Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED

June 30, 2015


o	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 0-19711

The Spectranetics Corporation

(Exact name of Registrant as specified in its charter)



Delaware	84-0997049
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9965 Federal Drive

Colorado Springs, Colorado 80921

(719) 633-8333

(Address of principal executive offices and telephone number)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of July 23, 2015, there were 42,498,112 outstanding shares of Common Stock.

Table of Contents

TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2015 and June 30, 2014	2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2015 and June 30, 2014	3
	Notes to Condensed Consolidated Financial Statements (unaudited)	4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	42
ITEM 4.	Controls and Procedures	42

PART II — OTHER INFORMATION
ITEM 1.	Legal Proceedings	43
ITEM 1A.	Risk Factors	43
ITEM 6.	Exhibits	44
	Signatures	45

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Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)

(Unaudited)



	June 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	49,255		$	95,505
Trade accounts receivable, less allowance for doubtful accounts and sales returns of $1,744 and $1,615, respectively	39,954			41,090
Inventories, net	27,769			25,446
Deferred income taxes	2,200			2,200
Prepaid expenses and other current assets	6,606			8,093
Total current assets	125,784			172,334
Property and equipment, net	42,551			33,819
Debt issuance costs, net	6,422			6,912
Goodwill	152,817			149,898
Other intangible assets, net	119,445			102,616
Other assets	1,958			1,371
Total assets	$	448,977		$	466,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving line of credit	$	18,542		$	—
Accounts payable	7,576			4,397
Accrued liabilities	36,925			35,052
Deferred revenue	1,534			1,894
Total current liabilities	64,577			41,343
Convertible senior notes	230,000			230,000
Accrued liabilities, net of current portion	1,532			1,222
Contingent consideration	12,771			28,551
Deferred income taxes	3,875			3,677
Total liabilities	312,755			304,793
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares; none issued	—			—
Common stock, $.001 par value; authorized 120,000,000 shares; issued and outstanding 42,453,870 and 42,060,865 shares, respectively	42			42
Additional paid-in capital	307,589			298,526
Accumulated other comprehensive loss	(1,757		)	(1,280		)
Accumulated deficit	(169,652		)	(135,131		)
Total stockholders’ equity	136,222			162,157
Total liabilities and stockholders’ equity	$	448,977		$	466,950

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

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenue	$	61,677		$	43,555		$	119,099		$	83,169
Cost of products sold	15,914			10,506			30,716			20,840
Amortization of acquired inventory step-up	—			—			251			—
Gross profit	45,763			33,049			88,132			62,329
Operating expenses:
Selling, general and administrative	35,562			28,452			72,504			56,192
Research, development and other technology	16,660			5,704			31,921			11,791
Medical device excise tax	821			588			1,627			1,113
Acquisition transaction, integration and other costs	11,106			3,958			21,497			4,229
Intangible asset amortization	3,612			136			6,782			273
Contingent consideration expense	1,060			40			2,084			78
Change in fair value of contingent consideration liability	(17,800		)	—			(17,800		)	—
Total operating expenses	51,021			38,878			118,615			73,676
Operating loss	(5,258		)	(5,829		)	(30,483		)	(11,347		)
Other income (expense):
Interest expense	(1,768		)	(489		)	(3,522		)	(488		)
Foreign currency transaction (loss) gain	(70		)	(1		)	(249		)	2
Total other expense	(1,838		)	(490		)	(3,771		)	(486		)
Loss before income taxes	(7,096		)	(6,319		)	(34,254		)	(11,833		)
Income tax expense (benefit)	120			(1,020		)	267			(873		)
Net loss	$	(7,216	)	$	(5,299	)	$	(34,521	)	$	(10,960	)

Net loss per share —
Basic and diluted	$	(0.17	)	$	(0.13	)	$	(0.82	)	$	(0.26	)

Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments	435			(75		)	(477		)	(62		)
Comprehensive loss, net of tax	$	(6,781	)	$	(5,374	)	$	(34,998	)	$	(11,022	)

Weighted average common shares outstanding —
Basic and diluted	42,389,122			41,603,343			42,273,128			41,479,326

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

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)



	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(34,521	)	$	(10,960	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	12,959			5,205
Stock-based compensation expense	5,974			2,628
Amortization of debt issuance costs	490			—
Provision for excess and obsolete inventories	481			350
Contingent consideration expense	2,084			78
Change in fair value of contingent consideration liability	(17,800		)	—
Deferred income taxes	223			(1,072		)
Net change in operating assets and liabilities	(2,433		)	(5,699		)
Net cash used in operating activities	(32,543		)	(9,470		)
Cash flows from investing activities:
Capital expenditures	(5,088		)	(2,914		)
Payments for acquisitions	(30,000		)	(234,306		)
Net cash used in investing activities	(35,088		)	(237,220		)
Cash flows from financing activities:
Proceeds from line of credit	20,000			—
Payments on line of credit	(1,458		)	—
Proceeds from issuance of convertible senior notes	—			230,000
Debt issuance costs, convertible senior notes	—			(7,452		)
Proceeds from the exercise of stock options and employee stock purchase plan	3,088			2,774
Payment of contingent consideration	(143		)	—
Net cash provided by financing activities	21,487			225,322
Effect of exchange rate changes on cash	(106		)	—
Net decrease in cash and cash equivalents	(46,250		)	(21,368		)
Cash and cash equivalents at beginning of period	95,505			128,395
Cash and cash equivalents at end of period	$	49,255		$	107,027
Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,038		$	23
Cash paid for income taxes	$	288		$	276

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

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — GENERAL

The accompanying condensed consolidated financial statements include the accounts of The Spectranetics Corporation, a Delaware corporation, and its wholly-owned subsidiaries. These entities are collectively referred to as the “Company.” All intercompany balances and transactions have been eliminated in consolidation.

The Company develops, manufactures, markets, and distributes medical devices used in minimally invasive procedures within the cardiovascular system. The Company’s products are sold in over 65 countries and are used to cross, prepare, and treat arterial blockages in the legs and heart and to remove pacemaker and defibrillator cardiac leads. In 2014, the Company acquired AngioScore, a leading developer, manufacturer and marketer of cardiovascular, specialty balloon catheters and in January 2015, the Company acquired the Stellarex™ drug-coated balloon assets from Covidien LP.

The Company’s Vascular Intervention products include a range of laser catheters to ablate blockages in arteries above and below the knee, AngioSculpt^® scoring balloon catheters used in both peripheral and coronary procedures, and the Stellarex drug-coated balloon. The Company also markets support catheters to facilitate crossing of peripheral and coronary arterial blockages, and retrograde access and guidewire retrieval devices used in the treatment of peripheral arterial blockages, including chronic total occlusions. The Company markets aspiration and cardiac laser catheters to treat blockages in the heart. The Company’s Lead Management products include excimer laser sheaths, dilator sheaths, mechanical sheaths and cardiac lead management accessories for the removal of pacemaker and defibrillator cardiac leads. The Company also sells, rents, and services its CVX-300^® laser systems.

The Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management must make certain estimates, judgments, and assumptions based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, intangible assets and goodwill, valuation allowances and reserves for receivables, inventories, and deferred income tax assets, contingent consideration liabilities for acquisitions, stock-based compensation expense, estimated clinical trial expenses, accrued estimates for incurred but not reported claims under partially self-insured employee health benefit programs, and loss contingencies, including those related to litigation. Actual results could differ from those estimates.

The information included in the accompanying condensed consolidated interim financial statements is unaudited and should be read with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments necessary for a fair presentation of the assets, liabilities and results of operations for the interim periods presented have been reflected herein and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The new guidance will be applied retrospectively to each prior period presented. Adoption of ASU 2015-03 will change the presentation of debt issuance costs on the Company’s consolidated balance sheets by eliminating the debt issuance costs asset and reducing the liability of the Company’s convertible senior notes by the amount of net debt issuance costs. The Company plans to adopt ASU 2015-03 in the first quarter of the year ending December 31, 2016.

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. To achieve this core principle, ASU 2014-09 contains a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when (or as) an entity satisfies a performance obligation. ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. In July 2015, the FASB agreed to a one year deferral of ASU 2014-09, which now would be effective for the Company in the first quarter of the year ending December 31, 2018. The FASB permits all entities to adopt the standard one year earlier, as of the original effective date. The Company is in the process of determining the method and date of adoption and assessing the impact of ASU 2014-09 on its results of operations, financial position, and consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe they are of significance, or potential significance, to the Company.

NOTE 2 — BUSINESS COMBINATIONS

Stellarex™

On January 27, 2015 (“Acquisition Date”), the Company acquired certain assets related to the Stellarex over-the-wire percutaneous transluminal angioplasty balloon catheter with a drug (paclitaxel) coated balloon (“DCB Assets”), pursuant to an Asset Purchase Agreement, dated as of October 31, 2014 (“Stellarex Purchase Agreement”) with Covidien LP (“Stellarex Acquisition”). The DCB Assets include, among other things, the intellectual property, machinery and equipment, and inventories used in connection with the Stellarex catheter. The primary reasons for the Stellarex Acquisition were to broaden the Company’s existing product lines, leverage its current customers, and increase revenue.

Under the terms of the Stellarex Purchase Agreement, the Company paid Covidien $30 million in cash and Covidien retained certain liabilities relating to the DCB Assets.

The Company accounted for the Stellarex Acquisition as a business combination and recorded the assets acquired and liabilities assumed at their respective estimated fair values as of the Acquisition Date. The following table summarizes the preliminary allocation of assets acquired (in thousands):

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	Allocation of purchase price		Amortization period (in years)
Inventories	$	1,337
Property and equipment, net	2,500
Total tangible assets acquired	3,837
Less: deferred rent liability assumed	293
Net tangible assets acquired	$	3,544

Intangible assets:
In-process research and development (“IPR&D”)	13,680
Technology	9,000		12
Trademark and trade names	400		12
Transition services agreement	530		0.5
Goodwill	2,846
Total purchase price	$	30,000

The accounting for the acquisition is preliminary due to the ongoing analysis and completion of valuation of the tangible and intangible assets acquired, primarily related to the fixed assets acquired. Upon completion of this analysis, the Company may record adjustments to the estimated amounts recorded as further information about conditions existing at the Acquisition Date becomes available. The final fair value determinations may be different than those reflected in the Company’s condensed consolidated financial statements at June 30, 2015.

The Company determined the fair value of the inventory based on its estimated selling price less cost to sell and normal profit margin, or in the case of inventory expected to be consumed in clinical studies, on replacement cost, which was determined to approximate fair value.

The IPR&D asset, which is accounted for as an indefinite-lived intangible asset until completion or abandonment of the project, represents an estimate of the fair value of in-process technology related to the Stellarex products that are currently the subject of clinical studies in advance of their potential introduction to the U.S. market, as well as the below the knee applications of the Stellarex technology, which are also currently in development. The estimated fair value was determined using the income approach.

The estimated fair value of the technology intangible asset, which relates to products that have already received clearance to be made commercially available in the European market, was also determined using the income approach.

The trademark and trade names were valued based on a “relief from royalty” approach. The “relief from royalty” method is based on the premise that a third party would be willing to pay a royalty to use the trade name or trademark asset owned by the subject company. The projected royalties are converted into their present value equivalents through the application of a risk adjusted discount rate.

The transition services agreement (“TSA”) was valued based on the estimated fair value of services provided to the Company under the agreement. During the three months ended June 30, 2015, the Company adjusted the fair value of the TSA from $0.3 million to $0.5 million, which resulted in a slight decrease in the fair value of the technology intangible asset and goodwill. These fair value measurements are based on significant unobservable inputs, which are classified as Level 3 within the fair value hierarchy based on management’s estimates and assumptions.

The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill, which is deductible for tax purposes. Goodwill is primarily attributable to the benefits of the

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

acquired workforce and future technologies, which will be developed from the current and IPR&D technologies to further expand the Company’s product offerings and applications of the technology. Goodwill was allocated to the Company’s operating segments based on the relative expected benefits as disclosed in Note 5, “Goodwill and Intangible Assets.”

The assets and liabilities assumed in the Stellarex Acquisition were included in the Company’s condensed consolidated balance sheet as of January 27, 2015. Beginning on January 27, 2015, incremental revenue, costs of revenue and operating expenses related to the DCB Assets have been included in the Company’s condensed consolidated financial statements in the Company’s U.S. Medical and International Medical reportable operating segments.

Revenue from Stellarex products from January 27 through June 30, 2015 was immaterial and is included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2015. Losses attributable to Stellarex from January 27 through June 30, 2015 were $21.7 million and primarily included research and development and clinical trial costs, included within the “Research, development and other technology” line of the condensed consolidated statements of operations and comprehensive loss. Acquisition and integration expenses related to the Stellarex Acquisition were $2.0 million and $3.9 million for the three and six months ended June 30, 2015, respectively, and primarily included investment banking fees and integration costs. These costs are included within the “Acquisition transaction, integration and other costs” line of the condensed consolidated statements of operations and comprehensive loss.

AngioScore Acquisition

On June 30, 2014, the Company completed its acquisition of AngioScore Inc. At the date of acquisition, the Company recorded total contingent consideration liabilities of $25.9 million. The fair value of contingent consideration liabilities was determined using a probability-weighted approach to estimate the achievement of the future revenue and regulatory approval milestones and discount rates ranging from 9% to 19%. The selection of the discount rates reflects the inherent risks related to achieving the respective milestones. These fair value measurements are based on significant unobservable inputs, which are classified as Level 3 within the fair value hierarchy, based on management’s estimates and assumptions.

During the three months ended June 30, 2015, the Company remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by $17.8 million. This reduction was the result of a decrease in future revenue estimates for the AngioSculpt products. The Company also evaluated the intangible assets acquired for impairment and determined that the undiscounted cash flows of the intangible assets exceeded their carrying amounts. Therefore, no impairment of these intangible assets has occurred.

During the six months ended June 30, 2015, the Company recorded $0.3 million of amortization of the acquired inventory step-up, reflected as “Amortization of acquired inventory step-up” in the condensed consolidated statements of operations and comprehensive loss, increasing cost of products sold.

Expenses related to the acquisition of AngioScore and the subsequent integration of its operations were $9.1 million and $17.6 million for the three and six months ended June 30, 2015, respectively, and primarily included legal fees, including legal fees and costs advanced, associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff. See Note 10, “Commitments and Contingencies.” These expenses also included severance, retention, and other integration costs. These expenses are included within the “Acquisition transaction, integration and other costs” line of the condensed consolidated statements of operations and comprehensive loss.

Revenue from the AngioScore products during the three and six months ended June 30, 2015 was $14.2 million and $28.3 million, respectively, and was included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2015. The Company is unable to identify earnings attributable to AngioScore for the three and six months ended June 30, 2015 because the operations of AngioScore have been integrated into the Company’s operations.

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Net loss and net loss per share for the three and six months ended June 30, 2014 have been adjusted from the Quarterly Report on Form 10-Q for the period ended June 30, 2014 to reflect adjustments made during the measurement period to provisional amounts recognized for the AngioScore acquisition at the acquisition date. The Company recorded a deferred tax benefit of $1.3 million related to a partial release of a valuation allowance related to the AngioScore acquisition. See Note 9, “Income Taxes.”

Unaudited Supplemental Pro Forma Financial Information

The table below provides certain pro forma financial information for the Company as if the Stellarex and AngioScore acquisitions had been consummated as of January 1, 2014. Certain pro forma adjustments have been made to reflect the impact of the purchase transactions, primarily consisting of amortization of intangible assets with determinable lives and interest expense on long-term debt. The Company also included direct acquisition transaction costs incurred in the results of the three and six months ended June 30, 2014. The pro forma information does not necessarily reflect the actual results of operations had the acquisitions been consummated at the beginning of the fiscal reporting period indicated nor is it indicative of future operating results. The pro forma information does not include any adjustment for potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisitions.



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2015			2014			2015			2014
Revenue	$	61,677		$	60,089		$	119,099		$	113,573
Net loss	(5,319		)	(33,326		)	(34,330		)	(62,059		)
Net loss per share	$	(0.13	)	$	(0.80	)	$	(0.81	)	$	(1.50	)

NOTE 3 — DEBT

Convertible Notes

On June 3, 2014, the Company closed the sale of $230 million aggregate principal amount of 2.625% Convertible Senior Notes due 2034 (the “Notes”) pursuant to an underwriting agreement dated May 28, 2014. Interest is paid semi-annually in arrears on December 1 and June 1 of each year, commencing December 1, 2014. The Notes mature on June 1, 2034, unless earlier converted, redeemed, or repurchased in accordance with the terms of the Notes. The initial conversion rate of the Notes is 31.9020 shares of the Company’s common stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $31.35 per share). The conversion rate is subject to adjustment upon the occurrence of certain events specified in the indenture governing the Notes. Holders may surrender their Notes for conversion at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date. On or after June 5, 2018 and prior to June 5, 2021, the Company may redeem any or all of the Notes in cash if the closing price of the Company’s common stock exceeds 130% of the conversion price then in effect for a specified number of days, and on or after June 5, 2021, the Company may redeem the Notes without any such condition.

Holders of the Notes may require the Company to repurchase all or a portion of their Notes on each of June 5, 2021, June 5, 2024 and June 5, 2029, or following a fundamental change (as defined in the indenture governing the Notes), in each case, at a repurchase price in cash equal to 100% of the principal amount of the Notes being repurchased plus accrued and unpaid interest to, but excluding, the date of repurchase.

The Notes are subject to customary events of default, which may result in the acceleration of the maturity of the Notes.

The Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes, rank equally in right of payment with any of the Company’s unsecured indebtedness that is not so subordinated, are effectively junior in right of payment to any of

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

The Company received $222.5 million from the issuance of the Notes, net of $7.5 million of debt issuance costs incurred. The debt issuance costs are being amortized over a seven year period using the effective interest method. The Company used all of the net proceeds to fund the acquisition of AngioScore.

Line of Credit

On June 26, 2015, the Company entered into a Third Amendment to Credit and Security Agreement (the “Third Amendment”), by and between the Company and Wells Fargo Bank, National Association (“Wells Fargo”), effective as of June 26, 2015, for a four-year term. The Third Amendment amends the Credit and Security Agreement, dated February 25, 2011, between the Company and Wells Fargo, as amended (the “Credit Agreement”).

The Third Amendment, among other things, (i) increases the maximum availability under the revolving line of credit from $15 million to $65 million, subject to limits imposed by the borrowing base, and adds a $15 million uncommitted accordion feature, (ii) lowers the interest rate from 3-month LIBOR plus 2.75%-3.25% (based on net income) to 3-month LIBOR plus 2.00%-2.50% (based on liquidity), (iii) expands the borrowing base to include certain foreign accounts, equipment and real property, in addition to accounts receivable and inventory, and (iv) as the sole financial covenant, requires that the Company maintain minimum liquidity of $25 million. Except to the extent specifically amended by the Third Amendment, the Credit Agreement remains in full force and effect.

Under the terms of the Credit Agreement, as amended, the Company may borrow under the revolving line of credit subject to borrowing base limitations. These limitations allow the Company to borrow based on the value of eligible accounts receivable, inventory, equipment and real property. The borrowing base was $29.9 million based on the Company’s accounts receivable and inventory balances as of June 30, 2015.

The revolving line of credit is secured by a first priority security interest in substantially all of the Company’s assets. The Company is required to pay customary fees with respect to the facility, including a 0.25% fee on the average unused portion of the revolving line of credit.

The Credit Agreement contains customary events of default, including the failure to make required payments, the failure to comply with certain covenants or other agreements, the occurrence of a material adverse change, failure to pay certain other indebtedness and certain events of bankruptcy or insolvency. Upon the occurrence and continuation of an event of default, amounts due under the Credit Agreement may be accelerated. The Company had no events of default as of June 30, 2015.

The line of credit had an outstanding balance of $18.5 million as of June 30, 2015.

NOTE 4 — COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

Inventories

Inventories, net, consisted of the following (in thousands):



	June 30, 2015		December 31, 2014
Raw materials	$	10,146	$	9,012
Work in process	3,193		3,745
Finished goods	14,430		12,689
	$	27,769	$	25,446

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THE SPECTRANETICS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On January 27, 2015, the Company acquired approximately $1.3 million of inventories as part of the Stellarex acquisition. See Note 2, “Business Combinations,” for further discussion.

Property and Equipment

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



	June 30, 2015			December 31, 2014
Equipment held for rental or loan	$	53,418		$	47,313
Manufacturing equipment and computers	36,060			29,692
Leasehold improvements	7,350			6,730
Furniture and fixtures	3,756			3,473
Building and improvements	1,306			1,288
Land	270			270
Less: accumulated depreciation	(59,609		)	(54,947		)
	$	42,551		$	33,819

On January 27, 2015, the Company acquired approximately $2.5 million of property and equipment, net, as part of the Stellarex acquisition. See Note 2, “Business Combinations,” for further discussion.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	June 30, 2015			December 31, 2014
Accrued payroll and employee-related expenses	$	16,947		$	21,483
Accrued legal costs	6,571			4,793
Accrued clinical study expense	4,709			1,358
Deferred rent	1,508			1,214
Accrued sales, income, and excise taxes	1,344			1,847
Accrued royalties	909			841
Accrued interest on convertible notes	506			503
Contingent consideration, current portion	65			143
Other accrued expenses	5,898			4,092
Less: long-term portion	(1,532		)	(1,222		)
Accrued liabilities: current portion	$	36,925		$	35,052

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NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill by reporting unit for the six months ended June 30, 2015 was as follows (in thousands). The goodwill was allocated to the reporting units based on a percentage of estimated future revenues.



	U.S. Medical		International Medical		Total
Balance as of December 31, 2014	$	128,361	$	21,537	$	149,898
Additional goodwill related to Stellarex Acquisition (Note 2)	2,135		711		2,846
Other	65		8		73
Balance as of June 30, 2015	$	130,561	$	22,256	$	152,817

Acquired intangible assets consisted of the following (in thousands):



	June 30, 2015			December 31, 2014
Acquired as part of AngioScore acquisition (Note 2):
Technology	$	73,510		$	73,510
Customer relationships	23,320			23,320
Trademark and trade names	4,380			4,380
In-process research and development	3,750			3,750
Distributor relationships	1,940			1,940
Non-compete agreements	580			580
Acquired as part of Stellarex Acquisition (Note 2):
In-process research and development	13,680			—
Technology	9,000			—
Trademark and trade names	400			—
Transition services agreement	530			—
Acquired as part of Upstream acquisition (1)
Technology	2,172			2,172
Non-compete agreement	200			200
Patents	530			530
Less: accumulated amortization	(14,547		)	(7,766		)
	$	119,445		$	102,616

___________________


(1)	In January 2013, the Company acquired certain product lines from Upstream Peripheral Technologies, Ltd. (“Upstream”). As part of the acquisition, the Company acquired core technology intangible assets and an intangible asset related to non-compete agreements.

See further discussion of the additional goodwill and intangible assets acquired as part of the Stellarex acquisition during the six months ended June 30, 2015 in Note 2, “Business Combinations.”

The Company evaluates goodwill and other intangible assets for impairment at least annually and whenever events or circumstances indicate the carrying amount of the asset may not be recoverable. In conjunction with the reduction of the contingent consideration liability related to the AngioScore acquisition (see Note 2), the Company also evaluated the intangible assets acquired for impairment and determined that the undiscounted cash flows of the intangible assets exceeded their carrying amounts. Therefore, no impairment of these intangible assets has occurred. There have been no events or circumstances since the last analysis as of December 31, 2014 to indicate that the amount of goodwill may not be recoverable.

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NOTE 6 — STOCK-BASED COMPENSATION

The Company maintains equity plans that provide for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, performance stock units (“PSUs”) and stock appreciation rights. The plans provide that stock options may be granted with exercise prices not less than the fair value at the date of grant. Options granted through June 30, 2015 generally vest over four years and expire ten years from the date of grant. Restricted stock awards granted to non-employee members of the Board of Directors vest over one year. Restricted stock units granted to certain officers of the Company vest over four years.

In June 2014, the Compensation Committee of the Board of Directors approved a grant of PSUs to certain of the Company’s officers. PSUs vest based on achieving specified performance measurements over a three-year “cliff” performance period plus an additional year “cliff” time vesting. Earned PSUs vest 75% upon completion of the three-year performance period and 25% one year after the performance period. The PSUs have target payout opportunities of between 0% and 250%. The performance measurements include a compounded annual growth rate for revenue over a three year period and Adjusted EBITDA for the year ended December 31, 2016.

At June 30, 2015, there were 2.5 million shares available for future issuance under the Company’s equity plans, assuming issuance of PSUs at target performance, and 1.8 million shares available for future issuance, assuming issuance of PSUs at the 250% maximum performance.

Valuation and Expense Information

The Company recognized stock-based compensation expense of $2.8 million and $1.3 million for the three months ended June 30, 2015 and 2014, respectively, and $6.0 million and $2.6 million for the six months ended June 30, 2015 and 2014, respectively. This expense consisted of compensation expense related to (1) employee stock options based on the value of share-based payment awards, (2) restricted stock awards issued to the Company’s directors, (3) restricted stock units and PSUs issued to certain of the Company’s officers, and (4) the fair value of shares issued under the Company’s employee stock purchase plan. Stock-based compensation expense is recognized based on awards ultimately expected to vest and is reduced for estimated forfeitures. The Company recognizes compensation expense for these awards on a straight-line basis over the service period.

With respect to the PSUs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against the specified targets over a three-year period as determined by the Compensation Committee of the Board of Directors. Although there is no guarantee that performance targets will be achieved, the Company estimates the fair value of the PSUs based on its closing stock price at the time of grant and its estimates of achieving such performance targets, and records compensation expense on a graded vesting attribution method, which recognizes compensation cost on a straight-line basis over each separately vesting portion of the award. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense is adjusted based upon the Company’s estimate of achieving such performance targets. The number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on the actual performance metrics as set forth in the applicable PSU award agreement.

The fair value of each share option award is estimated on the date of grant using the Black-Scholes pricing model based on assumptions noted in the following table. The Company’s employee stock options have various restrictions including vesting provisions and restrictions on transfers and hedging, among others, and are often exercised prior to their contractual expiration. Expected volatilities used in the fair value estimate are based on the historical volatility of the Company’s common stock. The Company uses historical data to estimate share option exercises, expected term and employee departure behavior used in the Black-Scholes pricing model. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield in effect at the time of grant.

The following is a summary of the assumptions used for the stock options granted during the three and six months ended June 30, 2015 and 2014, respectively, using the Black-Scholes pricing model:

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	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Expected life (years)	5.71		5.76		5.71		5.76
Risk-free interest rate	1.63	%	1.62	%	1.61	%	1.63	%
Expected volatility	42.07	%	63.68	%	42.10	%	63.70	%
Expected dividend yield	—		—		—		—

The weighted average grant date fair value of options granted during the three months ended June 30, 2015 and 2014 was $10.97 and $13.42, respectively, and during the six months ended June 30, 2015 and 2014 was $11.19 and $13.64, respectively.

The following table summarizes stock option activity during the six months ended June 30, 2015:



	Shares		Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2015	2,698,911		$	11.88
Granted	292,752		27.08
Exercised	(295,557	)	6.40
Canceled	(44,020	)	21.36
Options outstanding at June 30, 2015	2,652,086		$	14.01	6.89	$	25,359,247
Options exercisable at June 30, 2015	1,611,595		$	9.83	5.82	$	21,296,819

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $23.01 as of June 30, 2015, which would have been received by the option holders if all option holders exercised their options as of that date. In-the-money options exercisable as of June 30, 2015 totaled approximately 1.5 million. The total intrinsic value of options exercised was $7.7 million and $8.2 million during the six months ended June 30, 2015 and 2014, respectively.

The following table summarizes restricted stock award activity during the six months ended June 30, 2015:



	Shares		Weighted Average Grant Date Fair Value
Restricted stock awards outstanding at January 1, 2015	26,802		$	22.39
Awarded	26,463		27.41
Vested/Released	(26,802	)	22.39
Restricted stock awards outstanding at June 30, 2015	26,463		$	27.41

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The following table summarizes restricted stock unit activity during the six months ended June 30, 2015:



	Shares		Weighted Average Grant Date Fair Value
Restricted stock units outstanding at January 1, 2015	182,016		$	19.35
Awarded	98,169		26.67
Vested/Released	(35,946	)	16.44
Restricted stock units outstanding at June 30, 2015	244,239		$	22.72

No PSUs were awarded or vested during the six months ended June 30, 2015. The balance of unvested PSUs was 487,158 as of June 30, 2015, with a weighted average grant date fair value of $23.43.

As of June 30, 2015, there was $22.0 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Company’s equity plans, assuming the Company’s current estimate of performance for the PSUs. Assuming the minimum of 0% and maximum of 250% payout opportunities for the PSUs, the range of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Company’s equity plans was between $13.1 million and $36.8 million as of June 30, 2015. This expense is based on an assumed future forfeiture rate of approximately 11.25% per year for Company employees and is expected to be recognized over a weighted-average period of approximately 2.52 years.

Employee Stock Purchase Plan

In June 2010, the Company’s stockholders approved The Spectranetics Corporation 2010 Employee Stock Purchase Plan (“ESPP”). The ESPP, as amended in 2012, provides for the sale of up to 700,000 shares of common stock to eligible employees, limited to the lesser of 2,500 shares per employee per six-month period or a fair market value of $25,000 per employee per calendar year. Stock purchased under the ESPP is restricted from sale for one year following the date of purchase. Stock can be purchased from amounts accumulated through payroll deductions during each six-month period. The purchase price is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the respective six-month offering period. This discount does not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. At June 30, 2015, there were approximately 134,000 shares available for future issuance under this plan.

The fair value of the offerings under the ESPP is determined on the first day of the semi-annual purchase period using the Black-Scholes option-pricing model. The expected term of six months was based upon the offering period of the ESPP. Expected volatility was determined based on the historical volatility from daily share price observations for the Company’s stock covering a period commensurate with the expected term of the ESPP. The risk-free interest rate was based on the six-month U.S. Treasury daily yield rate. The expected dividend yield was based on the Company’s historical practice of electing not to pay dividends to its stockholders. The Company recognized compensation expense related to the ESPP of $198,000 and $144,000 for the three months ended June 30, 2015 and 2014, respectively, and $438,000 and $266,000 for the six months ended June 30, 2015 and 2014, respectively.

NOTE 7 — NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding (excluding shares of restricted stock). Shares issued during the period and shares reacquired during the period are weighted for the portion of the period they were outstanding. Diluted net loss per share is computed in a manner consistent with that of basic net loss per share, while giving effect to all potentially dilutive common shares outstanding during the period, which include the assumed exercise of stock options and the assumed vesting of restricted stock using the treasury stock method, and the assumed conversion of shares under the Notes using the “if-converted” method.

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(Unaudited)

Options to purchase common stock, the vesting of restricted stock and PSUs, and shares issuable upon conversion of the Notes are considered to be potentially dilutive common shares but have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive for the three and six months ended June 30, 2015 and 2014 as a result of the net losses incurred in those periods. Therefore, diluted net loss per share was the same as basic net loss per share for the three and six months ended June 30, 2015 and 2014. Stock options, restricted stock, PSUs, and shares issuable upon the conversion of the Notes outstanding at June 30, 2015 and 2014, which are excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2015 and 2014, are shown in the table below:



	Six Months Ended June 30,
	2015	2014
Options to purchase common stock	2,652,086	2,966,652
Non-vested restricted stock	270,702	238,319
Non-vested PSUs	487,158	487,158
Shares issuable upon conversion of the Notes	7,337,459	7,337,459
Potentially dilutive common shares	10,747,405	11,029,588

A summary of the net loss per share calculation is shown below for the periods indicated (in thousands, except share and per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net loss	$	(7,216	)	$	(5,299	)	$	(34,521	)	$	(10,960	)
Common shares outstanding:
Historical common shares outstanding at beginning of period	42,283,446			41,535,010			42,034,063			41,208,096
Weighted average common shares issued	105,676			68,333			239,065			271,230
Weighted average common shares outstanding — basic	42,389,122			41,603,343			42,273,128			41,479,326
Effect of dilution — stock options	—			—			—			—
Weighted average common shares outstanding — diluted	42,389,122			41,603,343			42,273,128			41,479,326
Net loss per share — basic and diluted	$	(0.17	)	$	(0.13	)	$	(0.82	)	$	(0.26	)

NOTE 8 — SEGMENT REPORTING

The Company operates in one distinct line of business consisting of developing, manufacturing, marketing, and distributing disposable products and a proprietary excimer laser system to treat certain vascular and coronary conditions.

Within this line of business, the Company has two operating segments, which were identified on a geographic basis: (1) U.S. Medical and (2) International Medical. U.S. Medical and International Medical offer substantially the same products and services but operate in different geographic regions, have different distribution networks, and different regulatory environments. Within U.S. Medical, the Company aggregates its two product lines, Vascular Intervention and Lead Management, based on their similar economic, operational, and regulatory characteristics. The primary performance measure for the operating segments is revenue.

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(Unaudited)

Additional information regarding each operating segment is discussed below.

U. S. Medical

Products offered by this segment include medical devices used in minimally invasive procedures within the cardiovascular system, including fiber-optic devices and non-fiber-optic products (disposables), an excimer laser system (equipment), and the service of the excimer laser system (service). The Company is subject to product approvals from the U.S. Food and Drug Administration (“FDA”) and Health Canada. The Company’s products are used in multiple vascular procedures, including peripheral atherectomy, crossing arterial blockages, coronary atherectomy and thrombectomy, and the removal of cardiac lead wires from patients with pacemakers and cardiac defibrillators. This segment’s customers are primarily located in the United States and Canada.

U.S. Medical also includes the corporate headquarters of the Company. All manufacturing, research and development, and corporate administrative functions are performed within this operating segment. For the three and six months ended June 30, 2015 and 2014, a portion of research, development and other technology expenses, and general and administrative expenses incurred in the U.S. has been allocated to International Medical based on a percentage of revenue because these expenses support the Company’s ability to generate revenue within the International Medical segment.

Manufacturing activities are performed entirely within the U.S. Medical segment. Revenue associated with intersegment product transfers to International Medical was $3.6 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively, and $6.5 million and $4.1 million for the six months ended June 30, 2015 and 2014, respectively. Revenue is based upon transfer prices, which provide for intersegment profit eliminated upon consolidation.

International Medical

The International Medical segment has its headquarters in the Netherlands, and serves Europe, the Middle East, Asia Pacific, Latin America, and Puerto Rico. Products offered by this segment are substantially the same as those offered by U.S. Medical, except that the Stellarex DCB products are available for sale in Europe and certain other international markets but are not yet approved for sale in the U.S. The Company is subject to product approvals from various international regulatory bodies. The International Medical segment is engaged primarily in distribution activities, with no manufacturing or product development functions. Certain U.S.-incurred research, development and other technology expenses, and general and administrative expenses have been allocated to International Medical based on a percentage of revenue because these expenses support the Company’s ability to generate revenue within the International Medical segment.

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Summary financial information relating to operating segment operations is shown below. Intersegment transfers as well as intercompany assets and liabilities are excluded from the information provided (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenue:
U.S. Medical:
Disposable products	$	48,793	$	31,744	$	94,280	$	60,326
Service and other, net of allowance for sales returns	2,564		2,331		5,080		4,567
Equipment sales and rentals	236		779		833		1,733
Subtotal	51,593		34,854		100,193		66,626
International Medical:
Disposable products	9,094		6,866		16,551		12,775
Service and other, net of allowance for sales returns	441		541		918		1,074
Equipment sales and rentals	549		1,294		1,437		2,694
Subtotal	10,084		8,701		18,906		16,543
Total revenue	$	61,677	$	43,555	$	119,099	$	83,169



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Segment operating loss:
U.S. Medical	$	(5,174	)	$	(6,205	)	$	(30,100	)	$	(11,587	)
International Medical	(84		)	376			(383		)	240
Total operating loss	$	(5,258	)	$	(5,829	)	$	(30,483	)	$	(11,347	)



	As of June 30, 2015		As of December 31, 2014
	As of June 30, 2015		As of December 31, 2014
Segment assets:
U.S. Medical	$	412,373	$	432,151
International Medical	36,604		34,799
Total assets	$	448,977	$	466,950

For the three and six months ended June 30, 2015 and 2014, no individual customer represented 10% or more of consolidated revenue. No individual countries, other than the United States, represented at least 10% of consolidated revenue for the three and six months ended June 30, 2015 or 2014.

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(Unaudited)

Revenue by Product Line



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2015		2014		2015		2014
Revenue
Disposable products revenue:
Vascular intervention	$	40,630	$	22,496	$	77,143	$	42,517
Lead management	17,257		16,114		33,688		30,584
Total disposable products revenue	57,887		38,610		110,831		73,101
Service and other, net of allowance for sales returns	3,005		2,872		5,998		5,641
Equipment sales and rentals	785		2,073		2,270		4,427
Total revenue	$	61,677	$	43,555	$	119,099	$	83,169

NOTE 9 — INCOME TAXES

The Company maintains a valuation allowance against substantially all of its deferred tax assets, in excess of its nettable deferred tax liabilities, that it does not consider to meet the more-likely-than-not criteria for recognition. Given its continuing tax losses, the Company does not expect to incur current U.S. federal tax expense or benefit against its pretax income during the year ending December 31, 2015. The Company does, however, expect to incur current state and foreign tax expense during 2015. In addition, the Company expects to incur deferred U.S. federal and state tax expense in 2015, primarily representing an increase in the deferred tax liability related to the difference between tax and book accounting for the portion of its goodwill that is tax-deductible, which is amortized over 15 years for tax purposes but not amortized for book purposes.

In assessing the realizability of deferred tax assets (“DTAs”), management considers whether it is more-likely-than-not that some portion or all of the DTAs will not be realized. The Company’s ability to realize the benefit of its DTAs in future periods will depend on the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the Company’s projected future taxable income and tax planning strategies in making this assessment. Since the Company expects to generate losses during the Stellarex development period of 2015 to 2017, it believes that it will not be generating sufficient taxable income to realize DTAs. The Company will continue to assess the need for a valuation allowance in future periods and does not expect to reduce the valuation allowance against its DTAs until it has a sufficient historical trend of taxable income and can predict future income with a higher degree of certainty. In the event there is a change in circumstances in the future that would affect the utilization of the Company’s DTAs, the tax provision in that period would be adjusted by the amount of the assets then deemed to be realizable.

Included in the $0.9 million income tax benefit for the six months ended June 30, 2014 is a $1.3 million tax benefit from the release of a valuation allowance of the Company’s DTAs. In connection with the acquisition of AngioScore during the three months ended June 30, 2014, deferred tax liabilities (“DTLs”) were established for the book-tax basis differences related to the non-goodwill intangible assets. The DTLs exceeded the acquired DTAs by $1.3 million. The net DTLs from this acquisition created an additional source of taxable income to realize a portion of the Company’s DTAs for which a valuation allowance is no longer needed. Accordingly, the valuation allowance on a portion of the Company’s DTAs was released and resulted in an income tax benefit of $1.3 million.

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(Unaudited)

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Litigation

The Company is from time to time subject to, and is presently involved in, various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and to outcomes the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated. The Company’s significant legal proceedings are discussed below. The costs associated with such proceedings or other legal proceedings that may be commenced could have a material adverse effect on the Company’s future consolidated results of operations, financial position, or cash flows.

TriReme Patent Infringement and Breach of Fiduciary Duty

In July 2012, AngioScore sued TriReme Medical, Inc. (“TriReme”), Eitan Konstantino (“Konstantino”), Quattro Vascular Pte, Ltd. (“Quattro”), and QT Vascular Ltd. (“QT Vascular”), in the U.S. District Court for the Northern District of California (the “Court”), alleging patent infringement (the “Northern District of California Action”). In this action, AngioScore seeks injunctive relief and damages. The defendants filed counterclaims against AngioScore for unfair competition, interference with business relationships, false advertising, and defamation, and in August 2014, those counterclaims were dismissed. In June 2014, AngioScore amended its complaint (i) to allege that TriReme’s Chief Executive Officer, Konstantino, who is a former founder, officer, and member of the board of directors of AngioScore, breached his fiduciary duties to AngioScore by developing the Chocolate balloon catheter while he served as a member of the AngioScore board of directors, and (ii) to add claims against the other defendants for aiding and abetting that breach.

Trial on the breach of fiduciary duty case began on April 13, 2015 and was completed on April 21, 2015. In July 2015, the Court ruled in favor of AngioScore, finding that Konstantino breached his fiduciary duties to AngioScore, that TriReme and Quattro aided and abetted that breach, and that QT Vascular is liable for the acts of TriReme and Quattro. In its ruling, the Court found that Konstantino breached his fiduciary duties to AngioScore by developing the Chocolate balloon catheter while serving on the AngioScore board and failing to present that corporate opportunity to AngioScore. Konstantino subsequently launched the product through TriReme, Quattro and QT Vascular. The Court awarded AngioScore $20.034 million against all defendants plus disgorgement from Konstantino of all benefits he accrued from his breach of fiduciary duties, including amounts he received for assigning his intellectual property rights to the Chocolate balloon, a royalty on past and future sales of the Chocolate balloon, and all of his shares and options in QT Vascular. The defendants have indicated publicly their intention to appeal the ruling. AngioScore will seek to recover attorneys’ fees and costs previously advanced under the indemnification agreement between AngioScore and Konstantino (the “AngioScore Indemnification Agreement”) discussed below.

On April 29, 2015, the Court entered an order scheduling trial on the patent infringement claims for September 14, 2015.

TriReme Inventorship

On June 25, 2014, TriReme sued AngioScore in the Court seeking to change the inventorship of certain patents owned by AngioScore. TriReme alleges that an Israeli physician, Chaim Lotan, should be named as a co-inventor on three patents owned by AngioScore. Dr. Lotan allegedly assigned any rights he may have had in the three patents to TriReme. AngioScore moved to dismiss this litigation on January 29, 2015, asserting that Dr. Lotan previously assigned any rights he may have had in the patents to AngioScore in 2003. On March 17, 2015, the Court granted AngioScore’s motion to dismiss this matter. TriReme has appealed the ruling of the Court dismissing the case in AngioScore’s favor.

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Konstantino Indemnification and Advancement of Fees

On May 15, 2014, AngioScore sued Konstantino in the Superior Court for the County of Alameda, State of California, seeking a declaratory judgment that AngioScore owes no indemnification obligations to Konstantino under the AngioScore Indemnification Agreement resulting from AngioScore’s claim that Konstantino breached his fiduciary duties to AngioScore while serving as a member of the board of directors of AngioScore (the “Alameda Action”). In November 2014, the court stayed the Alameda Action pending the outcome of the Northern District of California Action.

On May 21, 2014, Konstantino sued AngioScore in the Delaware Court of Chancery (the “Delaware Action”) seeking a ruling that, under the AngioScore Indemnification Agreement, AngioScore must indemnify and advance Konstantino’s attorneys’ fees and costs related to (1) the defense of the breach of fiduciary duty claims asserted against him in the Northern District of California Action; (2) the defense of the Alameda Action; and (3) Konstantino’s pursuit of the Delaware Action for advancement of fees. On June 4, 2014, AngioScore filed counter-claims against Konstantino for violating the AngioScore Indemnification Agreement, which requires, in part, that he cooperate in identifying other sources of advancement, and AngioScore filed a third-party complaint against TriReme, Quattro, and QT Vascular seeking contribution from the defendant companies for amounts advanced to Konstantino. Konstantino filed a motion for summary judgment that he is entitled to advancement from AngioScore and, on August 15, 2014, the court granted the motion. On September 4, 2014, AngioScore filed amended counterclaims and an amended third-party complaint that included additional defendant TriReme Singapore. The defendant companies filed a motion to dismiss the amended third-party complaint on the grounds that it fails to state a claim and the court does not have jurisdiction over three of the defendant companies that were incorporated in Singapore. The motion to dismiss has been briefed and oral argument occurred on July 27, 2015. The parties are awaiting the court’s ruling.

The Company cannot at this time determine the likelihood of any outcome and, as of June 30, 2015, has no amounts accrued for potential damages, but does have approximately $6.1 million accrued for legal fees incurred in these matters, including amounts accrued for the advancement of attorneys’ fees and costs. During the six months ended June 30, 2015, the Company incurred $16.4 million of legal fees associated with these matters, including amounts advanced for attorneys’ fees and costs. These expenses are included within the “Acquisition transaction, integration and other costs” line of the condensed consolidated statements of operations and comprehensive loss. AngioScore will seek to recover the attorneys’ fees and costs previously advanced under the AngioScore Indemnification Agreement.

Other

The Company is involved in other legal proceedings in the normal course of business and does not expect them to have a material adverse effect on its business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by those sections. Forward-looking statements include statements about our future plans, estimates, beliefs, and anticipated, expected or projected performance. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “will,” “estimate,” “seek,” “expect,” “project,” “intend,” “should,” “plan,” “believe,” “hope,” “enable,” “potential,” and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, acquisitions, strategic initiatives and business strategies, clinical trials and FDA submissions, regulatory or competitive environments, our intellectual property, and product development. You are cautioned not to place undue reliance on these forward-looking statements and to note that they speak only as of the date hereof. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. For a description of such risks and uncertainties, which could cause our actual results, performance, or achievements to materially differ from any anticipated results, performance, or achievements, please see the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2014. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission (“SEC”) that disclose certain risks and factors that may affect our business. This analysis should be read with our consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2014. We disclaim any intention or obligation to update or revise any financial projections or forward-looking statements due to new information or other events. To assist the reader in understanding certain terms relating to our business used in this quarterly report, we refer you to the glossary included following Part III of our Annual Report on Form 10-K for the year ended December 31, 2014.

Corporate Overview

We develop, manufacture, market and distribute medical devices used in minimally invasive procedures within the cardiovascular system. Our products are sold in over 65 countries and are used to cross, prepare, and treat arterial blockages in the legs and heart and to remove pacemaker and defibrillator cardiac leads. In June 2014, we acquired AngioScore, a leading developer, manufacturer and marketer of cardiovascular, specialty balloon catheters, and in January 2015, we acquired the Stellarex™ drug-coated balloon (“DCB”) assets from Covidien.

Our Vascular Intervention (“VI”) products include a range of laser catheters for ablation of blockages in arteries above and below the knee, AngioSculpt^® scoring balloon catheters used in both peripheral and coronary procedures, and the Stellarex drug-coated balloon. We also market support catheters to facilitate crossing of peripheral and coronary arterial blockages, and retrograde access and guidewire retrieval devices used in the treatment of peripheral arterial blockages, including chronic total occlusions. We market aspiration and cardiac laser catheters to treat blockages in the heart. Our Lead Management (“LM”) products include excimer laser sheaths, dilator sheaths, mechanical sheaths and accessories for the removal of pacemaker and defibrillator cardiac leads. We also sell, rent and service our CVX-300^® laser systems.

During the six months ended June 30, 2015, our disposable products generated 93% of our revenue, of which VI products accounted for 70% and LM products accounted for 30%. The remainder of our revenue is derived from sales and rental of our laser system and related services.

During the six months ended June 30, 2015, approximately half of our disposable product revenue was from products used with our proprietary CVX-300excimer laser system. Our laser catheters contain up to 250 small diameter, flexible optical fibers that can access difficult to reach peripheral and coronary anatomy and produce evenly distributed laser energy at the tip of the catheter. Our excimer laser system is the only laser system approved in the United States, Europe, Japan, and Canada for use in multiple minimally invasive cardiovascular procedures.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Recent Developments

Acquisition of Stellarex™ Drug Coated Angioplasty Balloon Assets

On January 27, 2015, we completed the acquisition of Covidien’s Stellarex over the wire percutaneous transluminal angioplasty balloon catheter with a drug (paclitaxel) coated balloon assets. We paid $30 million in cash to acquire the DCB assets. In addition, Covidien agreed to retain certain liabilities relating to contingent payments that may become due in connection with regulatory approval and future revenue milestones for the DCB assets.

The Stellarex DCB is being studied in an active Investigational Device Exemption (“IDE”) trial in the United States and internationally. The Stellarex DCB received CE mark to be marketed in the European Union in December 2014, and we launched the product in Europe in late January 2015. It is not approved in the U.S., where it is currently limited to investigational use.

The Stellarex DCB is designed to treat peripheral arterial disease. Stellarex uses EnduraCoat™ technology, a durable, uniform coating designed to prevent drug loss during transit and facilitate controlled, efficient drug delivery to the treatment site.

Stellarex DCB ILLUMENATE

On July 29, 2015, we announced we completed enrollment of 300 subjects in the ILLUMENATE Pivotal clinical study, described below. Enrollment is now complete for all five studies in the ILLUMENATE series of clinical studies.

In March 2015, findings from the ILLUMENATE First-in-Human (“FIH”) study were posted in Catheterization and Cardiovascular Interventions, a publication of the Society for Cardiovascular Angiography and Interventions. The ILLUMENATE FIH study was designed to assess the clinical performance of the Stellarex DCB used to restore and maintain blood flow to the arteries of the leg in patients with peripheral arterial disease (“PAD”). This is a prospective, single-arm, multi-center study that enrolled 50 patients. ILLUMENATE FIH data findings include:


•	Primary patency rate at 12 months was 89.5% and 80.3% at 24 months.


•	Freedom from clinically driven target lesion revascularization rate at 12 months was 90.0% and 85.8% at 24 months.


•	There were no amputations or cardiovascular deaths reported through 24 months.

In addition to the FIH study, which is now complete, the Stellarex DCB is currently being studied in four active above-the-knee ILLUMENATE clinical trials, which include the ILLUMENATE Pharmacokinetic Study, the ILLUMENATE Pivotal Trial, the ILLUMENATE European Randomized Trial, and the ILLUMENATE Global Registry, which are discussed in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014.

These five clinical trials will be used to evaluate the safety and effectiveness of the Stellarex DCB and are intended to support U.S. and Canada regulatory approval. We cannot predict the outcome of the active ILLUMENATE clinical trials, and the favorable outcome of the FIH study is not predictive of the outcome of any other trials. There is no assurance that the ongoing trials will support approval, or that any anticipated time frame will be met.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Results of Operations

Financial Results by Operating Segment

Our two operating segments consist of U.S. Medical, which includes the U.S. and Canada, and International Medical, which includes Europe, the Middle East, Asia Pacific, Latin America, and Puerto Rico. U.S. Medical also includes all costs for our corporate headquarters, research and development, and corporate administrative functions. The International Medical segment is engaged primarily in distribution activities, with no local manufacturing or product development functions. For the three and six months ended June 30, 2015 and 2014, a portion of research, development and other technology expenses, and general and administrative expenses incurred in the U.S. was allocated to International Medical based on a percentage of revenue because these expenses support our ability to generate revenue in the International Medical segment.

Summary financial information relating to operating segments is shown below. Intersegment transfers are excluded from the information provided (in thousands):



	Three Months Ended June 30,								Six Months Ended June 30,
	2015				2014				2015				2014
Revenue
United States	$	51,593	84	%	$	34,854	80	%	$	100,193	84	%	$	66,626	80	%
International	10,084		16		8,701		20		18,906		16		16,543		20
Total revenue	$	61,677	100	%	$	43,555	100	%	$	119,099	100	%	$	83,169	100	%



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Operating loss
United States	$	(5,174	)	$	(6,205	)	$	(30,100	)	$	(11,587	)
International	(84		)	376			(383		)	240
Total operating loss	$	(5,258	)	$	(5,829	)	$	(30,483	)	$	(11,347	)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Selected Consolidated Statements of Operations Data

The following table presents selected Consolidated Statements of Operations data for the three months ended June 30, 2015 and 2014 based on the percentage of revenue for each line item, and the dollar and percentage change of each of the items.

Three Months Ended June 30, 2015 Compared with Three Months Ended June 30, 2014



	Three Months Ended June 30,
(Dollars in thousands)	2015			% of revenue (1)		2014			% of revenue (1)		change			% change
Revenue
Disposable products revenue:
Vascular Intervention	$	40,630		66	%	$	22,496		52	%	$	18,134		81	%
Lead Management	17,257			28		16,114			37		1,143			7
Total disposable products revenue	57,887			94		38,610			89		19,277			50
Laser, service, and other revenue	3,790			6		4,945			11		(1,155		)	(23	)
Total revenue	61,677			100		43,555			100		18,122			42
Gross profit	45,763			74		33,049			76		12,714			38
Operating expenses
Selling, general and administrative	35,562			58		28,452			65		7,110			25
Research, development and other technology	16,660			27		5,704			13		10,956			192
Medical device excise tax	821			1		588			1		233			40
Acquisition transaction, integration and other costs	11,106			18		3,958			9		7,148			181
Intangible asset amortization	3,612			6		136			—		3,476			nm
Contingent consideration expense	1,060			2		40			—		1,020			nm
Change in fair value of contingent consideration liability	(17,800		)	(29	)	—			—		(17,800		)	nm
Total operating expenses	51,021			83		38,878			89		12,143			31
Operating loss	(5,258		)	(9	)	(5,829		)	(13	)	571			(10	)
Other expense
Interest expense	(1,768		)	(3	)	(489		)	(1	)	(1,279		)	nm
Foreign currency transaction loss	(70		)	—		(1		)	—		(69		)	nm
Loss before income taxes	(7,096		)	(12	)	(6,319		)	(15	)	(777		)	12
Income tax expense (benefit)	120			—		(1,020		)	(2	)	1,140			(112	)
Net loss	$	(7,216	)	(12	)%	$	(5,299	)	(12	)%	$	(1,917	)	36	%

Worldwide installed base of laser systems	1,347					1,195					152

___________________________________

(1) Percentage amounts may not add due to rounding.

nm= not meaningful

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Revenue and gross margin

Revenue increased 42% to $61.7 million for the three months ended June 30, 2015 as compared with $43.6 million for the three months ended June 30, 2014. On a constant currency basis, revenue increased 45% (see the “Non-GAAP Financial Measures” section below for a discussion of our use of the constant currency financial measure). The increase was primarily due to revenue from AngioSculpt disposable products, which we began selling in the third quarter of 2014 following the acquisition of AngioScore, and an increase in VI and LM disposables revenue, partially offset by a decrease in laser and related service revenue. Excluding AngioSculpt, revenue increased 9% (12% on a constant currency basis).

VI revenue, which includes revenue from products used in both the peripheral and coronary vascular systems, increased 81% (83% on a constant currency basis) to $40.6 million in the second quarter of 2015 as compared with $22.5 million in the second quarter of 2014, primarily due to $14.2 million of revenue from AngioSculpt products. Excluding AngioSculpt, VI revenue increased 17% (19% on a constant currency basis). Other product categories within VI revenue include: peripheral atherectomy, which increased 22%, crossing solutions, which decreased 4%, and coronary atherectomy and thrombus management, which increased 24%, all compared with the three months ended June 30, 2014. The 22% increase in peripheral atherectomy product revenue was primarily related to unit volume increases, specifically in above-the-knee peripheral atherectomy products, which are often used in in-stent restenosis cases, in both hospitals and office-based physician clinics in the U.S. We believe the U.S. AngioSculpt business was negatively impacted by the recent launch of drug-coated balloons by competitors. The increase in coronary atherectomy and thrombus management revenue was primarily due to a 42% increase in worldwide sales of our ELCA^® coronary atherectomy catheter. In the U.S., this increase was due to additional focus on our coronary business following the acquisition of AngioScore, which increased our portfolio of coronary products, as well as a significant increase in outpatient hospital reimbursement for coronary interventions, which was effective January 1, 2015.

LM revenue increased 7% (11% on a constant currency basis) to $17.3 million for the three months ended June 30, 2015 as compared with $16.1 million for the three months ended June 30, 2014. The growth was primarily due to mechanical device market penetration, including the conversion of mechanical device accounts from competitors to our TightRail™ mechanical lead extraction products. This growth was offset by a decrease in procedural volumes, which we expect to continue, and we anticipate LM revenue growth will slow in the second half of 2015.

Laser, service and other revenue decreased 23% (21% on a constant currency basis), to $3.8 million in the second quarter of 2015 as compared with $4.9 million in the second quarter of 2014. Equipment sales revenue, which is included in laser equipment revenue, decreased 83% in the three months ended June 30, 2015, primarily due to lower sales of laser systems in Japan as compared with the three months ended June 30, 2014. Rental revenue decreased 34% in the three months ended June 30, 2015 as compared with the three months ended June 30, 2014, primarily because higher disposables purchases by certain customers under volume-based rental agreements led to lower rent paid by these customers.

We placed 49 laser systems with new customers during the three months ended June 30, 2015 compared with 46 laser systems during the three months ended June 30, 2014. The new placements this quarter brought our worldwide installed base of laser systems to 1,347 (953 in the U.S.) as of June 30, 2015, compared to 1,195 (843 in the U.S.) as of June 30, 2014.

Geographically, U.S. revenue was $51.6 million for the three months ended June 30, 2015, an increase of 48% from the three months ended June 30, 2014, primarily due to an increase in VI revenue, including AngioSculpt revenue, and, to a lesser extent, an increase in LM revenue, offset by a small decline in laser, service and other revenue. International revenue was $10.1 million for the three months ended June 30, 2015, an increase of 16% from the three months ended June 30, 2014, and an increase of 32% on a constant currency basis. The increase in international revenue was primarily due to an increase in VI revenue in Europe, including $1.9 million of AngioSculpt revenue and revenue from the recently launched Stellarex DCB catheters, and to a lesser extent, an increase in LM revenue, primarily in Europe, Japan and Brazil, partially offset by a decrease in laser revenue in Japan.

Gross margin for the second quarter of 2015 was 74.2% as compared with 75.9% for the second quarter of 2014. The year-over-year decrease was primarily due to the dilutive impact of the AngioSculpt and Stellarex products combined with the negative impact of foreign currency translation. AngioSculpt gross margin has improved since the acquisition as a result of

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

implementing productivity initiatives, but is slightly lower than our overall gross margin. We are establishing manufacturing operations for Stellarex. As a result, our gross margin is negative during this start-up phase. A higher sales mix of disposable products partially offset these factors.

Operating expenses

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses increased 25% to $35.6 million for the three months ended June 30, 2015 compared with $28.5 million for the three months ended June 30, 2014. SG&A expenses represented 58% of revenue in the second quarter of 2015 compared with 65% of revenue in the second quarter of 2014. This decrease reflects synergies from the AngioScore acquisition.

Within SG&A, marketing and selling expenses increased approximately $4.9 million for the three months ended June 30, 2015, or 22%, compared with the three months ended June 30, 2014, primarily due to the AngioScore acquisition and the expansion of our field sales teams in 2014, both in the U.S. and Europe, and the expansion of our field sales team in Europe in early 2015 to support sales of the Stellarex DCB products.

Also within SG&A, general and administrative expenses increased $2.3 million for the three months ended June 30, 2015, or 37%, compared with the three months ended June 30, 2014, as a result of an increase in stock-based compensation expense due to our organizational growth and the performance-based equity plan implemented in June 2014, increased personnel expenses, primarily due to the AngioScore and Stellarex acquisitions, and an increase in professional fees and insurance expense.

Research, development and other technology. Research, development and other technology expenses of $16.7 million for the three months ended June 30, 2015 increased $11.0 million, or 192%, compared with the three months ended June 30, 2014. As a percentage of revenue, research, development and other technology expenses increased to 27% in the second quarter of 2015 from 13% in the second quarter of 2014. Costs associated with the Stellarex DCB research, development and clinical studies totaled $8.4 million for the three months ended June 30, 2015, or 77% of the increase.

Costs included within research, development and other technology expenses are product development costs, clinical studies costs and royalty costs associated with various license agreements with third-party licensors. Increases in these costs resulted from:


•	Product development costs increased by approximately $5.8 million for the second quarter of 2015 compared with the second quarter of 2014 due to increased new product development personnel costs and an increase in project spending primarily related to the Stellarex DCB and Drug-Coated AngioSculpt projects;


•	Clinical studies costs increased by approximately $4.9 million for the second quarter of 2015 compared with the second quarter of 2014, primarily related to the Stellarex DCB ILLUMENATE clinical trials; and


•	Royalty costs increased by approximately $0.3 million for the second quarter of 2015 compared with the second quarter of 2014, due to increased revenue from products subject to royalty payments.

Medical device excise tax. We incurred $0.8 million of expense attributed to the medical device excise tax during the three months ended June 30, 2015, compared with $0.6 million during the three months ended June 30, 2014. The increase in the medical device excise tax was due to increased revenue, including revenue from the AngioScore products, in the three months ended June 30, 2015.

Acquisition transaction, integration and other costs. We incurred $11.1 million of costs related to the AngioScore and Stellarex acquisitions in the three months ended June 30, 2015. Of this amount, $8.5 million comprised legal fees associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff, including amounts advanced for attorneys’ fees and costs. In July 2015, the U.S. District Court for the Northern District of California ruled in favor of AngioScore, finding that Etian Konstantino, a former officer and director of AngioScore, breached his fiduciary duties to

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

AngioScore. The court awarded AngioScore in excess of $20.0 million against all defendants plus disgorgement from Konstantino of all benefits he accrued from his breach of fiduciary duties. AngioScore will also seek to recover attorneys’ fees and costs previously advanced. This matter is further described in Note 10 to the condensed consolidated financial statements included in Part I, Item 1 of this report. We also incurred $0.7 million of severance, retention and consulting costs for the ongoing integration of AngioScore, which is nearly complete. Stellarex acquisition costs of $2.0 million primarily consisted of non-recurring costs associated with establishing manufacturing operations to support the Stellarex program. We expect integration costs to continue through 2015 as we integrate the operations of Stellarex.

In the three months ended June 30, 2014, we incurred $4.0 million of costs related to the AngioScore acquisition, consisting primarily of investment banking, accounting, consulting, and legal fees.

Intangible asset amortization. As part of the acquisitions of AngioScore, Stellarex and Upstream Peripheral Technologies Ltd. (“Upstream”) in prior periods, we acquired certain intangible assets, which are being amortized over periods from two to 12 years. We recorded $3.6 million of amortization expense related to these intangible assets for the three months ended June 30, 2015, compared with $0.1 million for the three months ended June 30, 2014. The increase was due to the intangible assets acquired as part of the AngioScore and Stellarex acquisitions. See further discussion in Note 2 to the condensed consolidated financial statements included in Part I, Item 1 of this report.

Contingent consideration expense. For the three months ended June 30, 2015 and June 30, 2014, we recorded $1.1 million and $40,000 of contingent consideration expense, respectively, related to our contingent consideration liabilities from the AngioScore and Upstream acquisitions, due to the passage of time (i.e., accretion). The year-over-year increase in the expense was due to the higher contingent consideration liability incurred as part of the AngioScore acquisition.

Change in fair value of contingent consideration liability. During the three months ended June 30, 2015, we remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by approximately $17.8 million. This reduction was the result of a decrease in our future revenue estimates for the AngioSculpt products.

Other expense

Interest expense. Interest expense was $1.8 million for the three months ended June 30, 2015 compared with $0.5 million for the three months ended June 30, 2014. The increase was related to the convertible notes issued in June 2014, including amortization of debt issuance costs.

Foreign currency transaction loss. The foreign currency transaction loss of $0.1 million for the three months ended June 30, 2015 resulted from intercompany transactions with our Dutch subsidiary, whose functional currency is the euro, due to a weakening of the euro in the second quarter of 2015.

Loss before income taxes

Pre-tax loss for the three months ended June 30, 2015 was $7.1 million, compared with a pre-tax loss of $6.3 million for the three months ended June 30, 2014.

Income taxes

We maintain a valuation allowance against a portion of our deferred tax assets that we do not consider to meet the more-likely-than-not criteria for recognition. We do not expect to incur current U.S. federal tax expense or benefit against our pretax losses during the year ending December 31, 2015. We do, however, expect to incur current state and foreign tax expense during 2015. In addition, we expect to incur deferred U.S. federal and state tax expense in 2015, primarily representing a deferred tax liability related to the difference between book and tax accounting for our goodwill, which is amortized over 15 years for tax purposes but not amortized for book purposes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

We recorded income tax expense of $0.1 million for the three months ended June 30, 2015, consisting of current foreign and state income tax expense and deferred federal and state income tax expense. During the three months ended June 30, 2014, our income tax benefit of $1.0 million consisted of a tax benefit of approximately $1.3 million that was partially offset by current foreign and state income tax expense and deferred federal income tax expense. The $1.3 million tax benefit resulted from a partial release of the valuation allowance against our deferred tax assets related to the AngioScore acquisition.

Our ability to realize the benefit of our deferred tax assets in future periods will depend on the generation of future taxable income and tax planning strategies. Due to our history of losses and our expectation of generating losses during the Stellarex development period of 2015 to 2017, we have recorded a valuation allowance against substantially all of our deferred tax assets that are in excess of our deferred tax liabilities. We do not expect to reduce the valuation allowance against our deferred tax assets until we have a sufficient historical trend of taxable income and can predict future taxable income with a higher degree of certainty.

Net loss

As a result of the items discussed above, we recorded a net loss for the three months ended June 30, 2015 of $7.2 million, or $0.17 per share, compared with a net loss of $5.3 million, or $0.13 per share, for the three months ended June 30, 2014.

Non-GAAP net loss

As a result of the items discussed above, non-GAAP net loss was $9.2 million, or $0.22 per share, for the three months ended June 30, 2015 compared with a non-GAAP net loss of $2.4 million, or $0.06 per share, for the three months ended June 30, 2014. Non-GAAP net loss is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure for the respective periods and a discussion of how we use the non-GAAP net loss financial measure.

Functional currency

The functional currency of our foreign operations generally is the applicable local currency. All revenue and expenses are translated to U.S. dollars in the consolidated statements of operations and comprehensive loss using weighted average exchange rates during the period. The decrease in foreign currency rates against the U.S. dollar during the three months ended June 30, 2015 as compared with the three months ended June 30, 2014 caused a decrease in consolidated revenue of approximately $1.4 million and a decrease in consolidated net income of approximately $0.4 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Selected Consolidated Statements of Operations Data

The following table presents selected Consolidated Statements of Operations data for the six months ended June 30, 2015 and 2014 based on the percentage of revenue for each line item, and the dollar and percentage change of each of the items.

Six Months Ended June 30, 2015 Compared with Six Months Ended June 30, 2014



	Six Months Ended June 30,
(Dollars in thousands)	2015			% of revenue (1)		2014			% of revenue (1)		change			% change
Revenue
Disposable products revenue:
Vascular Intervention	$	77,143		65	%	$	42,517		51	%	$	34,626		81	%
Lead Management	33,688			28		30,584			37		3,104			10
Total disposable products revenue	110,831			93		73,101			88		37,730			52
Laser, service, and other revenue	8,268			7		10,068			12		(1,800		)	(18	)
Total revenue	119,099			100		83,169			100		35,930			43
Gross profit (2)	88,132			74		62,329			75		25,803			41
Operating expenses
Selling, general and administrative	72,504			61		56,192			68		16,312			29
Research, development and other technology	31,921			27		11,791			14		20,130			171
Medical device excise tax	1,627			1		1,113			1		514			46
Acquisition transaction, integration and other costs	21,497			18		4,229			5		17,268			nm
Intangible asset amortization	6,782			6		273			—		6,509			2,384
Contingent consideration expense	2,084			2		78			—		2,006			2,572
Change in fair value of contingent consideration liability	(17,800		)	2		—			—		(17,800		)	nm
Total operating expenses	118,615			100		73,676			89		44,939			61
Operating loss	(30,483		)	(26	)	(11,347		)	(14	)	(19,136		)	nm
Other expense
Interest expense	(3,522		)	(3	)	(488		)	(1	)	(3,034		)	nm
Foreign currency transaction (loss) gain	(249		)	—		2			—		(251		)	nm
Loss before income taxes	(34,254		)	(29	)	(11,833		)	(14	)	(22,421		)	nm
Income tax expense (benefit)	267			—		(873		)	(1	)	1,140			(131	)
Net loss	$	(34,521	)	(29	)%	$	(10,960	)	(13	)%	$	(23,561	)	nm

Worldwide installed base of laser systems	1,347					1,195					152

___________________________________

(1) Percentage amounts may not add due to rounding.

(2) Includes the impact of $0.3 million of amortization of acquired inventory step-up in 2015.

nm = not meaningful

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Revenue and gross margin

Revenue increased 43% (46% on a constant currency basis) to $119.1 million for the six months ended June 30, 2015 as compared with $83.2 million for the six months ended June 30, 2014. The increase was primarily due to revenue from AngioSculpt disposable products, which we began selling in the third quarter of 2014 following the acquisition of AngioScore, and an increase in VI and LM disposables revenue, partially offset by a decrease in laser and related service revenue. Excluding AngioSculpt, revenue increased 9% (12% on a constant currency basis).

VI revenue increased 81% (84% on a constant currency basis) to $77.1 million for the first six months of 2015 as compared with $42.5 million for the first six months of 2014, in part due to revenue from AngioSculpt products of $28.3 million. Excluding AngioSculpt, VI revenue increased 15% (17% on a constant currency basis). Peripheral atherectomy increased 19%, crossing solutions decreased 2%, and coronary atherectomy and thrombus management increased 20%, all compared with the six months ended June 30, 2014. The 19% increase in peripheral atherectomy product revenue was primarily related to unit volume increases, specifically in above-the-knee peripheral atherectomy products, which are often used in in-stent restenosis cases, in both hospitals and office-based physician clinics in the U.S. We believe the U.S. AngioSculpt business was negatively impacted by the recent launch of drug-coated balloons by competitors. The increase in coronary atherectomy and thrombus management revenue was primarily due to a 43% increase in worldwide sales of our ELCA^® coronary atherectomy catheter. In the U.S., this increase was due to additional focus on our coronary business following the acquisition of AngioScore, which increased our portfolio of coronary products, as well as a significant increase in outpatient hospital reimbursement for coronary interventions, which was effective January 1, 2015.

LM revenue grew 10% (13% on a constant currency basis) to $33.7 million for the six months ended June 30, 2015 as compared with $30.6 million for the six months ended June 30, 2014. The growth was primarily due to mechanical device market penetration, including the conversion of mechanical device accounts from competitors to our TightRail mechanical lead extraction products. This growth was offset by a decrease in procedural volumes, which we expect to continue, and we anticipate LM revenue growth will slow in the second half of 2015.

Laser, service, and other revenue decreased 18% to $8.3 million in the six months ended June 30, 2015 compared with $10.1 million for the six months ended June 30, 2014. Equipment sales revenue, which is included in laser equipment revenue, decreased 61% for the six months ended June 30, 2015 as compared with the six months ended June 30, 2014, due primarily to a decrease in sales of laser systems in Japan. Rental revenue decreased 29% in the six months ended June 30, 2015 as compared with the six months ended June 30, 2014, primarily because higher disposables purchases by certain customers under volume-based rental agreements led to lower rent paid by those customers.

We placed 103 laser systems with new customers during the six months ended June 30, 2015 compared with 83 during the six months ended June 30, 2014. The new placements during the six months ended June 30, 2015 brought our worldwide installed base of laser systems to 1,347 (953 in the U.S.) as of June 30, 2015, compared to 1,195 (843 in the U.S.) as of June 30, 2014.

Geographically, revenue in the U.S. was $100.2 million for the six months ended June 30, 2015, an increase of 50% from the prior year period, primarily due to an increase in VI revenue, including AngioSculpt revenue. International revenue totaled $18.9 million, an increase of 14% from the first six months of 2014, or 28% on a constant currency basis. The increase in international revenue was primarily due to an increase in VI revenue in Europe, Asia Pacific and Latin America, including $3.5 million of AngioSculpt revenue, and to a lesser extent, LM revenue in Europe, Japan and Brazil for the six months ended June 30, 2015 as compared with the six months ended June 30, 2014.

Gross margin was 74% for the six months ended June 30, 2015 and 75% for the six months ended June 30, 2014. The year-over-year decrease was primarily due to the dilutive impact of the AngioSculpt and Stellarex products combined with the negative impact of foreign currency translation. AngioSculpt gross margin has improved since the acquisition as a result of implementing productivity initiatives, but is slightly lower than our overall gross margin. We are establishing manufacturing operations for Stellarex. As a result, our gross margin is negative during this start-up phase. A higher sales mix of disposable products partially offset these factors.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Operating expenses

Selling, general and administrative. SG&A expenses increased 29% to $72.5 million for the six months ended June 30, 2015 compared with $56.2 million for the six months ended June 30, 2014. SG&A expenses represented 61% of revenue for the first six months of 2015 compared with 68% of revenue for the first six months of 2014.

Within SG&A, marketing and selling expenses increased $10.9 million, or 25%, for the six months ended June 30, 2015 compared with the six months ended June 30, 2014, primarily due to the AngioScore acquisition and the expansion of our field sales teams in 2014, both in the U.S. and Europe, and the expansion of our field sales team in Europe in early 2015 to support sales of the Stellarex DCB products.

Also within SG&A, general and administrative expenses increased $5.4 million, or 42%, compared with the six months ended June 30, 2014, as a result of an increase in stock-based compensation expense due to our organizational growth and the performance-based equity plan implemented in June 2014, increased personnel expenses, primarily due to the AngioScore and Stellarex acquisitions, and an increase in professional fees and insurance expense.

Research, development and other technology. Research, development and other technology expenses of $31.9 million for the six months ended June 30, 2015 increased $20.1 million, or 171%, compared with the six months ended June 30, 2014. As a percentage of revenue, research, development and other technology expenses increased to 27% in the first six months of 2015 from 14% in the first six months of 2014. Costs associated with the Stellarex DCB research, development and clinical studies totaled $15.1 million for the six months ended June 30, 2015, or 75% of the increase. Increases in these costs resulted from:


•	Product development costs increased by approximately $9.8 million compared with the six months ended June 30, 2014 due to increased new product development personnel costs and an increase in project spending primarily related to the Stellarex DCB and Drug-Coated AngioSculpt projects;


•	Clinical studies costs increased by approximately $9.9 million compared with the first six months of 2014, primarily related to the Stellarex DCB ILLUMENATE clinical trials; and


•	Royalty costs increased by approximately $0.4 million compared with the first six months of 2014 due to increased revenue.

Medical device excise tax. We incurred $1.6 million of expense attributed to the medical device excise tax during the six months ended June 30, 2015, as compared with $1.1 million during the six months ended June 30, 2014. The increase in the medical device excise tax was due to increased revenue, including revenue from the AngioScore products, in the six months ended June 30, 2015.

Acquisition transaction, integration and other costs. We incurred $21.5 million of costs related to the AngioScore and Stellarex acquisitions during the six months ended June 30, 2015. Of this amount, $16.4 million comprised legal fees associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff, including amounts advanced for attorneys’ fees and costs. This matter is further described in Note 10 to the condensed consolidated financial statements included in Part I, Item 1 of this report. We also incurred $1.2 million of severance, retention and consulting costs for the ongoing integration of AngioScore, which is nearly complete. Stellarex acquisition costs of $3.9 million primarily consisted of investment banking and legal fees and non-recurring costs associated with establishing manufacturing operations to support the Stellarex program. We expect integration costs to continue through 2015 as we integrate the operations of Stellarex.

In the six months ended June 30, 2014, we incurred $4.2 million of costs related to the AngioScore acquisition, consisting primarily of investment banking, accounting, consulting, and legal fees.

Intangible asset amortization. We recorded $6.8 million of amortization expense related to the intangible assets acquired as part of the AngioScore, Stellarex and Upstream acquisitions for the six months ended June 30, 2015, compared with

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

$0.3 million for the six months ended June 30, 2014. The increase was due to the intangible assets acquired as part of the AngioScore and Stellarex acquisitions.

Contingent consideration expense. During the six months ended June 30, 2015 and June 30, 2014, we recorded $2.1 million and $0.1 million of contingent consideration expense, respectively, related to the increase in that liability due to the passage of time (i.e., accretion). The increase was due to the contingent consideration liability incurred as part of the AngioScore acquisition.

Change in fair value of contingent consideration liability. As of June 30, 2015, we remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by approximately $17.8 million. This reduction was the result of a decrease in our revenue estimates for the AngioSculpt products.

Other expense

Interest expense. Interest expense increased by $3.0 million for the six months ended June 30, 2015 compared with the six months ended June 30, 2014. The year-over-year increase was related to the convertible notes issued in June 2014, including amortization of debt issuance costs.

Foreign currency transaction loss. The foreign currency transaction loss of $0.2 million for the six months ended June 30, 2015 resulted from intercompany transactions with our Dutch subsidiary, whose functional currency is the euro, due to a weakening of the euro in the first six months of 2015.

Loss before income taxes

The pre-tax loss for the six months ended June 30, 2015 was $34.3 million, compared with a pre-tax loss of $11.8 million for the six months ended June 30, 2014.

Income taxes

We recorded income tax expense of $0.3 million for the six months ended June 30, 2015, consisting of current foreign and state income tax expense and deferred federal income tax expense. During the six months ended June 30, 2014, our income tax benefit of $0.9 million consisted of a tax benefit of approximately $1.3 million that was partially offset by current foreign and state income tax expense and deferred federal income tax expense. The $1.3 million tax benefit resulted from a partial release of the valuation allowance against our deferred tax assets related to the AngioScore acquisition.

Net loss

As a result of the items discussed above, we recorded a net loss for the six months ended June 30, 2015 of $34.5 million, or $0.82 per share, compared with a net loss of $11.0 million, or $0.26 per share, in the six months ended June 30, 2014.

Non-GAAP net loss

Non-GAAP net loss for the six months ended June 30, 2015 was $21.7 million, or $0.51 per share, compared with non-GAAP net loss of $7.6 million, or $0.18 per share, for the six months ended June 30, 2014. See “Non-GAAP Financial Measures” below for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure for the respective periods and a discussion of how we use the non-GAAP net loss financial measure.

Functional currency

The decrease in foreign currency rates against the U.S. dollar during the six months ended June 30, 2015 as compared with the six months ended June 30, 2014 caused a decrease in consolidated revenue of approximately $2.3 million and a decrease in consolidated net income of approximately $0.7 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Liquidity and Capital Resources

As of June 30, 2015, we had cash and cash equivalents of $49.3 million, a decrease of $46.3 million from $95.5 million at December 31, 2014.

On June 26, 2015, we entered into a Third Amendment to Credit and Security Agreement (the “Third Amendment”) with Wells Fargo Bank, National Association (“Wells Fargo”) for a four-year term. The Third Amendment amends the Credit and Security Agreement, dated February 25, 2011, between the Company and Wells Fargo, as amended (the “Credit Agreement”). The Third Amendment, among other things, (i) increases the maximum availability under this revolving line of credit from $15 million to $65 million, subject to limits imposed by the borrowing base, and adds a $15 million uncommitted accordion feature, (ii) lowers the interest rate from 3-month LIBOR plus 2.75-3.25% (based on net income) to 3-month LIBOR plus 2.00-2.50% (based on liquidity), (iii) expands the borrowing base to include certain foreign accounts, equipment and real property, in addition to accounts receivable and inventory, and (iv) as the sole financial covenant, requires that we maintain minimum liquidity of $25 million.

The revolving line of credit is secured by a first priority security interest in substantially all of our assets. We are required to pay customary fees with respect to the facility, including a 0.25% fee on the average unused portion of the revolving line of credit. The Credit Agreement contains customary events of default, including the failure to make required payments, the failure to comply with certain covenants or other agreements, the occurrence of a material adverse change, failure to pay certain other indebtedness and certain events of bankruptcy or insolvency. Upon the occurrence and continuation of an event of default, amounts due under the Credit Agreement may be accelerated.

The line of credit had an outstanding balance of $18.5 million as of June 30, 2015. Availability under the line of credit is subject to a borrowing base limitation, which was approximately $29.9 million based on our accounts receivable and inventory balances as of June 30, 2015.

Our future liquidity requirements will be influenced by numerous factors. We believe that our cash and cash equivalents, anticipated funds from operations, and other sources of liquidity, which may include additional borrowings under the revolving line of credit with Wells Fargo or other credit or financing arrangements, will be sufficient to meet our liquidity requirements for at least the next 12 months based on our expected level of operations. In addition, our capital and research and product development expenditures are largely discretionary and within our control.

We may need or seek additional funding in the future. If we require additional working capital to fund operations and any future acquisitions, we may access available borrowings under our revolving line of credit with Wells Fargo. We also may enter into credit or financing arrangements with one or more independent institutional lenders or sell additional shares of our common stock or other equity or debt securities. We have an effective automatic shelf registration statement on file with the SEC under which we may issue, from time to time, senior debt securities, subordinated debt securities, common stock, preferred stock and other securities. Although the shelf registration statement does not limit our issuance capacity, our ability to issue securities is limited to the authority granted by our Board of Directors, and our ability to issue debt securities is limited by certain covenants in the Credit Agreement. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders.

Operating Activities. For the six months ended June 30, 2015, cash used in operating activities totaled $32.5 million compared to cash used in operating activities of $9.5 million for the six months ended June 30, 2014. The increase in the use of cash from operations was primarily due to the increased net loss for the six months ended June 30, 2015. The primary sources and uses of cash were:


(1)	Our net loss of $34.5 million included approximately $4.4 million of non-cash expenses. Non-cash expenses primarily included $13.0 million of depreciation and amortization, $6.0 million of stock-based compensation, and $2.1 million of contingent consideration expense, offset by a $17.8 million change in fair value of the contingent consideration liability.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)


(2)	Cash used as a result of the net change in operating assets and liabilities of approximately $2.4 million was primarily due to:


•	An increase in equipment held for rental or loan of $7.6 million as a result of placement activity of our laser systems through our rental and evaluation programs;


•	An increase in inventory of approximately $1.4 million, primarily due to increased sales demand and higher disposables and laser production; and


•	An increase in other assets of approximately $1 million.

These uses of cash were partially offset by:


•	An increase in accounts payable and accrued liabilities of $5.4 million, primarily due to higher volumes of accounts payable and an increase in accrued commissions;


•	A decrease in prepaid expenses and other current assets of $1.4 million, primarily due to the collection of escrow payments related to legal fees advanced; and


•	A decrease in accounts receivable of approximately $0.8 million, primarily due to a slight decrease in days sales outstanding.

The table below presents the change in receivables and inventory in relative terms, through the presentation of financial ratios. Days sales outstanding are calculated by dividing the ending accounts receivable balance, net of reserves for sales returns and doubtful accounts, by the average daily sales for the quarter. The decrease in days sales outstanding for the six months ended June 30, 2015 was primarily due to increased collections from slower-paying customers. Inventory turns are calculated by dividing annualized cost of sales for the quarter by ending inventory. The decrease in inventory turns for the six months ended June 30, 2015 was primarily due to an increase in finished goods based on anticipated higher revenue in the first half of 2015 and the acquired Stellarex inventory.



	June 30, 2015	December 31, 2014
Days Sales Outstanding	58	59
Inventory Turns	2.3	2.5

Investing Activities. For the six months ended June 30, 2015, cash used by investing activities was $35.1 million, consisting of the payment for the Stellarex acquisition of $30.0 million, and capital expenditures of $5.1 million. This compared with cash used by investing activities of $237.2 million in the six months ended June 30, 2014, consisting of $234.3 million of payments for the AngioScore acquisition and $2.9 million of capital expenditures. The capital expenditures for the six months ended June 30, 2015 and 2014 included manufacturing equipment upgrades and replacements, additional capital items for research and development projects, and additional computer equipment and software purchases.

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2015 was $21.5 million, consisting of draws on the line of credit, net, of $18.5 million and the exercise of stock options and sales of common stock under our employee stock purchase plan of $3.1 million. In the six months ended June 30, 2015, we paid $0.1 million in contingent consideration payments. In the six months ended June 30, 2014, cash provided by financing activities was $225.3 million, consisting of net proceeds from the issuance of convertible debt of $222.5 million and the exercise of stock options and sales of common stock under our employee stock purchase plan of $2.8 million.

At June 30, 2015, we had no significant capital lease obligations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Future Investments and Contingent Consideration Related to Acquisitions

As planned, the Stellarex acquisition will require substantial investments, primarily within research, development and clinical trials. We are in the early stages of integration, and as integration proceeds, the amount of these investments may change. We currently anticipate a net loss from the Stellarex acquisition of approximately $44.0 million for the year ending December 31, 2015, of which $21.7 million was incurred in the six months ended June 30, 2015.

In connection with the AngioScore acquisition, we agreed to pay additional contingent merger consideration as follows:


(a)	annual cash payments for net sales of AngioScore products occurring in calendar years 2015, 2016 and 2017 equal to a multiple of 2.0 times each year’s annual increase in net sales in excess of 10% over the highest preceding year net sales, provided that the year-over-year change in net sales is positive and that such payments in the aggregate will not exceed $50 million;


(b)	the following payments related to AngioScore’s Drug-Coated AngioSculpt product:


(i)	a cash payment of $5 million if the product receives European CE mark approval for use in the coronary arteries by December 31, 2016;


(ii)	a cash payment of $5 million if the product receives European CE mark approval for use in the peripheral arteries by December 31, 2016; and


(iii)	a cash payment of $15 million if the product receives U.S. investigational device exemption approval for use in the coronary or peripheral arteries by December 31, 2016.

Convertible Senior Notes

On June 3, 2014, we closed the sale of $230 million aggregate principal amount of 2.625% Convertible Senior Notes due 2034 (the “Notes”). Net proceeds from the sale of the Notes were used for the AngioScore acquisition. The Notes bear interest at a rate of 2.625% per annum. We pay interest on the Notes on June 1 and December 1 of each year, beginning December 1, 2014. The Notes will mature on June 1, 2034 (“maturity date”), unless earlier repurchased, redeemed or converted.

Holders may convert their Notes into shares of our common stock at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

The initial conversion rate is 31.9020 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $31.35 per share of our common stock). The conversion price is subject to adjustment in some events, but will not be adjusted for accrued interest. In addition, if a fundamental change occurs or we deliver a redemption notice, in certain circumstances we will increase the conversion rate for a holder that elects to convert its Notes in connection with such fundamental change or redemption notice, as the case may be.

Holders may require us to repurchase some or all of their Notes for cash on each of June 5, 2021, June 5, 2024 and June 5, 2029 and upon a fundamental change at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, to, but excluding, the relevant repurchase date.

We may not redeem the Notes prior to June 5, 2018. On or after June 5, 2018 and prior to June 5, 2021, we may redeem for cash all or part of the Notes if the closing sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the trading day immediately prior to the date we provide the notice of redemption exceeds 130% of the applicable conversion price for the Notes. On or after June 5, 2021, we may redeem any or all of the Notes in cash.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

The Notes are our senior unsecured obligations and rank equal in right of payment with any of our other senior unsecured indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the Notes. The Notes are effectively subordinated to all of our secured indebtedness to the extent of the value of the collateral securing such indebtedness and structurally subordinated to the claims of our subsidiaries’ creditors, including trade creditors.

Off-Balance Sheet Arrangements

We maintain no off-balance sheet arrangements that have, or that are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We maintain operating leases for our offices in Colorado Springs, Colorado; Fremont, California; Maple Grove, Minnesota; the Netherlands and Germany.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures in this report. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures for the respective periods can be found in the tables below. An explanation of the manner in which our management uses these non-GAAP measures to conduct and evaluate our business and the reasons management believes these non-GAAP measures provide useful information to investors are provided following the reconciliation tables.



Reconciliation of revenue by geography to non-GAAP revenue by geography on a constant currency basis (in thousands, except percentages) (unaudited)
	Three Months Ended
	June 30, 2015						June 30, 2014		Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
United States	$	51,593	$	—	$	51,593	$	34,854	48	%	48	%
International	10,084		1,359		11,443		8,701		16	%	32	%
Total revenue	$	61,677	$	1,359	$	63,036	$	43,555	42	%	45	%

	Six Months Ended
	June 30, 2015						June 30, 2014		Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
United States	$	100,193	$	—	$	100,193	$	66,626	50	%	50	%
International	18,906		2,276		21,182		16,543		14	%	28	%
Total revenue	$	119,099	$	2,276	$	121,375	$	83,169	43	%	46	%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)



Reconciliation of revenue by product line to non-GAAP revenue by product line on a constant currency basis (in thousands, except percentages) (unaudited)
	Three Months Ended
	June 30, 2015						June 30, 2014		Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
Vascular Intervention, ex-AngioSculpt	$	26,385	$	429	$	26,814	$	22,496	17	%	19	%
AngioSculpt	14,245		193		14,438		—		—	%	—	%
Total Vascular Intervention	$	40,630	$	622	$	41,252	$	22,496	81	%	83	%
Lead Management	17,257		604		17,861		16,114		7	%	11	%
Laser System, Service & Other	3,790		133		3,923		4,945		(23	)%	(21	)%
Total revenue	$	61,677	$	1,359	$	63,036	$	43,555	42	%	45	%

	Six Months Ended
	June 30, 2015						June 30, 2014		Change
	Revenue, as reported		Foreign exchange impact as compared to prior period		Revenue on a constant currency basis		Revenue, as reported		As reported		Constant currency basis
Vascular Intervention, ex-AngioSculpt	$	48,877	$	667	$	49,544	$	42,517	15	%	17	%
AngioSculpt	28,266		318		28,584		—		—	%	—	%
Total Vascular Intervention	$	77,143	$	985	$	78,128	$	42,517	81	%	84	%
Lead Management	33,688		1,006		34,694		30,584		10	%	13	%
Laser System, Service & Other	8,268		285		8,553		10,068		(18	)%	(15	)%
Total revenue	$	119,099	$	2,276	$	121,375	$	83,169	43	%	46	%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)



Reconciliation of Net Loss to Non-GAAP Net Loss (in thousands) (unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net loss, as reported	$	(7,216	)	$	(5,299	)	$	(34,521	)	$	(10,960	)
Acquisition transaction, integration and other costs (1)	11,106			3,958			21,497			4,229
Amortization of acquired inventory step-up (2)	—			—			251			—
Acquisition-related intangible asset amortization (3)	3,612			136			6,782			273
Contingent consideration expense (4)	1,060			40			2,084			78
Change in fair value of contingent consideration liability (5)	(17,800		)	—			(17,800		)	—
Release of valuation allowance related to AngioScore acquisition (6)	—			(1,266		)	—			(1,266		)
Non-GAAP net loss	$	(9,238	)	$	(2,431	)	$	(21,707	)	$	(7,646	)



Reconciliation of Net Loss Per Share to Non-GAAP Net Loss Per Share (unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net loss per share, as reported	$	(0.17	)	$	(0.13	)	$	(0.82	)	$	(0.26	)
Acquisition transaction, integration and other costs (1)	0.26			0.10			0.51			0.10
Amortization of acquired inventory step-up (2)	—			—			0.01			—
Acquisition-related intangible asset amortization (3)	0.09			—			0.16			0.01
Contingent consideration expense (4)	0.03			—			0.05			—
Change in fair value of contingent consideration liability (5)	(0.42		)	—			(0.42		)	—
Release of valuation allowance related to AngioScore acquisition (6)	—			(0.03		)	—			(0.03		)
Non-GAAP net loss per share (7)	$	(0.22	)	$	(0.06	)	$	(0.51	)	$	(0.18	)

__________________

Acquisition transaction, integration and other costs relate to the AngioScore and Stellarex acquisitions, which closed on June 30, 2014 and January 27, 2015, respectively, and included investment banking fees, accounting, consulting, and legal fees, severance and retention costs, and non-recurring costs associated with establishing manufacturing operations to support the Stellarex program. In addition, these costs included $8.0 million and $8.5 million during the first quarter and second quarters of 2015, respectively, for legal fees, including legal fees and costs advanced, associated with a patent and breach of fiduciary duty matter in which AngioScore is the plaintiff. See Note 10 to the condensed consolidated financial statements included in Part I, Item I of this report.


2)	Amortization of acquired inventory step-up relates to the inventory acquired in the AngioScore acquisition.


3)	Acquisition-related intangible asset amortization relates primarily to intangible assets acquired in the AngioScore acquisition in June 2014 and the Stellarex acquisition in January 2015.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)


4)	Contingent consideration expense represents the accretion of the estimated contingent consideration liability related to future amounts payable to former AngioScore stockholders primarily based on sales of the AngioScore products and achievement of product development milestones.


5)	During the three months ended June 30, 2015, we remeasured the contingent consideration liability related to the AngioScore acquisition to its fair value and reduced it by approximately $17.8 million. This reduction was the result of a decrease in our revenue estimates for the AngioSculpt products.


6)	Income tax benefit for the three months ended June 30, 2014 included a tax benefit of $1.3 million resulting from a reduction in the valuation allowance against our deferred tax assets related to the acquisition of AngioScore.


7)	Per share amounts may not add due to rounding.

Management uses the non-GAAP financial measures as supplemental measures to analyze the underlying trends in our business, assess the performance of our core operations, establish operational goals and forecasts that are used in allocating resources and evaluate our performance period over period on a comparable basis and in relation to our competitors’ operating results. In general, the income or expenses that are excluded from non-GAAP financial measures are intended to enhance the comparability of results between periods and are non-cash costs or non-recurring costs.

The impact of foreign exchange rates is highly variable and difficult to predict. We use a constant currency basis to show the impact from foreign exchange rates on current period revenue compared to prior period revenue using the prior period’s foreign exchange rates. In order to properly understand the underlying business trends and performance of our ongoing operations, we believe that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our revenue.

We believe presenting the non-GAAP financial measures used in this report provides investors greater transparency to the information used by our management for financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe providing this information better enables our investors to understand our operating performance and evaluate the methodology used by management to evaluate and measure such performance.

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Some limitations associated with using these non-GAAP financial measures are provided below:


•	Management exercises judgment in determining which types of charges or other items should be excluded from the non-GAAP financial measures used.


•	Amortization expense, while not requiring cash settlement, is an ongoing and recurring expense and has a material impact on GAAP net income or loss and reflects costs to us not reflected in non-GAAP net loss.


•	Items such as the acquisition transaction, integration and other costs, contingent consideration expense and the change in fair value of contingent consideration liability excluded from non-GAAP net loss can have a material impact on cash flows and GAAP net income or loss and reflect economic costs to us not reflected in non-GAAP net loss.


•	Revenue growth rates stated on a constant currency basis, by their nature, exclude the impact of changes in foreign currency exchange rates, which may have a material impact on GAAP revenue.


•	Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Cont’d)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. We must make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Significant items subject to estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, valuation allowances and reserves for receivables, inventories and deferred income tax assets, stock-based compensation expense, estimated clinical trial expenses, accrued estimates for incurred but not reported claims under partially self-insured employee health benefit programs, contingent consideration liabilities, and loss contingencies, including those related to litigation. Actual results could differ from those estimates.

Our critical accounting policies and estimates are included in our 2014 Annual Report on Form 10-K. During the six months ended June 30, 2015, there were no significant changes to our critical accounting policies and estimates.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of changes in the value of market risk instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in our results of operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign exchange risk.

Our reporting currency is the U.S. dollar and our exposure to foreign currency risk is primarily related to sales of our products in Europe, which are denominated primarily in the euro and translated into U.S. dollars. Changes in the exchange rate between the euro and the U.S. dollar could positively or adversely affect our revenue and net (loss) income. Exposure to foreign currency exchange rate risk may increase over time as our business evolves and our products continue to be introduced into international markets. Currently, we do not hedge against any foreign currencies and, as a result, we could incur gains or losses. The decrease in foreign currency rates against the U.S. dollar during the six months ended June 30, 2015 as compared with the six months ended June 30, 2014 caused a decrease of approximately $2.3 million in consolidated revenue and a decrease of approximately $0.7 million in consolidated net income.

Based on our overall foreign currency exchange rate exposure as of June 30, 2015, a 10% appreciation or depreciation of the U.S. dollar would have had a positive or negative impact on our consolidated revenue for the six months ended June 30, 2015 of approximately $1.1 million, and a 20% appreciation or depreciation of the U.S. dollar would have had a positive or negative impact on our consolidated revenue for the six months ended June 30, 2015 of approximately $2.3 million.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized 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 necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2015. Our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of June 30, 2015.

There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. On June 30, 2014, we completed our acquisition of AngioScore Inc., which is now our wholly-owned subsidiary and a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X promulgated by the SEC. We are in the process of integrating AngioScore’s operations with our operations, including integration of financial reporting processes and procedures and internal controls over financing reporting. In the course of integrating AngioScore’s financial reporting processes and procedures with ours, we may implement changes to financial reporting processes and procedures and internal controls over financing reporting and will disclose any such changes, if material, as required by the rules of the SEC.

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Part II—OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of our legal proceedings, please refer to Note 10, “Commitments and Contingencies” to the condensed consolidated financial statements included in Part I, Item 1 of this report.

Item 1A. Risk Factors

The following is an additional risk factor to be read in conjunction with those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2014.

If critical components used in manufacturing our CVX-300 excimer laser system or other products become scarce or unavailable, we may incur increased costs and delays in the manufacturing and delivery of our products, which could damage our business.

Certain critical components used in manufacturing our products may be subject to supply shortages, which could subject our business to the risk of price increases and delays in the delivery of our products. There is a shortage of neon gas, which is affecting the laser industry. Neon gas is used in our CVX-300 excimer laser system. Although our supplier has assured us it can still supply us with neon gas to satisfy our current needs, we are experiencing substantial price increases related to our neon gas supply. If we are unable to continue obtaining components from our suppliers in the quantities we require, on a timely basis, and at acceptable prices, then we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could reduce our product sales, increase our costs, and harm our business. Moreover, if any of our suppliers become unable to supply our required materials, then we may need to find new suppliers, which could take significant time and could disrupt our production. As a result, we could experience significant delays in manufacturing and delivering our products to customers. We cannot assure you we can continue obtaining required materials that are in short supply, such as neon gas, within the time frames we require at an affordable cost, if at all.

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Item 6. Exhibits




3.1	Amended and Restated Certificate of Incorporation. Incorporated by reference to exhibit previously filed by the Company with its Current Report on Form 8-K filed on June 16, 2009.

3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation. Incorporated by reference to exhibit previously filed by the Company with its Current Report on Form 8-K filed on June 12, 2014.

3.3	Amended and Restated Bylaws. Incorporated by reference to exhibit previously filed by the Company with its Current Report on Form 8-K filed on April 4, 2011.

4.1	Form of Common Stock Certificate of the Company. Incorporated by reference to exhibit previously filed by the Company with its Amendment No. 2 to the Registration Statement, filed January 24, 1992 (File No. 33-44367).

10.1	Third Amendment to Credit and Security Agreement, dated June 26, 2015, by and between the Company and Wells Fargo Bank, National Association. Incorporated by reference to exhibit previously filed by the Company with its Current Report on Form 8-K filed on June 29, 2015.

10.2*	Agreement of Lease, dated March 31, 2015, by and between the Company and Pewaukee Maple Grove, LLC.

31.1*	Rule 13(a)-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*	Rule 13(a)-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1**	Section 1350 Certification of Chief Executive Officer.

32.2**	Section 1350 Certification of Chief Financial Officer.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	The Spectranetics Corporation
	(Registrant)


July 30, 2015		/s/ Scott Drake
		Scott Drake
		President and Chief Executive Officer



July 30, 2015		/s/ Guy A. Childs
		Guy A. Childs
		Chief Financial Officer

Exhibit 10.2

STANDARD FORM
INDUSTRIAL BUILDING LEASE

1.BASIC TERMS.

This Section 1 contains the Basic Terms of this lease (this “Lease”) between Landlord and Tenant, as each is named below. Other Sections of the Lease referred to in this Section 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.

1.1 Effective Date of Lease: March 31, 2015.

1.2 Landlord: Pewaukee Maple Grove, LLC

1.3 Tenant: Spectranetics Corporation, a Delaware corporation.

1.4 Premises: Approximately 35,807 rentable square feet in the building commonly known as 6655 Wedgwood Road, Maple Grove MN 55311 (the “Building”). The Building’s total square feet is 123,854. The Premises are depicted on Exhibit A-1.

1.5 Property: The real property on which the Building is located, as legally described on Exhibit A.

1.6 Lease Term: Ten (10) years and approximately three (3) months (“Term”), commencing June 1, 2015 (“Commencement Date”) and ending, subject to Section 2.3 below, on August 31, 2025 (“Expiration Date”). In the event that, for any reason, Landlord permits Tenant to have access to, or possession of, the Premises prior to the Commencement Date, all of the terms and conditions of this Lease (except the obligation to pay Base Rent, as defined below) shall apply throughout any pre-Commencement Date use or occupancy. Landlord shall not, however, be obligated to grant to Tenant any right to use, occupy or possess all or any portion of the Premises prior to the Commencement Date.

1.7 Permitted Uses: (See Section 4.1) General, office, warehousing and distribution of non-hazardous goods, and research and development activities.

1.8 Tenant’s Guarantor: None.

1.9 Brokers: Tenant’s Broker: CBRE, Inc...

1.10 Security/Damage Deposit: (See Section 4.4) $95,000.00

1.11 Initial Estimated Additional Rent: $12,055.02 per month.

1.12 Tenant’s Proportionate Share: 28.9107%.

1.13 Addendums to Lease: The following addendums are attached to and made a part of this Lease:

Renewal Option - Fair Market Value

Lease Option – Right of First Refusal

Exhibits to Lease: The following exhibits are attached to and made a part of this Lease: A (Legal Description); A-1 (Depiction of Premises); B (Broom Clean Condition and Repair Requirements); Exhibit C (Rules and Regulations); D (Landlord’s Work, if any); E (Confirmation of Commencement Date); F (Sample Letter of Credit) (intentionally omitted); Exhibit G (Tenant Contacts); H (Sign Specifications).

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2.LEASE OF PREMISES; RENT.

2.1 Lease of Premises for Lease Term. Landlord hereby leases the Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the Term and subject to the conditions of this Lease.

2.2 Types of Rental Payments. Tenant shall pay net base rent (the “Base Rent”) to Landlord in monthly installments, in advance, on the first day of each and every calendar month during the Term, in the amounts and for the periods as set forth below:



Lease Period	Monthly Base Rent	Base Rent Net of Abated Rent (If Applicable) *
6/1/2015 – 8/31/2015	$35,807.00	$0.00
9/1/2015 – 8/31/2016	$35,807.00	N/A
9/1/2016 – 8/31/2017	$36,791.69	N/A
9/1/2017 – 8/31/2018	$37,806.22	N/A
9/1/2018 – 8/31/2019	$38,850.60	N/A
9/1/2019 – 8/31/2020	$39,924.81	N/A
9/1/2020 – 8/31/2021	$41,028.85	N/A
9/1/2021 – 8/31/2022	$42,162.74	N/A
9/1/2022 – 8/31/2023	$43,326.47	N/A
9/1/2023 – 8/31/2024	$44,520.04	N/A
9/1/2024 – 8/31/2025	$45,743.44	N/A

Monthly installments of Base Rent shall be conditionally abated as follows. Base Rent shall be abated 100% from June 1, 2015 through August 31, 2015, such that Base Rent shall be $0.00 per month, subject to all terms of this Section 2. Notwithstanding such abatement of Base Rent, all other sums due under the Lease, including Additional Rent and sales tax (if applicable), shall be payable as provided in the Lease. The abatement of Base Rent provided for in this provision is conditioned upon Tenant's full and timely performance of all of its obligations under the Lease. If at any time during the Lease Term an Event of Default by Tenant occurs, then the abatement of Base Rent provided for in this provision shall immediately become void, and Tenant shall promptly pay to Landlord, in addition to all other amounts due to Landlord under the Lease, the full amount of all Base Rent herein abated.

Tenant shall also pay (a) Tenant’s Proportionate Share (as set forth in Section 1.12) of Operating Expenses (as hereinafter defined), and (b) any other amounts owed by Tenant hereunder (the sums described in (a) and (b), collectively, “Additional Rent”).

In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 5 calendar days of the date when due, a late charge in an amount equal to 5% of the then delinquent installment of Base Rent and/or Additional Rent (the “Late Charge”) shall be imposed with respect to the then-delinquent Rent (as defined below) payment.

For purposes of this Lease, the Late Charge, Default Interest, as defined in Section 22.3 below, Base Rent and Additional Rent shall collectively be referred to as “Rent.” All Rent shall be paid by Tenant to Landlord, c/o Pewaukee Maple Grove, LLC , P.O. Box 1450 NW 6380, Minneapolis, MN 55485-6380, or if sent by overnight courier, FIRST INDUSTRIAL SECURITIES, LP, 1801 PARKVIEW DRIVE 1ST FLOOR, LOCKBOX SERVICES 006380, SHOREVIEW, MN 55126 (or such other entity designated as Landlord’s management agent, if any, and if Landlord so appoints such a management agent, the “Agent”), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing.

2.3 Covenants Concerning Rental Payments. Tenant shall pay the Rent promptly when due, without notice or demand, and without any abatement, deduction or setoff. No payment by Tenant, or receipt or acceptance by Agent or Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or

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statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Agent or Landlord may accept such payment without prejudice to Landlord’s right to recover the balance due or to pursue any other remedy available to Landlord. If the Commencement Date occurs on a day other than the first day of a calendar month, the Rent due for the first calendar month of the Term shall be prorated on a per diem basis (based on a 365 (366 in leap years) day, 12 month year) and paid to Landlord on the Commencement Date, and the Term will be extended to terminate on the last day of the calendar month in which the Expiration Date stated in Section 1.6 occurs.

3.OPERATING EXPENSES.

3.1 Definitional Terms Relating to Additional Rent. For purposes of this Section and other relevant provisions of the Lease:

3.1.1 Operating Expenses. The term “Operating Expenses” shall mean all costs and expenses paid or incurred by Landlord with respect to, or in connection with, the ownership, repair, restoration, maintenance and operation of the Property. Operating Expenses may include, but are not limited to, any or all of the following: (i) services provided directly by employees of Landlord or Agent in connection with the operation, maintenance or rendition of other services to or for the Property (including, but not limited to, the Common Areas, as defined below); (ii) to the extent not separately metered, billed, or furnished, all charges for utilities and services furnished to either or both of the Property and the Premises, including, without limitation, the Common Areas, together with any taxes on such utilities; (iii) all market-based premiums for commercial property, casualty, general liability, boiler, flood, earthquake, terrorism and all other types of insurance provided by Landlord and relating to the Property; all reasonable administrative costs incurred in connection with the procurement and implementation of such insurance policies; and all deductibles required to be paid by Landlord pursuant to insurance policies required to be maintained by Landlord under this Lease; the amount of any deductible(s) if and to the extent a loss(es) is incurred and the applicable insurer(s) applies the deductible before making payment of any available insurance proceeds; and (iv) management fees to Landlord or Agent or other persons or management entities actually involved in the management and operation of the Property, which management fee shall not exceed 5% per annum of all Rent collected from all tenants in the Property, (v) any capital improvements made by, or on behalf of, Landlord to the Property that are either or both (a) designed to reduce Operating Expenses and (b) required to keep the Property in compliance with all governmental laws, rules and regulations applicable thereto, from time to time, the cost of which capital improvements shall be reasonably amortized by Landlord; (vi) all professional fees incurred in connection with the operation, management and maintenance of the Property; (vii) Taxes, as hereinafter defined in Section 3.1.2; and (viii) dues, fees or other costs and expenses, of any nature, due and payable to any association or comparable entity to which Landlord, as owner of the Property, is a member or otherwise belongs and that governs or controls any aspect of the ownership and operation of the Property; (ix) any real estate taxes and common area maintenance expenses levied against, or attributable to, the Property under any declaration of covenants, conditions and restrictions, reciprocal easement agreement or comparable arrangement that encumbers and benefits the Property and other real property (e.g., a business park); and (x) all costs and expenses incurred to maintain, repair and replace all or any of the Common Areas.

3.1.2 Taxes. The term “Taxes,” as referred to in Section 3.1.1(vii) above shall mean (i) all governmental taxes, assessments, fees and charges of every kind or nature (other than Landlord’s income taxes), whether general, special, ordinary or extraordinary, due at any time or from time to time, during the Term and any extensions thereof, in connection with the ownership, leasing, or operation of the Property, or of the personal property and equipment located therein or used in connection therewith; and (ii) any reasonable expenses incurred by Landlord in contesting either or both of (x) such taxes or assessments and (y) the assessed value of the Property. For purposes hereof, Tenant shall be responsible for the payment of its Proportionate Share of all Taxes that are due and payable at any time during the Term, regardless of when such Taxes may have accrued (it being understood that Tenant shall be responsible for its Proportionate Share of Taxes on a so-called “cash” basis, as opposed to a so-called “accrual” basis). Such obligation shall survive the termination or expiration of this Lease. Tenant will not be entitled to Tax Appeal Refunds if in default or if any Tax Appeal Fees are unpaid.

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3.1.3 Operating Year. The term “Operating Year” shall mean the calendar year commencing January 1st of each year (including the calendar year within which the Commencement Date occurs) during the Term.

3.2 Payment of Operating Expenses. Tenant shall pay, as Additional Rent and in accordance with the requirements of Section 3.3, Tenant’s Proportionate Share of the Operating Expenses as set forth in Section 3.3. Additional Rent commences to accrue upon the Commencement Date. The Tenant’s Proportionate Share of Operating Expenses payable hereunder for the Operating Years in which the Term begins and ends shall be prorated to correspond to that portion of said Operating Years occurring within the Term. Tenant’s Proportionate Share of Operating Expenses and any other sums due and payable under this Lease shall be adjusted upon receipt of the actual bills therefor, and the obligations of this Section 3 shall survive the termination or expiration of the Lease.

3.3 Payment of Additional Rent. Landlord shall have the right to reasonably estimate the Operating Expenses for each Operating Year. Upon Landlord’s or Agent’s notice to Tenant of such estimated amount, Tenant shall pay, on the first day of each month during that Operating Year, an amount (the “Estimated Additional Rent”) equal to the estimate of the Tenant’s Proportionate Share of Operating Expenses divided by 12 (or the fractional portion of the Operating Year remaining at the time Landlord delivers its notice of the estimated amounts due from Tenant for that Operating Year). If the aggregate amount of Estimated Additional Rent actually paid by Tenant during any Operating Year is less than Tenant’s actual ultimate liability for Operating Expenses for that particular Operating Year, Tenant shall pay the deficiency within thirty (30) days of Landlord’s written demand therefor. If the aggregate amount of Estimated Additional Rent actually paid by Tenant during a given Operating Year exceeds Tenant’s actual liability for such Operating Year (“Excess Additional Rent”), the Excess Additional Rent shall be credited against the Estimated Additional Rent next due from Tenant after Landlord’s determination that Excess Additional Rent has been paid by Tenant; provided, however, in the event that Tenant pays Excess Additional Rent during the final Lease Year, then upon the expiration of the Term, and determination, by Landlord, of the actual amount of Excess Additional Rent, Landlord or Agent shall pay Tenant the then-applicable Excess Additional Rent.

3.4 Auditing of Operating Expenses. As soon as is reasonably practical after each Operating Year, Landlord shall provide Tenant with a statement (a “Statement”) setting forth Tenant’s actual ultimate liability for its Proportionate Share of Operating Expenses for the subject Operating Year. If Tenant disputes the amount set forth in a given Statement, Tenant shall have the right, at Tenant's sole expense, to cause Landlord's books and records with respect to the particular Operating Year that is the subject of that particular Statement to be audited (the “Audit”) by a certified public accountant mutually acceptable to Landlord and Tenant (the “Accountant”), provided Tenant (i) has not defaulted under this Lease and failed to cure such default on a timely basis and (ii) delivers written notice (an “Audit Notice”) to Landlord on or prior to the date that is sixty (60) days after Landlord delivers the Statement in question to Tenant (such 60-day period, the “Response Period”). If Tenant fails to timely deliver an Audit Notice with respect to a given Statement, then Tenant's right to undertake an Audit with respect to that Statement and the Operating Year to which that particular Statement relates shall automatically and irrevocably be waived. Any Statement shall be final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct, at the end of the applicable Response Period, unless prior thereto, Tenant timely delivers an Audit Notice with respect to the then-applicable Statement. If Tenant timely delivers an Audit Notice, Tenant must commence such Audit within sixty (60) days after the Audit Notice is delivered to Landlord, and the Audit must be completed within thirty (30) days of the date on which it is begun. If Tenant fails, for any reason, to commence and complete the Audit within such periods, the Statement that Tenant elected to Audit shall be deemed final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct. The Audit shall take place at the offices of Landlord where its books and records are located, at a mutually convenient time during Landlord's regular business hours. Before conducting the Audit, Tenant must pay the full amount of Operating Expenses billed under the Statement then in question. Tenant hereby covenants and agrees that the Accountant engaged by Tenant to conduct the Audit shall be compensated on an hourly basis and shall not be compensated based upon a percentage of overcharges it discovers. If an Audit is conducted in a timely manner, such Audit shall be deemed final and binding upon Landlord and Tenant and shall, as between the parties, be conclusively deemed correct. If the results of the Audit reveal that the Tenant’s ultimate liability for Operating Expenses does not equal the aggregate amount of Estimated Additional Rent actually paid by Tenant to Landlord during the Operating Year that is the subject of the Audit, the appropriate adjustment shall be made between Landlord and Tenant, and any payment required to be made by Landlord or Tenant to the other shall be made within thirty (30) days after the Accountant’s determination. If the audit determines that Tenant has overpaid its required Operating Expenses for the Operating Year in question by more than ten percent (10%), then Landlord shall reimburse Tenant for up to $1,500.00 for audit costs. In no event shall this Lease be terminable nor shall Landlord be

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liable for damages based upon any disagreement regarding an adjustment of Operating Expenses. Tenant agrees that the results of any Audit shall be kept strictly confidential by Tenant and shall not be disclosed to any other person or entity. The foregoing provisions concerning a potential Audit are personal to Tenant and shall not run with this Lease or for the benefit of any assignee or sub lessee (whether permitted or not).

4.USE OF PREMISES AND COMMON AREAS; SIGNAGE; SECURITY DEPOSIT.

4.1 Use of Premises and Property. The Premises shall be used by the Tenant for the purpose(s) set forth in Section 1.7 above and for no other purpose whatsoever. Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises or the Property, in any manner that may (a) violate any “Certificate of Occupancy” (or comparable permit or license) for either or both of the Premises and the Property; (b) cause, or be liable to cause, injury to, or in any way impair the value or proper utilization of, all or any portion of the Property or any equipment, facilities or systems therein; (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies or the rules and regulations of the Property, including, but not limited to, any covenant, condition or restriction encumbering the Property; (d) exceed the load bearing capacity of the floor of the Premises; (e) impair the character, reputation or appearance of the Property; or (f) unreasonably inconvenience or disrupt the operations or tenancies of other tenants or permitted users of the Property. Tenant has answered the Tenant Disclosure, the nature of Tenant’s proposed business operations at the Premises, which is intended to be, and shall be, relied upon by Landlord. From time to time during the Term (but no more often than once in any twelve month period unless Tenant is in default hereunder or unless Tenant assigns this Lease or subleases all or any portion of the Premises, whether or not in accordance with Section 8), Tenant shall provide an updated and current Tenant Disclosure upon Landlord’s request.

4.2 Use of Common Areas. As used herein, “Common Areas” shall mean all areas within the Property that are available for the common use of tenants of the Property and that are not leased or held for the exclusive use of Tenant or other tenants or licensees, including, but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas. Tenant shall have the nonexclusive right to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may uniformly establish from time to time. Tenant shall not interfere with the rights of any or all of Landlord, other tenants or licensees, or any other person entitled to use the Common Areas. Without limitation of the foregoing, Tenant shall not park or store any vehicles or trailers on, or conduct truck loading and unloading activities in, the Common Areas in a manner that unreasonably disturbs, disrupts or prevents the use of the Common Areas by any or all of Landlord, other tenants or licensees or other persons entitled to use the Common Areas. Landlord, from time to time, may change any or all of the size, location, nature and use of any of the Common Areas although such changes may result in inconvenience to Tenant, so long as such changes do not materially and adversely affect Tenant’s use of the Premises. In addition to the foregoing, Landlord may, at any time, close or suspend access to any Common Areas to perform any acts in the Common Areas as, in Landlord’s reasonable judgment, are desirable to improve or maintain either or both of the Premises and the Property, or are required in order to satisfy Landlord’s obligations under this Lease; provided, however, that Landlord shall use reasonable efforts to limit any disruption of Tenant’s use and operation of the Premises in connection therewith. Notwithstanding anything contained in this Lease to the contrary, if at any time, Landlord determines, in its sole discretion, that the parking areas at the Property are or have become overburdened, Landlord may allocate parking on a proportionate basis or assign parking spaces among all tenants at the Property.

4.3 Signage. Tenant shall not affix any sign of any size or character to any portion of the Property, without prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed, and then only in compliance with all applicable Laws, Easements and Landlord’s list of signage specifications. Tenant shall remove all signs of Tenant upon the expiration or earlier termination of this Lease and immediately repair any damage to either or both of the Property and the Premises caused by, or resulting from, such removal, or the installation or existence of the signs.

4.4 Security/Damage Deposit. Simultaneously with the execution and delivery of this Lease, Tenant shall deposit with Landlord or Agent the sum set forth in Section 1.10 above, in cash (the “Security”), representing security for the performance by Tenant of the covenants and obligations hereunder. The Security shall be held by Landlord or Agent, without interest, in favor of Tenant; provided, however, that no trust relationship shall be deemed created thereby; the Security may be commingled with other assets of Landlord; and Landlord shall not be required to pay any interest on the Security. If Tenant defaults in the performance of any of its covenants hereunder, Landlord or Agent may, without notice to Tenant, apply all or any part of the Security to the cure of such default or the payment of any sums then due from Tenant under this Lease (including, but not limited to, amounts due under Section 22.2 of this Lease as a consequence of termination of this Lease or Tenant’s right

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to possession), in addition to any other remedies available to Landlord. In the event the Security is so applied, Tenant shall, upon demand, immediately deposit with Landlord or Agent a sum equal to the amount so used. If Tenant fully and faithfully complies with all the covenants and obligations hereunder, the Security (or any balance thereof) shall be returned to Tenant within sixty (60) days after the later to occur of (i) the date the Term expires or terminates or (ii) delivery to Landlord of possession of the Premises. Landlord may deliver the Security to any lender with a mortgage lien encumbering the Property or to any Successor Landlord (defined below), and thereupon Landlord and Agent shall be discharged from any further liability with respect to the Security.

5.CONDITION AND DELIVERY OF PREMISES.

5.1 Condition of Premises. Tenant agrees that Tenant is familiar with the condition of both the Premises and the Property, and Tenant hereby accepts the foregoing on an “AS-IS,” “WHERE-IS” basis, except as is otherwise expressly and specifically described on Exhibit D attached hereto and incorporated herein by this reference, it being understood that, if Landlord has agreed to perform any tenant improvements in or to the Premises in consideration of Tenant’s entry into this Lease (collectively, “Landlord’s Work”), all of Landlord’s Work shall be described on Exhibit D. Tenant acknowledges that neither Landlord nor Agent, nor any representative of Landlord, has made any representation or warranty as to the condition of the foregoing or the suitability of the foregoing for Tenant’s intended use. Tenant represents and warrants that Tenant has made its own inspection of the foregoing. Neither Landlord nor Agent shall be obligated to make any repairs, replacements or improvements (whether structural or otherwise) of any kind or nature to the foregoing in connection with, or in consideration of, this Lease, except as expressly and specifically set forth in this Lease, including, but not limited to, Exhibit D.

5.2 Delay in Commencement. Landlord shall not be liable to Tenant if Landlord fails to deliver possession of the Premises to Tenant on the Commencement Date that is caused by events outside of Landlord’s control. The obligations of Tenant under the Lease shall not be affected thereby, except that the Commencement Date shall be delayed until Landlord delivers possession of the Premises to Tenant, and the Term shall be extended by a period equal to the number of days of delay in delivery of possession of the Premises to Tenant, plus the number of days necessary to end the Term on the last day of a month.

5.3 Confirmation of Commencement Date. Upon Landlord’s delivery of possession, and as a condition precedent to such delivery, of the Premises to Tenant, Tenant shall deliver to Landlord a Confirmation of Commencement Date in substantially the form attached hereto as Exhibit E.

6.SUBORDINATION; ESTOPPEL CERTIFICATES; ATTORNMENT.

6.1 Subordination and Attornment. This Lease is and shall be subject and subordinate at all times to (a) all ground leases or underlying leases that may now exist or hereafter be executed affecting either or both of the Premises and the Property and (b) any mortgage or deed of trust that may now exist or hereafter be placed upon, and encumber, any or all of (x) the Property; (y) any ground leases or underlying leases for the benefit of the Property; and (z) all or any portion of Landlord’s interest or estate in any of said items. Tenant shall execute and deliver, within ten (10) days of Landlord’s request, and in the form reasonably requested by Landlord (or its lender), any documents evidencing the subordination of this Lease. Tenant hereby covenants and agrees that Tenant shall attorn to any successor to Landlord.

6.2 Estoppel Certificate. Tenant agrees, from time to time and within ten (10) days after request by Landlord, to deliver to Landlord, or Landlord’s designee, an estoppel certificate stating such matters pertaining to this Lease as may be reasonably requested by Landlord. Failure by Tenant to timely execute and deliver such certificate shall constitute a Default, as defined below (without any obligation to provide any notice thereof or any opportunity to cure such failure to timely perform).

6.3 Transfer by Landlord. In the event of a sale or conveyance by Landlord of the Property, the Landlord shall ensure that all obligations of the Landlord are assumed by the Successor Landlord, and Landlord will be released from any future liability for any of the covenants or conditions, express or implied, herein contained in favor of Tenant and first arising or accruing after the effective date of Landlord’s transfer of its interest in the Premises, and in such event Tenant agrees to look solely to Landlord’s successor in interest (“Successor Landlord”) with respect thereto and agrees to attorn to such successor.

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7.QUIET ENJOYMENT.

Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent or any other person lawfully claiming through or under Landlord; provided, however, in addition to Landlord’s rights under Section 15 and elsewhere in this Lease, Landlord and Landlord’s agents, employees, contractors and representatives shall be provided reasonable access to the Premises such that Landlord and Landlord’s agents, employees, contractors and representatives may perform the General Maintenance Services (as hereinafter defined) without undue interruption, delay or hindrance. This covenant shall be construed as a covenant running with the Property and is not a personal covenant of Landlord. Tenant shall not unreasonably interrupt, delay, prevent or hinder the performance of the General Maintenance Services by or on behalf of Landlord. Notwithstanding the foregoing, however, Tenant acknowledges and agrees that Landlord shall have the unfettered and unilateral right to use portions of the Common Areas (inclusive of the roof of the Building) for such purposes and uses as Landlord may desire; provided, however, that in all events and under all circumstances, Landlord’s use of any portion of the Common Areas shall not interfere, in any material respect, with any or all of (a) Tenant’s rights to occupy and use the Common Areas (in the manner and for the purposes contemplated hereunder); (b) Tenant’s right to utilize the vehicular parking areas located on the Common Areas; and (c) Tenant’s right(s) of access, ingress and egress to and from the Common Areas.

8.ASSIGNMENT AND SUBLETTING.

Tenant shall not (a) assign (whether directly or indirectly), in whole or in part, this Lease, or (b) allow this Lease to be assigned, in whole or in part, by operation of law or otherwise, including, without limitation, by transfer of a controlling interest (i.e. greater than a 25% interest) of stock, membership interests or partnership interests, or by merger or dissolution, which transfer of a controlling interest, merger or dissolution shall be deemed an assignment for purposes of this Lease, or (c) mortgage Tenant’s interest in either or both of the Premises and this Lease or pledge its interest in this Lease, or (d) sublet the Premises, in whole or in part, without (in the case of any or all of (a) through (d) above) the prior written consent of Landlord (and Landlord’s lender, if applicable), which consent shall not be unreasonably withheld or delayed. In making its determination to provide or withhold its consent, it shall be reasonable for Landlord to take into consideration both the business experience and the financial condition of the surviving entity that shall constitute its tenant after the occurrence of any of (a) through (d) above, and Landlord may impose conditions precedent to the issuance of its consent (e.g. delivery of a guarantee or other collateral, whether in the form of a security deposit or otherwise). Tenant may, however, assign this Lease or sublease a portion of the Premises to a wholly-owned subsidiary, provided that Tenant advises Landlord (and Landlord’s lender, if applicable), in writing, in advance, and otherwise complies with the succeeding provisions of this Section 8. In no event shall any assignment or sublease ever release Tenant or any guarantor from any obligation or liability hereunder; and in the case of any assignment, Landlord shall retain all rights with respect to the Security. Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord (and Landlord’s lender, if applicable) shall be absolutely null and void. No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord (and Landlord’s lender, if applicable) any and all documentation reasonably required by Landlord (and Landlord’s lender, if applicable) in order to evidence assignee’s assumption of all obligations of Tenant hereunder. Regardless of whether or not an assignee or sublessee executes and delivers any documentation to Landlord pursuant to the preceding sentence, any assignee or sublessee shall be deemed to have automatically attorned to Landlord in the event of any termination of this Lease. If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord or Agent may (without prejudice to, or waiver of Landlord’s rights), collect Rent from the assignee, subtenant or occupant. In the event of an assignment of this Lease and the payment of consideration from the assignee to the Tenant in connection therewith, fifty percent (50%) of such consideration shall be paid to Landlord. With respect to the allocable portion of the Premises sublet, in the event that the total rent and any other considerations received under any sublease by Tenant is greater than (on a pro rata and proportionate basis) the total Rent required to be paid, from time to time, under this Lease, Tenant shall pay to Landlord fifty percent (50%) of such excess as received from any subtenant and such amount shall be deemed a component of the Additional Rent.

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9.COMPLIANCE WITH LAWS.

9.1 Compliance with Laws. Tenant shall, at its sole expense (regardless of the cost thereof), comply with all local, state and federal laws, rules, regulations and requirements now or hereafter in force and all judicial and administrative decisions in connection with the enforcement thereof (collectively, “Laws”), pertaining to either or both of the Premises and Tenant’s use and occupancy thereof, and including, but not limited to, all Laws concerning or addressing matters of an environmental nature. If any license or permit is required for the conduct of Tenant’s business in the Premises, Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain such license or permit in good standing throughout the Term. Tenant shall give prompt notice to Landlord of any written notice it receives of the alleged violation of any Law or requirement of any governmental or administrative authority with respect to either or both of the Premises and the use or occupation thereof.

9.2 Hazardous Materials. If, at any time or from time to time during the Term (or any extension thereof), any Hazardous Material (defined below) is generated, transported, stored, used, treated or disposed of at, to, from, on or in either or both of the Premises and the Property by, or as a result of any act or omission of, any or all of Tenant and any or all of Tenant’s Parties (defined below): (i) Tenant shall, at its own cost, at all times comply (and cause all Tenant’s Parties to comply) with all Laws relating to Hazardous Materials, and Tenant shall further, at its own cost, obtain and maintain in full force and effect at all times all permits and other approvals required in connection therewith; (ii) Tenant shall promptly provide Landlord or Agent with complete copies of all communications, permits or agreements with, from or issued by any governmental authority or agency (federal, state or local) or any private entity relating in any way to the presence, release, threat of release, or placement of Hazardous Materials on or in the Premises or any portion of the Property, or the generation, transportation, storage, use, treatment, or disposal at, on, in or from the Premises, of any Hazardous Materials; (iii) Landlord, Agent and their respective agents and employees shall have the right to either or both (x) enter the Premises and (y) conduct appropriate tests, at Tenant’s expense, for the purposes of ascertaining Tenant’s compliance with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of either or both of the Premises and the Property; and (iv) upon written request by Landlord or Agent, Tenant shall cause to be performed, and shall provide Landlord with the results of, reasonably appropriate tests of air, water or soil to demonstrate that Tenant complies with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of either or both of the Premises and the Property. At Tenant’s sole cost, Tenant will at all times during the Term (and at all times thereafter that Tenant remains in possession of the Premises) take all reasonable measures to prevent the release or discharge of Hazardous Materials at or from the Premises, which measures shall include, but are not limited to, making regular inspections of all areas, containers and apparatus in which Hazardous Materials are stored, used, generated or otherwise present, and installing and maintaining appropriate containment and secondary containment devices. This Section 9.2 does not authorize the generation, transportation, storage, use, treatment or disposal of any Hazardous Materials at, to, from, on or in the Premises in contravention of this Section 9.2. Tenant covenants to investigate, clean up and otherwise remediate, at Tenant’s sole expense, any release of Hazardous Materials caused, contributed to, or created by any or all of (A) Tenant and (B) any or all of Tenant’s officers, directors, members, managers, partners, invitees, agents, employees, contractors or representatives (collectively, “Tenant’s Parties”) during the Term. Such investigation and remediation shall be performed only after Tenant has obtained Landlord’s prior written consent; provided, however, that Tenant shall be entitled to respond (in a reasonably appropriate manner) immediately to an emergency without first obtaining such consent, if Tenant promptly thereafter delivers to Landlord written notice of the emergency and the action taken to remedy it. All remediation shall be performed in strict compliance with Laws and to the reasonable satisfaction of Landlord. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first obtaining Landlord’s written consent (which consent may be given or withheld in Landlord’s sole, but reasonable, discretion) and affording Landlord the reasonable opportunity to participate in any such proceedings. As used herein, the term, “Hazardous Materials,” shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not airborne) that is or may be deemed to be or include a pesticide, petroleum, asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant that is or may be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or that presents a risk to public health or to the environment, and that is or becomes regulated by any Law.

The undertakings, covenants and obligations imposed on Tenant under this Section 9.2 shall survive the termination or expiration of this Lease.

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Tenant Disclosure

Will you be required to make filings and notices or obtain permits as required by Federal and/or State regulations for the operations at the proposed facility? Specifically:

a. SARA Title III Section 312 (Tier II) reports NO

b. SARA Title III Section 313 (Tier III) Form reports NO

c. NPDES or SPDES stormwater discharge permit NO

d. EPA Hazardous Waste Generator ID Number YES

List any chemicals and wastes that will be used and/or generated at the proposed location. Routine office and cleaning supplies are not included. Provide a detailed exhibit if necessary.



Chemical/Waste	Approximate Annual Quantity Used or Generated	Storage Container(s) Used (Drums, Cartons, Above Ground Tanks, etc.)

10.INSURANCE.

10.1 Insurance to be Maintained by Landlord. Landlord shall maintain: (a) a commercial property insurance policy covering the Property (at its full replacement cost), but excluding Tenant’s personal property; (b) commercial general liability insurance covering Landlord for claims arising out of liability for bodily injury, death, personal injury, advertising injury and property damage occurring in and about the Property and otherwise resulting from any acts and operations of Landlord, its agents and employees; (c) business income/rental value insurance; and (d) any other insurance coverage deemed appropriate by Landlord or required by Landlord’s lender. All of the coverages described in (a) through (d) shall be determined from time to time by Landlord, in its sole discretion. All insurance maintained by Landlord shall be in addition to and not in lieu of the insurance required to be maintained by the Tenant.

10.2 Insurance to be Maintained by Tenant. Tenant shall purchase, at its own expense, and keep in force at all times from and after the date of this Lease, the policies of insurance set forth below (collectively, “Tenant’s Policies”). All Tenant’s Policies shall (a) be issued by an insurance company with a Best’s rating/financial size category of A/VIII or better and otherwise reasonably acceptable to Landlord and shall be licensed to do business in the state in which the Property is located; (b) provide for deductible amounts that are reasonably acceptable to Landlord (and its lender, if applicable) and (c) otherwise be in such form, and include such coverages, as Landlord may reasonably require. The Tenant’s Policies described in (i) and (ii) below shall (1) provide coverage on an occurrence basis; (2) name Landlord (and its lender, if applicable) as an additional insured; (3) provide coverage, to the extent insurable, for the indemnity obligations of Tenant under this Lease; (4) contain a separation of insured parties provision; (5) be primary, not contributing with, and not in excess of, coverage that Landlord may carry. Certified copies of Tenant’s Policies (or, at Landlord’s option, Certificates of Insurance and applicable endorsements, including, without limitation, an "Additional Insured Managers or Landlords of Premises" endorsement) shall be delivered to Landlord prior to the Commencement Date and renewals thereof shall be delivered to Landlord’s notice addresses prior to the applicable expiration date of each Tenant’s Policy. In the event that Tenant fails, at any time or from time to time, to comply with the requirements of the preceding sentence, Landlord may (x) order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand, as Additional Rent or (y)

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impose on Tenant, as Additional Rent, a monthly delinquency fee, for each month during which Tenant fails to comply with the foregoing obligation, in an amount equal to five percent (5%) of the Base Rent then in effect. Tenant shall give prompt notice to Landlord and Agent of any bodily injury, death, personal injury, advertising injury or property damage occurring in and about the Property. Tenant shall provide written notice to Landlord in accordance with Section 24.2 below prior to the cancelation or material modification of any of Tenant’s Policies.

Tenant shall purchase and maintain, throughout the Term, a Tenant’s Policy(ies) of (i) commercial general liability insurance, including personal injury and property damage, in the amount of not less than $2,000,000.00 per occurrence, and $3,000,000.00 annual general aggregate, per location (these limits may be achieved by a combination of a primary policy and an excess or umbrella liability policy); (ii) business auto liability insurance covering Tenant, against any personal injuries or deaths of persons and property damage based upon or arising out of the ownership, use, occupancy or maintenance of a motor vehicle at the Premises and all areas appurtenant thereto in the amount of not less than $1,000,000, combined single limit; (iii) commercial property insurance covering Tenant’s personal property (at its full replacement cost); (iv) workers’ compensation insurance per the applicable state statutes covering all employees of Tenant ; and (v) if Tenant handles, stores or utilizes Hazardous Materials in its business operations, pollution legal liability insurance with limits acceptable to Landlord.

10.3 Waiver of Subrogation. Notwithstanding anything to the contrary in this Lease, each of Landlord and Tenant hereby waives any and all claims against the other for Losses to the extent they are insured against or required to be insured against under this Lease; including, but not limited to, Losses, deductibles or self-insured retentions covered by Landlord’s or Tenant’s commercial property, business income/extra expense/rental value insurance, commercial general liability, business auto liability, workers’ compensation or employers’ liability policies. The risk to be borne by each of Landlord and Tenant shall also include the satisfaction of any deductible (or self-insured retention) amounts required amounts to be paid under the applicable insurance carried by the party incurring the Loss, and each of Landlord and Tenant agrees that the other shall not be responsible for satisfaction of such deductible (or self-insured amount); provided, however, that this limitation will not preclude Landlord from including deductibles it incurs as an Operating Expense as described in Section 3.1.1 above. The waivers set forth in this Section 10.8 shall apply if the damage would have been covered by a normal and customary “all risks” or “special form” property insurance policy, even if the party suffering the damage fails to maintain such coverage. Each of Landlord’s and Tenant’s respective insurance policies shall include a waiver of all rights of subrogation by the insurance carrier against the other party, its agents and employees. .

11.ALTERATIONS.

Tenant may, from time to time, at its expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as “Alterations”), provided that Tenant first obtains the written consent of Landlord. All of the following shall apply with respect to all Alterations: (a) the Alterations are non-structural and the structural integrity of the Property shall not be affected; (b) the Alterations are to the interior of the Premises; (c) the proper functioning of the mechanical, electrical, heating, ventilating, air-conditioning (“HVAC”), sanitary and other service systems of the Property shall not be affected and the usage of such systems by Tenant shall not be increased; and (d) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations. Additionally, before proceeding with any Alterations, Tenant shall (i) at Tenant’s expense, obtain all necessary governmental approvals, permits and certificates for the commencement and prosecution of Alterations; (ii) if Landlord’s consent is required for the planned Alteration, submit to Landlord, for its written approval, working drawings, plans and specifications and all approvals, permits and certificates for the work to be done and Tenant shall not proceed with such Alterations until it has received Landlord’s approval (if required); and (iii) cause those contractors, materialmen and suppliers engaged to perform the Alterations to deliver to Landlord certificates of insurance (in a form reasonably acceptable to Landlord) evidencing policies of commercial general liability insurance and workers’ compensation insurance. Such insurance policies shall satisfy all obligations imposed under Section 10.1. Tenant, at its sole expense, shall cause the Alterations to be performed in compliance with all applicable approvals, permits, Laws and requirements of public authorities, and with Landlord’s reasonable rules and regulations or any other restrictions that Landlord may impose on the Alterations and free of all construction liens and all other liens or encumbrances. Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the standards for the Property established by Landlord. With respect to any and all Alterations for which Landlord’s consent is required, Tenant shall provide Landlord with “as built” plans (upon completion), copies of all construction contracts, governmental approvals, permits and certificates and proof of

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payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers. If Landlord’s consent to any Alterations is required, and Landlord provides that consent, then at the time Landlord so consents, Landlord shall also advise Tenant whether or not Landlord shall require that Tenant remove such Alterations at the expiration or termination of this Lease. If Landlord requires Tenant to remove the Alterations, then, during the remainder of the Term, Tenant shall be responsible for the maintenance of appropriate commercial property insurance (pursuant to Section 10.2) therefor; however, if Landlord shall not require that Tenant remove the Alterations, such Alterations shall constitute Landlord’s Property (defined below) and Landlord shall be responsible for the insurance thereof, pursuant to Section 10.1.

12.LANDLORD’S AND TENANT’S PROPERTY.

All fixtures, machinery, equipment, improvements and appurtenances attached to, or built into, the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, shall become and remain a part of the Premises; shall be deemed the property of Landlord (the “Landlord’s Property”), without compensation or credit to Tenant; and shall not be removed by Tenant at the Expiration Date unless Landlord requires their removal (including, but not limited to, Alterations pursuant to Section 11). Further, any personal property in the Premises on the Commencement Date, movable or otherwise, unless installed and paid for by Tenant, shall also constitute Landlord’s Property and shall not be removed by Tenant. For purposes of this Lease, any references to “Tenant’s Property” shall mean any personal property for which Tenant has itself paid or manufactured, together with any machinery and equipment for which Tenant has paid and that is not attached to, or built into, the Premises. In no event shall Tenant remove any of the following materials or equipment without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole discretion): any power wiring or power panels, lighting or lighting fixtures, wall or window coverings, carpets or other floor coverings, heaters, air conditioners or any other HVAC equipment, fencing or security gates, or other similar building operating equipment and decorations. At or before the Expiration Date, or the date of any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant’s Property and any Alterations that Landlord requires be removed pursuant to Section 11, and Tenant shall repair (to Landlord’s reasonable satisfaction) any damage to the Premises or the Property resulting from either or both of such installation and removal. Any other items of Tenant’s Property that remain in the Premises after the Expiration Date, or following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items of Tenant’s Property may be retained by Landlord as its property or be disposed of by Landlord, in Landlord’s sole and absolute discretion and without accountability, at Tenant’s expense. Notwithstanding the foregoing, if Tenant is in default under the terms of this Lease, Tenant may remove Tenant’s Property from the Premises only upon the express written direction of Landlord.

13.REPAIRS AND MAINTENANCE.

13.1 Tenant Repairs and Maintenance.

13.1.1 Tenant Responsibilities. Except for events of damage, destruction or casualty to the Premises or Property (which are addressed in Section 18), throughout the Term, Tenant shall, at its sole cost and expense: (i) both (x) maintain and preserve, in a good and safe condition, repair and appearance (the “Required Condition”), and (y) perform any and all repairs and replacements required in order to so maintain and preserve, in the Required Condition, the Premises and the fixtures and appurtenances therein (including, but not limited to, the Premises’ plumbing and HVAC systems, floor/slab, all doors, overhead or otherwise, glass and levelers located in the Premises or otherwise available in the Property for Tenant’s sole use; and excluding, however, only those specific components of the Premises for which Landlord is expressly responsible under Section 13.1.4); and (ii) except to the extent Landlord elects to repair and maintain the HVAC systems as part of General Maintenance Services, maintain, in full force and effect, a preventative maintenance and service contract with a reputable service provider for quarterly maintenance of the HVAC systems of the Premises (the “HVAC Maintenance Contract”). In the event the HVAC unit(s) need to be replaced during the term of this Lease, Landlord agreed to pay for the HVAC replacement and amortize over the useful life the cost of the

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replacement HVAC back to Tenant over the term and any extensions thereof. In addition to Tenant’s obligations under (i) and (ii) above, Tenant shall also be responsible for all costs and expenses incurred to perform any and all repairs and replacements (whether structural or non-structural; interior or exterior; and ordinary or extraordinary), in and to the Premises and the Property and the facilities and systems thereof, if and to the extent that the need for such repairs or replacements arises directly or indirectly from any act, omission, misuse, or neglect of any or all of Tenant, any of its subtenants, any Tenant’s Parties, or others entering into, or utilizing, all or any portion of the Premises for any reason or purpose whatsoever, including, but not limited to (a) the performance or existence of any Alterations, (b) the installation, use or operation of Tenant’s Property in the Premises; and (c) the moving of Tenant’s Property in or out of the Property (collectively, “Tenant-Related Repairs”). All such repairs or replacements required under this Section 13.1.1 shall be subject to the supervision and control of Landlord, and all repairs and replacements shall be made with materials of equal or better quality than the items being repaired or replaced.

13.1.2 General Maintenance Services. Notwithstanding any of the foregoing, however, from time to time during the Term, Landlord may elect, in its sole discretion and by delivery of written notice to Tenant, to perform on behalf of Tenant, all or some portion of the repairs, maintenance, restoration and replacement in and to the Premises required to be performed by Tenant under this Lease (any such repairs, maintenance, restoration and/or replacement activities that Landlord elects to perform on behalf of Tenant are herein collectively referred to as “General Maintenance Services”). Tenant shall reimburse Landlord for the cost or value of all General Maintenance Services provided by Landlord as Additional Rent, simultaneously with the payment of Operating Expenses as part of Estimated Additional Rent (on a monthly estimated basis subject to annual reconciliation, as described in Section 3.2 above). Unless and until Landlord affirmatively elects to provide General Maintenance Services, nothing contained herein shall be construed to obligate Landlord to perform any General Maintenance Services or, except as otherwise expressly provided in Section 13.1.4, to repair, maintain, restore or replace any portion of the Premises. Landlord may from time to time, in its sole discretion, (x) reduce or expand the scope of the General Maintenance Services that Landlord has elected to provide or (y) revoke its election to provide any or all of the General Maintenance Services, in either event, upon delivery of not less than thirty (30) days’ prior written notice to Tenant.

13.1.3 HVAC Maintenance Contract. Tenant shall also maintain, in full force and effect, a preventative maintenance and service contract with a reputable, fully licensed and insured/bonded third-party service provider for maintenance of the HVAC systems of the Premises (the “HVAC Maintenance Contract”). The terms and provisions of any HVAC Maintenance Contract shall require that the service provider maintain the Premises’ HVAC system in accordance with the manufacturer’s recommendations and be reasonably acceptable to Landlord and shall otherwise in accordance with normal, customary and reasonable practices in the geographic area in which the Premises is located and for HVAC systems comparable to the Premises’ HVAC system, but not less than quarterly preventative maintenance visits. If Landlord does not elect to repair and maintain the HVAC systems as part of General Maintenance Services, or revokes such election at any time after having made such election, then, within 30 days following either (a) the Commencement Date or (b) the date on which Landlord advises Tenant that Landlord will no longer provide General Maintenance Services for the HVAC system, whichever date is applicable, Tenant shall procure and deliver to Landlord the HVAC Maintenance Contract. Thereafter, Tenant shall provide to Landlord a copy of renewals or replacements of such HVAC Maintenance Contract no later than 30 days prior to the then-applicable expiration date of the existing HVAC Maintenance Contract. If Tenant fails to timely deliver to Landlord the HVAC Maintenance Contract (or any applicable renewal or replacement thereof), then Landlord shall have the right to contract directly for the periodic maintenance of the HVAC systems in the Premises and to charge the cost thereof back to Tenant as Additional Rent.

13.1.4 Landlord Repairs. Notwithstanding anything to the contrary state herein, Landlord shall repair, replace and restore the (a) foundation, exterior and interior load-bearing walls, roof structure and roof covering of the Property and be responsible for the inspection, preventative maintenance when necessary of the HVAC systems, and (b) the Common Areas; provided, however, that in the case of both (a) and (b): (i) all costs and expenses so incurred by Landlord to repair, replace and restore the above items shall constitute Operating Expenses; provided, however, that with respect to any costs incurred in the replacement context, those costs shall not constitute an Operating Expense except to the extent that such costs so qualify under Section 3.1; and (ii) notwithstanding (i) above, in the event that any such repair, replacement or restoration is a Tenant-Related Repair, then Tenant shall be required to reimburse Landlord for all costs

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and expenses that Landlord incurs in order to perform such Tenant-Related Repair, and such reimbursement shall be paid, in full, within 10 days after Landlord’s delivery of demand therefor.

14.UTILITIES.

Tenant shall purchase all utility services and shall provide for scavenger, cleaning and extermination services. As provided in Section 3.1.1. above, utility charges may be included within Operating Expenses; nevertheless, at Landlord’s election or with Landlord’s consent, (a) Tenant may pay the utility charges for its Premises directly to the utility or municipality providing such service, and in that event all charges shall be paid by Tenant before they become delinquent; and (b) Landlord may directly bill Tenant for Tenant’s Proportionate Share of utility expenses when and as such expenses are incurred. Tenant shall be solely responsible for the repair and maintenance of any meters necessary in connection with such utility services to the Premises. Tenant’s use of electrical energy in the Premises shall not, at any time, exceed the capacity of either or both of (x) any of the electrical conductors and equipment in or otherwise servicing the Premises; and (y) the HVAC systems of either or both of the Premises and the Property.

If Landlord is required by law to perform energy benchmarking of the Premises, Tenant hereby authorizes Landlord to obtain information, from time to time throughout the Term, regarding Tenant's utility and energy usage at the Premises directly from the applicable utility providers and Tenant shall execute, within five (5) days of Landlord's request, any additional documentation required by any applicable utility provider evidencing such authorization. Further, throughout the Term, (i) within five (5) days of Landlord's request, Tenant shall provide to Landlord all requested information regarding Tenant's utility, energy and space usage at the Premises, and (ii) upon Landlord's delivery to Tenant of written request, Tenant shall deliver to Landlord copies of its utilities bills for the immediately preceding twelve (12) calendar months.

15.INVOLUNTARY CESSATION OF SERVICES.

Landlord reserves the right, without any liability to Tenant and without affecting Tenant’s covenants and obligations hereunder, to stop service of any or all of the HVAC, electric, sanitary, elevator (if any), and other systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for so long as may be necessary by reason of (i) accidents, emergencies, strikes, or the making of repairs or changes which Landlord or Agent, in good faith, deems necessary or (ii) any other cause beyond Landlord’s reasonable control. Further, it is also understood and agreed that Landlord or Agent shall have no liability or responsibility for a cessation of services to the Premises or to the Property that occurs as a result of causes beyond Landlord’s or Agent’s reasonable control. No such interruption of service shall be deemed an eviction or disturbance of Tenant’s use and possession of the Premises or any part thereof, or render Landlord or Agent liable to Tenant for damages, or relieve Tenant from performance of Tenant’s obligations under this Lease, including, but not limited to, the obligation to pay Rent; provided, however, that if any interruption of services persists for a period in excess of five (5) consecutive business days Tenant shall, as Tenant’s sole remedy, be entitled to a proportionate abatement of Rent to the extent, if any, of any actual loss of use of the Premises by Tenant.

16.LANDLORD’S RIGHTS.

Landlord, Agent and their respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times upon reasonable prior notice (except in the event of emergency): (a) to examine and inspect the Premises and to show them to actual and prospective lenders, prospective purchasers or mortgagees of the Property or providers of capital to Landlord and its affiliates; and in connection with the foregoing, to install a sign at or on the Property to advertise the Property for lease or sale; (b) to make such repairs, alterations, additions and improvements in or to all or any portion of either or both of the Premises and the Property, or the Property’s facilities and equipment as Landlord is required or desires to make. During the period of nine (9) months prior to the Expiration Date (or at any time, if Tenant has vacated or abandoned the Premises or is otherwise in default under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants. Additionally, Landlord and Agent shall have the following rights with respect to the Premises, exercisable without notice to Tenant, without liability to Tenant, and without being deemed an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: (i) to have pass keys, access cards, or both, to the Premises; and (ii) to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant vacates

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or abandons the Premises for more than thirty (30) consecutive days or without notice to Landlord of Tenant’s intention to reoccupy the Premises.

17.NON-LIABILITY AND INDEMNIFICATION; FORCE MAJEURE.

17.1 Non-Liability. Subject to Landlord’s indemnity under Section 17.3, none of the Landlord Indemnified Parties (defined below) shall be liable to Tenant for any Loss to Tenant or to any other person, or to its or their property, irrespective of the cause of such Loss. In the event that Landlord’s indemnity under Section 17.3 is applicable, it shall apply only as and to the specific extent expressly provided in Section 17.3. Further, none of the Landlord Indemnified Parties shall be liable to Tenant or to any other person (a) for any damage caused by other tenants or persons in, upon or about the Property, or caused by operations in construction of any public or quasi-public work; (b) with respect to matters for which Landlord is liable, for consequential, punitive or indirect damages, including those purportedly arising out of any loss of use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant; (c) for any defect, latent or otherwise, in the Premises or the Property; or (d) for injury or damage to person or property caused by fire, or theft, or resulting from the operation of heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow from any part of the Property, or from the pipes, appliances or plumbing work of the same.

17.2 Tenant Indemnification. Except in the event of, and to the extent of, Landlord’s gross negligence, sole negligence or willful misconduct, Tenant hereby indemnifies, defends, and holds Landlord, Agent, Landlord’s members and their respective affiliates, owners, partners, members, directors, officers, agents and employees (collectively, “Landlord Indemnified Parties”) harmless from and against any and all Losses (defined below) arising from or in connection with any or all of: (a) the conduct or management of the Premises or any business therein, or any work or Alterations done, or any condition created by any or all of Tenant and Tenant’s Parties in or about the Premises, or the Property, during the Term or during the period of time, if any, prior to the Commencement Date that Tenant has possession of, or is given access to, the Premises; (b) any act, omission or negligence of any or all of Tenant and Tenant’s Parties; (c) any accident, injury or damage whatsoever occurring in, at or upon either or both of the Property and the Premises and caused by any or all of Tenant and Tenant’s Parties. Tenant also indemnifies, defends, and holds the Landlord Indemnified Parties harmless from and against any and all Losses arising from or in connection with any or all of: (i) any breach by Tenant of any or all of its warranties, representations and covenants under this Lease; (ii) any actions necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code; (iii) the creation or existence, or release of any Hazardous Materials in, at, on or under the Premises or the Property, if and to the extent brought to the Premises or the Property or caused by Tenant or any Tenant’s parties; and (iv) any violation or alleged violation by any or all of Tenant and Tenant’s Parties of any Law. The obligations of Tenant in the two prior sentences are referred to collectively as “Tenant’s Indemnified Matters.” In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant’s Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to, or selected by, Landlord. The term “Losses” shall mean all claims, demands, expenses, actions, judgments, damages (actual, but except in connection with third party tort claims, or government claims, not indirect, special, consequential, or punitive), natural resource damages, penalties, fines, liabilities, losses of every kind and nature, suits, administrative proceedings, costs and fees, including, without limitation, attorneys’ and consultants’ reasonable fees and expenses, and the costs of investigation, cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. The provisions of this Section 17.2 shall survive the expiration or termination of this Lease.

17.3 Landlord Indemnification and Limitation of Landlord’s Liability. Landlord hereby indemnifies, defends and holds Tenant harmless from and against any and all Losses actually suffered or incurred by Tenant as the sole and direct result of Landlord’s gross negligence, sole negligence or willful misconduct. Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant, whether under this Section 17.3 or any other provision of this Lease, shall be limited to the interest of Landlord in the Property, and Tenant agrees to look solely to Landlord’s interest in the Property for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency. The provisions of this Section 17.3 shall survive the expiration or termination of this Lease.

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17.4 Force Majeure. Each of the obligations of Tenant (except the obligation to pay Rent and the obligation to maintain insurance, and provide evidence thereof, in accordance with Section 10.2) and each of the obligations of Landlord, shall be excused, and neither Landlord nor Tenant shall have any liability whatsoever to the other, to the extent that any failure to perform, or delay in performing such obligation arises out of either or both of (a) any labor dispute, governmental preemption of property in connection with a public emergency or shortages of fuel, supplies, or labor, or any other cause, whether similar or dissimilar, beyond Landlord’s or Tenant’s, as the case may be, reasonable control; or (b) any failure or defect in the supply, quantity or character of utilities furnished to the Premises, or by reason of any requirement, act or omission of any public utility or others serving the Property, beyond Landlord’s or Tenant’s, as the case may be, reasonable control.

18.DAMAGE OR DESTRUCTION.

18.1 Notification and Repair; Rent Abatement. Tenant shall give prompt notice to Landlord and Agent of (a) any fire or other casualty to the Premises or the Property, and (b) any damage to, or defect in, any part or appurtenance of the Property’s sanitary, electrical, HVAC, elevator or other systems located in or passing through the Premises or any part thereof. Subject to the provisions of Section 18.2 below, if either or both of the Property and the Premises is damaged by fire or other insured casualty, Landlord shall repair (or cause Agent to repair) the damage and restore and rebuild the Property and/or the Premises (except Tenant’s Property) with reasonable dispatch after the adjustment of the insurance proceeds attributable to such damage. Landlord (or Agent, as the case may be) shall use its diligent and good faith efforts to make such repair or restoration promptly and in such manner as not to unreasonably interfere with Tenant’s use and occupancy of the Premises, but Landlord or Agent shall not be required to do such repair or restoration work except during normal business hours of business days. Provided that any damage to either or both of the Property and the Premises is not caused by, or is not the result of acts or omissions by, any or all of Tenant and Tenant’s Parties, if (i) the Property is damaged by fire or other casualty thereby causing the Premises to be inaccessible or (ii) the Premises are partially damaged by fire or other casualty, the Rent shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant.

18.2 Total Destruction. If the Property or the Premises shall be totally destroyed by fire or other casualty, or if the Property shall be so damaged by fire or other casualty that (in the reasonable opinion of a reputable contractor or architect designated by Landlord): (i) its repair or restoration of the Premises requires more than one hundred eighty (180) days or (ii) such repair or restoration requires the expenditure of more than (a) eighty percent (80%) of the full insurable value of the Premises on file with Landlord’s insurer immediately prior to the casualty or (b) fifty percent (50%) of the full insurable value of the Property immediately prior to the casualty, Landlord and Tenant shall each have the option to terminate this Lease (by so advising the other, in writing) within ten (10) days after said contractor or architect delivers written notice of its opinion to Landlord and Tenant, but in all events prior to the commencement of any restoration of the Premises or the Property by Landlord. Additionally, if the damage (x) is less than the amount stated in (ii) above, but more than ten percent (10%) of the full insurable value of the Property; and (y) occurs during the last two years of Lease Term, then Landlord, and Tenant, shall have the option to terminate this Lease pursuant to the notice and within the time period established pursuant to the immediately preceding sentence. In the event of a termination pursuant to either of the preceding two (2) sentences, the termination shall be effective as of the date upon which either Landlord or Tenant, as the case may be, receives timely written notice from the other terminating this Lease pursuant to the preceding two (2) sentences. If neither Landlord nor Tenant timely delivers a termination notice, this Lease shall remain in full force and effect. Notwithstanding the foregoing, if (A) any holder of a mortgage or deed of trust encumbering the Property or landlord pursuant to a ground lease encumbering the Property (collectively, “Superior Parties”) or other party entitled to the insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Premises or the Property, or (B) the issuer of any commercial property insurance policies on the Property fails to make available to Landlord sufficient proceeds for restoration of the Premises or the Property, then Landlord may, at Landlord’s sole option, terminate this Lease by giving Tenant written notice to such effect within 30 days after Landlord receives notice from the Superior Party or insurance company, as the case may be, that such proceeds shall not be made available, in which event the termination of this Lease shall be effective as of the date Tenant receives written notice from Landlord of Landlord’s election to terminate this Lease. Landlord shall have no liability to Tenant for, and Tenant shall not be entitled to terminate this Lease by virtue of, any delays in completion of repairs and restoration. For purposes of this Section 18.2 only, “full insurable value” shall mean replacement cost, less the cost of footings, foundations and other structures below grade.

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19.EMINENT DOMAIN.

If the whole, or any substantial (as reasonably determined by Landlord) portion, of the Property is taken or condemned for any public use under any Law or by right of eminent domain, or by private purchase in lieu thereof, and such taking would prevent or materially interfere with the Permitted Use of the Premises, this Lease shall terminate effective when the physical taking of said Premises occurs. If less than a substantial portion of the Property is so taken or condemned, or if the taking or condemnation is temporary (regardless of the portion of the Property affected), this Lease shall not terminate, but the Rent payable hereunder shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. Landlord shall be entitled to any and all payment, income, rent or award, or any interest therein whatsoever, which may be paid or made in connection with such a taking or conveyance, and Tenant shall have no claim against Landlord, or the condemning authority for the value of any unexpired portion of this Lease. Notwithstanding the foregoing, any compensation specifically and independently awarded to Tenant for relocation expenses, or for Tenant’s Property, shall be the property of Tenant, provided that such award does not diminish or otherwise adversely affect any award to Landlord.

20.SURRENDER AND HOLDOVER.

On the last day of the Term, or upon any earlier termination of this Lease,: (a) Tenant shall quit and surrender the Premises to Landlord “broom-clean” (as defined by Exhibit B attached hereto and incorporated herein by reference), and in a condition that would reasonably be expected in Landlord’s sole discretion, with normal and customary use in accordance with (i) prudent operating practices and (ii) the covenants and requirements imposed under this Lease, subject only to ordinary wear and tear (as is attributable to deterioration by reason of time and use, in spite of Tenant’s reasonable care), and such damage or destruction as Landlord is required to repair or restore under this Lease; (b) Tenant shall remove all of Tenant’s Property therefrom, except as otherwise expressly provided in this Lease; and (c) Tenant shall surrender to Landlord any and all keys, access cards, computer codes or any other items used to access the Premises. Landlord shall be permitted to inspect the Premises in order to verify compliance with this Section 20 at any time prior to (x) the Expiration Date, (y) the effective date of any earlier termination of this Lease, or (z) the surrender date otherwise agreed to in writing by Landlord and Tenant. The obligations imposed under the first sentence of this Section 20 shall survive the termination or expiration of this Lease. If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant’s right to possession: (A) Tenant shall be deemed a tenant-at-will; (B) Tenant shall pay the current rent amount for the first thirty (30) days and 150% of the aggregate of all Rent last prevailing hereunder for the remainder of the tenant-at-will period, and also shall pay all actual damages sustained by Landlord, directly by reason of Tenant’s remaining in possession after the expiration or termination of this Lease; (C) there shall be no renewal or extension of this Lease by operation of law; and (D) the tenancy-at-will may be terminated by either party hereto upon 30 days’ prior written notice given by the terminating party to the non-terminating party. The provisions of this Section 20 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by Law and shall survive the expiration or sooner termination of this Lease.

21.EVENTS OF DEFAULT.

21.1 Bankruptcy of Either Party. It shall be a default by either Party under this Lease (“Default” or “Event of Default”) if the Defaulting Party makes an assignment for the benefit of creditors, or files a voluntary petition under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law, or an involuntary petition is filed against the Defaulting Party under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law that is not dismissed within ninety (90) days after filing, or whenever a receiver of the Defaulting Party of or for the property of the Defaulting Party shall be appointed, or Defaulting Party admits it is insolvent or is not able to pay its debts as they mature.

21.2 Default Provisions. In addition to any Default arising under Section 21.1 above, each of the following shall constitute a Default: (a) if Tenant fails to pay Rent or any other payment when due hereunder within five (5) days after written notice from Landlord of such failure to pay on the due date; provided, however, that if in any consecutive twelve (12) month period, Tenant shall, on two (2) separate occasions, fail to pay any installment of Rent on the date such installment of Rent is due, then, on the third such occasion and on each occasion thereafter on which Tenant shall fail to pay an installment of Rent on the date such installment of Rent is due, Landlord shall be relieved from any obligation to provide notice to Tenant, and

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Tenant shall then no longer have a five day period in which to cure any such failure; (b) if Tenant fails, whether by action or inaction, to timely comply with, or satisfy, any or all of the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of thirty (30) days after Landlord’s delivery to Tenant of written notice of such default under this Section 21.2(b); provided, however, that if the default cannot, by its nature, be cured within such thirty (30) day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial thirty (30) day cure period, then Landlord shall not exercise its remedies under Section 22 unless such default remains uncured for more than sixty (60) days after the initial delivery of Landlord’s original default notice; and, at Landlord’s election, (c) if Tenant vacates or abandons the Premises during the Term. (d) It shall be an automatic Event of Default under this Lease (for which no notice or cure period shall be required) in the event that (i) Tenant transfers all of some portion of its assets to another party, regardless of a.) the nature of the assets and b.) whether that transferee is an affiliate of Tenant or an unrelated third party, and (ii) as a result (directly or indirectly) of such transfer, Tenant no longer has sufficient assets to permit Tenant to timely and fully satisfy the obligations (monetary or otherwise) imposed on it under this Lease.

22.RIGHTS AND REMEDIES.

22.1 Landlord’s Cure Rights Upon Default of Tenant. If a Default occurs, then Landlord may (but shall not be obligated to) cure or remedy the Default for the account of, and at the expense of, Tenant, but without waiving such Default.

22.2 Landlord’s Remedies. In the event of any Default by Tenant under this Lease, Landlord, at its option, may, in addition to any and all other rights and remedies provided in this Lease or otherwise at law or in equity, do or perform any or all of the following:

22.2.1 Terminate this Lease and/or Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession to Landlord. In such event, Landlord shall be entitled to recover from Tenant all of: (i) the unpaid Rent that is accrued and unpaid as of the date on which this Lease is terminated; (ii) the worth, at the time of award, of the amount by which (x) the unpaid Rent that would otherwise be due and payable under this Lease (had this Lease not been terminated) for the period of time from the date on which this Lease is terminated through the Expiration Date exceeds (y) the amount of such rental loss that the Tenant proves could have been reasonably mitigated; and (iii) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of events, would be likely to result therefrom, including but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Landlord in connection with this Lease applicable to the unexpired Term (as of the date on which this Lease is terminated). The worth, at the time of award, of the amount referred to in provision (ii) of the immediately preceding sentence shall be computed by discounting such amount at the current yield, as of the date on which this Lease is terminated under this Section 22.2.1, on United States Treasury Bills having a maturity date closest to the stated Expiration Date of this Lease, plus one percent per annum. Efforts by Landlord to mitigate damages caused by Tenant’s Default shall not waive Landlord’s right to recover damages under this Section 22.2.1. If this Lease is terminated through any unlawful entry and detainer action, Landlord shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable in such action, or Landlord may reserve the right to recover all or any part of such Rent and damages in a separate suit; or

22.2.2 Continue the Lease and either (a) continue Tenant’s right to possession or (b) terminate Tenant’s right to possession and in the case of either (a) or (b), recover the Rent as it becomes due. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Landlord’s interests shall not constitute a termination of the Tenant’s right to possession; or

22.2.3 Pursue any other remedy now or hereafter available under the laws of the state in which the Premises are located.

22.2.4 Without limitation of any of Landlord’s rights in the event of a Default by Tenant, Landlord may also exercise its rights and remedies with respect to any Security under Section 4.4 above.

22.2.5 Any and all of Tenant’s Property that may be removed from the Premises by Landlord pursuant to the authority of this Lease or of Law may be handled, removed, disposed of and/ or stored by Landlord at the sole risk, cost and

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expense of Tenant, and in no event or circumstance shall Landlord be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such handling, removal, or disposal and all storage charges for such Tenant’s Property so long as the same shall be in Landlord’s possession or under Landlord’s control. Any Tenant’s Property not removed from the Premises as of the Expiration Date or any other earlier date on which this Lease is terminated shall be conclusively presumed to have been conveyed by Tenant to Landlord under this Lease as in a bill of sale, without further payment or credit by Landlord to Tenant, and/or at Landlord’s election (which Landlord may elect whole or in part with respect to Tenant’s Property) shall be deemed abandoned by Tenant and disposed of by Landlord as it sees fit in its sole and absolute discretion. Neither expiration nor termination of this Lease, nor the termination of Tenant’s right to possession, shall relieve Tenant from its liability under the indemnity provisions of this Lease.

22.3 Additional Rights of Landlord. All sums advanced by Landlord or Agent on account of Tenant under this Section, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if delinquent or not paid by Tenant and received by Landlord when due hereunder, shall bear interest (“Default Interest”) at the rate of five percent (5%) per annum above the “prime” or “reference” or “base” rate (on a per annum basis) of interest publicly announced as such, from time to time, by the JPMorgan Chase Bank, NA, or its successor, from the due date thereof until paid, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord’s or Agent’s submission of an invoice therefor.

22.4 Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then: (a) “adequate assurance of future performance” by Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new security deposit in the amount of three times the then current Base Rent payable hereunder; (b) any person or entity to which this Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment, and any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability; (c) notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as “Rent”, shall constitute “rent” for the purposes of Section 502(b)(6) of the Bankruptcy Code; and (d) if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord or Agent (including Base Rent, Additional Rent and other amounts hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord or Agent shall be held in trust by Tenant or Tenant’s bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord.

22.5 Sale of Premises. Notwithstanding anything contained in this Lease to the contrary, the sale of the Premises by Landlord shall not constitute Landlord’s acceptance of Tenant’s abandonment of the Premises or rejection of the Lease or in any way impair Landlord’s rights upon Tenant’s default, including, without limitation, Landlord’s right to damages.

22.6 Landlord’s Default. In the event that Landlord defaults in the observance or performance of any term or condition required to be performed by Landlord hereunder, Tenant, may commence an action in a court of competent jurisdiction to compel performance by Landlord hereunder; provided, however, that Tenant may not exercise such remedy without first providing written notice of the alleged default to Landlord, setting forth with reasonable specificity and detail the nature of such default, and thereafter permitting Landlord a thirty (30) day period to cure such default (which cure period may be extended if Landlord is diligently pursuing performance of the applicable cure, but such cure is not completed within the 30 day period). Upon expiration of Landlord’s cure period, Tenant shall deliver written notice to Landlord advising of Tenant’s election to file the action contemplated above. The remedy provided in this Section 22.6 is Tenant’s sole and exclusive remedy, whether at law or in equity. In connection with the exercise of the foregoing remedy or otherwise, Tenant shall not be entitled to any abatement, deduction or set off against the Rent payable hereunder.

23.BROKER.

Tenant covenants, warrants and represents that the broker set forth in Section 1.9(A) was the only broker to represent Tenant in the negotiation of this Lease (“Tenant’s Broker”). Landlord shall be solely responsible for paying the

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commission of Tenant’s Broker. Each party agrees to and hereby does defend, indemnify and hold the other harmless against and from any brokerage commissions or finder’s fees or claims therefore by a party claiming to have dealt with the indemnifying party and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses, for any breach of the foregoing. The foregoing indemnification shall survive the termination or expiration of this Lease.

24.MISCELLANEOUS.

24.1 Merger. All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties. No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought.

24.2 Notices. Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if (a) personally delivered, or (b) if sent by Federal Express or other comparable commercial overnight delivery service, or (c) sent by certified mail, return receipt requested and postage prepaid, addressed (in the case of any or all of (a), (b) and (c) above) to the other party at the addresses set forth below each party’s respective signature block (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made (i) on the day so delivered or (ii) in the case of overnight courier delivery on the first business day after having been deposited with the courier service, and (iii) in the case of certified mail, on the third (3^rd) business day after deposit with the U.S. Postal Service, postage prepaid.

24.3 Non-Waiver. The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment at the time for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt and acceptance by Landlord or Agent of Base Rent or Additional Rent with knowledge of any breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach.

24.4 Legal Costs. Any party in breach or default under this Lease (the “Defaulting Party”) shall reimburse the other party (the “Nondefaulting Party”) upon demand for any reasonable legal fees and court (or other administrative proceeding) costs or expenses that the Nondefaulting Party incurs in connection with the breach or default, regardless whether suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, in the event of litigation, the court in such action shall award to the party in whose favor a judgment is entered a reasonable sum as attorneys’ fees and costs, which sum shall be paid by the losing party. Tenant shall pay Landlord’s attorneys’ reasonable fees incurred in connection with Tenant’s request for Landlord’s consent under provisions of this Lease governing assignment and subletting, or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent. All payments due hereunder from Tenant to Landlord shall be deemed Additional Rent.

24.5 Parties Bound. Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto. Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord’s ownership interest in the Property. In the event of such conveyance and transfer, Landlord’s obligations hereunder shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise). No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant.

24.6 Recordation of Lease. Tenant shall not record or file this Lease (or any memorandum hereof) in the public records of any county or state.

24.7 Governing Law; Construction. This Lease shall be governed by and construed in accordance with the laws of the state in which the Property is located. If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by Law. The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation, or other provision of this Lease to be performed by Tenant, shall be construed as a separate

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and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require.

24.8 Time. Time is of the essence for this Lease unless waived by Landlord (which it shall have the right, but not the obligation to do). If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the Property is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state.

24.9 Authority of Tenant. Tenant and the person(s) executing this Lease on behalf of Tenant hereby represent, warrant, and covenant with and to Landlord as follows: the individual(s) acting as signatory on behalf of Tenant is(are) duly authorized to execute this Lease; Tenant has procured (whether from its members, partners or board of directors, as the case may be), the requisite authority to enter into this Lease; this Lease is and shall be fully and completely binding upon Tenant; and Tenant shall timely and completely perform all of its obligations hereunder.

24.10 WAIVER OF TRIAL BY JURY. LANDLORD AND TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES.

24.11 Relocation. Intentionally Deleted.

24.12 Financial Information. If Tenant ever becomes a private, non-traded company, then from time to time during the Term, Tenant shall deliver to Landlord information and documentation describing and concerning Tenant’s financial condition, and in form and substance reasonably acceptable to Landlord, within ten (10) days following Landlord’s written request therefor. Upon Landlord’s request, Tenant shall provide to Landlord the most currently available audited financial statement of Tenant; and if no such audited financial statement is available, then Tenant shall instead deliver to Landlord its most currently available balance sheet and income statement. Furthermore, upon the delivery of any such financial information from time to time during the Term, Tenant shall be deemed to automatically represent and warrant to Landlord that the financial information delivered to Landlord is true, accurate and complete, and that there has been no adverse change in the financial condition of Tenant since the date of the then-applicable financial information.

24.13 Confidential Information. Tenant agrees to maintain in strict confidence the economic terms of this Lease and any or all other materials, data and information delivered to or received by any or all of Tenant and Tenants’ Parties either prior to or during the Term in connection with the negotiation and execution hereof. The provisions of this Section 24.13 shall survive the termination of this Lease.

24.14 Submission of Lease. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease, or an offer to lease. This Lease is not effective until execution by and delivery to both Landlord and Tenant.

24.15 Lien Prohibition. Tenant shall not permit any notice of unpaid balance or right to file lien, construction lien, construction lien claim, mechanics or materialmen’s liens to be filed or to attach to the Premises or the Property. Tenant, at its expense, shall procure the satisfaction or discharge of record of all such liens and encumbrances within 30 days after the filing thereof; or, within such thirty (30) day period, Tenant shall provide Landlord, at Tenant’s sole expense, with endorsements (satisfactory, both in form and substance, to Landlord and the holder of any mortgage or deed of trust) to the existing title insurance policies of Landlord and the holder of any mortgage or deed of trust, insuring against the existence of, and any attempted enforcement of, such lien or encumbrance. In the event Tenant has not so performed, Landlord may, at its option, pay and discharge such liens and Tenant shall be responsible to reimburse Landlord, on demand and as Additional Rent under this Lease, for all costs and expenses incurred in connection therewith, together with Default Interest thereon, which expenses shall include reasonable fees of attorneys of Landlord’s choosing, and any costs in posting bond to effect discharge or release of the lien as an encumbrance against the Premises or the Property. The provisions of this Section 24.15 shall survive the termination or expiration of this Lease.

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THE INTEREST OF THE LANDLORD IN THE PREMISES SHALL NOT, UNDER ANY CIRCUMSTANCES, BE SUBJECT TO LIENS FOR ALTERATIONS MADE BY THE TENANT OR ANY OTHER ACT OF TENANT.

24.16 Landlord’s Covenants; No Termination Right. Landlord’s Covenants; No Termination Right. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate, and to the extent permitted by Law waives the benefit of any Law now or hereafter in effect which would permit Tenant to terminate, this Lease for breach of Landlord’s obligations hereunder.

24.17 Anti Terrorism. Tenant represents and warrants to and covenants with Landlord that (i) neither Tenant nor any of its affiliates nor any of Tenant’s or its affiliates’ officers, directors, members, partners, shareholders or other equity interest holders (all of the foregoing persons and entities being referred to herein collectively as the “Tenant Parties”) currently is, nor shall any of them be, at any time during the Term, in violation of any laws relating to terrorism or money laundering that may now or hereafter be in effect (collectively, the "Anti-Terrorism Laws"), including, without limitation, Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, any regulations of the U.S. Treasury Department's Office of Foreign Assets Control (“OFAC”) related to Specially Designated Nationals and Blocked Persons that may now or hereafter be in effect, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (as heretofore or hereafter amended, the "USA Patriot Act"); (ii) none of the Tenant Parties is nor shall any of them be, during the Term, a Prohibited Person. A “Prohibited Person” is (1) a person or entity owned or controlled by, affiliated with, or acting for or on behalf of, any person or entity that is identified as a “Specially Designated National” on the then- most current list published by OFAC at its official website, http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf, or at any replacement website or other replacement official publication of such list, or (2) a person or entity who is identified as, or affiliated with, a person or entity designated as a terrorist, or associated with terrorism or money laundering, pursuant to regulations promulgated in connection with the USA Patriot Act); and (iii) Tenant has taken, and shall continue to take during the Term, reasonably appropriate steps to understand its legal obligations under the Anti-Terrorism Laws and has implemented, and shall continue to implement during the Term, appropriate procedures to assure its continued compliance with the above-referenced laws. Tenant hereby defends, indemnifies, and holds harmless Landlord and its affiliates and their respective officers, directors, members, partners, shareholders and other equity interest holders from and against any and all Losses suffered or incurred by any or all of Landlord or any of such other indemnitees arising from, or related to, any breach of the foregoing representations, warranties and covenants. At any time and from time- to- time during the Term, Tenant shall deliver to Landlord, within ten (10) days after receipt of a written request therefor, a written certification and such other evidence as Landlord may reasonably request evidencing and confirming Tenant's compliance with this Section 24.17.

24.18 Counterparts. This Lease may be executed in multiple counterparts, but all such counterparts shall together constitute a single, complete and fully-executed document.

24.19 Parking. No parking is specifically allocated to Tenant. Landlord can provide approximately 4.5 parking spaces per 1,000 rentable square feet.

[Signature Pages Follow]

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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.

LANDLORD:

Pewaukee Maple Grove, LLC, a Delaware limited liability company

By: PMG MM, LLC, a Delaware limited liability company, its managing member

By: First Industrial Securities, L.P., a Delaware limited partnership, its sole member

By: First Industrial Securities Corporation, a Maryland corporation, its sole general partner

/s/ Peter Schultz, Jr.

By: Peter Schultz, Jr.

Its: Executive Vice President

March 31, 2015

Date

Landlord’s Address for Notices:

Pewaukee Maple Grove LLC

First Industrial Realty Trust, Inc.

311 South Wacker Drive, Suite 3900

Chicago, IL 60606

Attn: Operations Department

With a copy to:

First Industrial Realty Trust, Inc.

10140 W. 76th Street

Eden Prairie, MN 55344

Attn: Regional Director

With a copy to:

Barack Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street, Suite 3900

Chicago, Illinois 60606

Attn: Suzanne Bessette-Smith

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TENANT:

Spectranetics Corporation, a Delaware corporation

By: /s/ Guy Childs

Its: CFO

Tenant's Addresses for Notices:

Spectranetics Corporation

9965 Federal Drive

Colorado Springs, CO 80921

With a copy to:

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Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Scott Drake, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Spectranetics Corporation;

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.



July 30, 2015
	/s/ Scott Drake
	Scott Drake
	Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Guy A. Childs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Spectranetics Corporation;


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


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.



July 30, 2015
	/s/ Guy A. Childs
	Guy A. Childs
	Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Spectranetics Corporation (the “Company”) hereby certifies, to such officer's knowledge, that:


(i)	the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and


(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



July 30, 2015	/s/ Scott Drake
	Scott Drake
	Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

Certification of Chief Financial Officer


(i)	the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and


(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



July 30, 2015	/s/ Guy A. Childs
	Guy A. Childs
	Chief Financial Officer

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