to all other rights and remedies available to Landlord under this Lease or otherwise, Landlord may, in the event of a breach of the requirements of this Article 33 that is not cured within thirty (30) days following notice of such breach by Landlord, require Tenant to provide financial assurance (such as insurance, escrow of funds or third party guarantee) in an amount and form satisfactory to Landlord. The requirements of this Article 33 are in addition to and not in lieu of any other provision in the Lease.

ARTICLE 34 COMPLIANCE WITH LAWS AND OTHER REGULATIONS

34.1    Subject to Section 34.2(b), Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances, and governmental rules, regulations, or requirements now in force or which may hereafter become in force, of federal, state, county, and municipal authorities, including without limitation the Americans with Disabilities Act and the California Energy Code, Title 24, with the requirements of any board of fire underwriters or other similar body now or hereafter constituted, and with any occupancy certificate issued pursuant to any law by any public officer or officers, which impose, any duty upon Landlord or Tenant, insofar as any thereof relate to or affect the condition, use, alteration, or occupancy of the Premises. Landlord's approval of Tenant's plans for any improvements shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules, and regulations of governmental agencies or authorities, including, but not limited to, the Americans with Disabilities Act. Tenant, at Tenant's expense, may contest by appropriate proceedings in good faith the legality or applicability of any Law affecting the Premises, provided that (A) the Building or any part thereof shall not be subject to being condemned or vacated by reason of non-compliance or otherwise by reason of such contest, (B) no unsafe or hazardous condition remains unremedied as a result of such contest, (C) such non-compliance or contest is not prohibited under any then-applicable law, (D) such non-compliance or contest shall not prevent Landlord from obtaining any and all permits and licenses then required by applicable laws in connection with the operation of the Building, and (E) the certificate of occupancy for the Building (or any portion) is neither subject to being suspended by reason such of non-compliance or contest (any such proceedings instituted by Tenant being referred to herein as a “Compliance Challenge”). In the event that Tenant

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commences a Compliance Challenge, Tenant's obligation to cease any use specified in Landlord's notice and/or obligation to comply with the applicable law in question shall, unless otherwise mandated by applicable law, be suspended pending the resolution of the Compliance Challenge.

34.2    However,:

(a)    Subject to Section 2.6 and Section 34.2(b), Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with: (i) the failure of the Premises to comply with Applicable Laws; and (ii) bringing the Building and the Common Areas into compliance with Applicable Laws, if and to the extent such noncompliance arises out of or relates to: (1) Tenant's use of the Premises for other than general office use; (2) any Alterations to the Premises constructed by Tenant; or (3) any Alterations constructed in the Premises at the request of Tenant;

(b)    Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with bringing the Building and the all Common Areas into compliance with Applicable Laws.

(c)    Landlord's consent to any proposed Alterations shall (i) not relieve Tenant of its obligations contained in this Article 34 or (ii) be construed as a warranty that such proposed Alterations comply with any Applicable Laws; and

(d)    The provisions of this Section 34.2 shall supersede any other provisions in this Lease regarding Applicable Laws, to the extent inconsistent with the provisions of any other paragraphs.

34.3    As an inducement to Landlord to enter into this Lease, Tenant hereby represents and warrants that: (i) Tenant is not, nor is it owned or controlled directly or indirectly by, any person, group, entity or nation named on any list issued by the Office of Foreign Assets Control of the United States Department of the Treasury pursuant to Executive Order 13224 or any similar list or any law, order, rule or regulation or any Executive Order of the President of the United States as a terrorist, “Specially Designated National and Blocked Person” or other banned or blocked person (any such person, group, entity or nation being hereinafter referred to as a “Prohibited Person”); (ii) Tenant is not (nor is it owned or controlled, directly or indirectly, by any person, group, entity or nation which is) acting directly or indirectly for or on behalf of any Prohibited Person; and (iii) neither Tenant (nor any person, group, entity or nation which owns or controls Tenant, directly or indirectly) has conducted or will conduct business or has engaged or will engage in any transaction or dealing with any Prohibited Person, including without limitation any assignment of this Lease or any subletting of all or any portion of the Premises or the making or receiving of any contribution of funds, goods or services to or for the benefit of a Prohibited Person. As used in the immediately preceding sentence, the phrase “owned or controlled” will not be deemed to include any ownership of the shares of Tenant's stock through the passive direct or indirect ownership of interests traded on a recognized securities exchange. Tenant covenants and agrees (a) to comply with all requirements of law relating to money laundering, anti-terrorism, trade embargos and economic sanctions, now or hereafter in effect, (b) to immediately notify Landlord in writing if any of the representations, warranties or covenants set forth in this Section 34.3 are no longer true or have been breached or if Tenant has a reasonable basis to believe that they may no longer be true or have been breached, (c) not to use funds from any Prohibited Person to make any payment due to Landlord under the Lease and (d) at the request of Landlord, to provide such information as may be requested by Landlord to determine

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Tenant's compliance with the terms hereof. Any breach by Tenant of the foregoing representations and warranties shall be deemed an Event of Default by Tenant under this Lease and shall be covered by the indemnity provisions of Section 21.1 above. The representations and warranties contained in this subsection shall be continuing in nature and shall survive the expiration or earlier termination of this Lease.

34.4    As of the Effective Date, neither the Building nor the Premises has undergone inspection by a Certified Access Specialist (CASp).  A CASp can inspect the Premises and determine whether the 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 Premises, Landlord may not prohibit Tenant from obtaining a CASp inspection of the Premises for the occupancy by Tenant, if requested by 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.  Except as otherwise expressly agreed upon in writing by Landlord, Landlord has no obligation for the payment of the CASp fee or the cost of making repairs pursuant thereto, nor shall Landlord have any liability to Tenant arising out of or related to the fact that neither the Premises nor the Building has been inspected by a CASp, and Tenant waives all such liability and acknowledges that Tenant shall have no recourse against Landlord or the Building as a result of or in connection therewith.

ARTICLE 35 SEVERABILITY

35.1    This Lease shall be construed in accordance with the laws of the State of California. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the Term, then it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of both parties that in lieu of each clause or provision that is illegal, or unenforceable, there is added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and still be legal, valid, and enforceable.

ARTICLE 36 NOTICES

36.1    All notices, demands, 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 (i) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (ii) delivered by a nationally recognized overnight courier, or (iv) delivered personally. Any Notice shall be sent or delivered, as the case may be, to Tenant at the appropriate address set forth in the Basic Lease Information, 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 in the Basic Lease Information, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (A) three (3) business days after the date it is posted if sent by Mail, (B) the date the overnight courier delivery is made, or (C) the date personal delivery is made. Any Notice given by an attorney on behalf of Landlord or by Landlord's managing agent shall be considered as given by Landlord and shall be fully effective.

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ARTICLE 37 OBLIGATIONS OF, SUCCESSORS, PLURALITY, GENDER

37.1    Landlord and Tenant agree that all the provisions hereof are to be construed as covenants and agreements as though the words imparting such covenants were used in each paragraph hereof, and that, except as restricted by the provisions hereof, shall bind and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors, and assigns. If the rights of Tenant hereunder are owned by two or more parties, or two or more parties are designated herein as Tenant, then all such parties shall be jointly and severally liable for the obligations of Tenant hereunder. Whenever the singular or plural number, masculine or feminine or neuter gender is used herein, it shall equally include the other.

ARTICLE 38 ENTIRE AGREEMENT

38.1    This Lease and any attached addenda or exhibits constitute the entire agreement between Landlord and Tenant. No prior or contemporaneous written or oral leases or representations shall be binding. This Lease shall not be amended, changed, or extended except by written instrument signed by Landlord and Tenant.

38.2    THE SUBMISSION OF THIS LEASE BY LANDLORD, ITS AGENT OR REPRESENTATIVE FOR EXAMINATION OR EXECUTION BY TENANT DOES NOT CONSTITUTE AN OPTION OR OFFER TO LEASE THE PREMISES UPON THE TERMS AND CONDITIONS CONTAINED HEREIN OR A RESERVATION OF THE PREMISES IN FAVOR OF TENANT, IT BEING INTENDED HEREBY THAT THIS LEASE SHALL ONLY BECOME EFFECTIVE UPON THE EXECUTION HEREOF BY LANDLORD AND DELIVERY OF A FULLY EXECUTED LEASE TO TENANT.

ARTICLE 39 CAPTIONS

39.1    Paragraph captions are for Landlord's and Tenant's convenience only, and neither limit nor amplify the provisions of this Lease.

ARTICLE 40 CHANGES

40.1    Should any mortgagee require a modification of this Lease, which modification will not bring about any increased cost or expense to Tenant or in any other way substantially and adversely change the rights and obligations of Tenant hereunder, then and in such event Tenant agrees that this Lease may be so modified.

ARTICLE 41 AUTHORITY

41.1    All rights and remedies of Landlord under this Lease, or those which may be provided by law, may be exercised by Landlord in its own name individually, or in its name by its agent, and all legal proceedings for the enforcement of any such rights or remedies, including distress for Rent, unlawful detainer, and any other legal or equitable proceedings may be commenced and prosecuted to final judgment and be executed by Landlord in its own name individually or in its name by its agent. Landlord and Tenant each represent to the other that each has full power and authority to

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execute this Lease and to make and perform the agreements herein contained, and Tenant expressly stipulates that any rights or remedies available to Landlord, either by the provisions of this Lease or otherwise, may be enforced by Landlord in its own name individually or in its name by its agent or principal.

ARTICLE 42 BROKERAGE

42.1    Tenant represents and warrants to Landlord that it has dealt only with Tenant's Broker in negotiation of this Lease. Landlord shall make payment of the brokerage fee due the Tenant's Broker pursuant to a Tenant’s Broker Commission Agreement as described below. Except for amounts owing to Landlord's Broker and Tenant's Broker, each party hereby agrees to indemnify and hold the other party harmless of and from any and all damages, losses, costs, or expenses (including, without limitation, all attorneys' fees and disbursements) by reason of any claim of or liability to any other broker or other person claiming through the indemnifying party and arising out of or in connection with the negotiation, execution, and delivery of this Lease. Landlord and Tenant's Broker have entered into a Commission Agreement for Lease (the “Tenant’s Broker Commission Agreement”) with respect to this Lease. The obligations of “Owner” under the Tenant’s Broker Commission Agreement shall be binding on any successor in interest to Landlord under this Lease.

ARTICLE 43 EXHIBITS

43.1    Exhibits A through F are attached hereto and incorporated herein for all purposes and are hereby acknowledged by both parties to this Lease.

ARTICLE 44 APPURTENANCES

44.1    The Premises include the right of ingress and egress thereto and therefrom; however, Landlord reserves the right to make changes and alterations to any Buildings in which Tenant does not occupy the full Building, fixtures and equipment thereof, in the street entrances, doors, halls, corridors, lobbies, passages, elevators, escalators, stairways, toilets and other parts thereof which Landlord may deem necessary or desirable; provided that Tenant at all times has a means of access to the Premises (subject to a temporary interruption due to Force Majeure Events or necessary maintenance that cannot reasonably be performed without such interruption of access) and subject to the provisions of Section 6.8. Neither this Lease nor any use by Tenant of the Buildings or any passage, door, tunnel, concourse, plaza or any other area connecting the garages or other buildings with the Buildings, shall give Tenant any right or easement of such use and the use thereof may, without notice to Tenant, be regulated or discontinued at any time and from time to time by Landlord without liability of any kind to Tenant and without affecting the obligations of Tenant under this Lease.

ARTICLE 45 PREJUDGMENT REMEDY, REDEMPTION, COUNTERCLAIM, AND JURY

45.1    Tenant, for itself and for all persons claiming through or under it, hereby expressly waives any and all rights which are, or in the future may be, conferred upon Tenant by any present or future law to redeem the Premises, or to any new trial in any action for ejection under any provisions of law, after reentry thereupon, or upon any part thereof, by Landlord, or after any warrant to dispossess or judgment in ejection. If

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Landlord shall acquire possession of the Premises by summary proceedings, or in any other lawful manner without judicial proceedings, it shall be deemed a reentry within the meaning of that word as used in this Lease. In the event that Landlord commences any summary proceedings or action for nonpayment of Rent or other charges provided for in this Lease, Tenant shall not interpose any counterclaim of any nature or description in any such proceeding or action. Tenant and Landlord both waive a trial by jury of any or all issues arising in any action or proceeding between the parties hereto or their successors, under or connected with this Lease, or any of its provisions.

ARTICLE 46 RECORDING

46.1    Neither Landlord nor Tenant shall record this Lease.

ARTICLE 47 MORTGAGEE PROTECTION

47.1    Tenant agrees to give any mortgagees and/or trust deed holders having a lien on Landlord's interest in the Project, by certified mail or overnight courier, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified, in writing of the address of such mortgagees and/or trust deed holders. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then such mortgagees and/or trust deed holders shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, and provided that such party has notified Tenant of its interest to attempt to cure such default, then such additional time as may be necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure) in which event this Lease shall not be terminated while such remedies are being so diligently pursued.

ARTICLE 48 OTHER LANDLORD CONSTRUCTION

48.1    Tenant acknowledges that portions of the Project may be under construction following Tenant's occupancy of the Premises, and that such construction may result in levels of noise, dust, odor, obstruction of access, etc. which are in excess of that present in a fully constructed project. Except as set forth in Section 6.8, Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction. If any excavation or construction is made adjacent to, upon or within the Building, or any part thereof, Tenant shall afford to any and all persons causing or authorized to cause such excavation or construction license to enter upon the Premises for the purpose of doing such work as such persons shall deem necessary to preserve the Buildings or any portion thereof from injury or damage and to support the same by proper foundations, braces and supports, without any claim for damages or indemnity or abatement of Rent (subject to the express provisions of this Lease), or of a constructive or actual eviction of Tenant.

48.2    It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, the Building, or any part thereof and that 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 Tenant Work Letter. However, Tenant hereby acknowledges that Landlord is currently renovating or may during the Lease Term renovate, improve, alter, or modify (collectively, the “Renovations”) the

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Project, the Building and/or the Premises. Tenant hereby agrees that such Renovations shall in no way constitute a constructive eviction of Tenant nor, except as set forth in Section 6.8, entitle Tenant to any abatement of Rent. 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 any inconvenience or annoyance occasioned by such Renovations.

ARTICLE 49 PARKING

49.1    The use by Tenant, its employees and invitees, of the parking facilities of the Project shall be on the terms and conditions set forth in Exhibit C-1 attached hereto and by this reference incorporated herein and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established and to such other rules and regulations as Landlord may establish. Tenant, its employees and invitees shall use no more than the Maximum Parking Allocation. Tenant's use of the parking spaces shall be confined to the Project. If, in Landlord's reasonable business judgment, it becomes necessary, Landlord shall exercise due diligence to cause the creation of cross-parking easements and such other agreements as are necessary to permit Tenant, its employees and invitees to use parking spaces on properties and buildings which are separate legal parcels from the Project. Tenant acknowledges that other tenants of the Project and the tenants of the other buildings, their employees and invitees, may be given the right to park at the Project. Subject to Applicable Laws and the CC&R's, and further subject to the rights of any existing tenants of the Project, Tenant shall have the right to designate specific parking spaces within the Project for Tenant's exclusive use; provided Landlord shall have the right, in its reasonable discretion, to approve the specific location of any such exclusive use parking spaces.

ARTICLE 50 ELECTRICAL CAPACITY

50.1    Tenant covenants and agrees that at all times, its use of electric energy shall never exceed the capacity of the existing feeders to the Building or the risers of wiring installation. Any riser or risers to supply Tenant's electrical requirements shall, upon written request of Tenant, be installed by Landlord at the sole cost and expense of Tenant, if, in Landlord's good faith judgment, the same are necessary and will not cause or create a dangerous or hazardous condition or entail excess or unreasonable alterations, repairs or expense or interfere with or disrupt other tenants or occupants. In addition to the installation of such riser or risers, Landlord will also, at the sole cost and expense of Tenant, install all other equipment which is reasonably necessary in connection therewith subject to the aforesaid terms and conditions.

ARTICLE 51 OPTIONS TO EXTEND LEASE

51.1    Extension Options. As used herein: (i) the term “Extension Option” shall mean the First Extension Option, Second Extension Option, or Third Extension Option (each as defined below), as applicable, and (ii) the term “Extension Period” shall mean the First Extension Period, Second Extension Period, or Third Extension Period (each as defined below), as applicable.

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51.2    First Extension Option. Tenant shall have the option to extend this Lease (the “First Extension Option”) with respect to the Premises for one additional term of five (5) years (the “First Extension Period”), upon the terms and conditions hereinafter set forth:

(a)    If the First Extension Option is exercised, then the Base Rent per annum for such First Extension Period shall be an amount equal to the Fair Market Rental Value (as defined hereinafter) as of the commencement of the First Extension Option for such First Extension Period.

(b)    The First Extension Option must be exercised by Tenant, if at all, only at the time and in the manner provided in this Section 51.2(b).

(i)    If Tenant wishes to exercise the First Extension Option, Tenant must, on or before the date occurring nine (9) months before the expiration of the initial Lease Term (but not before the date that is twelve (12) months before the expiration of the initial Lease Term), exercise the First Extension Option by delivering written notice (the “First Option Exercise Notice”) to Landlord. If Tenant timely and properly exercises its First Extension Option, the Lease Term shall be extended for the First Extension Period upon all of the terms and conditions set forth in the Lease, as amended, except that the Base Rent for the First Extension Period shall be as provided in Section 51.2(a) and Tenant shall have no further options to extend the Lease Term except for the Second Extension Option and Third Extension Option.

(ii)    If Tenant fails to deliver a timely First Option Exercise Notice, Tenant shall be considered to have elected not to exercise the First Extension Option.

(c)    It is understood and agreed that the First Extension Option hereby granted is personal to Tenant and is not transferable except to a Permitted Transferee in connection with an assignment of Tenant's entire interest in this Lease. In the event of any assignment of this Lease (other than to a Permitted Transferee in connection with an assignment of Tenant’s entire interest in this Lease), the First Extension Option shall automatically terminate and shall thereafter be null and void. In addition, Tenant may not exercise the First Extension Option, and any attempted exercise of the First Extension Option shall be ineffective, if at the time Tenant delivers the First Option Exercise Notice the Subletting Threshold (as defined below) is exceeded. As used herein, “Subletting Threshold” means subleasing of forty-five percent (45%) or more of the Premises(excluding subleases to Permitted Transferees), either in a single transaction or, in the aggregate, following a series of transactions, for a term or terms expiring during the last year of the Term.

(d)    Tenant's exercise of the First Extension Option shall, if Landlord so elects in its absolute discretion, be ineffective in the event that an Event of Default by Tenant remains uncured at the time of delivery of the First Option Exercise Notice (provided that Landlord must exercise such option to nullify the effectiveness of Tenant's exercise by notice delivered to Tenant within twenty (20) business days following the date of Tenant's delivery of Tenant's First Option Exercise Notice or Landlord will be deemed to have waived its right to nullify Tenant's exercise of the First Extension Option).

51.3    Second Extension Option. Tenant shall also have the option to extend this Lease (the “Second Extension Option”) with respect to the Premises for one

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additional term of five (5) years (the “Second Extension Period”), upon the terms and conditions hereinafter set forth:

(a)    If the Second Extension Option is exercised, then the Base Rent per annum for such Second Extension Period shall be an amount equal to the Fair Market Rental Value for the Premises (as applicable) as of the commencement of the Second Extension Option for such Second Extension Period.

(b)    The Second Extension Option must be exercised by Tenant, if at all, only at the time and in the manner provided in this Section 51.3(b).

(i)    If Tenant wishes to exercise the Second Extension Option, Tenant must, on or before the date occurring nine (9) months before the expiration of the First Extension Period (but not before the date that is twelve (12) months before the expiration of the First Extension Period), exercise the Second Extension Option by delivering written notice (the “Second Option Exercise Notice”) to Landlord. If Tenant timely and properly exercises its Second Extension Option, the Lease Term shall be extended for the Second Extension Period upon all of the terms and conditions set forth in the Lease, as amended, except that the Base Rent for the Second Extension Period shall be as provided in Section 51.3(a) and Tenant shall have no further options to extend the Lease Term except for the Third Extension Option.

(ii)    If Tenant fails to deliver a timely Second Option Exercise Notice, Tenant shall be considered to have elected not to exercise the Second Extension Option.

(c)    It is understood and agreed that the Second Extension Option hereby granted is personal to Tenant and is not transferable except to a Permitted Transferee in connection with an assignment of Tenant's entire interest in this Lease. In the event of any assignment of this Lease (other than to a Permitted Transferee in connection with an assignment of Tenant's entire interest in this Lease), the Second Extension Option shall automatically terminate and shall thereafter be null and void. In addition, Tenant may not exercise the Second Extension Option, and any attempted exercise of the Second Extension Option shall be ineffective, if at the time Tenant delivers the Second Option Exercise Notice the Subletting Threshold is exceeded.

(d)    Tenant's exercise of the Second Extension Option shall, if Landlord so elects in its absolute discretion, be ineffective in the event that an Event of Default by Tenant remains uncured at the time of delivery of the Second Option Exercise Notice (provided that Landlord must exercise such option to nullify the effectiveness of Tenant's exercise by notice delivered to Tenant within twenty (20) business days following the date of Tenant's delivery of Tenant's Second Option Exercise Notice or Landlord will be deemed to have waived its right to nullify Tenant's exercise of the Second Extension Option).

51.4    Third Extension Option. Tenant shall also have the option to extend this Lease (the “Third Extension Option”) with respect to the Premises for one additional term of five (5) years (the “Third Extension Period”), upon the terms and conditions hereinafter set forth:

(a)    If the Third Extension Option is exercised, then the Base Rent per annum for such Third Extension Period shall be an amount equal to the Fair Market

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Rental Value for the Premises as of the commencement of the Third Extension Option for such Third Extension Period.

(b)    The Third Extension Option must be exercised by Tenant, if at all, only at the time and in the manner provided in this Section 51.4(b).

(i)    If Tenant wishes to exercise the Third Extension Option, Tenant must, on or before the date occurring nine (9) months before the expiration of the Second Extension Period (but not before the date that is twelve (12) months before the expiration of the Second Extension Period), exercise the Third Extension Option by delivering written notice (the “Third Option Exercise Notice”) to Landlord. If Tenant timely and properly exercises its Third Extension Option, the Lease Term shall be extended for the Third Extension Period upon all of the terms and conditions set forth in the Lease, as amended, except that the Base Rent for the Third Extension Period shall be as provided in Section 51.4(a) and Tenant shall have no further options to extend the Lease Term.

(ii)    If Tenant fails to deliver a timely Third Option Exercise Notice, Tenant shall be considered to have elected not to exercise the Third Extension Option.

(c)    It is understood and agreed that the Third Extension Option hereby granted is personal to Tenant and is not transferable except to a Permitted Transferee in connection with an assignment of Tenant's entire interest in this Lease. In the event of any assignment of this Lease (other than to a Permitted Transferee in connection with an assignment of Tenant's entire interest in this Lease), the Third Extension Option shall automatically terminate and shall thereafter be null and void. In addition, Tenant may not exercise the Third Extension Option, and any attempted exercise of the Third Extension Option shall be ineffective, if at the time Tenant delivers the Third Option Exercise Notice the Subletting Threshold is exceeded.

(d)    Tenant's exercise of the Third Extension Option shall, if Landlord so elects in its absolute discretion, be ineffective in the event that an Event of Default by Tenant remains uncured at the time of delivery of the Third Option Exercise Notice (provided that Landlord must exercise such option to nullify the effectiveness of Tenant's exercise by notice delivered to Tenant within twenty (20) business days following the date of Tenant's delivery of Tenant's Third Option Exercise Notice or Landlord will be deemed to have waived its right to nullify Tenant's exercise of the Third Extension Option).

51.5    Fair Market Rental Value. The provisions of this Section shall apply in any instance in which this Lease provides that the Fair Market Rental Value is to apply.

(a)    “Fair Market Rental Value” means the annual amount per square foot that a willing tenant would pay and a willing landlord would accept in arm's length negotiations, without any additional inducements, for a lease of the applicable space on the applicable terms and conditions for the applicable period of time. Fair Market Rental Value shall be determined by considering the most recent new direct leases (and market renewals and extensions, if applicable) in the Project and in Comparable Buildings (the “Comparison Leases”).

(b)    In determining the rental rate of comparable space, the parties shall include all escalations and take into consideration (1) the annual rental rates per square

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foot, (2) the standard of measurement by which the square footage is measured, (3) all free rent, granted at such time for such comparable space, (4) the length of the Extension Period compared to the lease term of the Comparison Leases; (5) rental structure, including additional rent, and taking into consideration any “base year” or “expense stops”; (6) the size of the Premises compared to the size of the premises under the Comparison Leases; (7) location of the Premises compared to the premises under the Comparison Leases; (8) the age and quality of construction of the Buildings; (9) the value of existing leasehold improvements, excluding any specialized tenant improvements constructed by Tenant in comparison to the value of existing improvements in any space that is the subject of Comparison Leases; (10) whether the Comparison Lease is a renewal of an existing lease or a new lease, (11) the financial condition and credit history of Tenant compared to the tenants under the Comparison Leases, and (12) tenant improvement or refurbishment allowances granted in Comparison Leases.

(c)    If in determining the Fair Market Rental Value the parties determine that the economic terms of leases of comparable space include a tenant improvement allowance, Landlord may, at Landlord's sole option, elect to do the following:

(i)    Grant some or all of the value of the tenant improvement allowance as an allowance for the refurbishment of the Premises; and

(ii)    Reduce the Base Rent component of the Fair Market Rental Value to be an effective rental rate that takes into consideration the total dollar value of that portion of the tenant improvement allowance that Landlord has elected not to grant to Tenant (in which case that portion of the tenant improvement allowance evidenced in the effective rental rate shall not be granted to Tenant).

51.6    Determination of Fair Market Rental Value. The determination of Fair Market Rental Value shall be as provided in this Section 51.6.

(a)    Negotiated Agreement. Landlord and Tenant shall diligently attempt in good faith to agree on the Fair Market Rental Value on or before the date (the “Outside Agreement Date”) that is five (5) months prior to the date upon which the applicable Extension Period is to commence.

(b)    Parties' Separate Determinations. If Landlord and Tenant fail to reach agreement on or before the Outside Agreement Date, Landlord and Tenant shall each make a separate determination of the Fair Market Rental Value and notify the other party of this determination within twenty-one (21) days after the Outside Agreement Date.

(i)    Two Determinations. If each party makes a timely determination of the Fair Market Rental Value, those determinations shall be submitted to arbitration in accordance with subsection (c).

(ii)    One Determination. If Landlord or Tenant fails to make a determination of the Fair Market Rental Value within the 21-day period, that failure shall be conclusively considered to be that party's approval of the Fair Market Rental Value submitted within the five-day period by the other party.

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(c)    Arbitration. If both parties make timely individual determinations of the Fair Market Rental Value under subsection (b), the Fair Market Rental Value shall be determined by arbitration under this subsection (c).

(i)    Scope of Arbitration. The determination of the arbitrators shall be limited to the sole issue of whether Landlord's or Tenant's submitted Fair Market Rental Value is the closest to the actual Fair Market Rental Value as determined by the arbitrators, taking into account the requirements of Section 51.5.

(ii)    Qualifications of Arbitrator(s). The arbitrators must be licensed real estate brokers who have been active in the leasing of commercial multi-story properties in the Market Area over the five-year period ending on the date of their appointment as arbitrator(s).

(iii)    Parties' Appointment of Arbitrators. Within fifteen (15) days after the Outside Agreement Date, Landlord and Tenant shall each appoint one arbitrator and notify the other party of the arbitrator's name and business address.

(iv)    Appointment of Third Arbitrator. If each party timely appoints an arbitrator, the two (2) arbitrators shall, within ten (10) days after the appointment of the second arbitrator, agree on and appoint a third arbitrator (who shall be qualified under the same criteria set forth above for qualification of the initial two (2) arbitrators) and provide notice to Landlord and Tenant of the arbitrator's name and business address.

(v)    Arbitrators' Decision. Within thirty (30) days after the appointment of the third arbitrator, the three (3) arbitrators shall decide whether the parties will use Landlord's or Tenant's submitted Fair Market Rental Value and shall notify Landlord and Tenant of their decision. The decision of the majority the three (3) arbitrators shall be binding on Landlord and Tenant.

(vi)    If Only One Arbitrator is Appointed. If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) days after the Outside Agreement Date, the arbitrator timely appointed by one of them shall reach a decision and notify Landlord and Tenant of that decision within thirty (30) days after the arbitrator's appointment. The arbitrator's decision shall be binding on Landlord and Tenant.

(vii)    If Only Two Arbitrators Are Appointed. If each party appoints an arbitrator in a timely manner, but the two (2) arbitrators fail to agree on and appoint a third arbitrator within the required period, the arbitrators shall be dismissed without delay and the issue of Fair Market Rental Value shall be submitted to binding arbitration under the real estate arbitration rules of JAMS, subject to the provisions of this section.

(viii)    If No Arbitrator Is Appointed. If Landlord and Tenant each fail to appoint an arbitrator in a timely manner, the matter to be decided shall be submitted without delay to binding arbitration under the real estate arbitration rules of JAMS subject the provisions of this Section 51.6(c).

(d)    Cost of Arbitration. The cost of the arbitration shall be paid by the party whose submitted Fair Market Rental Value is not selected by the arbitrators.

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ARTICLE 52 TELECOMMUNICATIONS LINES AND EQUIPMENT

52.1    Tenant may install, maintain, replace, remove or use any electrical, communications or computer wires and cables (collectively, the “Lines”) in the Building, provided that (i) Tenant shall obtain Landlord's prior written consent (not to be unreasonably withheld), use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 8 and 15 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Building, 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, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Landlord may require that Tenant remove existing Lines located in or serving such portion of the Premises and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith. Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time in violation of any laws or represent a dangerous or potentially dangerous condition. Landlord further reserves the right to require that Tenant remove any and all Lines located in or serving the Premises upon the expiration of the Term or upon any earlier termination of this Lease.

ARTICLE 53 ERISA

[OMITTED]

ARTICLE 54 TENANT'S RIGHT OF FIRST OFFER TO PURCHASE

[OMITTED]

ARTICLE 55 TENANT'S RIGHT OF FIRST OFFER TO LEASE

[OMITTED]

ARTICLE 56 TENANT'S ROOFTOP RIGHTS

56.1    Right to Install and Maintain Rooftop Equipment. At any time during the Lease Term that Tenant occupies a majority of the Building, and subject to the terms of this Article 56, Tenant may install on the roof of the Building telecommunications antennae, microwave dishes or other communication equipment, and solar panels, as necessary or desirable for the operation of Tenant's business within the Premises located within the Building, including any cabling or wiring necessary to connect this rooftop equipment to such Premises (collectively, the “Rooftop Equipment”). If Tenant wishes to install any Rooftop Equipment, Tenant shall first notify Landlord in writing, which notice shall fully describe the Rooftop Equipment, including, without limitation, its purpose, weight, size and desired location on the roof of the Building and its intended method of connection to the applicable Premises. All of

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Tenant's Rooftop Equipment must be located within locations reasonably approved by Landlord prior to any installation. Landlord also reserves the right to reasonably restrict the number and size of dishes, antennae and other Rooftop Equipment installed on the roof of the Building.

56.2    Additional Charges for Rooftop Equipment. Tenant will be solely responsible, at Tenant's sole expense, for the installation, maintenance, repair and removal of the Rooftop Equipment, and Tenant shall at all times maintain the Rooftop Equipment in good condition and repair. Landlord agrees that the named Tenant hereunder (as well as any Affiliate assignee) shall not pay any rental charge for Tenant's use of the rooftop pursuant to the terms of this Article 56 for the Rooftop Equipment, provided, however, if any successor to the named Tenant (other than an Affiliate which succeeds to Tenant's interest in and to this Lease and the entire Premises) wishes to utilize rooftop space, Landlord reserves the right to impose a charge for such use, which shall be consistent with market rates.

56.3    Conditions of Installation. The installation of the Rooftop Equipment shall constitute an alteration and shall be performed in accordance with and subject to the provisions of Article 15 of this Lease. Tenant shall comply with all applicable laws, rules and regulations relating to the installation, maintenance and operation of Rooftop Equipment (including, without limitation, all construction rules and regulations) and will pay all costs and expenses relating to such Rooftop Equipment, including the cost of obtaining and maintaining any necessary permits or approvals for the installation, operation and maintenance thereof in compliance with applicable laws, rules and regulations. Without limiting the foregoing, in connection with the installation, maintenance and operation of the Rooftop Equipment, Tenant shall be responsible for insuring that any warranties with respect to the roof are not violated and that no leaks are created. The installation, operation and maintenance of the Rooftop Equipment shall not adversely affect the structure or operating systems of the Building or the business operations of any other tenant or occupant at the Building. For purposes of determining Landlord's and Tenant's respective rights and obligations with respect to the use of the roof, the portion of the roof affected by the Rooftop Equipment shall be deemed to be a portion of the Premises (provided that such portion shall not be measured for purposes of determining the area of such portion of the Premises); consequently, all of the provisions of this Lease respecting Tenant's obligations hereunder shall apply to the installation, use and maintenance of the Rooftop Equipment, including without limitation provisions relating to compliance with requirements as to insurance, indemnity, repairs and maintenance. Tenant may install cabling and wiring through the applicable Building interior conduits, risers, and pathways of such Building(s) in accordance with Article 56 in order to connect Rooftop Equipment with the applicable Premises in such Building(s).

56.4    Non-Exclusive Right. Tenant's right to install and maintain Rooftop Equipment is non-exclusive unless Tenant leases all of the leasable area in the Building and is subject to termination or revocation as set forth herein, including pursuant to Section 22.2(b) of this Lease. Landlord shall be entitled to all revenue from use of the roof other than revenue from the Rooftop Equipment installed by Tenant. Subject to the terms set forth below in this Section 56.4, Landlord at its election may require the relocation, reconfiguration or removal of the Rooftop Equipment, if in Landlord's reasonable judgment the Rooftop Equipment is interfering with the use of the rooftop for the helipad or other Building operations (including without limitation maintenance, repairs and replacements of the roof) or the business operations of other tenants or occupants of the Building, causing damage to the Building or if Tenant otherwise fails to comply with the terms of this Article 56. If relocation or

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reconfiguration becomes necessary due to interference difficulties, Landlord and Tenant will reasonably cooperate in good faith to agree upon an alternative location or configuration that will permit the operation of the Rooftop Equipment for Tenant's business at the applicable Premises without interfering with other operations at the Building or communications uses of other tenants or occupants. If removal is required due to any breach or default by Tenant under the terms of this Article 56, Tenant shall remove the Rooftop Equipment upon thirty (30) days' written notice from Landlord. Any relocation, removal or reconfiguration of the Rooftop Equipment as provided above shall be at Tenant's sole cost and expense. In addition to the other rights of relocation and removal as set forth herein, Landlord reserves the right to require relocation of Tenant's Rooftop Equipment at any time at its election at Landlord's cost (but not more frequently than once per year) so long as Tenant is able to continue operating its Rooftop Equipment in substantially the same manner as it was operated prior to its relocation. In connection with any relocation of Tenant's Rooftop Equipment at the request of or required by Landlord (other than in the case of a default by Tenant hereunder), Landlord shall provide Tenant with at least thirty (30) days' prior written notice of the required relocation and will conduct the relocation in a commercially reasonable manner and in such a way that will, to the extent reasonably possible, prevent interference with the normal operation of Tenant's Rooftop Equipment. In connection with any relocation, Landlord further agrees to work with Tenant in good faith to relocate Tenant's Rooftop Equipment to a location that will permit its normal operation for Tenant's business operations. Landlord acknowledges that relocation of Tenant's Rooftop Equipment may be disruptive to Tenant's business and, without limiting its rights to require such removal, confirms that it will not exercise its rights hereunder in a bad faith manner or for the purpose of harassing or causing a hardship to Tenant.

56.5    Costs and Expenses. If Tenant fails to comply with the terms of this Article 56 within thirty (30) days following written notice by Landlord (or such longer period as may be reasonably required to comply so long as Tenant is diligently attempting to comply), Landlord may take such action as may be necessary to comply with these requirements. In such event, Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any such maintenance, removal or other compliance subject to the terms of this Article 56, including interest on all such amounts in accordance with the rate set forth in Section 4.5, accruing from the date which is ten (10) days after the date of Landlord's demand until the date paid in full by Tenant, with all such amounts being Additional Rent under this Lease.

56.6    Indemnification; Removal. Subject to Section 13.4, Tenant agrees to indemnify Landlord, its partners, agents, officers, directors, employees and representatives from and against any and all liability, expense, loss or damage of any kind or nature from any suits, claims or demands, including reasonable attorneys' fees, arising out of Tenant's installation, operation, maintenance, repair, relocation or removal of the Rooftop Equipment, except to the extent any such liability, expense, loss or damage results from the gross negligence or intentional misconduct of Landlord or its agents, partners, officers, directors, employees, contractors or representatives. At the expiration or earlier termination of the Lease, Tenant may and, upon request by Landlord, shall remove all of the Rooftop Equipment, including any wiring or cabling relating thereto, at Tenant's sole cost and expense and will repair at Tenant's cost any damage resulting from such removal. If Landlord does not require such removal, any Rooftop Equipment remaining at the Building after the expiration or earlier termination of this Lease which is not removed by Tenant shall be deemed abandoned and shall become the property of Landlord.

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56.7    Roof Access; Rules and Regulations. At any time during the Lease Term that Tenant occupies a majority of the Building, subject to compliance with the construction rules for the Building and Landlord's reasonable and nondiscriminatory rules and regulations regarding access to the roof and, upon receipt of Landlord's prior written consent to such activity (which shall not be unreasonably withheld, conditioned or delayed), Tenant and its representatives shall have access to and the right to go upon the roof of the Building, on a seven (7) day per week, twenty-four (24) hour basis, to exercise its rights and perform its obligations under this Article 56. Tenant acknowledges that, except in the case of an emergency or when a Building engineer is not made available to Tenant in sufficient time to allow Tenant to avoid or minimize interruption of use of the Rooftop Equipment, advance notice is required and a Building engineer must accompany all persons gaining access to the rooftop. Tenant may install Rooftop Equipment at the Building only in connection with its business operations at the Premises, and may not lease or license any rights or equipment to third parties or allow the use of any rooftop equipment by any party other than Tenant. Tenant acknowledges that Landlord has made no representation or warranty as to Tenant's ability to operate Rooftop Equipment at the Building and Tenant acknowledges that helicopters, other equipment installations and other structures and activities at or around the Building may result in interference with Tenant's Rooftop Equipment. Except as set forth in this Article 56, Landlord shall have no obligation to prevent, minimize or in any way limit or control any existing or future interference with Tenant's Rooftop Equipment.

ARTICLE 57

EXISTING LEASE TERMINATION

Landlord and Tenant are currently landlord and tenant under those certain leases (collectively, the "Existing Lease") dated September 11, 2014 for 1321 Harbor Parkway building and dated November 28, 2007 for 1351 Harbor Parkway building, for approximately 148,157 square feet of space in the Building.  Landlord and Tenant hereby agree that the Existing Lease shall terminate effective as of the day prior to the Commencement Date of this Lease (the "Existing Lease Termination Date"; such that the Commencement Date will occur immediately following the termination of the Existing Lease with no “gaps”) as if such date were originally stated to be the termination date of the Existing Lease.  Tenant shall remain liable for all monthly base rent, additional rent and other sums coming due under the Existing Lease up to and including the Existing Lease Termination Date, even if such sums are billed subsequent to the Existing Lease Termination Date.  The termination of the Existing Lease shall be effective without further documentation.

Signatures on Following Page

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IN WITNESS WHEREOF, Landlord and Tenant, acting herein through duly authorized individuals, have caused these presents to be executed as of the Effective Date.

TENANT:

PENUMBRA, INC., a Delaware corporation

By:    __/s/ Adam Elsesser___________

Printed Name: __Adam Elsesser_______

Title: __Chairman and CEO__________

By:    __/s/ Johanna Roberts__________

Printed Name: _Johanna Roberts________

Title: _EVP and General Counsel_______

LANDLORD:

1321 & 1351 Harbor Bay LLC, a Delaware limited liability company

By:    __/s/ Jay Atkinson____________

Printed Name: ___Jay Atkinson________

Title: __Authorized Signatory________

By:    __________________________

Printed Name: _____________________

Title: ______________________

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Document

Exhibit 10.27

FIFTH AMENDMENT TO LEASE

THIS FIFTH AMENDMENT TO LEASE (this “Fifth Amendment”) is made as of April 1, 2022 (the “Fifth Amendment Effective Date”), by and between HARBOR BAY CA LLC, a Delaware limited liability company (“Landlord”), and PENUMBRA, INC., a Delaware corporation (“Tenant”).

RECITALS

A.    Landlord (as successor-in-interest to South Loop 1, LLC) and Tenant entered into that certain Lease dated September 3, 2019, as amended by that certain First Amendment to Lease dated April 10, 2020, that certain Second Amendment to Lease dated August 5, 2021, that certain Third Amendment to Lease dated July 29, 2021, and that certain Fourth Amendment to Lease dated October 15, 2021 (the “Fourth Amendment”) (as so amended, the “Lease”), with respect to certain premises known as 1310 Harbor Bay Parkway, Alameda, California, as more particularly described in the Lease; and

B.    Landlord and Tenant desire to amend the Lease as provided herein.

AMENDMENT

NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1.    Defined Terms. All capitalized terms used but not defined in this Fifth Amendment will have the meanings set forth for such terms in the Lease.

2.    Premises: Section 2.2 of the Lease is hereby amended and restated to read as follows:

“The entire Building, as further set forth in Exhibit A to this Lease, which contains approximately 129,129 rentable square feet.”

3.    Operating Expenses. The last two paragraphs of Section 4.2.4 of the Lease are hereby amended and restated to read as follows:

“(kk)    fees payable by Landlord for management of the Project in excess of three percent (3%) of Rent, adjusted to reflect Tenant paying full rent, as contrasted with free rent, half-rent and the like, including Base Rent and Additional Rent, for any calendar year or portion thereof.

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, such expenses (inclusive, for example, of the cost of the work or services to be performed by Tenant pursuant to the terms of Section 2(a) of the Fourth Amendment) shall not be included in the calculation of Operating Expenses (and, accordingly, will not be included in the calculation of Additional Rent for the purposes of determining the management fees payable to Landlord as described above) for so long as such tenant performs such work or service.”

4.    Whole Agreement. This Fifth Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements with respect thereto. Except as amended herein, or in a future writing signed by both parties, there shall be no other changes or modifications to the Lease between the parties and the Lease and the terms and provisions contained therein shall remain in full force and effect. The terms of this Fifth Amendment will control over any conflicts between it and the terms of the Lease.

06907\011\9180259.v4

5.    Successors and Assigns. This Fifth Amendment shall be binding upon the parties hereto, their heirs, successors, and assigns.

6.    Ratification. Except as amended by this Fifth Amendment, the Lease has not been amended, and the parties ratify and confirm the Lease, as amended by this Fifth Amendment, as being in full force and effect.

7.    Counterparts; Electronic Execution. This Fifth Amendment may be executed in counterparts, each of which will constitute an original, but all of which, when taken together, will constitute but one agreement. Executed copies hereof may be delivered by email and other electronic means, and upon receipt will be deemed originals and binding upon the parties hereto, regardless of whether originals are delivered thereafter.

[Remainder of Page Left Intentionally Blank]

2

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IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the Fifth Amendment Effective Date.

LANDLORD:

HARBOR BAY CA LLC,

a Delaware limited liability company

By:     HARBOR BAY CA LP,

a Delaware limited partnership

Its:    Equity Member and Manager

By:    NOME CAPITAL PARTNERS LLC,

a California limited liability company

Its:    General Partner

By:___/s/ Rohit Kumar___________

Rohit Kumar

Its:    Manager

TENANT:

PENUMBRA, INC.

a Delaware corporation

By:    _/s/ Adam Elsesser____________________

Adam Elsesser

Its:    CEO

Signature Page

06907\011\9180259.v4

Document

28

Exhibit 10.28

LEASE AGREEMENT

ANDERSON LOGISTICS ASSETS LLC Landlord

AND

PENUMBRA, INC. Tenant

AT

1070 South 3800 West Salt Lake City, Utah

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LEASE AGREEMENT

THIS LEASE AGREEMENT is made by and between ANDERSON LOGISTICS ASSETS LLC, a Delaware limited liability company (“Landlord”) and PENUMBRA, INC., a Delaware corporation (“Tenant”), and is dated as of the date on which this Lease has been fully executed by Landlord and Tenant (the “Effective Date”).

1.    Basic Lease Terms and Definitions.

(a)    Premises: Suite 500, consisting of approximately 44,950 rentable square feet (“RSF”) as shown on Exhibit “A”.

(b)    Building:     Approximate RSF: 192,200 Address: 1070 South 3800 West, Salt Lake City, Utah

(c)    Term: 62 months (plus any partial month from the Commencement Date until the first day of the next full calendar month during the Term). In the event that Tenant validly exercises any of the Renewal Options pursuant to Section 31 of this Lease or otherwise agrees with Landlord upon an extension of the Term, then all references herein to the “Term” shall be deemed to include the Renewal Terms or extended Term(s) (as applicable).

(d)    Commencement Date: The later of (i) the date that the Landlord’s Work is Substantially Completed, or (ii) May 1, 2019 (the “Estimated Commencement Date”).

(e)    Expiration Date: 11:59 p.m. on the last day of the Term.

(f)    Minimum Annual Rent: Payable in monthly installments as follows:

Period (in Months)	Rate Per RSF Per Month	Annual	Monthly
1 - 2 (the “Free Rent Period”)	$0.00	N/A	$0.00
3 – 12	$4.86	N/A	$18,204.75
13 – 24	$5.01	$225,010.68	$18,750.89
25 – 36	$5.16	$231,761.04	$19,313.42
37 – 48	$5.31	$238,713.84	$19,892.82
49 – 60	$5.47	$245,875.20	$20,489.60
61 – 62	$5.63	N/A	$21,104.29

Notwithstanding anything to the contrary, during the Free Rent Period, Tenant shall be liable for payment of all Annual Operating Expenses as set forth in Sections 5 and 6 hereof and all utilities as set forth in Section 7 hereof. The abatement of Minimum Annual Rent provided for herein is conditioned upon Tenant’s full and timely performance of all of its obligations under this Lease. If, at any time during the Free Rent Period, an Event of Default by Tenant occurs, the abatement of Minimum Annual Rent provided for herein shall immediately become suspended until the Event of Default is cured.  If, at any time during the initial Term an Event of Default by Tenant occurs, and, as a result, this Lease or Tenant’s right to possess the Premises is terminated, then, in addition to all other amounts due to Landlord under this Lease, the unamortized balance of all Minimum Annual Rent herein abated (i.e. $36,409.50) (amortized on a

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straight line basis over the initial Term, excluding the Free Rent Period and any Renewal Term) shall become due and payable to Landlord immediately upon demand.

(g)    Annual Operating Expenses: $64,728.00, payable in monthly installments of $5,394.00, subject to adjustment as provided in this Lease.

(h)    Tenant’s Share: 23.39% (i.e., 44,950/192,200) (also see Additional Definitions).

(i)    Use: Research and development, manufacturing, warehouse and distribution with appurtenant offices, subject to Tenant, at Tenant’s sole cost and expense, obtaining any Permits required for Tenant’s use and occupancy of the Premises and to Tenant determining the suitability of the Premises for Tenant’s intended use thereof.

(j)    Security Deposit: $23,598.75

(k)    Addresses For Notices:

Landlord:	Tenant:
c/o Mapletree US Management, LLC<br><br>5 Bryant Park, Suite 2800<br><br>New York, NY 10018<br><br><br><br>With a copy to:<br><br><br><br>c/o Exeter Property Group<br><br>101 West Elm Street, Suite 600<br><br>Conshohocken, PA 19428<br><br>Attn: Chief Financial Officer	Penumbra, Inc.,<br>One Penumbra Place<br><br>Alameda, California  94502<br><br>Attention:  General Counsel<br><br><br><br>With a copy to:<br><br><br><br>Penumbra, Inc.,<br>One Penumbra Place<br><br>Alameda, California  94502<br><br>Attention:  Director of Facilities

(l)    Additional Definitions: See Rider for the definitions of other capitalized terms.

(m)    Contents: The following are attached to and made a part of this Lease:

Rider – Additional Definitions	Exhibits:	“A” – Plan showing Premises<br><br>“B” – Building Rules<br><br>“C” – Landlord’s Work

2.    Premises. Landlord leases to Tenant and Tenant leases from Landlord the Premises, together with the right in common with others to use the Common Areas. Tenant accepts the Premises, Building and Common Areas “AS IS”, without relying on any representation, covenant or warranty by Landlord other than as expressly set forth in this Lease (other than Landlord’s obligation to perform Landlord’s Work prior to the Commencement Date). Landlord and Tenant stipulate and agree to the RSF calculations set forth in Section 1 above without regard to actual measurement and agree that the Premises shall not be subject to remeasurement by either party.

(a)     Landlord shall cause to be constructed, in compliance with applicable Laws, the improvements, modifications and alterations to the Premises set forth on and in accordance with Exhibit “C” (the “Landlord’s Work”). In constructing the Landlord’s

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Work, Landlord shall use Building standard materials and finishes (unless otherwise provided on Exhibit “C”) and Landlord reserves the right, with Tenant’s consent, not to be unreasonably withheld, to make substitutions of material of equivalent grade and quality if any specified material shall not be readily and reasonably available. Upon the Landlord’s Work being Substantially Completed, Landlord shall notify Tenant, and Tenant or its Agents shall inspect the Landlord’s Work with Landlord within five (5) business days of receipt of such notice from Landlord. Within three (3) business days following such inspection, Tenant shall deliver to Landlord a punchlist of defective or incomplete portions of the Landlord’s Work. Landlord shall cause such punchlist items to be repaired or completed within thirty (30) days of Landlord’s receipt of the punchlist. Upon completion of all punchlist items to Tenant’s reasonable satisfaction, it shall be presumed that all of the Landlord’s Work shall be free from latent defects in materials and workmanship, excluding however, all repairs required in connection with routine maintenance and those repairs caused by Tenant. The total cost of Landlord’s Work shall be deducted from the Tenant Improvement Allowance (as hereinafter defined) prior to the disbursement to Tenant for any of the Tenant Improvements. In the event the cost of Landlord’s Work exceeds the Tenant Improvement Allowance, Tenant shall be responsible for the payment of such excess amount. Landlord will use commercially reasonably efforts to obtain industry standard warranties from the contractors and vendors performing Landlord’s Work. To the extent Tenant is responsible for maintaining any Building Systems, or components of the Tenant Improvements or Landlord’s Work, and such Building Systems or components of the Tenant Improvements or Landlord’s Work are covered by a manufacturer’s or contractor’s warranty running to Landlord’s benefit, Landlord shall use reasonable efforts to enforce the terms of such warranty such that Tenant receives the benefit thereof.

(b)    Notwithstanding anything herein to the contrary, to the extent that the Substantial Completion of Landlord’s Work is delayed by Tenant Delay, then Tenant’s obligation to pay Rent hereunder shall not be affected or deferred on account of such delay and, the Commencement Date shall be deemed to be the date upon which Landlord’s Work would have been Substantially Completed solely but for such Tenant Delay and the Term shall be extended for the number of days attributable to Tenant Delay (and Minimum Annual Rent during such extended period shall be the Minimum Annual Rent attributable to the last year of the initial Term).

(c)    Following the determination of the Commencement Date, the parties shall execute a commencement date memorandum memorializing the Commencement Date, Free Rent Period, Expiration Date, Tenant’s acceptance of the Premises and such other items reasonably requested by Landlord.

3.    Use. Tenant shall occupy and use the Premises only for the Use specified in Section 1 above. Tenant shall not permit any conduct or condition which may endanger, disturb or otherwise unreasonably interfere with any other Building occupant’s normal operations or with the management of the Building. Tenant shall not use or permit the use of any portion of the Property for outdoor storage or installations outside of the Premises. Tenant may use all Common Areas only for their intended purposes. Landlord shall have exclusive control of all Common Areas at all times.

4.    Term; Possession. The Term shall commence on the Commencement Date and shall end on the Expiration Date, unless sooner terminated in accordance with this Lease. If Landlord is delayed in delivering possession of all or any portion of the Premises to Tenant with Landlord’s Work Substantially Completed, Tenant will take possession on the date Landlord so delivers possession, which date will then become the Commencement Date (and the Expiration Date will be extended so that the length of the Term remains unaffected by such delay). Landlord shall not be liable for any loss or

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damage to Tenant resulting from any delay in delivering possession due to the holdover of any existing tenant or other circumstances outside of Landlord’s reasonable control.

5.    Rent; Taxes. Tenant agrees to pay to Landlord, without demand, deduction or offset (except as expressly set forth herein), Minimum Annual Rent (subject to the Free Rent Period) and Annual Operating Expenses for the Term. Tenant shall pay the Monthly Rent, in advance, on the first day of each calendar month during the Term, at Landlord’s address designated in Section 1 above unless Landlord designates otherwise; provided that Monthly Rent for the first full month (after the Free Rent Period) shall be paid at the signing of this Lease. If the Commencement Date is not the first day of the month, the Monthly Rent for that partial month shall be apportioned on a per diem basis and shall be paid on or before the Commencement Date. Tenant shall pay Landlord a service and handling charge equal to 5% of any Rent not paid within 5 days after written notice from Landlord, provided however, that Landlord shall not be required to provide such notice more than one (1) time in any twelve (12) month period (and thereafter, such service and handling charge may be assessed by Landlord on any Rent not paid by Tenant within five (5) days after the date due). In addition, any Rent, including such charge, not paid within 5 days after the due date will bear interest at the Interest Rate from the date due to the date paid. Tenant shall pay before delinquent all taxes levied or assessed upon, measured by, or arising from: (a) the conduct of Tenant’s business; (b) Tenant’s leasehold estate; or (c) Tenant’s property and trade fixtures. Additionally, Tenant shall pay to Landlord all sales, use, transaction privilege, or other excise tax that may at any time be levied or imposed upon, or measured by, any amount payable by Tenant under this Lease.

6.    Operating Expenses.

(a)    The amount of the Annual Operating Expenses set forth in Section 1 above represents Tenant's Share of the estimated Operating Expenses for the calendar year in which the Term commences. Landlord may adjust such amount from time to time if the estimated Annual Operating Expenses increase or decrease; Landlord may also invoice Tenant separately from time to time for Tenant's Share of any extraordinary or unanticipated Operating Expenses. Each year (and as soon as practical after the expiration or termination of this Lease or, at Landlord's option, after a sale of the Property), Landlord shall provide Tenant with a statement of Operating Expenses ("Statement") for the preceding calendar year or part thereof. Within 30 days after delivery of the Statement to Tenant, Landlord or Tenant shall pay to the other the amount of any overpayment or deficiency then due from one to the other or, at Landlord's option, Landlord may credit Tenant's account for any overpayment.

(b)    If Tenant does not give Landlord notice within 120 days after receiving Landlord's Statement that Tenant desires to review Landlord’s books and records which are the basis for the Statement, Tenant shall be deemed to have waived the right to contest such Statement. If Tenant timely notifies Landlord that Tenant desires to review such books and records, Tenant shall, pending the resolution of such dispute, nonetheless pay all of Tenant's Share of the Annual Operating Expenses in accordance with the Statement furnished by Landlord. Tenant, at Tenant's expense (except as set forth below), may audit the Statement under the following conditions: (A) Tenant provides notice of its intent to audit within 120 days after receiving the Statement; (B) the audit is performed by Tenant or a certified public accountant that has not been retained on a contingency basis or other basis where its compensation relates to the cost savings of Tenant; (C) the audit is completed no later than 30 days after the date Landlord makes all of the necessary books and records available to Tenant or Tenant's auditor; (D) the audit must be conducted during normal business hours, at the location where Landlord maintains its books and records; (E) the contents of the books and records of Landlord shall be kept confidential by Tenant, its auditor and its other

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professional advisors, other than as required by Laws; and (F) in the event that Tenant or its auditor determines that an overpayment is due Tenant, Tenant or Tenant's auditor shall produce a detailed report addressed to both Landlord and Tenant with its calculated conclusions within 30 days after the completion of the audit. Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenant's audit. Upon the resolution of such dispute, any amount due Tenant (if any) shall be credited against future payments of Rent or, if no further Rent is due, pay such amount to Tenant within 30 days after the date of such resolution. Tenant shall be responsible for all costs, expenses and fees incurred in connection with its audit; provided, however, if the parties determine through Tenant's audit that Tenant has overpaid its Annual Operating Expenses or its utilities each by more than seven (7%), Landlord shall pay the reasonable third-party costs of such audit not to exceed $3,500.00. Landlord's and Tenant's obligation to pay any overpayment or deficiency due the other pursuant to this Section and Tenant's examination rights set forth in this subsection (b) shall survive the expiration or termination of this Lease.

(c)    Notwithstanding any other provision of this Lease to the contrary, Landlord may, in its reasonable discretion, equitably determine from time to time the method of computing and allocating Operating Expenses, including the method of allocating Operating Expenses to various types of space within the Building to reflect any disparate levels of services provided to different types of space. If the Building is not fully occupied during any period, Landlord may make a reasonable adjustment to those components of Operating Expenses which vary with variations in Building occupancy in computing the Operating Expenses for such period so that Operating Expenses are computed as though the Building had been fully occupied.

7.    Utilities.

(a)    Tenant shall pay for water, sewer, gas, electricity, heat, power, telephone and other communication services and any other utilities supplied to the Premises. Except for any utilities that are not separately metered (for which Landlord shall invoice Tenant for the cost or include the cost in Operating Expenses), Tenant shall obtain utility service in its own name and timely pay all charges directly to the provider. In the event that any meter serving the Premises is not functioning properly or during the period that such meter is being repaired, Tenant shall be responsible for its pro rata share of utility usage based upon Landlord’s reasonable estimate. Notwithstanding anything to the contrary in this Lease, in the event that an interruption in utilities or services that Landlord is required to provide ("Interruption") is directly caused by the sole negligence or willful misconduct of Landlord or its Agents, such that it renders the whole or any material portion of the Premises untenantable for the purposes intended hereunder and Tenant actually vacates such untenantable portion then after a period of five (5) consecutive business days after receipt by Landlord of written notice of such untenantability from Tenant, the Monthly Rent shall abate (as to the proportion that the square footage of the Premises actually vacated by Tenant as a result of an Interruption bears to the total square footage of the Premises) starting on the sixth (6th) business day until the earlier to occur of the date that Tenant re-enters the Premises or the date that such Interruption is remedied. In no event shall Tenant be entitled to abatement if the Interruption is caused in whole or in part by Tenant or Tenant’s Agents. Tenant agrees that the rental abatement described in this Section shall be Tenant’s sole remedy in the event of an Interruption. Notwithstanding anything to the contrary, Tenant shall waive and release Landlord from and against, all claims of rental abatement as provided above to the extent covered by Tenant’s business interruption insurance. Landlord shall not be responsible or liable for any interruption in such services, nor shall such interruption affect the continuation or validity of this Lease. Landlord shall have the exclusive right to select, and to change, the companies providing such services to the

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Building or Premises. Any wiring, cabling or other equipment necessary to connect Tenant’s telecommunications equipment shall be Tenant’s responsibility, and shall be installed in a manner reasonably approved by Landlord. In the event Tenant’s consumption of any utility or other service included in Operating Expenses is excessive when compared with other occupants of the Property, Landlord may invoice Tenant separately for, and Tenant shall pay on demand, the cost of Tenant’s excessive consumption, as reasonably determined by Landlord.

(b)    From time to time, at Landlord’s option, Landlord may estimate the monthly cost for all utilities that are not being directly metered and billed to Tenant and bill Tenant the estimated amount therefor or include such amount in Operating Expenses. All such estimated amounts shall be paid together with Monthly Rent. Landlord shall deliver to Tenant at least annually (or more frequently at Landlord’s election) a statement indicating the actual amount of Tenant’s share of such utilities based upon the actual utility invoiced (as may be applicable). If any reconciliation of utilities reveals that any additional payments are due, Tenant shall pay such deficiency to Landlord within thirty (30) days after invoice therefor. If the reconciliation reveals that Tenant has overpaid utilities for such period, Landlord shall credit such overpayment against Rent hereunder, or if the Term has expired, pay such amount to Tenant. Landlord’s and Tenant’s obligation to pay any overpayment or deficiency due the other pursuant to this Section shall survive the expiration or termination of this Lease.

8.    Insurance; Waivers; Indemnification.

(a)    Landlord shall maintain insurance against loss or damage to the Building or the Property with coverage for perils as set forth under the “Causes of Loss-Special Form” or equivalent property insurance policy in an amount equal to the full insurable replacement cost of the Building (excluding coverage of Tenant’s personal property and any Alterations by Tenant), and such other insurance, including rent loss coverage, as Landlord may reasonably deem appropriate or as any Mortgagee may require.

(b)    Tenant, at its expense, shall keep in effect commercial general liability insurance, including blanket contractual liability insurance, covering Tenant’s use of the Property, with such coverages and limits of liability which are not less than a $1,000,000 combined single limit with a $3,000,000 general aggregate limit (which general aggregate limit may be satisfied by an umbrella liability policy) for bodily injury or property damage; however, such limits shall not limit Tenant’s liability hereunder. The policy shall name Landlord and any other associated or affiliated entity as their interests may appear and at Landlord’s request, any Mortgagee(s), as additional insureds, shall be written on an “occurrence” basis and not on a “claims made” basis and shall be endorsed to provide that it is primary to and not contributory to any policies carried by Landlord. Tenant shall use commercially reasonable efforts to notify Landlord at least thirty (30) days prior to any policy being cancelled or reduced. The insurer shall be authorized to issue such insurance, authorized to do business in the state in which the Property is located and rated at least A-VII in the most current edition of Best’s Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date or any earlier date on which Tenant accesses the Premises, and at least five (5) days prior to the date of each policy renewal, a certificate of insurance evidencing such coverage.

(c)    Notwithstanding any other provision of this Lease to the contrary, Landlord and Tenant each waive, and release each other from and against, all claims for recovery against the other for any loss or damage to the property of such party arising out of fire or other casualty coverable by a standard “Causes of Loss-Special Form” property

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insurance policy with, in the case of Tenant, such endorsements and additional coverages as are considered good business practice in Tenant’s business, even if such loss or damage shall be brought about by the fault or negligence of the other party or its Agents. This waiver and release is effective regardless of whether the releasing party actually maintains the insurance described above in this subsection and is not limited to the amount of insurance actually carried, or to the actual proceeds received after a loss. Each party shall have its insurance company that issues its property coverage waive any rights of subrogation, and shall have the insurance company include an endorsement acknowledging this waiver, if necessary. Tenant assumes all risk of damage of Tenant’s property within the Property, including any loss or damage caused by water leakage, fire, windstorm, explosion, theft, act of any other tenant, or other cause.

(d)    Subject to subsection (c) above, and except to the extent caused by the negligence or willful misconduct of Landlord or its Agents, Tenant will indemnify, defend, and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liabilities and expenses (including fees of attorneys, investigators and experts) which may be asserted against, imposed upon, or incurred by Landlord or its Agents and arising out of or in connection with loss of life, personal injury or damage to property in or about the Premises or arising out of the occupancy or use of the Property by Tenant or its Agents or occasioned wholly or in part by any act or omission of Tenant or its Agents, whether prior to, during or after the Term. Tenant’s obligations pursuant to this subsection shall survive the expiration or termination of this Lease.

9.    Maintenance and Repairs.

(a)    Landlord shall Maintain the: (i) Building footings, foundations, structural steel columns and girders at Landlord’s sole expense; (ii) Building roof and exterior walls; (iii) Building Systems; and (iv) Common Areas. Costs incurred by Landlord under the foregoing subsections (ii), (iii) and (iv) will be included in Operating Expenses, provided that to the extent any heating, ventilation and air conditioning system or other Building System, equipment or fixture exclusively serves the Premises, Landlord may elect either to Maintain the same at Tenant’s sole expense and bill Tenant directly or by notice to Tenant require Tenant to Maintain the same at Tenant’s expense. If Tenant becomes aware of any condition that is Landlord’s responsibility to repair, Tenant shall promptly notify Landlord of the condition.

(b)    Except as provided in subsection (a) above, Tenant at its sole expense shall Maintain the interior, non-structural portions of the Premises, including, but not limited to, all lighting, plumbing fixtures, walls, partitions, dock doors, loading areas, floors, doors, windows, fixtures and equipment in the Premises. All repairs and replacements by Tenant shall utilize materials and equipment which are comparable to those originally used in constructing the Building and Premises. Alterations, repairs and replacements to the Property, including the Premises, made necessary because of Tenant’s Alterations or installations, any use or circumstances special or particular to Tenant, or any act or omission of Tenant or its Agents shall be made by Landlord or Tenant as set forth above, but at the sole expense of Tenant to the extent not covered by any applicable insurance proceeds paid to Landlord.

10.     Compliance.

(a)    Tenant will, at its expense, promptly comply with all Laws now or subsequently pertaining to the Premises or Tenant’s use or occupancy and obtain all Permits necessary for Tenant’s use, occupancy and/or business conducted at the Premises. Neither Tenant nor its Agents shall use the Premises in any manner that under any Law would require Landlord to make any Alteration to or in the Building or

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Common Areas (without limiting the foregoing, Tenant shall not use the Premises in any manner that would cause the Premises or the Property to be deemed a “place of public accommodation” under the ADA if such use would require any such Alteration) unless (i) Landlord approves such Alteration, (ii) such Alteration does not affect any other tenant’s use of the Property, and (iii) Tenant agrees to bear the cost of such work. Tenant shall be responsible for compliance with the ADA, and any other Laws regarding accessibility, with respect to the Premises.

(b)    Tenant will comply, and will cause its Agents to comply, with the Building Rules.

(c)    Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord’s insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. If any breach of the preceding sentence by Tenant causes the rate of fire or other insurance to be increased, Tenant shall pay the amount of such increase as additional Rent within thirty (30) days after being billed.

(d)    Tenant agrees that (i) no activity will be conducted on the Premises that will use or produce any Hazardous Materials, except for activities which are part of the ordinary course of Tenant’s business and are conducted in accordance with all Environmental Laws (“Permitted Activities”); (ii) the Premises will not be used for storage of any Hazardous Materials, except for materials used in the Permitted Activities which are properly stored in a manner and location complying with all Environmental Laws; (iii) no portion of the Premises or Property will be used by Tenant or Tenant’s Agents for disposal of Hazardous Materials; (iv) Tenant will deliver to Landlord copies of all Material Safety Data Sheets and other written information prepared by manufacturers, importers or suppliers of any chemical; and (v) Tenant will immediately notify Landlord of any violation by Tenant or Tenant’s Agents of any Environmental Laws or the release or suspected release of Hazardous Materials in, under or about the Premises, and Tenant shall immediately deliver to Landlord a copy of any notice, filing or permit sent or received by Tenant with respect to the foregoing. If at any time during or after the Term, any portion of the Property is found to be contaminated by Tenant or Tenant’s Agents or subject to conditions prohibited in this Lease caused by Tenant or Tenant’s Agents, Tenant will indemnify, defend and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, attorneys’ fees, damages and obligations of any nature arising from or as a result thereof, and Landlord shall have the right to direct remediation activities, all of which shall be performed at Tenant’s cost (which cost shall include the Administrative Fee). Tenant’s obligations pursuant to this subsection shall survive the expiration or termination of this Lease.

11.    Signs. Tenant shall not place any signs on the Property without the prior consent of Landlord, other than signs that are located wholly within the interior of the Premises and not visible from the exterior of the Premises. Tenant shall maintain all signs installed by Tenant in good condition. Tenant shall remove its signs at the termination of this Lease, shall repair any resulting damage, and shall restore the Property to its condition existing prior to the installation of Tenant’s signs. Notwithstanding the foregoing, Tenant shall have the non-exclusive right, at Tenant's sole cost and expense, to install and maintain signage with Tenant's name on the exterior of the Building (the "Exterior Sign"), subject to the following terms and conditions: (i) the size, location and illumination of the Exterior Sign shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; (ii) prior to the installation of the Exterior Sign, Tenant shall deliver to Landlord complete engineering plans for the installation of such Exterior Sign for Landlord's review and approval; (iii) prior to the installation of the Exterior Sign, Tenant shall obtain all required Permits therefor and shall submit copies of the same to Landlord; (iv) Tenant shall repair

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all damage to the Building caused by the installation of the Exterior Sign; (v) Tenant shall Maintain the Exterior Sign in good condition and in accordance with all applicable Laws throughout the Term; (vi) if the Exterior Sign is illuminated, Tenant shall be solely responsible for all utility costs (including installation and consumption costs) for the Exterior Sign; and (vii) upon the expiration or earlier termination of this Lease, Tenant shall remove the Exterior Sign and shall repair all damage occasioned thereby and restore the Building to the condition that existed prior to the installation of the Exterior Sign, which obligation shall survive the expiration or earlier termination of this Lease. In the event that the Exterior Sign is not so removed or any damage caused by the removal is not so repaired and the Building is not restored to the condition that existed prior to the installation of the Exterior Sign, Landlord may remove and dispose of the Exterior Sign, and/or repair such damage, as Landlord determines in its sole discretion, the cost of such removal, disposal and repair to be charged to Tenant together with the Administrative Fee. Tenant acknowledges that, with respect to (i) above, Landlord's selection of the size, location and illumination of the Exterior Sign may take into account the necessity to reserve space for additional exterior signage for existing and future tenants of the Building.

12.    Alterations. Except for non-structural Alterations that (i) do not exceed $50,000 in the aggregate, (ii) are not visible from the exterior of the Premises, (iii) do not adversely affect any Building System in any material way or the structural strength of the Building, (iv) do not require penetrations into the floor, roof, ceiling or walls, and (v) do not require work on the roof or within the walls, below the floor or above the ceiling, Tenant shall not make or permit any Alterations in or to the Premises without first obtaining Landlord’s consent, which consent shall not be unreasonably withheld. With respect to any Alterations that do not require Landlord’s consent, Tenant shall nonetheless provide written notice thereof to Landlord, describing in reasonable detail the nature of the Alteration. With respect to any Alterations made by or on behalf of Tenant (whether or not the Alteration requires Landlord’s consent): (i) not less than ten (10) days prior to commencing any Alteration, Tenant shall deliver to Landlord the plans, specifications and necessary permits for the Alteration, together with certificates evidencing that Tenant’s contractors and subcontractors have adequate insurance coverage naming Landlord and any other associated or affiliated entity as their interests may appear as additional insureds, (ii) Tenant shall obtain Landlord’s prior written approval of any contractor or subcontractor, (iii) the Alteration shall be constructed with new materials, in a good and workmanlike manner, and in compliance with all Laws and the plans and specifications delivered to, and, if required above, approved by Landlord, and (iv) Tenant shall pay Landlord all reasonable third-party costs and expenses incurred by Landlord in connection with Landlord’s review of Tenant’s plans and specifications, and of any supervision or inspection of the construction Landlord deems necessary, and (v) upon Landlord’s request and for Alterations that cost in excess of $100,000, Tenant shall, prior to commencing any Alteration, provide Landlord reasonable security against liens arising out of such construction; based upon Landlord’s good faith review of Tenant’s then-current financial strength. Landlord agrees to respond to any request by Tenant for approval of Alterations which approval is required hereunder within ten (10) business days after delivery of Tenant’s written request; Landlord’s response shall be in writing and, if Landlord withholds its consent, Landlord shall specify in reasonable detail, the basis for such disapproval. If Landlord fails to notify Tenant of Landlord’s approval or disapproval within such ten (10) Business Day period, Tenant shall have the right to provide Landlord with a second written request for approval (a “Second Request”) that contains the following statement in bold and capital letters: “THIS IS A SECOND REQUEST FOR APPROVAL PURSUANT TO THE PROVISIONS OF ARTICLE 12 OF THE LEASE. IF LANDLORD FAILS TO RESPOND WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF THIS NOTICE, THEN LANDLORD SHALL BE DEEMED TO HAVE APPROVED THE ALTERATIONS DESCRIBED HEREIN.” If Landlord fails to respond to such Second Request within five (5) Business Days after receipt by

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Landlord, the Alterations in question shall be deemed approved by Landlord. If Landlord timely delivers to Tenant notice of Landlord’s disapproval of any plans, Tenant may revise Tenant’s plans to incorporate the changes suggested by Landlord in Landlord’s notice of disapproval, and resubmit such plans to Landlord; in such event, the scope of Landlord’s review of such plans shall be limited to Tenant’s correction of the items in which Landlord had previously objected in writing. Landlord’s review and approval (or deemed approval) of such revised plans shall be governed by the provisions set forth above in this Article 12). The procedure set out above for approval of Tenant’s plans will also apply to any change, addition or amendment to Tenant’s plans. Any Alteration by Tenant shall be the property of Tenant until the expiration or termination of this Lease; at that time without payment by Landlord the Alteration shall remain on the Property and become the property of Landlord unless Landlord gives notice to Tenant to remove it, in which event Tenant will prior to the expiration or sooner termination of this Lease, remove it, and repair any resulting damage and will restore the Premises to the condition existing prior to Tenant’s Alteration. At Tenant’s request prior to Tenant making any Alterations, Landlord will notify Tenant whether Tenant is required to remove the Alterations at the expiration or termination of this Lease. Tenant may install its trade fixtures, furniture and equipment in the Premises, provided that the installation and removal of them will not affect any structural portion of the Property, any Building System or any other equipment or facilities serving the Building or any occupant.

13.    Mechanics’ Liens. Tenant shall pay promptly for any labor, services, materials, supplies or equipment furnished to Tenant in or about the Premises. Tenant shall keep the Premises and the Property free from any liens arising out of any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to Tenant. Tenant shall take all steps permitted by law in order to avoid the imposition of any such lien. Should any such lien or notice of such lien be filed against the Premises or the Property, Tenant shall discharge the same by bonding or otherwise within fifteen (15) days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim.

14.    Landlord’s Right of Entry. Tenant shall permit Landlord and its Agents to enter the Premises at all reasonable times following reasonable notice (except in an emergency or during the existence of an Event of Default, in which case Landlord and its Agents may enter at any time and notice shall not be required) to inspect, Maintain, or make Alterations to the Premises or Property, to exhibit the Premises for the purpose of sale or financing, and, during the last twelve (12) months of the Term, to exhibit the Premises to any prospective tenant (provided that, except in the case of emergency, Tenant shall have the right to require that Landlord be accompanied by a representative of Tenant during any such entry). Landlord will make reasonable efforts not to inconvenience Tenant in exercising such rights, but Landlord shall not be liable for any interference with Tenant’s occupancy resulting from Landlord’s entry.

15.    Damage by Fire or Other Casualty. If the Premises or Common Areas shall be damaged or destroyed by fire or other casualty, Tenant shall promptly notify Landlord, and Landlord, subject to the conditions set forth in this Section, shall repair such damage and restore the Premises or Common Areas to substantially the same condition in which they were immediately prior to such damage or destruction, but not including the repair, restoration or replacement of the fixtures, equipment, or Alterations installed by or on behalf of Tenant. Landlord shall notify Tenant, within thirty (30) days after the date of the casualty, if Landlord anticipates that the restoration will take more than one hundred eighty (180) days from the date of the casualty to complete; in such event, either Landlord or Tenant (unless the damage was caused by Tenant or Tenant’s Agents) may terminate this Lease effective as of the date of casualty by giving notice to the other within ten (10) Business Days after Landlord’s notice. If a casualty occurs during the last twelve (12) months of the Term, Landlord may terminate this Lease

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unless Tenant has the right to extend the Term for at least three (3) more years and does so within thirty (30) days after the date of the casualty. Moreover, Landlord may terminate this Lease if the loss is not covered by the insurance required to be maintained by Landlord under this Lease. Notwithstanding the foregoing, if Tenant was entitled to but elected not to exercise its right to terminate this Lease and Landlord does not substantially complete the repair and restoration of the Premises within two (2) months after the expiration of the estimated period of time set forth in Landlord’s Repair Notice, which period shall be extended to the extent of any delays caused by Tenant, then Tenant may terminate this Lease by written notice to Landlord within thirty (30) days after the expiration of such period, as the same may be so extended. Tenant will receive an abatement of Minimum Annual Rent and Annual Operating Expenses to the extent the Premises (or any material portion) are rendered unusable as a result of the casualty, except if caused by Tenant or Tenant’s Agents and not covered by Landlord’s insurance proceeds.

16.    Condemnation. If (a) all of the Premises are Taken, (b) any part of the Premises is Taken and the remainder is insufficient in Landlord’s opinion for the reasonable operation of Tenant’s business, or (c) any of the Property is Taken, and, in Landlord’s opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder, then this Lease shall terminate as of the date the condemning authority takes possession. If this Lease is not terminated, Landlord shall restore the Building to a condition as near as reasonably possible to the condition prior to the Taking, the Minimum Annual Rent shall be abated for the period of time all or a part of the Premises is untenantable in proportion that such rentable square foot area that is untenantable bears to the rentable square footage of the Premises, and this Lease shall be amended appropriately. The compensation awarded for a Taking shall belong to Landlord. Except for any relocation benefits to which Tenant may be entitled, if any, Tenant hereby assigns all claims against the condemning authority to Landlord, including, but not limited to, any claim relating to Tenant’s leasehold estate.

17.    Quiet Enjoyment. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this Lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the terms of this Lease.

18.    Assignment and Subletting.

(a)    Except as provided in Section (b) below, Tenant shall not enter into nor permit any Transfer voluntarily or by operation of law, without the prior consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Without limitation, Tenant agrees that Landlord’s consent shall not be considered unreasonably withheld if (i) the proposed transferee is an existing tenant of Landlord or an affiliate of Landlord, (ii) the business, business reputation or creditworthiness of the proposed transferee is unacceptable to Landlord, (iii) Landlord or an affiliate has comparable space available for lease by the proposed transferee, or (iv) there is an Event of Default or any act or omission has occurred which would constitute a default with the giving of notice and/or the passage of time. Consent to one Transfer shall not be deemed to be consent to any subsequent Transfer. In no event shall any Transfer relieve Tenant from any obligation under this Lease. Landlord’s acceptance of Rent from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer. Any Transfer not in conformity with this Section 18 shall be void at the option of Landlord.

(b)    Landlord’s consent shall not be required in the event of any Transfer by Tenant to an Affiliate provided that (i)  the Affiliate has a tangible net worth at least equal to that of Tenant as of the date of this Lease, (ii) Tenant provides Landlord notice

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of the Transfer at least fifteen (15) days prior to the effective date, together with current financial statements of the Affiliate certified by an executive officer of the Affiliate (provided, however, that if such notice is precluded by applicable Law, Tenant will be required to provide such notice as soon as delivery of such notice is permissible), and (iii) in the case of an assignment or sublease, Tenant delivers to Landlord an assumption agreement or sublease reasonably acceptable to Landlord executed by Tenant and the Affiliate, together with a certificate of insurance evidencing the Affiliate’s compliance with the insurance requirements of Tenant under this Lease.

(d)    The provisions of subsection (a) above notwithstanding, if Tenant proposes to Transfer all of the Premises (other than to an Affiliate) for the balance of the Term, Landlord may terminate this Lease, either conditioned on execution of a new lease between Landlord and the proposed transferee or without that condition. In the event of any Transfer (other than to an Affiliate), Tenant shall pay to Landlord, immediately upon receipt, fifty percent (50%) of the excess of (i) all compensation received by Tenant for the Transfer less the Transfer Transaction Expenses (defined below), over (ii) the Rent allocable to the Premises transferred. “Transfer Transaction Expenses” shall mean the reasonable out-of-pocket costs and expenses incurred by Tenant in effectuating a Transfer for tenant improvements, allowances, brokerage commissions and other reasonable Transfer related expenses (which expenses shall be allocated evenly over the length of the term of the sublease or the remaining Term, in the event of an assignment).

(c)    If Tenant requests Landlord’s consent to a Transfer, Tenant shall provide Landlord, at least fifteen (15) days prior to the proposed Transfer, current financial statements of the transferee certified by an executive officer of the transferee, a complete copy of the proposed Transfer documents, and any other information Landlord reasonably requests. Immediately following any approved assignment or sublease, Tenant shall deliver to Landlord an assumption agreement reasonably acceptable to Landlord executed by Tenant and the transferee, together with a certificate of insurance evidencing the transferee’s compliance with the insurance requirements of Tenant under this Lease. Tenant agrees to reimburse Landlord for reasonable administrative and attorneys’ fees in connection with the processing and documentation of any Transfer for which Landlord’s consent is requested.

19.    Subordination; Mortgagee’s Rights.

(a)    Tenant accepts this Lease subject and subordinate to any Mortgage now or in the future affecting the Premises, and in the event a Mortgagee or its affiliate succeeds to the interests of Landlord under this Lease (any such successor, a “Successor Landlord”), then, provided Tenant receives written notice thereof from Successor Landlord and Tenant’s right of possession shall not be disturbed by the Successor Landlord so long as there is no uncured Event of Default under this Lease, Tenant shall be bound to the Successor Landlord under all of the terms, covenants and conditions of this Lease for the remaining balance of the term hereof and Tenant does hereby agree to attorn to the Successor Landlord as its landlord without requiring the execution of any further instruments immediately upon the Successor Landlord succeeding to the interest of Landlord under this Lease. This clause shall be self-operative, but within ten (10) days after request, Tenant shall execute (or make good faith corrective comments to) and deliver any further instruments confirming the subordination of this Lease and any further instruments of attornment that the Mortgagee may reasonably request. However, any Mortgagee may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by giving notice to Tenant, and this Lease shall then be deemed prior to such Mortgage without regard to their respective dates of execution and delivery; provided that such subordination shall not affect any Mortgagee’s rights with respect to condemnation awards, casualty

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insurance proceeds, intervening liens or any right which shall arise between the recording of such Mortgage and the execution of this Lease.

(b)    No Mortgagee shall be (i) liable for any act or omission of a prior landlord, (ii) subject to any rental offsets or defenses against a prior landlord, (iii) bound by any amendment of this Lease made without its written consent, or (iv) bound by payment of Monthly Rent more than one month in advance or liable for any other funds paid by Tenant to Landlord unless such funds actually have been transferred to the Mortgagee by Landlord.

(c)    The provisions of Sections 15 and 16 above notwithstanding, Landlord’s obligation to restore the Premises after a casualty or condemnation shall be subject to the consent and prior rights of any Mortgagee.

20.    Tenant’s Certificate; Financial Information. Within ten (10) business days after Landlord’s request from time to time, (a) Tenant shall execute (or make good faith corrective comments to, acknowledge and deliver to Landlord, for the benefit of Landlord, Mortgagee, any prospective Mortgagee, and any prospective purchaser of Landlord’s interest in the Property, an estoppel certificate in a form reasonably requested by Landlord, modified as necessary to accurately state the facts represented; no such certificate will be deemed to amend or modify the express terms of this Lease and (b) provided that Landlord, Landlord’s mortgagee and any other disclosee agrees to execute a mutually acceptable nondisclosure agreement, Tenant shall furnish to Landlord, Landlord’s Mortgagee, any prospective Mortgagee and/or any prospective purchaser any reasonably requested financial information; provided, however, that this clause (b) will not apply for so long as Tenant’s financial filings (i.e., Forms 10-K and 10-Q) are publicly available.

21.    Surrender.

(a)    On the date on which this Lease expires or terminates, Tenant shall return possession of the Premises to Landlord in good condition, except for ordinary wear and tear, and except for casualty damage or other conditions that Tenant is not required to remedy under this Lease. Prior to the expiration or termination of this Lease, Tenant shall remove from the Property all furniture, trade fixtures, equipment, wiring and cabling installed by or on behalf of Tenant (unless Landlord directs Tenant otherwise), and all other personal property installed by Tenant or its assignees or subtenants. Tenant shall repair any damage resulting from such removal and shall restore the Property to good order and condition. Any of Tenant’s personal property not removed as required shall be deemed abandoned, and Landlord, at Tenant’s expense, may remove, store, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property or sale proceeds as its property. If Tenant does not return possession of the Premises to Landlord in the condition required under this Lease, Tenant shall pay Landlord all resulting damages Landlord may suffer.

(b)    If Tenant remains in possession of the Premises after the expiration or termination of this Lease, Tenant’s occupancy of the Premises shall be that of a tenancy at sufferance. Tenant’s occupancy during any holdover period shall otherwise be subject to the provisions of this Lease (unless clearly inapplicable), except that for the first month of any holdover, the Monthly Rent shall be 150% of the Monthly Rent payable for the last full month immediately preceding the holdover, and thereafter, the Monthly Rent shall be double the Monthly Rent payable for the last full month immediately preceding the holdover. No holdover or payment by Tenant after the expiration or termination of this Lease shall operate to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. Any provision in this Lease to the contrary notwithstanding,

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any holdover by Tenant shall constitute a default on the part of Tenant under this Lease entitling Landlord to exercise, without obligation to provide Tenant any notice or cure period, all of the remedies available to Landlord in the event of a Tenant default, and Tenant shall be liable for all damages, including consequential damages, that Landlord suffers as a result of the holdover..

22.    Defaults - Remedies.

(a)    It shall be an “Event of Default”:

i.    If Tenant does not pay in full when due any and all Rent and, except as provided in Section 22(c) below, Tenant fails to cure such default on or before the date that is five (5) days after Landlord gives Tenant notice of default (a “Monetary Event of Default”);

ii.    If Tenant enters into or permits any Transfer in violation of Section 18 above;

iii.    If Tenant fails to observe and perform or otherwise breaches any other provision of this Lease, and, except as provided in Section 22(c) below, Tenant fails to cure the default on or before the date that is twenty (20) days after Landlord gives Tenant notice of default; provided, however, if the default cannot reasonably be cured within twenty (20) days following Landlord’s giving of notice, Tenant shall be afforded additional reasonable time (not to exceed sixty (60) days following Landlord’s notice) to cure the default if Tenant begins to cure the default within twenty (20) days following Landlord’s notice and continues diligently in good faith to completely cure the default; or

iv.    If Tenant becomes insolvent or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant’s assets is commenced, or if any of the real or personal property of Tenant shall be levied upon; provided that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute an Event of Default until such proceeding has continued unstayed for more than sixty (60) consecutive days.

(b)    If an Event of Default occurs, Landlord shall have the following rights and remedies:

i.    Landlord, without any obligation to do so, may elect to cure the default on behalf of Tenant, in which event Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord (together with the Administrative Fee) in curing the default, plus interest at the Interest Rate from the respective dates of Landlord’s incurring such costs, which sums and costs together with interest at the Interest Rate shall be deemed additional Rent;

ii.    To enter and repossess the Premises, by breaking open locked doors if necessary, and remove all persons and all or any property, by action at law or otherwise, without being liable for prosecution or damages. Landlord may, at Landlord’s option, make Alterations and repairs in order to re-let the Premises and re-let all or any part(s) of the Premises for Tenant’s account. Tenant agrees to pay to Landlord on demand any deficiency (taking into account all costs incurred by Landlord) that may arise by reason of such re-letting. In the event of re-letting without termination of this

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Lease, Landlord may at any time thereafter elect to terminate this Lease for such previous breach;

iii.    To accelerate the whole or any part of the Rent for the balance of the Term, and declare the present value of the same to be immediately due and payable; and

iv.    To terminate this Lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken.

(c)    Any provision to the contrary in this Section 22 notwithstanding, (i) Landlord shall not be required to give Tenant the notice and opportunity to cure provided in Section 22(a) above more than twice in any consecutive twelve (12) month period, and thereafter Landlord may declare an Event of Default without affording Tenant any of the notice and cure rights provided under this Lease, and (ii) Landlord shall not be required to give such notice prior to exercising its rights under Section 22(b) if Tenant fails to comply with the provisions of Sections 13, 20 or 27 or in an emergency.

(d)    No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant’s default shall not constitute a waiver of Landlord’s right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this Lease shall be deemed to be other than on account, nor shall any endorsement or statement on any 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 balance of Rent due, or Landlord’s right to pursue any other available remedy.

(e)    If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the other party attorneys’ fees, costs of suit, investigation expenses and discovery costs, including costs of appeal.

(f)    Landlord and Tenant waive the right to a trial by jury in any action or proceeding based upon or related to, the subject matter of this Lease.

(g)    Landlord shall use commercially reasonable efforts to relet the Premises following Tenant's vacation of the Premises and Tenant's returning the Premises to the condition required at the time of the expiration of this Lease and to otherwise mitigate Landlord's damages under the Lease; provided, however, that Landlord shall be under no duty to market or relet the Premises prior to leasing other available space in the Building and, in no event shall Landlord be responsible or liable for any failure to relet the Premises or any part thereof, or for any failure to collect any rent due upon a reletting.

23.    Tenant’s Authority. Tenant represents and warrants to Landlord that: (a) Tenant is duly formed, validly existing and in good standing under the laws of the state under which Tenant is organized, and qualified to do business in the state in which the Property is located, (b) the person(s) signing this Lease are duly authorized to execute

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and deliver this Lease on behalf of Tenant and (c) any financial statements provided by Tenant to Landlord are true, correct and complete and fairly represent the financial condition of Tenant as of the date hereof and as of the date of such statements.

24.    Liability of Landlord. The word “Landlord” in this Lease includes the Landlord executing this Lease as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this Lease as Landlord. Any such person or entity, whether or not named in this Lease, shall have no liability under this Lease after it ceases to hold title to the Premises except for obligations already accrued (and, as to any unapplied portion of Tenant’s Security Deposit, Landlord shall be relieved of all liability upon transfer of such portion to its successor in interest). Tenant shall look solely to Landlord’s successor in interest for the performance of the covenants and obligations of the Landlord hereunder which subsequently (i.e., after the date of any transfer of Landlord’s interest in this Lease) accrue, provided that Landlord’s successor has agreed in writing to assume the obligations of Landlord hereunder from and after the date of such transfer. Landlord shall not be deemed to be in default under this Lease unless Tenant gives Landlord written notice specifying the default and Landlord fails to cure the default within a reasonable period following Tenant’s written notice. In no event shall Landlord be liable to Tenant for any loss of business or profits of Tenant or for consequential, punitive or special damages of any kind. Neither Landlord nor any principal of Landlord nor any owner of the Property, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this Lease or the Premises; Tenant shall look solely to the equity of Landlord in the Building for the satisfaction of any claim by Tenant against Landlord (which shall be deemed to include the rental income at the Building, the proceeds of any sale of all or any portion of the Building by Landlord as well as any insurance or condemnation proceeds).

25.    Miscellaneous.

(a)    The captions in this Lease are for convenience only, are not a part of this Lease and do not in any way define, limit, describe or amplify the terms of this Lease.

(b)    This Lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises or the Property. No rights, easements or licenses are acquired in the Property or any land adjacent to the Property by Tenant by implication or otherwise except as expressly set forth in this Lease. This Lease shall not be modified in any manner except by an instrument in writing executed by the parties. The masculine (or neuter) pronoun and the singular number shall include the masculine, feminine and neuter genders and the singular and plural number. The word “including” followed by any specific item(s) is deemed to refer to examples rather than to be words of limitation. The word “person” includes a natural person, a partnership, a corporation, a limited liability company, an association and any other form of business association or entity. Both parties having participated fully and equally in the negotiation and preparation of this Lease, this Lease shall not be more strictly construed, nor any ambiguities in this Lease resolved, against either Landlord or Tenant.

(c)    Each covenant, agreement, obligation, term, condition or other provision contained in this Lease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided. All of the terms and conditions set forth in this Lease shall apply throughout the Term unless otherwise expressly set forth herein.

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(d)    If any provisions of this Lease shall be declared unenforceable in any respect, such unenforceability shall not affect any other provision of this Lease, and each such provision shall be deemed to be modified, if possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth herein. This Lease shall be construed and enforced in accordance with the laws of the state in which the Property is located.

(e)    This Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, personal representatives and permitted successors and assigns. All persons liable for the obligations of Tenant under this Lease shall be jointly and severally liable for such obligations.

(f)    Tenant shall not record this Lease or any memorandum without Landlord’s prior consent.

26.    Notices. Any notice, consent or other communication under this Lease shall be in writing and addressed to Landlord or Tenant at their respective addresses specified in Section 1 above (or to such other address as either may designate by notice to the other) with a copy to any Mortgagee or other party designated by Landlord. Each notice or other communication shall be sent by prepaid overnight delivery service or by certified mail, return receipt requested, postage prepaid, with delivery in any case evidenced by a receipt, and shall be deemed to have been given on the day of actual delivery to the intended recipient (provided, however, that if such day is a weekend or holiday, then such notice shall be deemed delivered as of the next-succeeding business day) or on the business day delivery is refused. The giving of notice by Landlord’s attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord.

27.    Security Deposit. At the time of signing this Lease, Tenant shall deposit with Landlord the Security Deposit to be retained by Landlord as cash security for the faithful performance and observance by Tenant of the provisions of this Lease. Tenant shall not be entitled to any interest on the Security Deposit. Landlord shall have the right to commingle the Security Deposit with its other funds. Landlord may use the whole or any part of the Security Deposit for the payment of any amount as to which Tenant is in default or to compensate Landlord for any loss or damage it may suffer by reason of Tenant’s default under this Lease. If Landlord uses all or any portion of the Security Deposit as herein provided, within 10 days after demand, Tenant shall pay Landlord cash in an amount equal to that portion of the Security Deposit used by Landlord. If Tenant complies fully and faithfully with all of the provisions of this Lease, the Security Deposit shall be returned to Tenant within thirty (30) days after the Expiration Date and surrender of the Premises to Landlord.

28.    Broker. Tenant represents and warrants to Landlord that Tenant has dealt with no broker, agent or other intermediary in connection with this Lease other than Tenant’s Broker, and that insofar as Tenant knows, no other broker, agent or other intermediary negotiated this Lease or introduced Tenant to Landlord or brought the Building to Tenant’s attention for the lease of space therein. Tenant agrees to indemnify, defend and hold Landlord and its affiliates, partners, members, employees, agents, their partners, members, shareholders, directors, officers, and trustees, harmless from and against any claims made by any broker, agent or other intermediary other than Tenant’s Broker, with respect to a claim for any broker’s commission or fee or similar compensation brought by any person in connection with this Lease, provided that Landlord has not in fact retained such broker, agent or other intermediary. Landlord agrees to pay all commissions payable to Tenant’s Broker pursuant to a separate, written agreement between Landlord and Tenant’s Broker.

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29.    OFAC. Tenant represents and warrants that neither it nor any of its officers or directors is, and that, to the actual knowledge of the signatory to this Lease, none of its employees, representatives, or agents is, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental regulation, and that it will not transfer this Lease to, or knowingly contract with or otherwise engage in any dealings or transactions or be otherwise associated with such persons or entities.  Tenant represents and warrants that it is currently in compliance with, and shall at all times during the term of this Lease remain in compliance with, the regulations of OFAC and any other governmental requirement relating thereto.

30.    Tenant Improvements.

(a)    Landlord shall provide Tenant with an allowance in an amount up to $155,000 (the “Tenant Improvement Allowance”) towards (A) the costs of Landlord’s Work and (B) the hard and soft costs of improvements to be constructed in the Premises by Tenant (such improvements to be constructed by Tenant, collectively, the “Tenant Improvements”). The Tenant may allocate any unused portion of the Tenant Improvement Allowance, if any, to racking setup and charging stations. Tenant acknowledges and agrees that, except for the Landlord’s Work, Landlord has no obligation whatsoever to make any improvements to the Premises, Building or Common Areas, it being the understanding of the parties that Tenant accepts the Premises, Building and Common Areas in their current “AS IS” condition and that Tenant shall be solely obligated, at Tenant’s sole cost and expense (subject to the application of the Tenant Improvement Allowance), to make any improvements necessary for Tenant’s business operations in the Premises and to obtain any and all Permits required for Tenant’s construction of the Tenant Improvements and Tenant’s occupancy of the Premises. The Tenant Improvements shall be constructed by Tenant and Tenant’s Agents in a good and workmanlike manner, using new or like-new materials, and in accordance with all applicable Laws and in accordance with the terms and conditions of this Lease, including but not limited to Section 12 and Section 13 (the “Lease Requirements”). Without limiting any of the Lease Requirements, the Tenant Improvements shall conform with a space plan, specifications and construction drawings reasonably approved in writing in advance by Landlord and shall be performed in accordance with Landlord’s reasonable construction rules and regulations and in such a manner and at such times as not to interfere with the operation of the Building, and/or the occupancy thereof by other tenants. All of Tenant’s contractors and subcontractors working in connection with the Tenant Improvements shall carry insurance reasonably required by Landlord, naming Landlord as an additional insured where appropriate and all such contractors and subcontractors shall contact Landlord and schedule time periods during which they may use Building facilities in connection with such work. Subject to the foregoing, Landlord shall disburse the balance of the Tenant Improvement Allowance (after deducting the amount required for Landlord’s Work) to Tenant in installments (no more frequently than once per month) of at least $25,000 within thirty (30) days after Landlord’s receipt of written request therefor after the Tenant Improvements have been completed, together with the following: (1) the appropriate AIA application for payment signed by Tenant’s general contractor and architect and notarized, (2) copies of all required current Permits for the Tenant Improvements not previously provided to Landlord, (3) paid invoices, and (4) lien waivers from contractors, subcontractors and vendors for completed work provided on a 30-day trailing basis, with waivers for any portion of the Tenant Improvement Allowance previously funded by Landlord and any portion of the Tenant Improvement costs previously required to be

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paid by Tenant being submitted with the current request. Tenant shall pay all costs of the Tenant Improvements in excess of the Tenant Improvement Allowance after the exhaustion of the Tenant Improvement Allowance. Any portion of the Tenant Improvement Allowance not used within one (1) year after the Commencement Date shall be deemed forfeited. Tenant will not be required to pay Landlord (or any affiliate vendor/contractor of Landlord) any construction administration or construction supervision fee in connection with the construction of the Tenant Improvements.

(b)    Commencing on the Effective Date, Landlord shall permit Tenant to enter the Premises in order to commence construction of the Tenant Improvements and installing its equipment, racking system, cabling, wiring, fixtures, and furniture, subject to Tenant obtaining, at Tenant’s sole cost and expense, all Permits in connection with the installation thereof. With respect to such early access, all provisions of this Lease shall then be in full force and effect, specifically including, but not limited to, Sections 8 and 10 hereof (excluding however, Tenant’s obligation to pay Monthly Rent). Furthermore, Tenant’s entry in the Premises shall not interfere with Landlord’s construction of the Landlord’s Work and any such interference shall be considered a Tenant Delay hereunder. In connection with such early access, Tenant shall follow the policies and safety directives of Landlord’s contractor.

31.    Renewal Options. Tenant shall have the option to extend the Term of the Lease for all of the then leased Premises for three (3) additional periods of three (3) years each (each a “Renewal Option”), under and subject to the following terms and conditions:

(a)    The first renewal term (“First Renewal Term”) shall be for a three (3)-year period commencing on the day immediately following the expiration date of the initial Term of the Lease and expiring on the day immediately preceding the third (3rd) anniversary thereof. The second renewal term (“Second Renewal Term”) shall be for a three (3)-year period commencing on the day immediately following the expiration date of the First Renewal Term of the Lease and expiring on the day immediately preceding the third (3rd) anniversary thereof. The third renewal term (the “Third Renewal Term”) shall be for a three (3) year period commencing on the day immediately following the expiration of the Second Renewal Term of the Lease and expiring on the day immediately preceding the third (3rd) anniversary thereof. Collectively, the First Renewal Term, the Second Renewal Term and the Third Renewal Term are referred to as the “Renewal Terms”.

(b)    Tenant must exercise the Renewal Option for the First Renewal Term, if at all, by written notice to Landlord delivered at least nine (9) months prior to the expiration date of the initial Term of this Lease, time being of the essence. If Tenant fails to exercise the Renewal Option for the First Renewal Term, the Renewal Option for the Second Renewal Term and the Third Renewal Term shall be void and of no further force and effect. Tenant must exercise the Renewal Option for the Second Renewal Term, if at all, by written notice to Landlord delivered at least nine (9) months prior to the expiration date of the First Renewal Term, time being of the essence. Tenant must exercise the Renewal Option for the Third Renewal Term, if at all, by written notice to Landlord delivered at least nine (9) months prior to the expiration date of the Second Renewal Term, time being of the essence.

(c)    As a condition to Tenant’s exercise of any of the Renewal Options, at the time Tenant delivers its notice of election to exercise such Renewal Option to Landlord, there shall be no Event of Default, this Lease shall be in full force and effect, and Tenant shall not have assigned this Lease or sublet the Premises (other than to an Affiliate).

(d)    The Minimum Annual Rent for the first years of the First Renewal Term, Second Renewal Term and the Third Renewal Term shall be the then current fair market

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rent for renewals for comparable space in similar buildings within a five (5)-mile radius of the Building. The subsequent years of Minimum Annual Rent during each respective Renewal Term shall increase consistent with then market annual escalations ("Fair Market Rental"). Landlord shall determine the Fair Market Rental using its good faith judgment and shall provide written notice of such Fair Market Rental within fifteen (15) days after Tenant's exercise notice pursuant to this Section. Tenant shall thereupon have the following options: (i) to accept such proposed Fair Market Rental or (ii) to notify Landlord in writing that Tenant objects to the proposed rental rate. Tenant must provide Landlord with written notification of its election within fifteen (15) days after Tenant's receipt of Landlord's notice, otherwise Tenant shall be deemed to have elected clause (i) above. If Tenant objects to Landlord's proposed Fair Market Rental in accordance with clause (ii) above, Landlord and Tenant will attempt to negotiate a mutually acceptable rental rate within fifteen (15) days following notification by Tenant, and if such negotiations have not been concluded within such fifteen (15) day-period, either party may require an independent determination of the Fair Market Rental for the Renewal Term by giving written notice to the other party no later than five (5) days after the expiration of the fifteen (15)-day period, which notice shall designate a MAI real estate appraiser or real estate broker with at least ten (10) years experience in the leasing of similar properties in the Salt Lake City market area ("Qualified Appraiser"). Within ten (10) days after receipt of such notice, the other party to this Lease shall select a Qualified Appraiser and give written notice of such selection to the initiating party. If the two (2) Qualified Appraisers fail to agree upon the Fair Market Rental consistent with this Section 31 within ten (10) days after selection of the second Qualified Appraiser, the two (2) Qualified Appraisers shall select a third (3rd) Qualified Appraiser to determine the Fair Market Rental consistent with this Section 31 within ten (10) days after the appointment of the third (3rd) Qualified Appraiser. The Fair Market Rental applicable to the Renewal Term shall be equal to the arithmetic average of the three (3) determinations; provided, however, that if one (1) Qualified Appraiser's determination deviates by more than five percent (5%) from the median of the three (3) determinations, the Fair Market Rental shall be an amount equal to the average of the other two determinations. The determination of the Fair Market Rental in accordance with the foregoing shall be final, binding and conclusive on Landlord and Tenant. The parties shall each pay the costs and expenses of their appointed Qualified Appraiser and shall split evenly the costs and expenses of the third (3rd) Qualified Appraiser.

(e)    Except as set forth in this Section 31, (i) there shall be no further options to extend the Term of this Lease, and (ii) all terms and conditions of the Lease shall remain in full force and effect during the Renewal Terms, without change.

[Remainder of page left intentionally blank.]

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Landlord and Tenant have executed this Lease on the respective date(s) set forth below.

Landlord:

ANDERSON LOGISTICS ASSETS LLC, a Delaware limited liability company

Date signed:        By: /s/ Sara Queen

Name:     Sara Queen

4/26/2019        Title: Vice President

Date signed:        Tenant:

19 April 2019        PENUMBRA, INC., a Delaware corporation

Attest/Witness:

/s/ Robert D. Evans        By:        /s/ Adam Elsesser

Name: Robert D. Evans            Name: Adam Elsesser

Title: Senior Counsel            Title: CEO

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RIDER

ADDITIONAL DEFINITIONS

“ADA” means the Americans With Disabilities Act of 1990 (42 U.S.C. § 1201 et seq.), as amended and supplemented from time to time.

“Administrative Fee” means ten percent (10%) of the costs incurred by Landlord in curing Tenant’s default or performing Tenant’s obligations hereunder.

“Affiliate” means (i) any entity controlling, controlled by, or under common control of, Tenant, (ii) any successor to Tenant by merger, consolidation or reorganization, and (iii) any purchaser of all or substantially all of the assets or stock of Tenant as a going concern.

“Agents” of a party mean such party’s employees, agents, representatives, contractors, licensees or invitees.

“Alteration” means any addition, alteration or improvement to the Premises or Property, as the case may be.

“Building Rules” means the rules and regulations attached to this Lease as Exhibit “B” as they may be amended from time to time.

“Building Systems” means any electrical, mechanical, structural, plumbing, heating, ventilating, air conditioning, sprinkler, life safety or security systems serving the Building.

“Common Areas” means all areas and facilities as provided by Landlord from time to time for the use or enjoyment of all tenants in the Building or Property, including, if applicable, driveways, sidewalks, parking, loading and landscaped areas.

“Environmental Laws” means all present or future federal, state or local laws, ordinances, rules or regulations (including the rules and regulations of the federal Environmental Protection Agency and comparable state agency) relating to the protection of human health or the environment.

“Event of Default” means a default described in Section 22(a) of this Lease.

“Exterior Sign” has the meaning set forth in Section 11 of the Lease.

“First Renewal Term” has the meaning set forth in Section 31 of the Lease.

“Hazardous Materials” means pollutants, contaminants, toxic or hazardous wastes or other materials the removal of which is required or the use of which is regulated, restricted, or prohibited by any Environmental Law.

“Interest Rate” means interest at the rate of 1% per month.

“Land” means the lot or plot of land on which the Building is situated or the portion thereof allocated by Landlord to the Building.

“Landlord’s Broker” means Jones Lang LaSalle.

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“Landlord’s Work” has the meaning set forth in Section 2(a) of this Lease and Exhibit “C” attached to this Lease.

“Laws” means all laws, ordinances, rules, orders, regulations, guidelines and other requirements of federal, state or local governmental authorities or of any private association or contained in any restrictive covenants or other declarations or agreements, now or subsequently pertaining to the Property or the use and occupation of the Property.

“Maintain” means to provide such maintenance, repair and, to the extent necessary and appropriate, replacement, as may be needed to keep the subject property in good condition and repair.

“Monthly Rent” means the monthly installment of Minimum Annual Rent plus the monthly installment of estimated Annual Operating Expenses payable by Tenant under this Lease.

“Mortgage” means any mortgage, deed of trust or other lien or encumbrance on Landlord’s interest in the Property or any portion thereof, including without limitation any ground or master lease if Landlord’s interest is or becomes a leasehold estate.

“Mortgagee” means the holder of any Mortgage, including any ground or master lessor if Landlord’s interest is or becomes a leasehold estate.

“OFAC” has the meaning set forth in Section 29 of this Lease.

“Operating Expenses” means, subject to the exclusions set forth below, all costs, fees, charges and expenses incurred or charged by Landlord in connection with the ownership, operation, maintenance and repair of, and services provided to, the Property, including, but not limited to, (i) the charges at standard retail rates for any utilities serving the Common Areas and any utilities provided by Landlord pursuant to Section 7 of this Lease, (ii) the cost of insurance carried by Landlord pursuant to Section 8 of this Lease together with the cost of any deductible paid by Landlord in connection with an insured loss, (iii) Landlord's cost to Maintain the Property, subject to the provisions of Section 9 of this Lease, and all costs and expenses of personnel and vendors or contractors required in connection therewith, inclusive of any property caretakers or administrators; (iv) the cost of trash collection, (v) snow removal, and grounds-keeping and landscaping of the Common Areas; (vi) the costs and charges of any easements and campus associations of which the Property is a part; (vii) to the extent not otherwise payable by Tenant pursuant to Section 5 of this Lease, all levies, taxes (including real estate taxes, sales taxes and gross receipt taxes), assessments, liens, license and permit fees, together with the reasonable cost of contesting any of the foregoing, which are applicable to the Term, and which are imposed by any authority or under any Law, or pursuant to any recorded covenants or agreements, upon or with respect to the Property, or any improvements thereto, or directly upon this Lease or the Rent or upon amounts payable by any subtenants or other occupants of the Premises, or against Landlord because of Landlord’s estate or interest in the Property, (viii) the annual amortization (over their estimated economic useful life or payback period, whichever is shorter) of the costs (including reasonable financing charges) of capital improvements or replacements (collectively, “Capital Improvements”) (a) required by any Laws not in effect as of the Commencement Date, (b) made for the purpose of reducing Operating Expenses, (c) made for the purpose of enhancing the safety of tenants in the Building, or (d) in connection with the replacement of Building Systems pursuant to Section 9(a), and (ix) a management and administrative fee not to exceed

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three percent (3.0%) of the Rent or the Rent that would have been due but for the Free Rent Period (using the rental rate in effect immediately following the Free Rent Period), and such component of Annual Operating Expenses is not subject to Tenant’s Share of Annual Operating Expenses. The foregoing notwithstanding, Operating Expenses will not include: (i) depreciation on the Building; (ii) financing and refinancing costs (except as provided above), interest on debt or amortization payments on any mortgage, or rental under any ground or underlying lease; (iii) leasing commissions, advertising expenses, tenant improvements or other costs directly related to the leasing of the Property; (iv) income, excess profits or corporate capital stock tax imposed or assessed upon Landlord, unless such tax or any similar tax is levied or assessed in lieu of all or any part of any taxes includable in Operating Expenses above; (v) any capital improvement or replacement other than Capital Improvements, as defined above; (vi) costs of repairs, restoration, replacements or other work occasioned by fire, windstorm or other casualty of an insurable nature (whether such destruction be total or partial) and either (aa) payable (whether paid or not) by insurance required to be carried by Landlord under this Lease, or (bb) otherwise payable (whether paid or not) by insurance then in effect obtained by Landlord, except that the portion of such costs not actually covered by insurance as a result of reasonable deductibles, exclusions, coverage limits and the like shall be included in Operating Expenses; (vii) Landlord’s general corporate overhead and general and administrative expenses; (viii) salaries of individuals who hold a position which is generally considered to be higher in rank than the position of the manager of the Building or the chief engineer of the Building; (ix) debt service payments on or related to any indebtedness; (x) costs of performing any testing, clean-up or remediation of Hazardous Materials to the Property, other than common office, maintenance and cleaning supplies; (xi) any amounts paid to any person, firm or corporation related or otherwise affiliated with Landlord or any general partner, officer or director of Landlord or any of its general partners, to the extent same materially exceeds arms-length competitive prices paid in the Salt Lake City, Utah metropolitan area for the services or goods provided; and (xii) costs relating to maintaining Landlord’s existence, either as a corporation, partnership, or other entity. If Landlord elects to prepay real estate taxes during any discount period, Landlord shall be entitled to the benefit of any such prepayment. Landlord shall have the right to directly perform (by itself or through an affiliate) any services provided under this Lease provided that the Landlord’s charges included in Operating Expenses for any such services shall not exceed competitive market rates for comparable services.

“Permits” means any permits, certificates of occupancy, consents, environmental permits and approvals, authorization, variances, waivers, licenses, certificates or approvals required by any governmental or quasi-governmental authority.

“Permitted Activities” has the meaning set forth in Section 10(d) of this Lease.

“Property” means the Land, the Building, the Common Areas, and all appurtenances to them.

“Renewal Option” has the meaning set forth in Section 31 of the Lease.

“Renewal Term” has the meaning set forth in Section 31 of the Lease.

“Rent” means the Minimum Annual Rent, Annual Operating Expenses and any other amounts payable by Tenant to Landlord under this Lease.

“Second Renewal Term” has the meaning set forth in Section 31 of the Lease.

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“Statement” has the meaning set forth in Section 6 of this Lease.

“Substantially Completed” means the Landlord’s Work has been completed except for minor or insubstantial details of construction, repair, mechanical adjustment, or finishing touches, the lack of completion of which items and the work of completion of which items shall not adversely affect Tenant’s conduct of its ordinary business activities in the Premises.

“Taken” or “Taking” means acquisition by a public authority having the power of eminent domain by condemnation or conveyance in lieu of condemnation.

“Tenant Delay” means any delays in the Substantial Completion of Landlord’s Work that are caused, in whole or in part, by Tenant or Tenant’s Agents for any reason, including but not limited to, (i) any interference by Tenant or Tenant’s Agents with Landlord’s obtaining the Permits or Landlord’s construction of the Landlord’s Work, (ii) any delays caused by changes to the Landlord’s Work specifications attached hereto as Exhibit “C” requested by Tenant, including, without limitation, revising the construction drawings, materials or specifications and obtaining new Permits for the Landlord’s Work, (iii) Tenant’s failure to approve construction drawings, permit plans or any matter relating to the Landlord’s Work within five (5) business days following Tenant’s receipt of Landlord’s request, or (iv) the performance of any work or activity in the Property by Tenant or Tenant’s Agents (including, without limitation, the installation of Tenant’s equipment, cabling, racking systems or furniture). Notwithstanding the foregoing, except with respect to delays described in clause (iii) above, no Tenant Delay shall be deemed to have occurred unless Landlord has notified Tenant of the event or circumstance which Landlord believes to be Tenant Delay (any such notice may be delivered via electronic mail to Tenant’s construction representative, Chris Faber, whose electronic mail address is [*], with a concurrent copy to Jonathan M. Kennedy, whose electronic mail address is [*]) which is not cured within two (2) business days.

“Tenant Improvement Allowance” has the meaning set forth in Section 30 of this Lease.

“Tenant Improvements” has the meaning set forth in Section 30 of this Lease.

“Tenant’s Broker” means Colliers International.

“Tenant’s Share” means the percentage obtained by dividing the RSF of the Premises by the RSF of the Building, as set forth in Section 1 of this Lease.

“Third Renewal Term” has the meaning set forth in Section 31 of the Lease.

“Transfer” means (i) any assignment, transfer, pledge or other encumbrance of all or a portion of Tenant’s interest in this Lease, (ii) any sublease, license or concession of all or a portion of Tenant’s interest in the Premises, (iii) any division of Tenant, or (iv) any transfer of a controlling interest in Tenant, including, without limitation, by division of any entity directly or indirectly controlling Tenant. For avoidance of doubt, the transfer of shares Tenant on a nationally-recognized securities exchange will not constitute a Transfer hereunder.

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FIRST AMENDMENT TO LEASE AGREEMENT

THIS FIRST AMENDMENT TO LEASE AGREEMENT (“First Amendment”) is made and entered into as of this _4__ day of ___April________, 2022 (the “Effective Date”), by and between ANDERSON LOGISTICS ASSETS LLC, a Delaware limited liability company (“Landlord”); and PENUMBRA, INC., a Delaware corporation (“Tenant”). Landlord and Tenant may hereinafter be referred to as a “Party” or together as the “Parties.”

RECITALS

A.    Landlord and Tenant are the current parties to that certain Lease Agreement dated April 26, 2019 (the “Lease”), pursuant to which Landlord leases to Tenant and Tenant leases from Landlord approximately 44,950 rentable square feet (the “Existing Premises”) in the building owned by Landlord and located at 1070 South 3800 West, Salt Lake City, Utah (the “Building”) consisting of approximately 192,200 rentable square feet.

B.    Landlord and Tenant desire to amend the Lease, under the terms and conditions set forth below, to expand the Existing Premises to include approximately 51,150 rentable square feet of additional space (the “Expansion Premises”).

NOW THEREFORE, in consideration of the foregoing recitals, which are incorporated herein by reference, and of the mutual covenants and conditions set forth in this First Amendment, and for other good, lawful and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties covenant and agree as follows (capitalized terms used but not defined herein will have the meaning given them in the Lease):

AGREEMENT

1.    Extension Term. The Term is hereby further extended for a period of sixty-one (61) full calendar months (the “Extension Term”), commencing on May 1, 2022 (the “Expansion Premises Commencement Date”). The Extension Term shall expire on May 31, 2027. From and after the Effective Date, any and all references to the “Expiration Date” in the Lease shall be deemed to mean May 31, 2027.

2.    Expansion Premises. As of the Expansion Premises Commencement Date, Landlord hereby leases to Tenant, and Tenant leases from Landlord, the Expansion Premises, under the same terms and conditions as are set forth in the Lease, except as amended by the provisions set forth in this First Amendment. From and after the Expansion Premises Commencement Date, the term “Premises” as used in this First Amendment and the Lease shall be deemed to include the Existing Premises and the Expansion Premises (a total of approximately 96,100 rentable square feet) as depicted on Exhibit “A” attached hereto. The term of the Lease with respect to the Expansion Premises shall be coterminous with the Term of the Lease with respect to the Existing Premises (i.e., expiring as of the Expiration Date as redefined in Section 1 above).

3.    Minimum Annual Rent. The Minimum Annual Rent for the Existing Premises shall continue to accrue and be payable as set forth in the Lease, until the Expansion Premises Commencement Date. Commencing on the Expansion Premises Commencement Date and continuing on the first (1st) day of each calendar month during the Term thereafter, Tenant shall

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pay to Landlord Minimum Annual Rent for the Premises (which shall include both the Existing Premises and the Expansion Premises) in accordance with the following schedule:

PERIOD	ANNUAL RATE PER RENTABLE SF	ANNUAL FIRST AMENDMENT EXPANSION RENT	MONTHLY INSTALLMENT OF RENT
May 1, 2022 – May 31, 2022*	$0.00	$0.00	$0.00
June 1, 2022 – April 30, 2023	$8.04	$772,644.00**	$64,387.00
May 1, 2023 – April 30, 2024	$8.32	$799,686.54	$66,640.55
May 1, 2024 – April 30, 2025	$8.61	$827,675.57	$68,972.96
May 1, 2025 – April 30, 2026	$8.91	$856,644.21	$71,387.02
May 1, 2026 – April 30, 2027	$9.23	$886,626.76	$73,885.56
May 1, 2027 – May 31, 2027	$9.55	$76,471.56**	$76,471.56

* The Parties acknowledge and agree that, provided no Event of Default occurs during the Abatement Period (defined below), (x) the monthly installment of Minimum Annual Rent in the amount of $64,387.00 per month due for one (1) month commencing as of the Expansion Premises Commencement Date (the “Abated Rent” and such one (1) month period, the “Abatement Period”) shall be abated as shown in the table above and shall not be immediately due and payable to Landlord; provided, however, if an Event of Default occurs during the Abatement Period, (i) any portion of the Abated Rent to be credited during any future portion of the Abatement Period shall not be abated as provided above, and Tenant shall pay the monthly installment of Minimum Annual Rent at the current rate without credit for any such abatement; and (ii) Tenant shall be liable for and shall immediately pay to Landlord all Abated Rent previously credited to Tenant. Notwithstanding the foregoing, during the Abatement Period, Tenant shall be liable for and shall pay all other amounts and charges payable pursuant to the terms of the Lease.

** Amount calculated is for representation only. Given the period is less than a full year, Tenant will be responsible for pro-rata share in the amount of the monthly amount listed above.

All installments of Minimum Annual Rent with respect to the Premises shall be paid at the time and in the manner specified in the Lease.

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4.    Additional Rent. In addition to the Minimum Annual Rent as set forth above, Tenant shall remain obligated for the payment to Landlord (or such other party as may expressly and specifically be required under the Lease) of additional Rent, including, without limitation, Tenant’s Share of Annual Operating Expenses and any other charges or amounts due under the Lease, in accordance with the provisions of the Lease, as amended hereby. The estimated Annual Operating Expenses passed through to Tenant during the calendar year 2022 will be $1.92/rsf (on a prorated basis over the year). Effective as of the Expansion Premises Commencement Date, “Tenant’s Share” for the Building shall be increased from 23.39% to 50.00%, which amount is calculated by dividing the rentable square footage of the combined Existing Premises rented in the Building and the Expansion Premises (i.e., 96,100) by the rentable square footage of the Building (i.e., 192,200).

5.    Condition of Existing Premises; Delivery and Condition of Expansion Premises. Tenant continues to accept the Existing Premises in its “as is, where is” condition. On or before the Expansion Premises Commencement Date, Landlord will deliver possession of the Expansion Premises to Tenant in broom-clean condition, free and clear of any prior occupants’ personal property, and with all Building Systems serving the Expansion Premises in good working condition and repair, and Tenant shall otherwise accept the Expansion Premises in its “as-is, where-is” condition, without representation or warranty from Landlord. Tenant shall not be entitled to any allowances, credits, options or other concessions with respect to the Premises, except as otherwise expressly set forth in this First Amendment.

6.    Renewal Option. Notwithstanding anything to the contrary contained in the Lease, Tenant shall have the option (the “Renewal Option”) to extend the Term of the Lease with respect to both the Existing Premises and the Expansion Premises for one (1) additional five (5) year period (the “Renewal Term”), under and subject to the following terms and conditions:

(a)    The Renewal Term will commence on June 1, 2027 and expire on May 31, 2032. Tenant must exercise the Renewal Option, if at all, by written notice to Landlord (the “Renewal Notice”) delivered no earlier than June 1, 2026 and no later than September 1, 2026, time being of the essence.

(b)    As a condition to Tenant’s exercise of the Renewal Option, at the time Tenant delivers its Renewal Notice to Landlord and at the commencement of the Renewal Term, there shall be no Event of Default, the Lease shall be in full force and effect, and Tenant shall not have assigned its interest in the Lease (other than to an Affiliate) or sublet more than fifty percent (50%) of the Premises (in each case other than pursuant to a Transfer meeting the requirements of Section 18(b) of the Lease).

(c)    The Minimum Annual Rent for the first year of the Renewal Term shall be the greater of (i) then current Fair Market Rental (defined in Section 31(d) of the Lease) for leases and lease renewals for comparable space in similar buildings in the same rental market, and (ii) the Minimum Annual Rent for the last year of the Extension Term; thereafter during the Renewal Term, the Minimum Annual Rent shall increase in a manner consistent with then fair market annual escalations. Landlord shall determine the Fair Market Rental using its good faith judgment and shall provide written notice of such Fair Market Rental within thirty (30) days after Tenant's delivery of its Renewal Notice. Tenant shall thereupon have the following options: (i) to accept such proposed Fair Market Rental or (ii) to notify Landlord in writing that Tenant

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objects to Landlord’s proposed rental rate. Tenant must provide Landlord with written notification of its election within thirty (30) days after Tenant's receipt of Landlord's notice, otherwise Tenant shall be deemed to have elected clause (i) above. If Tenant objects to Landlord's proposed Fair Market Rental in accordance with clause (ii) above, Landlord and Tenant will attempt to negotiate a mutually acceptable rental rate within fifteen (15) days following notification by Tenant, and if such negotiations have not been concluded within such fifteen (15) day-period, either party may require an independent determination of the Fair Market Rental for the Renewal Term by giving written notice to the other party no later than five (5) days after the expiration of the fifteen (15)-day period, which notice shall designate a MAI real estate appraiser or real estate broker with at least ten (10) years of experience in the leasing of similar properties in the Salt Lake City market area (“Qualified Appraiser”). Within ten (10) days after receipt of such notice, the other party to this Lease shall select a Qualified Appraiser and give written notice of such selection to the initiating party. If the two (2) Qualified Appraisers fail to agree upon the Fair Market Rental consistent with this Section 6 within ten (10) days after selection of the second Qualified Appraiser, the two (2) Qualified Appraisers shall select a third (3rd) Qualified Appraiser to determine the Fair Market Rental consistent with this Section 6(c) within ten (10) days after the appointment of the third (3rd) Qualified Appraiser. The Fair Market Rental applicable to the Renewal Term shall be equal to the arithmetic average of the three (3) determinations; provided, however, that if one (1) Qualified Appraiser's determination deviates by more than five percent (5%) from the median of the three (3) determinations, the Fair Market Rental shall be an amount equal to the average of the other two determinations. The determination of the Fair Market Rental in accordance with the foregoing shall be final, binding and conclusive on Landlord and Tenant. The Parties shall each pay the costs and expenses of their appointed Qualified Appraiser and shall split evenly the costs and expenses of the third (3rd) Qualified Appraiser.

(d)    Except as set forth in this Section, there shall be no further options to renew the Term of the Lease; Section 31 of the Lease is deemed deleted and replaced with this Section 6.

7.    Security Deposit. Upon execution of this First Amendment, Tenant shall deposit with Landlord Fifty-Six Thousand One Hundred Sixty-Four and 25/100 Dollars ($56,164.25) (the “Additional Deposit”) to be retained by Landlord to secure the performance of Tenant’s obligations under the Lease, as amended hereby. From and after the Effective Date, the Additional Deposit shall be held and may be applied in the same manner as the Security Deposit in accordance with the terms of Section 27 of the Lease and the total amount of the Security Deposit shall be revised to mean Seventy-Nine Thousand Seven Hundred Sixty-Three and 00/100 Dollars ($79,763.00).

8.    Notices. The Parties agree and acknowledge that all notices provided to Landlord pursuant to the Lease shall be sent to the following address:

Landlord        Anderson Logistics Assets LLC

c/o Mapletree US Management LLC

5 Bryant Park, Suite 2800

New York, NY 10018

Attn: Asset Management & Legal

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with a copy to:        Anderson Logistics Assets LLC

c/o Mapletree US Management LLC

311 S. Wacker Dr., Suite 520

Chicago, Illinois 60606

Attn: Asset Management

9.    Brokers. Tenant represents and warrants to Landlord that Tenant has dealt with no broker, agent or other intermediary in connection with this First Amendment other than Colliers International and Jones Lang LaSalle Americas, Inc. (the “Brokers”). Upon full execution of this First Amendment, Landlord agrees to pay the Brokers a leasing commission pursuant to the terms and provisions of a separate agreement. Tenant and Landlord agree to indemnify one another against and hold each other harmless from and against any loss, cost, expense or damage arising from any claim for commission or other compensation made by any broker or finder, other than the Brokers.

10.    Successors and Assigns. This First Amendment shall bind and inure to the benefit of the Parties hereto and to their respective successors and assigns.

11.    Counterparts; Electronic Signatures. This First Amendment may be executed in multiple counterparts which, when taken together, shall constitute one and the same document. Each of the Parties hereto (i) has agreed to permit the use from time to time, where appropriate, of electronic signatures (including, without limitation, DocuSign) in order to expedite the transaction contemplated by this First Amendment, (ii) intends to be bound by its respective electronic signature, (iii) is aware that the other will rely on the electronically transmitted signature, and (iv) acknowledges such reliance and waives any defenses to the enforcement of this First Amendment and the documents affecting the transaction contemplated by this First Amendment based on the fact that a signature was sent by electronic transmission only.

12.    Entire Amendment. Except as expressly modified by this First Amendment, all other terms and conditions of the Lease shall remain in full force and effect and binding upon Landlord and Tenant. In the event of any conflict or inconsistency between the terms and condition of this First Amendment and the terms and conditions of the Lease, the terms and conditions of this First Amendment shall control and govern. In all other respects, the terms and conditions of the Lease are hereby ratified in their entirety.

13.    Ratification of Lease. The Parties acknowledge and agree that except as expressly modified by this First Amendment, the Lease remains in full force and effect and is hereby ratified in all respects. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them under the Lease.

14.    Authority. Each Party represents and warrants to the other that the person executing this First Amendment on its behalf has the full right, power and authority to enter into this First Amendment.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Parties have executed this First Amendment effective as of the Effective Date.

LANDLORD:

ANDERSON LOGISTICS ASSETS LLC,

a Delaware limited liability company

By:____/s/ Richard Prokup____________

Name: __Richard Prokup______________

Title: ___Director_____________________

TENANT:

PENUMBRA, INC.,

a Delaware corporation

By:____/s/ Adam Elsesser______________

Name: __Adam Elsesser________________

Title: ___Chief Executive Officer_________

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Document

Exhibit 21.1

SUBSIDIARIES OF PENUMBRA, INC.

Name of Subsidiary	Jurisdiction of Organization
Penumbra Europe GmbH	Germany
Penumbra Neuro Australia Pty Ltd	Australia
Penumbra Neuro Canada Inc.	Canada
Penumbra Latin America Distribuidora de Equipamentos e Produtos Médicos Ltda.	Brazil
Crossmed S.p.A.	Italy
Penumbra Interventional Therapies UK Ltd.	United Kingdom
Penumbra Singapore Pte. Ltd.	Singapore
Penumbra France SAS	France
Penumbra Japan GK	Japan
Penumbra Israel Ltd	Israel
Penumbra Sweden AB	Sweden
Penumbra Denmark ApS	Denmark

Document

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-236640 on Form S-3ASR and Nos. 333-207007, 333-213068, 333-216681 and 333-224000 on Form S-8 of our reports dated February 23, 2023, relating to the consolidated financial statements of Penumbra, Inc. and subsidiaries (the “Company”) and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Penumbra, Inc. for the year ended December 31, 2022.

/s/ Deloitte & Touche LLP

San Francisco, California

February 23, 2023

Document

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Adam Elsesser, certify that:

1.I have reviewed this Annual Report on Form 10-K of Penumbra, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 23, 2023

/s/ Adam Elsesser
Adam Elsesser
Chairman, Chief Executive Officer and President

Document

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULE 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Maggie Yuen, certify that:

1.I have reviewed this Annual Report on Form 10-K of Penumbra, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 23, 2023

/s/ Maggie Yuen
Maggie Yuen
Chief Financial Officer

Document

Exhibit 32.1

PENUMBRA, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Penumbra, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “Report”), Adam Elsesser, Chairman, Chief Executive Officer and President of the Company, and Maggie Yuen, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

•The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods presented.

Date: February 23, 2023

/s/ Adam Elsesser
Adam Elsesser
Chairman, Chief Executive Officer and President
/s/ Maggie Yuen
Maggie Yuen
Chief Financial Officer