10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the year ended December 31, 2009
OR
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 No. 001-33685

COMPELLENT TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware	37-1434895
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

7625 Smetana Lane
Eden Prairie, MN 55344
(952) 294-3300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

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 þ     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 o     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

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

The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing price of the common stock listed on the New York Stock Exchange on June 30, 2009 was $174,634,597, based on a closing price of $15.25 per share, excluding 19,428,239 shares of the registrant’s common stock held by current executive officers, directors and stockholders whose ownership exceeds 5% of the common stock outstanding at June 30, 2009. The number of shares held by stockholders whose ownership exceeds 5% of the registrant’s common stock outstanding at June 30, 2009 is based on Schedules 13D and 13G filed by such stockholders for the year ended December 31, 2008 and subsequent reports, if any, filed by such stockholders pursuant to Section 16 of the Securities Exchange Act of 1934, as amended. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.

As of February 26, 2010, 31,696,564 shares of the registrant’s common stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

COMPELLENT TECHNOLOGIES, INC.

2009 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		1
	Item 1A.	Risk Factors		16
	Item 1B.	Unresolved Staff Comments		28
	Item 2.	Properties		28
	Item 3.	Legal Proceedings		28
	Item 4.	(Removed and Reserved)		28
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
	Item 6.	Selected Financial Data		32
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		47
	Item 8.	Financial Statements and Supplementary Data		48
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		72
	Item 9A	Controls and Procedures		72
	Item 9B.	Other Information		72
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		73
	Item 11.	Executive Compensation		73
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		73
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		73
	Item 14.	Principal Accountant Fees and Services		73
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		74
	Signatures			76
EX-10.14.ii
EX-10.16
EX-10.17
EX-10.18
EX-10.19
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

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PART I

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements other than statements of historical fact contained in this Annual Report on Form 10-K, including, but not limited to, statements about:

•  our expectations regarding our revenues, gross margin and operating expenses;

•  our expectations regarding unfavorable economic and market conditions, including lessening demand in the information technology market;

•  our ability to compete in our industry;

•  our ability to maintain and grow our channel partner relationships;

•  our growth strategy and our growth rate;

•  our ability to protect our intellectual property rights;

•  pricing and availability of our suppliers’ products; and

•  assumptions underlying or related to any of the foregoing.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater detail in Part I, Item IA. “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date hereof. We hereby qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

The following discussion should be read in conjunction with our financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings.

All references to “Compellent,” “we,” “us,” “our” or the “Company” in this report mean Compellent Technologies, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

Item 1.   Business

Overview

We are a leading provider of enterprise-class network storage solutions that automate the movement and management of data throughout its lifecycle. Our Storage Center is a Storage Area Network, or SAN, that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization. Storage Center is based on our innovative Fluid Data Architecture, which allows enterprises of all sizes to move beyond simply storing data to actively, intelligently managing data. With Fluid Data storage, users are able to intelligently store, recover and manage large amounts of data with minimal effort. We combine our sophisticated software with standards-based hardware into a single integrated solution. We believe that Storage Center is the most comprehensive enterprise-class network storage solution available today, providing increased functionality and lower total cost of ownership when compared to traditional storage systems.

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We developed our Storage Center software and hardware solution to target mid-size enterprises. We believe mid-size enterprises are acutely impacted by the proliferation of data and that their need for a scalable and cost-effective storage solution has historically been unmet. We believe our business model is highly differentiated and provides us with several competitive advantages. We sell our products through an all-channel assisted sales model designed to enable us to quickly scale and cost effectively increase sales. We also employ a virtual manufacturing strategy, which significantly reduces inventory and eliminates the need for in-house and outsourced manufacturing.

We have achieved broad industry recognition for our innovative enterprise storage. Compellent was awarded storage area network “Technology of the Year” awards from InfoWorld the past three years the publication has presented them 2006, 2008 and 2010. In 2009, Compellent was also named Microsoft’s Partner of the Year for Advanced Infrastructure Solutions, Storage Solutions and in 2008 was presented Storage magazine’s “Quality” Award. Gartner, a third-party industry analyst, reported Compellent to be the fastest growing storage area network company in 2006, 2007 and 2008. In 2009, TheInfoPro, an independent research firm, announced that mid-sized and large enterprise end users gave Compellent the highest possible ratings over competitive products in 10 key areas such as technology and quality of service delivered.

The Compellent Solution

Compellent was founded by a team of storage industry veterans with the vision of delivering a highly scalable, feature rich, easy to use and cost effective SAN for enterprises of all sizes. We believe Storage Center is an innovative solution that provides a point-and-click graphical user interface, automated tiered storage, integrated data and disaster recovery, efficient thin storage provisioning, storage virtualization and the flexibility to effectively combine advances in storage technologies into one integrated solution.

Innovative Architecture

The foundation of our solution is our Fluid Data Architecture, which utilizes block-level intelligence to improve the movement, placement and access of data at a level of granularity that delivers significant improvements in the cost, administration and recovery of data.

Compellent’s Fluid Data Architecture records and tracks specific information about an application’s data at the block level, the lowest level of data granularity within any storage system. Fluid Data Architecture allows Storage Center to record and track specific information about each block of data in a given enterprise network. This information about the data, or metadata, provides Storage Center with intelligence on how each block is being used. The metadata that Storage Center gathers can be extensive, including access frequency, performance and availability characteristics. Storage Center combines metadata with our sophisticated data movement engine, enabling enterprises to take a more intelligent approach to storing, recovering and managing data in an integrated automated solution. This metadata is used by Storage Center to automatically change how blocks of data are stored within each volume (e.g., by changing disk drive types). We refer to this capability as managing data inside the volume. Because of our innovative approach to managing data within a storage system, Storage Center provides significant cost and time saving feature advantages to our end users and allows them to easily respond to changing business conditions.

Storage Center delivers enterprise storage capabilities through an integrated suite of software applications that are offered in a modular fashion, so that enterprises can modify the solution to meet their changing requirements. Building on Compellent’s Fluid Data Architecture, Storage Center software applications intelligently improve data movement and access at the block-level, increasing utilization, automating tiered storage, simplifying replication and speeding data and disaster recovery.

Storage Center’s standards-based hardware platform enables flexibility and scalability with a no single point of failure architecture. Storage Center’s architecture is designed to enable rapid deployment and expansion of storage without disruption of service. Furthermore, Compellent’s standards-based approach enables enterprises to be technology neutral, adopting new hardware technologies to adapt to evolving business requirements.

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Storage Center Directly Addresses Today’s Storage Challenges

We believe Storage Center is a highly sophisticated and easy-to-use system that addresses the challenges faced by today’s storage users in one integrated solution.

Simplified Storage Management

We designed Storage Center to reduce the complexity associated with traditional storage systems. Our intuitive interface and integrated architecture enables even less sophisticated users to accomplish advanced storage tasks in minutes, by automating manual, time-consuming storage management tasks, such as volume provisioning, tiering, disaster recovery and boot from SAN. This enables enterprises to more efficiently deploy their information technology resources. According to an end user study commissioned by us in 2006 and conducted by Enterprise Strategy Group, an independent third-party consultant, 98% of our end users surveyed were able to manage their SAN in three hours or less per week, while only 31% of other storage system users surveyed were able to do so. We believe that enterprises could purchase and integrate a number of different hardware and software products and still not achieve the functionality of Storage Center.

Automated, Cost-Effective Management of Inactive Data

Storage Center offers automated tiered storage technology based on the block-level intelligence provided by our Fluid Data Architecture. With information about access frequency at the block level, Storage Center automatically moves inactive blocks of data to lower cost tiers of storage. Our solution allows for automatic movement of blocks of data between tiers of high cost, high performance storage and tiers of lower cost storage based on access frequency and other parameters. Our solution also allows for dynamic placement of blocks of data on the preferred track of each system drive. Traditional storage systems do not gather information about blocks of data that would enable them to implement tiered storage with this level of functionality. As an example, an end user’s entire email database (calendar, inbox, sent items, deleted items, attachments, contacts, etc.) is contained in one single file, yet all of this data does not require equal performance, reliability, and frequency of access. Traditional storage systems store this entire file on one storage tier. With Storage Center, enterprises have the flexibility to put the frequently accessed items (such as the majority of a user’s inbox) on a faster tier of storage, and inactive items (such as almost all of a user’s sent and deleted items) on a less expensive tier of storage.

Storage Center users maintain the ability to establish the parameters under which tiering will be performed through a simple intuitive graphical user interface. With over 80% of customers’ data inactive, we believe Storage Center’s automated tiered storage can result in significant cost savings for end users.

Rapid Data Recovery

Using Storage Center, storage administrators can typically recover and allocate any size volume to any server in seconds, without the constraints of traditional recovery methodologies. Using a simple point-and-click interface, administrators can quickly recover data in the event of disruption. Storage Center’s advanced architecture enables the creation of significantly more snapshots, while consuming minimal storage space as Storage Center only captures data changes at the block level. The time intervals between snapshots on Storage Center are significantly shorter than traditional storage systems, providing many more recovery points and greater recovery precision. Storage Center’s architecture enables enterprises’ storage administrators to use snapshots as the first line of defense in data recovery, reducing the frequency of saving data to tapes.

Affordable and Reliable Disaster Recovery

We designed our replication technology to consume less disk space and require less bandwidth and management oversight than traditional storage solutions, which we call thin replication. Storage Center’s thin replication application sends only written data during the initial site synchronization process instead of the allocated but unused space sent by other commercially available replication technologies. To save additional time, especially for organizations without dedicated high-speed data transfer links, administrators can utilize Compellent’s Portable Volume solution, a kit with two enterprise-class external hard drives preconfigured for replication synchronization. For ongoing replication, Storage Center’s thin replication application transfers only the changed

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data, consuming less space and lowering bandwidth costs. Storage Center eliminates the need for expensive protocol converters, provides the ability to prioritize replication across applications, enables multi-site replication using different hardware configurations and reduces the amount of data that needs to be sent to the replication site. Enterprises using Storage Center can easily set-up a remote replication solution, typically in just a few minutes. The simplicity and robustness of Storage Center’s disaster recovery solution makes it attractive for a range of end users from those with limited technical sophistication to large enterprises with significant technical know-how. One of the most important differentiators of Storage Center is its ability to test disaster recovery systems seamlessly and without disruption of service. We believe Compellent offers the only commercially available SAN solution that provides this level of capability.

Efficient Storage Utilization

Compellent’s thin provisioning technology is designed to maximize storage utilization. Thin provisioning describes a storage system’s ability to provision (or “allocate” to an application) more storage space than is physically in the system. With thin provisioning, end users can allocate more applications on less physical storage space, which increases the utilization rate of the physical storage space installed and requires fewer disk drives. Because of Fluid Data Architecture, Storage Center only consumes physical disk capacity when data is written by an application or user, as opposed to allocating physical capacity to users and applications upfront. We believe this capability significantly reduces an end user’s total cost of ownership by enabling them to defer or avoid additional spending on storage until the capacity is required, if ever. Storage Center enables end users to allocate capacity at a much more granular level than traditional storage systems. Storage Center also enables power and cooling savings, improved performance, data availability and storage utilization, while automating many of the tasks associated with capacity planning.

Enabling the Virtualized Data Center

Compellent’s advanced storage virtualization technology enabled by Fluid Data Architecture enables end users to create an efficient shared storage pool. This pool can be comprised of any combination of the disk drive technologies that Storage Center supports and enables any application to access all drives in the system. Storage Center dynamically distributes workloads across the entire pool, automatically improving utilization of storage resources for applications. Application Optimizer allows end users to set the size of data transfers within the SAN to match I/O performance for different applications such as video imaging, e-mail and databases. The result is a significant improvement in storage utilization, performance, flexibility and cost for end users.

Compellent’s approach to storage virtualization complements server virtualization technologies. End users realize similar benefits from Compellent’s storage virtualization features as they do from server virtualization, including reduced hardware costs, high utilization of assets and simplified management. While virtual server environments are not dependent on virtualized storage (and vice versa), we believe our storage virtualization leads to a more cost effective, flexible and high performing virtual data center. Virtual datacenters have lower hardware requirements due to higher utilization of both server and storage hardware and simplified management, which can reduce operating expenses.

Reducing Technology Risk

Compellent’s hardware architecture is designed to mitigate our end users’ technology risk. Storage Center enables users to simultaneously utilize any combination of our various standards-based hardware options and/or connectivity platforms and easily adopt new technologies as they become available. Storage Center offers disk independence, enabling end users to use any combination of Solid State, Fibre Channel, Serial Attached SCSI or Serial ATA disks in one virtualized storage pool. Storage Center’s virtualization engine enables end users to access the full capacity of all the drives in the system, even if they mix drive types. Similarly, Storage Center provides server connectivity independence, supporting both Fibre Channel and iSCSI protocols in the same system, which gives end users more flexibility. As our users’ storage needs expand, Storage Center’s modular design enables them to seamlessly add the appropriate technology without discarding current hardware and software investments.

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Highly-Efficient and Scalable Business Model

We believe our business model is highly differentiated and gives us a competitive advantage. Key elements of our business model are virtual manufacturing, a standards-based hardware architecture and assisted selling through an all-channel approach. We believe these combined strategies create an efficient and scalable business model that enables us to grow our end user base, significantly reduce operating costs and improve capital efficiency.

Virtual Manufacturing

Our virtual manufacturing model incorporates standards-based hardware architecture, thereby eliminating the need for in-house or outsourced manufacturing operations. The different standards-based hardware components of our solution are provided by our suppliers. These components are custom configured, shipped from multiple geographic locations to a centralized consolidation point, merged in transit and delivered to the end user as one order. This is the process we call virtual manufacturing. This model significantly reduces our working capital needs and eliminates the need for maintaining assembly facilities, production inventory, warehouses or complex outsourced manufacturing relationships. By working with large suppliers and utilizing standards-based hardware architecture, we are able to scale rapidly with reduced capital outlay.

Standards-Based Hardware Architecture

Our hardware approach enables us to offer the best industry-standard hardware technology that suits the needs of our end users. Since we use hardware components that are tested extensively and shipped in high volumes by the manufacturers, our end users achieve high quality and low cost. This model enables us to focus our research and development efforts on our software core competencies to design and develop advanced software functionality at reasonable costs.

All-Channel Assisted Sales Model

We employ an all-channel assisted selling model through value-added resellers, which we refer to as channel partners. Our channel partners generally sign agreements with us outlining the terms of our relationship with them. Provisions within these agreements include a restriction that software is licensed while the hardware is sold, warranty provisions, agreement term (one year with automatic renewal terms of one year terminable without cause upon written notice to the other party), payment terms (generally 30 days), channel partner sales commitments, installation and configuration training requirements, which we may waive at our discretion, and the channel partners’ acknowledgement of the existence of our deal registration process for registering potential system sales to end users. Substantially all of our channel partners sign similar agreements except for sales commitments. Our channel partner agreements do not contain financial penalties for either party. Unlike other enterprise storage vendors who utilize resellers for distribution but may also compete with them through direct sales, our business model motivates our channel partners and significantly reduces our sales expense. By leveraging the customer reach, technical expertise and industry knowledge of our channel partners, we believe that we are able to market to a significantly larger set of end users more effectively and at lower cost than we could with our own direct sales force. We have built a strong internal sales team to assist our channel partners with, among other things, executive sales calls, service and support offerings, product matter expertise, configuration and pricing, joint sales calls, product demonstrations and design assistance. We believe this model provides us high visibility of demand for Storage Center and quick market entry. We further believe our close working relationship with channel partners and end users enables us to better understand end user needs.

Our Strategy

Our goal is to be the leading provider of feature rich, easy to use and cost effective storage solutions for enterprises of all sizes. Key elements of our strategy include:

•  Extend Our Technology Leadership and Product Depth and Breadth.  We intend to further enhance our current Storage Center solution by increasing our feature set and service offerings to further address end user needs.

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•  Increase Market Share in the Mid-size Enterprise and Large Enterprise Markets.  We initially targeted the fast-growing mid-size enterprise market. Storage Center is also being used by large enterprises, such as large financial services institutions and the federal government, due to its scalability and functionality. We intend to work with our channel partners to grow our business in both of these markets.

•  Increase Number of Channel Partners, Industry Verticals and Geographic Markets.  We intend to continue to broaden our relationships with our channel partners and develop sales channels in additional geographies and industry verticals through both new and existing channel partners.

•  Broaden and Develop Strategic Relationships.  We plan to expand our existing relationships and develop new relationships with leading technology and distribution partners, including hardware vendors such as switch, connectivity, disk and server vendors, as well as software providers such as operating system, application, server virtualization and database providers. We believe that these strategic relationships will enable us to provide enhanced solutions that will expand our addressable market, increase sales of our systems through joint selling and marketing arrangements and improve our insight into emerging industry trends.

•  Realize Upgrade Revenues From Customer Base.  As of December 31, 2009, Storage Center was being utilized by 1,812 enterprises worldwide. We have designed Storage Center to enable users to incrementally add software and hardware features and capacity as their needs grow. We have been able to realize significant revenues from existing end users growing or upgrading their systems. We intend to grow our upgrade revenues by marketing additional functionality, capacity upgrades and replication systems to our end users.

•  Capitalize On Scalable Business Model.  We intend to capitalize on our business model as we grow our business. We believe our strategy of using virtual manufacturing, standards-based hardware and an all-channel sales model will enable us to scale rapidly, without incurring significant capital expenditures while gaining significant operating leverage.

Our Technology

We have designed a highly scalable, enterprise-class storage solution with an intelligent software architecture, advanced storage virtualization capabilities and a modular, standards-based hardware platform. Storage Center is designed to work with most server operating systems in use today (i.e., Apple, AIX, HP-UX, Linux, NetWare, Solaris and Windows) without installing additional server software. We believe these underlying technologies enable Storage Center to overcome the limitations of traditional storage systems and operate as a fully integrated solution managed through a single, intuitive, user interface.

Fluid Data Architecture

The foundation of Compellent’s solution is our Fluid Data Architecture, which utilizes block-level intelligence to improve the movement, placement and access of data with a level of functionality that delivers significant improvements in the cost, administration and recovery of data. Fluid Data Architecture enables us to record and track specific information about each block of data in a given system. This information about the data, or metadata, provides Storage Center with intelligence on how each block is being used. The metadata Storage Center gathers can be extensive, including access frequency, performance and availability characteristics. Storage Center combines metadata with our sophisticated data movement engine, enabling enterprises to take a more intelligent approach to storing, recovering and managing data in an integrated automated solution. Because of our innovative approach to managing data within a storage system, Storage Center provides significant cost and time saving feature advantages to our end users.

Advanced Storage Virtualization

Storage Center accelerates data access by spreading read/write operations across all disk drives, so multiple requests are processed in parallel. This is known as storage virtualization, where the physical drives are abstracted from the logical view of the data that the end user sees. Storage Center removes the limitations of physical drives by

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aggregating them into logical, virtual volumes. Storage Center’s advanced virtualization technology manages all disk space, even across disparate technologies, as a centralized pool, and when demand increases, end users can simply add physical drives without downtime. This centralized pool of storage simplifies capacity planning for end users, who no longer need to map physical disk drives to dedicated servers and can provision logical volumes from a single storage pool without restrictions.

Storage Center’s virtualization technology removes the concept of dedicated disk drives for servers, applications and users, treating blocks as the basic resource managed by the system and intelligently placing these blocks across disk drives in a virtualized environment. In addition, administrators can virtualize the Fibre Channel and iSCSI connections to simplify configurations and reduce the number of physical I/O ports required in network switches.

Standards-Based Hardware Platform

Storage Center’s standards-based architecture enables the ongoing adoption of new storage technologies, without forcing enterprises to replace or discard their existing hardware and software investments. This architecture enables end users to mix and match server interfaces and disk drive technologies, simultaneously supporting Fibre Channel and/or iSCSI server connections, and any combination of Solid State, Fibre Channel, Serial Attached SCSI and/or Serial ATA disk drives. As part of a complete storage solution, we also provide switches, host bus adapters, drive enclosures and controllers.

Storage Center’s modular hardware architecture enables users to add capacity, connectivity and performance incrementally to match demand, rather than purchasing resources upfront that may never get used. Organizations can scale capacity from one to hundreds of terabytes on a single integrated platform, expanding hardware and upgrading software online without disruption or downtime.

We have architected Storage Center for high availability by striping data across all nodes in a cluster so that, if one node fails, the other nodes can perform the requested function, thereby preventing any single point of failure. Dual paths from controllers to disk drives, redundant power and fans, and controller failover support with a single or dual host bus adapters are designed to enable continuous data access. Controllers can be clustered but are connected independently and fail over without additional software, even with a single server connection.

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Our Products

Building on our Fluid Data Architecture, Storage Center’s integrated suite of software applications dramatically improve utilization, automate tiered storage, streamline storage administration and speed data and disaster recovery. A base configuration of Storage Center typically includes a controller, disk enclosure, disk drives, connectivity hardware, Storage Center Core software and Dynamic Capacity. Most users also purchase Data Instant Replay with their initial order. Based on their capacity or functionality requirements, users can add hardware or software modules to complete their solutions. We believe that Storage Center’s software products offer the following key benefits:

Product	Key Benefit
Storage Center Core (includes Graphical User Interface)	Provides storage virtualization and speeds both common and complex storage tasks by reducing the time and effort required for many complex functions into a few simple point-and-click steps.
Data Progression — Automated Tiered Storage	Automatically classifies and migrates data at the block-level to the appropriate tier of storage based on frequency of access.
Fast Track — Performance Acceleration	Fast Track dynamically places the most frequently used data on the fastest, or outer, tracks of each drive. The result is a system that requires fewer drives to manage data — delivering a big payoff in cost savings management and power consumption without sacrificing performance.
Data Instant Replay — Continuous Snapshots	Creates any number of space-efficient copies of data that deliver nearly instant recovery from data hazards without the limitations of traditional snapshots.
Server Instant Replay — Boot from SAN	Automates booting and recovering servers from the SAN by taking and storing space-efficient copies.
Remote Instant Replay — Thin Replication	Replicates space-efficient copies between primary and remote data centers to deliver nearly instant disaster recovery without the traditional cost or complexity.
Portable Volume	Enables users to implement initial disaster recovery volumes through use of encrypted portable disk drives.
Dynamic Capacity — Thin Provisioning	Maximizes storage utilization by only consuming physical disk space when data is written by the application, as opposed to allocating capacity upfront.
Enterprise Manager — Storage Resource Management	Enables multi-site and multi-system management from a single console with a suite of advanced storage resource management and reporting features.

Single, Intuitive Management Interface

All of Storage Center’s software applications are managed through a single unified interface that spans our entire set of technologies, capabilities and configurations. An intuitive point-and-click approach enables rapid set up and installation and reduces the need for training and specialized storage skills.

Complex allocation, configuration and administration functions can be easily accomplished with a point and click interface, that we call wizards, which guides the process and expands the capabilities of a single administrator. Storage consumption and usage trends are instantly monitored and displayed. Users can manage individual or multiple systems from the same interface.

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We believe Storage Center’s wizard-driven interface is easy to use, speeding both common and complex storage tasks by reducing the time and effort required for many complex functions into a few simple point-and-click steps. Users can accomplish advanced storage tasks in just minutes, including implementing information lifecycle management in a single step, provisioning volumes, automating capacity planning, creating and expiring snapshots, deploying and testing disaster recovery and administering their entire storage environment.

Data Progression (Automated Tiered Storage)

Storage Center’s Data Progression application automatically classifies and migrates blocks of data based on user selected policies. When combined with our Fast Track application, blocks of data are dynamically placed on the appropriate tracks on each drive within the system. For instance, data can be migrated to the appropriate tier of storage based on usage, retaining frequently accessed data on the fastest portion of high-performance storage and storing infrequently accessed data on lower cost storage. Users can configure storage tiers based on technology, performance redundancy, or other criteria. Storage Center’s block-level intelligence allows blocks of data to move both up and down tiers of storage and across drives for appropriate placement over time based on frequency of access. A good example is medical imaging applications, which are storage intensive. All of the data associated with these applications does not require equal performance, reliability and frequency of access. With Data Progression technology, images are automatically placed, or can be manually placed by end users, on the appropriate tier of storage based on the required level of performance. Active images are stored on Solid State or Fibre-Channel Drives, which offer the highest level of performance. Inactive images can be stored on lower cost storage, Serial Attached SCSI or Serial ATA Drives, which utilize higher density and lower performance.

Data Instant Replay (Continuous Snapshots)

Storage Center’s Data Instant Replay application creates space-efficient copies of data, called Replays, which enable rapid recovery from data hazards, creation of test environments and duplication of boot volumes. Replays are created without an initial clone and contain only written data, rather than the allocated but unused storage typical in traditional storage systems. After the Replay creation, only the changed data blocks are stored, resulting in greater space savings. End users are able to create and store more Replays without consuming excess storage capacity or negatively impacting performance. Every Replay can be converted to a readable and writeable volume that can be quickly mapped to any server.

End users can create Replays at multiple time intervals and keep those Replays as long as required. With Replays, end users are able to create more recovery points, which can reduce potential data loss and dependence on tape backups by allowing recovery to be targeted as close as possible to the time before the failure occurred. Replays automatically expire after a user-specified time and space is automatically returned to the shared storage pool. Storage Center’s intuitive interface typically enables users to create a manual Replay in less than five seconds and recover a Replay in less than ten seconds. Additionally, Replays can be initiated directly by end user applications.

Server Instant Replay (Boot from SAN)

Storage Center’s Server Instant Replay application integrates with Storage Center’s Data Instant Replay application to provide snapshots of server boot images that are stored and booted from a SAN instead of from local disks. This capability enables end users to deploy diskless servers and significantly simplifies server management. Each new boot image is created by taking a Replay of the initial boot image, which includes pointers to the original “gold” image rather than creating a duplicate copy of equal size. These space-efficient Replays consume significantly less space per boot image as compared to traditional storage systems, reducing overall capacity requirements. An intuitive wizard automates the set-up, management and restoration process, enabling end users to simply provision and recover servers.

Remote Instant Replay (Thin Replication)

Storage Center’s Remote Instant Replay application creates any number of space-efficient Replays between primary and remote data centers without a pre-allocation of space. This granularity enables shorter recovery intervals, enabling end users near instant recovery from any point in time.

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Replication can be synchronous or asynchronous and can be enabled in bi-directional, point-to-point or multi-point configurations. System configurations can be different between primary and remote locations, but all sites are active and available for recovery. Storage Center’s hardware ships with a native iSCSI interface, allowing our system to replicate over long distances using existing Ethernet networks. We support both IP-based and Fibre Channel replication.

Remote Instant Replay improves bandwidth utilization by only sending written data during the initial site synchronization process, instead of the allocated but unused space sent by other replication technologies. Remote Instant Replay then transfers only the changed data, consuming less space and lowering bandwidth costs. Replay data de-duplication ensures the same block of data is not sent twice.

With Remote Instant Replay’s bandwidth simulation, users can accurately estimate bandwidth requirements upfront based on actual data, improving the initial bandwidth purchase. Ongoing bandwidth shaping enables users to customize transfer rates based on link speed, time of day and replication priority.

Storage Center’s intuitive interface also enables users to test and verify disaster recovery online. There is no need to bring systems down to test disaster recovery readiness. A replication can be setup in as few as six clicks and replication templates can be created without complex scripting, reducing overall management requirements. This streamlined replication management is designed to allow recovery from a disaster in seconds with a single click disaster declaration.

Portable Volume

Compellent’s Portable Volume jumpstarts replication, reducing initial synchronization time to days or even hours without the need for high-speed connections or a duplicate array. Instead of transmitting data via conventional links, end users connect a Portable Volume primed with the replication information needed for the initial synchronization to the primary storage array. Once the data to be replicated is loaded onto the portable disk drive, end users pack the drive in a protective travel case and carry or ship it to the secondary site. At the destination site, Storage Center auto-detects the Portable Volume and begins the replication synchronization process.

Dynamic Capacity (Thin Provisioning)

Storage Center’s Dynamic Capacity application consumes physical disk space only when data is written by the application, as opposed to traditional storage systems, which require users to allocate potential needed capacity upfront. This enables Storage Center’s end users to reduce storage purchases and add capacity only when needed. With Storage Center, maximum capacity does not have to be fixed on a per volume basis. Volumes can easily be created and expanded online without disruption or downtime. Continual automated monitoring and alerts of allocated, used and physical storage enable administrators to ensure that the appropriate physical storage space is available when it is actually needed.

Storage Center’s Thin Import allows users to copy thick provisioned volumes from traditional storage systems onto Storage Center and convert unused space into thin provisioned volumes. In traditional implementations of thin provisioning, the operating system will report deleted files as unavailable space. Storage Center’s Free Space Recovery software identifies and reclaims space that is no longer in use. These advanced thin provisioning features improve the efficiency of Storage Center. Due to Storage Center’s use of Dynamic Capacity’s thin provisioned volumes, Storage Center increases the performance of volume-based operations such as rebuilds, copies, backups and replications.

Enterprise Manager (Storage Resource Management)

Enterprise Manager is designed to enable all local and remote Storage Center systems to be monitored and managed using a single console, providing a complete, centralized view of all aspects of an enterprise’s storage environment and enabling a single administrator to monitor multiple systems. System reports present storage resource management information, including summaries for capacity utilization, performance, replications and events. Users can view storage capacity utilization and performance on all systems over any period of time, including summaries from the last week, month or year. Hero reports allow users to easily show the cost and power

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savings of Storage Center compared to traditional storage systems. Users can also chargeback departments or customer sites for actual storage consumed, associating different costs with multiple storage tiers and charging premiums or discounts based on user defined configurations.

Our Services

Our Copilot Service is a comprehensive customer service and technical support program that integrates installation services, a single point of contact call center, hardware and software maintenance, and onsite field services to enable reliable service delivery and execution for Storage Center end users. Copilot Service provides the convenience of one contract and a single point of contact to address Storage Center hardware or software issues.

Support activities are provided by highly skilled and trained staff, and Compellent’s channel partners can monitor service issues via a secure, online tracking system. Copilot Service utilizes Storage Center’s integrated “PhoneHome functionality” to alert users to potential systems issues via scheduled or event-based notifications. Onsite hardware repair services are delivered through Anacomp, Inc., a third-party hardware maintenance provider with a global field service force of trained technicians, dispatched via a 24-hour call center with access to local exchange parts depots in which we store replacement parts for Storage Center.

Our installation services speed time to deployment with on-site configuration and implementation. Our training services improve system understanding and operation through instruction in system administration and management. Our professional service offerings provide access to our technical experts in storage administration, management and troubleshooting, without requiring staff overhead for the end user. These services include regularly scheduled reviews, system health checks and evaluations as well as advanced configuration and software support.

End Users

As of December 31, 2009, Storage Center was being utilized by 1,812 enterprises worldwide in a variety of industries, including accounting, agriculture, automotive, construction, education, entertainment, financial services, food services, government, healthcare, insurance, legal, manufacturing, media, real estate, retail, scientific, technology, telecommunications, transportation and travel.

Distribution Channel and Marketing

We currently sell Storage Center to mid-size and large enterprise customers through our all-channel assisted sales model. We provide our end users with SAN solutions through our channel partners, who our end users rely on to address their enterprise-class networking and storage needs. We selectively recruit value-added-resellers to join our channel partner network. We have built a strong internal sales team to train and assist our channel partners with, among other things, executive sales calls, service and support offerings, product matter expertise, configuration and pricing, joint sales calls, product demonstrations and design assistance. In addition, we currently maintain a small team of installation professionals to assist channel partners and end users in installing our products.

For 2009, 2008 and 2007, our top ten channel partners accounted for 42%, 47% and 45% of our revenues, respectively. One channel partner, AMEX, Inc., accounted for 15% and 12% of total revenues for the years ended December 31, 2009 and 2008, respectively. Another channel partner, Insight Investments, accounted for 10% and 13% of total revenues for the years ended December 31, 2008 and 2007, respectively.

Since January 2008, we have maintained a marketing agreement with AMEX, Inc., an export firm, pursuant to which we granted AMEX exclusive distribution rights to resell Storage Center to resellers and end users internationally, except Canada. AMEX agrees to use its best efforts to further the promotion, marketing and sale of Storage Center. The marketing agreement is renewable on an annual basis each January unless either party notifies the other party in writing of an intention to discontinue the relationship at least 90 days prior to the renewal date. In the event we elect not to renew the marketing agreement, we must continue to pay AMEX a sliding-scale commission based on international sales for a period of two years following termination.

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Virtual Manufacturing

Our virtual manufacturing model incorporates standards-based hardware architecture, thereby eliminating the need for in-house and outsourced manufacturing operations. The different standards-based hardware components of our solution are provided by our suppliers. These components are custom configured, shipped from multiple geographic locations to a centralized consolidation point, merged in transit and delivered to the end user as one order. This is the process we call virtual manufacturing. This virtual manufacturing and integration approach enables us to focus resources on the design, development and marketing of Storage Center.

We currently rely on a limited number of suppliers for components such as system controllers, enclosures, disk drives and switches utilized in the assembly of Storage Center and do not have long-term supply contracts. In particular, we rely on Bell Microproducts, Inc., a value added distributor, to provide us with customized system controllers, which Bell Microproducts generally obtains from Supermicro Computer, Inc. We also rely on Xyratex Corporation, a provider of data storage subsystems, to provide us with custom enclosures and disk drives. Xyratex purchases most of the disk drives that it supplies to us from Seagate Technology, Inc. This model significantly reduces our working capital needs and eliminates the need for maintaining assembly facilities, production inventory, warehouses or complex outsourced manufacturing relationships. We work closely with our suppliers to lower component costs and improve quality. By working with large suppliers, we are able to scale rapidly with limited capital expenditures. We generally maintain minimal inventory for repairs, evaluation and demonstration units and acquire components only as needed. We do not enter into long-term supply contracts for these components.

Research and Development

We believe that our future success depends in part on our ability to introduce enhancements to Storage Center and to develop new applications for both existing and new markets. Our research and development efforts are directed largely to the development of additional enterprise-class network storage solutions demanded by our channel partners and end users. We have assembled a team of highly skilled engineers who have expertise in designing and developing enterprise-class SANs. Our research and development group is located in Eden Prairie, Minnesota. As of December 31, 2009 and 2008, we had 75 and 58 employees in the research and development group. Our research and development expenses were $12.7 million in 2009, $10.1 million in 2008, and $7.6 million in 2007.

Competition

We compete with numerous domestic and international companies, most of which have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we have. A number of very large corporations have historically dominated the storage market. We consider our primary competitors to be companies that provide SAN products, such as 3Par, Inc., Dell, Inc., EMC Corporation, Hewlett-Packard Company, Hitachi Data Systems Corporation, IBM, NetApp, Inc. and Xiotech Corporation. Some of our competitors, including Dell, EMC and NetApp, have made acquisitions of businesses that allow them to offer more directly competitive and comprehensive solutions than they had previously offered. We expect to encounter new competitors as we enter new markets as well as increased competition, both domestically and internationally, from other established and emerging storage companies, original equipment manufacturers, and from systems and network management companies. In addition, there may be new technologies that are introduced that reduce demand for, or make our, storage solution architecture obsolete.

We believe that the principal competitive factors affecting the data storage market include such storage system attributes as:

•  functionality;

•  scalability;

•  performance;

•  ease of use;

•  system reliability and availability; and

•  cost efficiency in acquisition, deployment and ongoing support.

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We believe that we compete favorably with our competitors on the basis of these factors. However, potential end users may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. Our success will also depend on utilizing new and proprietary technologies to offer products and features previously not available in the marketplace. If we fail to continue to compete favorably, our business will be harmed.

Intellectual Property

Our success depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections.

As of December 31, 2009, we had five issued patents in the United States and one issued foreign patent in China, expiring between 2024 and 2026. We also had thirteen pending patent applications in the United States, three patent application filed pursuant to the Patent Cooperation Treaty and seventeen pending foreign patent applications. Our pending patent applications relate to Fluid Data Architecture storage processing and other SAN concepts. We focus our patent efforts in the United States, and, when justified by cost and strategic importance, we file corresponding foreign patent applications in strategic jurisdictions such as Asia and Europe. Our patent strategy is designed to provide a balance between the need for coverage in our strategic markets and the need to maintain costs at a reasonable level.

We do not know whether any of our pending patent applications will result in the issuance of additional patents or whether the examination process will require us to narrow the scope of our claims. With respect to our issued patents, and to the extent any of our pending applications proceed to issuance as a patent, any such patent or future patent may be opposed, contested, circumvented, designed around by a third party, or found to be invalid or unenforceable. In addition, our future patent applications may not be issued with the scope of the claims sought by us, if at all, or the scope of claims we are seeking may not be sufficiently broad to protect our proprietary technologies. Others may develop technologies that are similar or superior to our proprietary technologies, duplicate our proprietary technologies or design around patents owned or licensed by us. If our products are found to conflict with any patent held by third parties, we could be prevented from selling our products or our patent applications may not result in issued patents.

In addition, we generally control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, end users and channel partners. We rely in part on U.S. and international copyright laws to protect our software. All employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. We cannot provide any assurance that employees and consultants will abide by the confidentiality or invention assignment terms of their agreements. Despite our efforts to protect our intellectual property through patents, trademarks and confidentiality agreements, unauthorized parties may copy or otherwise obtain and use our software and proprietary technology.

Our Storage Center suite of products utilizes eCos, an “open source,” royalty-free, real-time operating system intended for embedded applications. eCos is released under a modified version of the well-known GNU General Public License. Open source software is generally made available to the public by its authors and/or other third parties under licenses, such as the GNU General Public License, which impose certain obligations on licensees in the event such licensees make derivative works of the open source software.

Third parties have sent us letters offering to license their patents, and they and others could claim that our products or technologies infringe their proprietary rights. The SAN industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. As the number of products and competitors in our market increases, we face a higher risk of being the subject of intellectual property infringement claims from other third parties. We cannot assure you that we do not currently infringe, or that we will not in the future infringe, upon any third-party patents or other proprietary rights.

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Litigation in this industry is often protracted and expensive. Questions of infringement in the SAN industry involve highly technical and subjective analyses. Any claim of infringement from a third-party, even those without merit, could cause us to incur substantial costs defending against such claims, and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from selling Storage Center. In the event we receive an adverse result in any litigation, we could be required to pay substantial damages, cease sale of products, expend significant resources to develop alternative technology and discontinue the use of processes requiring the relevant technology. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at all.

In addition, litigation may become necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, and we may not prevail in any future litigation. The results of any litigation are inherently uncertain. Any successful infringement claim or litigation against us could have a significant adverse impact on our business. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not be successful.

We may also be required to seek licenses under patents or intellectual property rights owned by third parties. However, we cannot be certain that third parties will offer licenses to us or that the terms of any licenses offered to us will be acceptable. If we fail to obtain such third-party license for our products, we could incur substantial liabilities or be forced to suspend sales of our products.

Backlog

We do not believe that backlog as of any particular date is meaningful, as sales of Storage Center are made primarily pursuant to purchase orders for delivery of products. We consider backlog to be approved orders that have not yet been shipped. As of March 3, 2010, we had $2.3 million of backlog and as of March 16, 2009, we had $557,000 of backlog. We do not believe that backlog as of any particular date is indicative of future results.

Financial Information by Business Segment and Geographic Data

We operate in one reportable industry segment: the design, marketing, and technical support of enterprise-class network storage solutions. Our chief operating decision maker is our chief executive officer. Our chief executive officer reviews financial information, accompanied by information about revenues by geographic region for purposes of allocating resources and evaluating financial performance. The information included in Note 13 of the Notes to Consolidated Financial Statements is hereby incorporated by reference.

Employees

As of December 31, 2009, we had 387 employees, which included 75 employees in research and development, 212 in sales and marketing, 63 in customer and technical services, 22 in administration and 15 in manufacturing. None of our employees are represented by a labor union and we consider current employee relations to be good.

Executive Officers of the Registrant

Our executive officers, their ages and their positions as of March 5, 2010, are as follows:

Name	Age		Position(s)
Philip E. Soran		53	Chairman, President and Chief Executive Officer
Lawrence E. Aszmann		63	Chief Technology Officer
Brian P. Bell		43	Vice President, Worldwide Sales
John P. Guider		65	Chief Operating Officer and Director
John R. Judd		53	Chief Financial Officer

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Philip E. Soran has served as our Chairman, President and Chief Executive Officer since co-founding Compellent in March 2002. From July 1995 to August 2001, Mr. Soran served as President and Chief Executive Officer of Xiotech Corporation, or Xiotech, a storage area networking company, which Mr. Soran co-founded in July 1995. Xiotech was acquired by Seagate Technology, or Seagate, a disk drive manufacturer, in January 2000. From October 1992 to April 1995, Mr. Soran served as Executive Vice President of Prodea Software Corporation, a data warehousing software company. From 1982 to 1993, Mr. Soran also held a variety of management, sales, marketing and technical positions with IBM. Mr. Soran received a B.A. in Education from the University of Northern Colorado.

Lawrence E. Aszmann has served as our Chief Technology Officer and Secretary since co-founding Compellent in March 2002. Mr. Aszmann was a member of our board of directors from March 2002 through June 2003. From July 1995 to August 2001, Mr. Aszmann served as Chief Technology Officer of Xiotech, which Mr. Aszmann co-founded in July 1995. Xiotech was acquired by Seagate in January 2000. From July 1988 to August 1995, Mr. Aszmann served as Director of Intelligent Input/Output Subsystems at Tricord Systems. From December 1981 to June 1988, Mr. Aszmann served as Chief Software Architect of Star Technologies, and Mr. Aszmann previously held various storage-related technology positions with Technalysis Corporation, a consulting company, and Control Data Corporation, a mainframe manufacturing company.

Brian P. Bell has served as our Vice President, Worldwide Sales since April 2006. From August 2003 to April 2006, he served as our Director of Business Development. From August 2002 to August 2003, Mr. Bell was with Storage Networks, Inc., an information storage software and services company, as Vice President of Global Services. From July 1999 to August 2002, Mr. Bell served in various positions for Storage Network, Inc. including most recently as Director of Operations. From 1988 to 1999, Mr. Bell served as a commissioned officer in the U.S. Air Force. Mr. Bell received a B.S. in Human Factors from the U.S. Air Force Academy and an M.S. in Human Factors Engineering from the University of Illinois.

John P. Guider has served as our Chief Operating Officer and a member of our board of directors since co-founding Compellent in March 2002. From July 1995 to August 2001, Mr. Guider served as Chief Operating Officer of Xiotech, which Mr. Guider co-founded in July 1995. Xiotech was acquired by Seagate in January 2000. From 1987 to 1995, Mr. Guider served as Chief Technology Officer and Senior Vice President of Product Development of Tricord Systems, a high performance server company, which Mr. Guider co-founded in 1987. From December 1982 to January 1987, Mr. Guider served as Director of Hardware Development at Star Technologies, a scientific computer company, and held various management and technical positions with Sperry Corporation, a mainframe systems company. Mr. Guider received a B.S. in Electrical Engineering from the University of Minnesota, Minneapolis.

John R. Judd has served as our Chief Financial Officer since June 2006. From October 2003 to July 2006, Mr. Judd served as Chief Financial Officer of ATS Medical, Inc., a medical device manufacturer. From June 2000 to October 2003, Mr. Judd served as Controller of American Medical Systems Holdings, Inc., a medical device manufacturer. From 1997 to 1999, Mr. Judd served as Chief Financial Officer of the Autoglass Division of Apogee Enterprises, Inc., a glass technology company. Mr. Judd received a B.A. and an M.B.A. from the University of St. Thomas.

Corporate Information

Compellent Technologies, Inc. was formed in Minnesota in March 2002 and reincorporated in Delaware in June 2002. The address of our principal executive office is 7625 Smetana Lane, Eden Prairie, Minnesota 55344, and our telephone number is (952) 294-3300. Our website address is http://www.compellent.com.

Available Information

Our website address is http://www.compellent.com. Information contained on our website is not incorporated by reference into this Form 10-K unless expressly noted. We file reports with the Securities and Exchange Commission, or the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such

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materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Charters of our Audit, Compensation and Nominating and Corporate Governance Committees are available on our website and are available in print to any stockholder who requests such information.

Item 1A.   Risk Factors

We have identified the following additional risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

Risks Related to Our Business

Our quarterly operating results may fluctuate significantly, which makes our future results difficult to predict.

Our quarterly operating results fluctuate due to a variety of factors, many of which are outside of our control. Our future revenues are difficult to predict. A significant portion of our sales typically occurs during the last month of a quarter. As a result, we typically cannot predict our revenues in any particular quarter with any certainty until late in that quarter. Our storage products typically are shipped shortly after orders are received. As a result, revenues in any quarter are substantially dependent on orders booked and shipped in that quarter. Revenues for any future period are not predictable with any significant degree of certainty. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. Moreover, spending on storage solutions has historically been cyclical in nature, reflecting overall economic conditions as well as budgeting and buying patterns of business enterprises. We believe our recent rapid growth has masked the cyclicality and seasonality of our business. The third quarter is generally the slowest sales quarter in the storage industry. Our expense levels are relatively fixed in the short term and are based, in part, on our expectations as to future revenues. If revenues levels are below our expectations, we may incur less income and may not sustain profitability on a quarterly or an annual basis. Our operating results may be disproportionately affected by a reduction in revenues because a proportionately smaller amount of our expenses varies with our revenues. As a result, our quarterly operating results are difficult to predict, even in the near term. If our revenues or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock would likely decline substantially.

In addition to other risk factors listed in this “Risk Factors” section, factors that may affect our operating results include:

•  reductions in end users’ budgets for information technology purchases and delays in their budgeting and purchasing cycles, given current macroeconomic conditions;

•  hardware and software configuration and mix;

•  fluctuations in demand, including due to seasonality, for our products and services;

•  changes in pricing by us in response to competitive pricing actions;

•  the sale of Storage Center in the timeframes we anticipate, including the number and size of orders in each quarter;

•  our ability to develop, introduce and ship in a timely manner new products and product enhancements that meet end user requirements;

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•  the timing of product releases or upgrades by us or by our competitors;

•  any significant changes in the competitive dynamics of our market, including new entrants or substantial discounting of products;

•  our ability to control costs, including our operating expenses and the costs of the components we purchase;

•  the extent to which our end users renew their service and maintenance agreements with us;

•  volatility in our stock price, which may lead to higher stock compensation expenses; and

•  general economic conditions in our domestic and international markets.

We have a history of losses, and we may not sustain profitability on a quarterly or an annual basis in the future.

We achieved profitability on an annual basis for the first time as of December 31, 2009. We had net income (loss) of $4.8 million, ($416,000) and ($7.8) million for the years ended December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009, our accumulated deficit was $45.1 million. We expect to make significant expenditures related to the development of our products and expansion of our business, including sales and marketing, research and development and general and administrative expenses. We may also encounter unforeseen difficulties, complications, product delays and other unknown factors that require additional expenditures. As a result of these increased expenditures, we will have to generate and sustain substantially increased revenues to achieve and maintain profitability, which we may never do. In addition, the percentage growth rates we achieved in prior periods will not be sustainable and we may not be able to increase our revenues sufficiently in absolute dollars to sustain quarterly or annual profitability.

Unfavorable economic and market conditions and a lessening demand in the information technology market could adversely affect our operating results.

Our operating results may be adversely affected by unfavorable global economic and market conditions as well as a lessening demand in the information technology, or IT, market. Customer demand for our products is intrinsically linked to the strength of the economy. A reduction in demand for storage and data management products caused by weak and/or deteriorating economic conditions and customer decreases in corporate spending, deferral or delay of IT projects, longer time frames for IT purchasing decisions, the inability of customers to obtain credit to finance purchases of our products and generally reduced capital expenditures for IT storage solutions will result in decreased revenues and lower revenues growth rates for us. If the storage and data management markets grow slower than anticipated or if IT spending is reduced, demand for our products could decline and our operating results could be materially and adversely affected.

The markets in which we compete are highly competitive and dominated by large corporations and we may not be able to compete effectively.

The storage market is intensely competitive and is characterized by rapidly changing technology. This competition could make it more difficult for us to sell our products, and result in increased pricing pressure, reduced gross profit, increased sales and marketing expense and failure to increase, or the loss of, market share or expected market share which would likely result in lower revenues.

Our ability to compete depends on a number of factors, including:

•  our products’ functionality, scalability, performance, ease of use, reliability, availability and cost effectiveness relative to that of our competitors’ products;

•  our success in utilizing new and proprietary technologies to offer products and features previously not available in the marketplace;

•  our success in identifying new markets, applications and technologies;

•  our ability to attract and retain value-added resellers, which we refer to as channel partners;

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•  our name recognition and reputation;

•  our ability to recruit software engineers and sales and marketing personnel; and

•  our ability to protect our intellectual property.

Potential end users may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. In the event a potential end user decides to evaluate a new storage system, the end user may be more inclined to select one of our competitors whose product offerings are broader than just storage systems. In addition, potential end users may prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features. Most of our new end users have installed storage systems, which gives an incumbent competitor an advantage in retaining an end user because it already understands the network infrastructure, user demands and information technology needs of the end user, and also because it is costly and time-consuming for end users to change storage systems.

A number of very large corporations have historically dominated the storage market. We consider our primary competitors to be companies that provide Storage Area Network, or SAN products, such as 3Par, Inc., Dell, Inc., EMC Corporation, Hewlett-Packard Company, Hitachi Data Systems Corporation, IBM and NetApp, Inc., and Xiotech Corporation. Some of our competitors, including Dell, EMC and NetApp, have made acquisitions of businesses that allow them to offer more directly competitive and comprehensive solutions than they had previously offered. Most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we have. We expect to encounter new competitors as we enter new markets as well as increased competition, both domestically and internationally, from other established and emerging storage companies, original equipment manufacturers, and from systems and network management companies. In addition, there may be new technologies that are introduced that reduce demand for, or make our, storage solution architecture obsolete. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties and rapidly acquire significant market share. Increased competition could also result in price reductions and loss of market share, any of which could result in lower revenues and reduced gross profits.

We are dependent on a single product, and the lack of continued market acceptance of Storage Center would result in lower revenues.

Storage Center accounts for all of our revenues and will continue to do so for the foreseeable future. As a result, our revenues could be reduced by:

•  any decline in demand for Storage Center;

•  the failure of Storage Center to achieve continued market acceptance;

•  the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, Storage Center;

•  technological innovations or new communications standards that Storage Center does not address; and

•  our inability to release enhanced versions of Storage Center on a timely basis.

We are particularly vulnerable to fluctuations in demand for storage area network products in general and Storage Center in particular. If the storage markets grow more slowly than anticipated or if demand for Storage Center does not grow as quickly as anticipated, whether as a result of competition, product obsolescence, technological change, unfavorable economic conditions, uncertain geopolitical environments, budgetary constraints of our end users or other factors, we may not be able to increase our revenues sufficiently to sustain quarterly or annual profitability and our stock price would decline.

Our products must meet exacting specifications, and defects and failures may occur, which may cause channel partners or end users to return or stop buying our products.

Our channel partners and end users generally establish demanding specifications for quality, performance and reliability that our products must meet. However, our products are highly complex and may contain undetected

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defects and failures when they are first introduced or as new versions are released. We have in the past and may in the future discover software errors in new versions of Storage Center or new products or product enhancements after their release or introduction, which could result in lost revenues during the period required to correct such errors. Despite testing by us and by current and potential end users, errors may not be found in new releases or products until after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Storage Center may also be subject to intentional attacks by viruses that seek to take advantage of these bugs, errors or other weaknesses. If defects or failures occur in Storage Center, a number of negative effects in our business could result, including:

•  lost revenues;

•  increased costs, including warranty expense and costs associated with end user support;

•  delays or cancellations or rescheduling of orders or shipments;

•  product returns or discounts;

•  diversion of management resources;

•  damage to our reputation and brand equity;

•  payment of damages for performance failures;

•  reduced orders from existing channel partners and end users; and

•  declining interest from potential channel partners or end users.

In addition, delays in our ability to fill product orders as a result of quality control issues may negatively impact our relationship with our channel partners and end users. Our revenues could be lower and our expenses could increase if any of the foregoing occurs.

Our end users utilize Storage Center to manage their data. As a result, we could face claims resulting from any loss or corruption of our end users’ data due to a product defect. Our contracts with end users contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and could result in public perception that our products are not effective, even if the occurrence is unrelated to the use of our products or services. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our costs to defend and cover such claims, if any, will increase.

We will not sustain our percentage growth rate, and we may not be able to manage any future growth effectively.

We have experienced significant growth in a short period of time. Our revenues increased from $3.9 million in 2004 to $125.3 million in 2009. The percentage growth rates we achieved in prior periods will not be sustainable. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance. If we are unable to maintain adequate revenues growth in dollars, we may not be able to sustain quarterly or annual profitability and our stock price could decline.

Our future operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth. To manage our growth successfully and handle the responsibilities of being a public company, we believe we must effectively, among other things:

•  increase our channel partners and end users in the mid-size enterprise market;

•  address new markets, such as large enterprise end users and end users outside the United States;

•  control expenses;

•  recruit, hire, train and manage additional qualified engineers;

•  add additional sales and marketing personnel;

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•  expand our international operations; and

•  implement and improve our administrative, financial and operational systems, procedures and controls.

We intend to increase our investment in sales and marketing, research and development and general and administrative and other functions to grow our business. We are likely to recognize the costs associated with these increased investments earlier than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could decrease our annual net income.

If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new products or enhancements to existing products and we may fail to satisfy end user requirements, maintain product quality, execute on our business plan or respond to competitive pressures, which could result in lower revenues and a decline in our stock price.

Our gross profit may vary and such variation may make it more difficult to forecast our earnings.

Our gross profit has been and may continue to be affected by a variety of other factors, including:

•  demand for Storage Center and related services;

•  discount levels and price competition;

•  average order system size and end user mix;

•  hardware and software component mix;

•  the cost of components;

•  level of fixed costs of customer service personnel;

•  the mix of services as a percentage of revenues;

•  new product introductions and enhancements; and

•  geographic sales mix.

Changes in gross profit may result from various factors such as continued investments in our Copilot Services, increases in our fixed costs, changes in the mix between technical support services and professional services, as well as the timing and amount of maintenance agreement initiations and renewals.

We receive a substantial portion of our revenues from a limited number of channel partners, and the loss of, or a significant reduction in, orders from one or more of our major channel partners would result in lower revenues.

Our future success is highly dependent upon establishing and maintaining successful relationships with a variety of channel partners. We market and sell Storage Center through an all-channel assisted sales model and we derive substantially all of our revenues from these channel partners. We generally enter into agreements with our channel partners outlining the terms of our relationship, including channel partner sales commitments, installation and configuration training requirements, and the channel partners’ acknowledgement of the existence of our sales registration process for registering potential systems sales to end users. These contracts typically have a term of one year and are terminable without cause upon written notice to the other party. Our reseller agreements with our channel partners do not prohibit them from offering competitive products or services. Many of our channel partners also sell our competitors’ products. If our channel partners give higher priority to our competitors’ storage products, we may be unable to grow our revenues and could decrease our annual net income.

We receive a substantial portion of our revenues from a limited number of channel partners. For 2009, 2008 and 2007, our top ten channel partners accounted for 42%, 47% and 45% of our revenues, respectively. One channel partner, AMEX, Inc., accounted for 15% and 12% of total revenues for the years ended December 31, 2009 and 2008, respectively. Another channel partner, Insight Investments, accounted for 10% and 13% of total revenues for the years ended December 31, 2008 and 2007, respectively. We anticipate that we will continue to be dependent upon a limited number of channel partners for a significant portion of our revenues for the foreseeable future and, in

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some cases, the portion of our revenues attributable to individual channel partners may increase in the future. The loss of one or more key channel partners or a reduction in sales through any major channel partner would reduce our revenues. Further, in order to develop and expand our channels, we must continue to scale and improve our processes and procedures that support our channel partners, including investments in systems and training, and those processes and procedures may become increasingly complex and difficult to manage. If we fail to maintain existing channel partners or develop relationships with new channel partners, our revenue opportunities will be reduced.

The loss of any key suppliers or the failure to accurately forecast demand for our products or successfully manage our relationships with our key suppliers could negatively impact our ability to sell our products.

We generally maintain minimal inventory for repairs, evaluation and demonstration units and acquire components only as needed. We do not enter into long-term supply contracts for these components. As a result, our ability to respond to channel partner or end user orders efficiently may be constrained by the then-current availability, terms and pricing of these components. Our industry has experienced component shortages and delivery delays in the past, and we may experience shortages or delays of critical components in the future as a result of strong demand in the industry or other factors. If we or our suppliers inaccurately forecast demand for our products, our suppliers may have inadequate inventory, which could increase the prices we must pay for substitute components or result in our inability to meet demand for our products, as well as damage our channel partner or end user relationships.

We currently rely on a limited number of suppliers for components such as system controllers, enclosures, disk drives and switches utilized in the assembly of Storage Center. We generally purchase components on a purchase order basis and do not have long-term supply contracts with these suppliers. In particular, we rely on Bell Microproducts, Inc., a value-added distributor, to provide us with customized system controllers, which Bell Microproducts generally obtains from Supermicro Computer, Inc., a server and component manufacturer. We also rely on Xyratex Corporation, a provider of data storage subsystems, to provide us with their custom enclosures and disk drives. Xyratex purchases most of the disk drives that it supplies to us from Seagate Technology, Inc., a disk drive manufacturer. Our reliance on these key suppliers reduces our control over the manufacturing process, exposing us to risks, including reduced control over product quality, production costs, timely delivery and capacity. It also exposes us to the potential inability to obtain an adequate supply of required components, because we do not have long-term supply commitments and generally purchase our products on a purchase order basis. Component quality is particularly significant with respect to our suppliers of disk drives. We have in the past and may in the future experience disk drive failures, which could cause our reputation to suffer, our competitive position to be impaired and our customers to select other vendors. To meet our product performance requirements, we must obtain disk drives of extremely high quality and capacity. In addition, there are periodic supply-and-demand issues for disk drives that could result in component shortages, selective supply allocations and increased prices of such components. We may not be able to obtain our full requirements of components, including disk drives, that we need for our storage products or the prices of such components may increase. If we fail to effectively manage our relationships with our key suppliers, or if our key suppliers increase prices of components, experience delays, disruptions, capacity constraints, or quality control problems in their manufacturing operations, our ability to ship products to our channel partners or end users could be impaired and our competitive position and reputation could be adversely affected. Qualifying a new key supplier is expensive and time-consuming. If we are required to change key suppliers or assume internal manufacturing operations, we may lose revenues and damage our channel partner or end user relationships.

If our third-party repair service fails to timely and correctly resolve hardware failures experienced by our end users, our reputation will suffer, our competitive position will be impaired and our expenses could increase.

We rely upon Anacomp Inc., or Anacomp, a third-party hardware maintenance provider, which specializes in providing vendor-neutral support of storage equipment, network devices and peripherals, to provide repair services to our end users. We currently have limited capabilities in-house to resolve hardware failures or other issues experienced by our end users. If Anacomp fails to timely and correctly resolve hardware failures or issues

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experienced by our end users, our reputation will suffer, our competitive position will be impaired and our expenses could increase. In May 2008, we entered into a five year agreement with Anacomp. Our agreement with Anacomp will automatically renew for successive one-year terms, unless either party notifies the other, in writing, of its intention to terminate or renegotiate the agreement at least 180 days prior to the end of the initial five-year term or any successive one-year term. In addition, either party may immediately terminate the agreement for a material default by the other party that is not cured within 30 days. If our relationship with Anacomp were to end, we would have to engage a new third-party provider of hardware support, and the transition could result in delays in effecting repairs and damage our reputation and competitive position as well as increase our operating expenses.

If we are unsuccessful in developing and selling new products, services and product enhancements, our competitive position will be adversely affected and our ability to grow our revenues will be impaired.

We operate in a dynamic environment characterized by rapid technological change, changing end user needs, frequent new product introductions and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable. Our competitiveness and future success depend on our ability to anticipate, develop, market and support new products and product enhancements on a timely and cost effective basis that keep pace with technological developments and emerging industry standards and that address the increasingly sophisticated needs of our end users. We may fail to develop and market products and services that respond to technological changes or evolving industry standards, experience difficulties that could delay or prevent the successful development, introduction and marketing of these products and services, or fail to develop products and services that adequately meet the requirements of the marketplace or achieve market acceptance. Our failure to develop and market such products and services on a timely basis would erode our competitive position and impair our ability to grow our revenues.

If our channel partners fail to timely and correctly install and configure our storage systems, or face disruptions in their business, our reputation will suffer, our competitive position could be impaired and we could lose customers.

In addition to our small team of installation personnel, we rely upon some of our channel partners to install Storage Center at our end user locations. Our channel partner agreements generally contain provisions requiring installation and configuration training by the channel partners, which we may waive at our discretion. Although we train and certify our channel partners on the installation and configuration of Storage Center, end users have in the past encountered installation and configuration difficulties. In addition, if one or more of our channel partners suffers an interruption in its business, or experiences delays, disruptions or quality control problems in its operations, or we have to change or add additional channel partners, installation and configuration of Storage Center to our end users could be delayed, our revenues could be reduced and our ability to compete could be impaired. As a significant portion of our sales occur in the last month of a quarter, our end users may also experience installation delays following a purchase if we or our channel partners have too many installations in a short period of time. If we or our channel partners fail to timely and correctly install and configure Storage Center, end users may not purchase additional products and services from us, our reputation could suffer and our revenues could be reduced. In addition, we will incur additional expenses to correctly install and configure Storage Center to meet the expectations of our end users.

If we fail to attract or retain engineering or sales and marketing personnel or if we lose the services of our founders or key management, our ability to grow our business and our competitive position would be impaired.

We believe our future success will depend in large part upon our ability to attract, retain and motivate highly skilled managerial, research and development, sales and marketing personnel. Our management, research and development, sales and marketing personnel represent a significant asset and serve as the source of our business strategy, technological and product innovations, and sales and marketing initiatives. As a result, our success is substantially dependent upon our ability to attract additional personnel for all areas of our organization, particularly in our research and development department and our sales and marketing department. Competition for qualified

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personnel is intense, and we may not be successful in attracting and retaining such personnel on a timely basis or on competitive terms. Any failure to adequately expand our management, research and development, sales and marketing personnel will impede our growth. In addition, many qualified personnel are located outside of the Minneapolis geographic area where our headquarters are located, and some qualified personnel that we may recruit may not be interested in relocating. If we are unable to attract and retain the necessary personnel on a cost-effective basis, our ability to grow our business and our competitive position would be impaired.

In particular, we are highly dependent on the contributions of our three founders, Philip E. Soran, our Chairman, President and Chief Executive Officer, John P. Guider, our Chief Operating Officer, and Lawrence E. Aszmann, our Chief Technology Officer. The loss of any of our founders could make it more difficult to manage our operations and research and development activities, reduce our employee retention and revenues and impair our ability to compete. If any of our founders were to leave us unexpectedly, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity during the search for and while any such successor is integrated into our business and operations. The loss of any of our founders or the inability to attract, retain or motivate qualified personnel, including research and development and sales and marketing personnel, could delay the development and introduction of, and impair our ability to, sell our products.

We expect to face numerous challenges as we attempt to grow our operations, and our channel partner and end user base internationally.

Historically, we have conducted only a small portion of our business internationally. We have two international offices and revenues from international sales were 17%, 16% and 11% of our consolidated revenues during 2009, 2008 and 2007, respectively. Although we expect that part of our future revenues growth will be from channel partners and end users located outside of the United States, we may not be able to increase international market demand for Storage Center. In January 2008, we entered into a marketing agreement with AMEX, Inc., an export firm, pursuant to which we granted AMEX exclusive distribution rights to resell Storage Center to resellers and end users internationally, except in Canada. In January 2009, we entered into a new marketing agreement with AMEX containing exclusive distribution rights similar to those contained in the January 2008 agreement. AMEX agrees to use its best efforts to further the promotion, marketing and sale of Storage Center. The marketing agreement is renewable on an annual basis each January unless either party notifies the other party in writing of an intention to discontinue the relationship at least 90 days prior to the renewal date. If AMEX is not successful in helping us expand our international distribution channel, our revenues and our ability to compete internationally could be impaired.

We expect to face numerous challenges as we attempt to grow our operations, channel partner relationships and end user base internationally, in particular attracting and retaining channel partners with international capabilities or channel partners located in international markets. Our revenues and expenses could be adversely affected by a variety of factors associated with international operations some of which are beyond our control, including:

•  difficulties of managing and staffing international offices, and the increased travel, infrastructure and legal compliance costs associated with international locations;

•  greater difficulty in collecting accounts receivable and longer collection periods;

•  difficulty in contract enforcement;

•  regulatory, political or economic conditions in a specific country or region;

•  compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;

•  export and import controls; trade protection measures and other regulatory requirements;

•  effects of changes in currency exchange rates;

•  potentially adverse tax consequences;

•  service provider and government spending patterns;

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•  reduced protection of our intellectual property and other assets in some countries;

•  greater difficulty documenting and testing our internal controls;

•  differing employment practices and labor issues; and

•  man-made problems such as computer viruses and acts of terrorism and international conflicts.

In addition, we expect that we may encounter increased complexity and costs of managing international operations, including longer and more difficult collection of receivables, difficulties in staffing international operations, local business and cultural factors that differ from our normal standards and practices, differing employment practices and labor issues, and work stoppages, any of which could result in lower revenues and higher expenses.

If we fail to protect our intellectual property rights adequately, our ability to compete effectively or to defend ourselves from litigation could be impaired which could reduce our revenues and increase our costs.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other methods, to protect our proprietary technologies and know-how. As of December 31, 2009, we have five issued patents in the United States, one international patent and additional patents pending in the United States and in foreign countries. The rights granted to us under our issued patents and, if the pending patent applications are granted, those applications may not be meaningful or provide us with any commercial advantage and they could be opposed, contested, circumvented or designed around by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer similar products or technologies. Foreign patent protection is generally not as comprehensive as U.S. patent protection and may not protect our intellectual property in some countries where our products are sold or may be sold in the future. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell or intend to sell products. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.

Monitoring unauthorized use of our intellectual property is difficult and costly. Although we are not aware of any unauthorized use of our intellectual property in the past, it is possible that unauthorized use of our intellectual property may have occurred or may occur without our knowledge. The steps we have taken may not prevent unauthorized use of our intellectual property. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations, and could impair our ability to compete. We may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could result in lower revenues and higher expenses, whether or not such litigation results in a determination favorable to us.

Assertions by third parties of infringement by us of their intellectual property rights could result in a significant diversion of management’s time and increased expenses.

The storage industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies. Litigation can be expensive, lengthy, and disruptive to ordinary business operations. Moreover, the results of complex legal proceedings are difficult to predict. We have received and expect that in the future we may receive communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual property rights and/or offering licenses to such intellectual property. Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any intellectual property litigation also could force us to do one or more of the following:

•  stop selling products or using technology that contains the allegedly infringing intellectual property;

•  lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others;

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•  incur significant legal expenses;

•  pay substantial damages to the party whose intellectual property rights we may be found to be infringing;

•  redesign those products that contain the allegedly infringing intellectual property; or

•  attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

We expect that companies in the storage market will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Our channel partners and end users could also become the target of litigation relating to patent and other intellectual property rights of others. This could trigger technical support and indemnification obligations in our licenses and maintenance agreements. These obligations could results in substantial expenses, including the payment by us of costs and damages.

If we fail to comply with the terms of our open source software license agreement, we could be required to release portions of our software codes, which could impair our ability to compete and result in lower revenues.

Storage Center utilizes a software application called eCos, an “open source,” royalty-free, real-time operating system intended for embedded applications. eCos is licensed to us under a modified version of version 2.0 of the GNU General Public License. Open source software is often made available to the public by its authors and/or other third parties under licenses, such as the GNU General Public License, which impose certain obligations on licensees in the event such licensees re-distribute and/or make derivative works of the open source software. The terms of our license to the eCos application require us to make source code for the derivative works freely available to the public, and/or license such derivative works under a particular type of license, rather than the forms of commercial license customarily used to protect our intellectual property. In addition, there is little or no legal precedent for interpreting the terms of certain of these open source licenses, including the determination of which works are subject to the terms of such licenses. While we believe we have complied with our obligations under the various applicable licenses for open source software to avoid subjecting our proprietary products to conditions we do not intend, in the event the copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public, stop distribution of that work and/or recall our products that include that work. In this event, we could be required to seek licenses from third parties in order to continue offering our products, to make generally available, in source code form, proprietary code that links to certain open source modules, to re-engineer our products, or to recall and/or discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, any of which could impair our ability to compete, result in lower revenues and increase our expenses.

We may need to raise additional funds in the future, which may not be available to us on terms acceptable to us, or at all.

We may need to raise additional funds in the future. Any required additional financing may not be available on terms acceptable to us, or at all. If we raise additional funds by issuing equity securities or convertible debt, investors may experience significant dilution of their ownership interest, and the newly-issued securities may have rights senior to those of the holders of our common stock. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If additional financing is not available when required or is not available on acceptable terms, we may be unable to successfully develop or enhance our storage products in order to take advantage of business opportunities or respond to competitive pressures, which could result in lower revenues and reduce the competitiveness of our storage product offerings.

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We may engage in future acquisitions that could disrupt our business, cause dilution to our stockholders, reduce our financial resources and result in increased expenses.

In the future, we may acquire other businesses, products or technologies. We have not made any acquisitions to date. Accordingly, our ability as an organization to make acquisitions is unproven. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not strengthen our competitive position or achieve our goals, or these acquisitions may be viewed negatively by channel partners, end users, financial markets or investors. In addition, any acquisitions that we make could lead to difficulties in integrating personnel, technologies and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities and increase our expenses. Future acquisitions may reduce our cash available for operations and other uses, and could result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operating or financial results.

Risks Related to the Ownership of Our Common Stock

Our stock price is volatile and purchasers of our common stock could incur substantial losses.

The market price of our common stock and the securities of other technology companies has been and may continue to be highly volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, including:

•  quarterly variations in our results of operations or those of our competitors;

•  fluctuations in the valuation of companies perceived by investors to be comparable to us;

•  economic developments in the storage industry as a whole;

•  general economic conditions and slow or negative growth of related markets;

•  changes in financial estimates including our ability to meet our future revenues and operating profit or loss projections;

•  changes in earnings estimates or recommendations by securities analysts;

•  announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;

•  our ability to develop and market new and enhanced products on a timely basis;

•  commencement of, or our involvement in, litigation;

•  disruption to our operations;

•  any major change in our board of directors or management; and

•  changes in governmental regulations.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may cause the market price of our common stock to decrease, regardless of our actual operating performance. These trading price fluctuations may also make it more difficult for us to use our common stock as a means to make acquisitions or to use options to purchase our common stock to attract and retain employees. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

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If securities analysts or industry analysts downgrade our stock, publish negative research or reports, or do not publish reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business and our market. If one or more analysts adversely change their recommendation regarding our stock or our competitors’ stock, our stock price would likely decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

A limited number of stockholders will have the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Our directors and executive officers and their affiliates beneficially own approximately 28.6% of our outstanding common stock, as of February 26, 2010. These stockholders, if they acted together, could exert substantial influence over matters requiring approval by our stockholders, including electing directors, adopting new compensation plans and approving mergers, acquisitions or other business combination transactions. This concentration of ownership may discourage, delay or prevent a change of control of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by our other stockholders.

Delaware law and our amended and restated certificate of incorporation and bylaws contain provisions that could delay or discourage takeover attempts that stockholders may consider favorable and result in a lower market price for our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

•  the division of our board of directors into three classes;

•  the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or due to the resignation or departure of an existing board member;

•  the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

•  the requirement for the advance notice of nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

•  the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

•  the ability of the board of directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with terms set by the board of directors, which rights could be senior to those of our common stock;

•  the elimination of the rights of stockholders to call a special meeting of stockholders and to take action by written consent in lieu of a meeting;

•  the required approval of at least 662/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; and

•  the required approval of at least a majority of the shares entitled to vote at an election of directors to remove directors without cause.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, particularly those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could discourage

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potential takeover attempts, could reduce the price that investors are willing to pay for shares of our common stock in the future and could potentially result in the market price being lower than they would without these provisions.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Our principal executive offices are located in leased facilities in Eden Prairie, Minnesota, consisting of approximately 106,000 square feet of office space. Our leases expire at various dates through February 2014. These facilities accommodate our principal engineering, sales, marketing, operations and finance and administrative activities. We do not own any real property. We believe that our leased facilities are adequate for our anticipated future needs.

Item 3.   Legal Proceedings

In April 2009, Data Network Storage LLC, or Data Networks, filed a lawsuit in the U.S. District Court for the Southern District of California, against us and 14 other storage vendors, alleging, among other things, patent infringement on a universal storage management system for which it holds an exclusive license. Data Networks is seeking unspecified monetary damages and an injunction against further infringement from us and the other defendants. We filed an answer to Data Network’s complaint denying any liability and are vigorously contesting the lawsuit. We have accrued an immaterial amount of what we believe to be the probable costs in connection with this matter.

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation consisting of intellectual property, commercial and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of December 31, 2009, that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

Item 4.   (Removed and Reserved)

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for our Common Stock

Our common stock has been traded on the New York Stock Exchange, or NYSE, under the ticker symbol “CML” since March 23, 2009. Prior to March 23, 2009, our common stock was traded on the NYSE Arca under the ticker symbol “CML” since it began trading on October 10, 2007. The following table sets forth, for the period indicated, the range of high and low sale prices of our common stock, as reported by the NYSE Arca with respect to the period from January 1, 2008 through March 20, 2009 and by the NYSE for the period from March 23, 2009 through December 31, 2009.

	Prices
	High		Low
2009
Fourth Quarter	$	23.84	$	17.23
Third Quarter	$	18.68	$	13.83
Second Quarter	$	15.80	$	9.94
First Quarter	$	14.18	$	9.83
2008
Fourth Quarter	$	12.68	$	7.15
Third Quarter	$	15.20	$	10.00
Second Quarter	$	13.93	$	9.33
First Quarter	$	12.90	$	7.62

There were 186 stockholders of record of our common stock as of February 26, 2010. In addition, we believe that a significant number of beneficial owners of our common stock hold their shares in street name.

Dividend Policy

To date, we have not declared or paid any cash dividends on our common stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

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Stockholder Return Comparison

The following graph shows the cumulative 26-month total return of an investment of $100 on October 10, 2007, the date we became a public company, for our common stock on NYSE (or the NYSE Arca for applicable periods), in the Russell 2000 Index and the NASDAQ Computer Index. The stock price performance shown on the graph is not necessarily indicative of future price performance, and we do not make or endorse any predictions as to future stockholder returns. This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Compellent Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN*
Among Compellent Technologies, Inc., The Russell 2000 Index
And The NASDAQ Computer Index

* $100 invested on 10/10/07 in stock or 9/30/07 in index, including reinvestment of dividends.
Fiscal year ending December 31.

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Unregistered Sales of Equity Securities

None.

Use of Proceeds from the Sale of Registered Securities

Our initial public offering of common stock was effected through a Registration Statement on Form S-1 (File No. 333-144255), that was declared effective by the Securities and Exchange Commission on October 9, 2007. We registered 6,900,000 shares of our common stock with a proposed maximum aggregate offering price of $93.1 million. The offering did not terminate until after the sale of all of the shares registered on the Registration Statement. All of the shares of common stock issued pursuant to the registration statement were sold at a price to the public of $13.50 per share. The managing underwriters were Morgan Stanley & Co. Incorporated, Needham & Company, LLC, Piper Jaffray & Co., RBC Capital Markets and Thomas Weisel Partners LLC.

As a result of our initial public offering, we raised a total of approximately $84.6 million in net proceeds after deducting underwriting discounts and commissions of $6.5 million and offering expenses of a $2.0 million. As of February 26, 2010, $5.0 million of the $84.6 million in net proceeds has been utilized as working capital in support of operations, with the remainder included in our investment portfolio. No payments for such offering expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates.

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Item 6.   Selected Financial Data

The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The consolidated statements of operations data for the years ended December 31, 2009, 2008 and 2007 and the consolidated balance sheet data as of December 31, 2009 and 2008 have been derived from and should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the year ended December 31, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2007, 2006 and 2005, are derived from audited consolidated financial statements and the notes thereto which are not included in this Annual Report on Form 10-K.

	Year Ended December 31,
	2009		2008			2007			2006			2005
	(in thousands, except per share amounts)
Statement of Operations Data:
Revenues
Product	$	90,938	$	72,417		$	42,831		$	19,996		$	8,670
Support and services		34,337		18,479			8,368			3,337			1,241
Total revenues		125,275		90,896			51,199			23,333			9,911
Cost of revenues
Product		45,809		34,949			21,554			9,897			4,915
Support and services		11,592		7,011			4,423			2,774			1,047
Total cost of revenues		57,401		41,960			25,977			12,671			5,962
Gross profit		67,874		48,936			25,222			10,662			3,949
Operating expenses
Sales and marketing		45,392		35,834			23,520			10,562			5,504
Research and development		12,687		10,060			7,632			5,675			5,241
General and administrative		6,066		6,224			3,324			1,565			2,468
Total operating expenses		64,145		52,118			34,476			17,802			13,213
Operating income (loss)		3,729		(3,182	)		(9,254	)		(7,140	)		(9,264	)
Other income, net		1,782		2,766			1,425			316			138
Income (loss) before income taxes		5,511		(416	)		(7,829	)		(6,824	)		(9,126	)
Income tax expense		718		—			—			—			—
Net income (loss)		4,793		(416	)		(7,829	)		(6,824	)		(9,126	)
Accretion of redeemable convertible preferred stock		—		—			—			6,330			32
Net income (loss) attributable to common stockholders	$	4,793	$	(416	)	$	(7,829	)	$	(13,154	)	$	(9,158	)
Net income (loss) per common share, basic	$	0.16	$	(0.01	)	$	(0.77	)	$	(3.29	)	$	(2.35	)
Net income (loss) per common share, diluted	$	0.15	$	(0.01	)	$	(0.77	)	$	(3.29	)	$	(2.35	)
Weighted average shares, basic		30,851		30,471			10,219			4,003			3,897
Weighted average shares, diluted		31,915		30,471			10,219			4,003			3,897

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	As of December 31,
	2009		2008		2007		2006		2005
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	29,155	$	51,989	$	82,382	$	15,106	$	2,037
Short-term investments		35,218		29,146		11,350		258		—
Working capital		67,936		81,131		95,255		17,685		1,688
Long-term investments		59,472		19,153		—		—		—
Total assets		173,947		128,057		113,376		26,407		6,006
Total liabilities		53,915		29,791		17,960		8,503		3,736
Redeemable convertible preferred stock		—		—		—		—		30,655
Total stockholders’ equity (deficit)	$	120,032	$	98,266	$	95,416	$	17,904	$	(28,385	)

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include all statements other than statements of historical fact contained in this Annual Report on Form 10-K, including, but not limited to, statements about:

•  our expectations regarding our revenues, gross profit and operating expenses;

•  our expectations regarding unfavorable economic conditions, including lessening demand in the information technology market;

•  our ability to compete in our industry;

•  our ability to maintain and grow our channel partner relationships;

•  our growth strategy and our growth rate;

•  our ability to protect our intellectual property rights;

•  pricing and availability of our suppliers’ products; and

•  assumptions underlying or related to any of the foregoing.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater detail in Part I, Item IA. “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date hereof. We hereby qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings.

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Overview

We are a leading provider of enterprise-class network storage solutions that are highly scalable, feature rich and designed to be easy to use and cost effective. Our Storage Center solution is a Storage Area Network, or SAN, that enables users to intelligently store, recover and manage large amounts of data by combining our sophisticated software with standards-based hardware into a single integrated solution. As of December 31, 2009, Storage Center was being utilized by 1,812 enterprises worldwide, across a wide variety of industries including education, financial services, government, healthcare, insurance, legal, media, retail, technology and transportation. We believe that Storage Center is the most comprehensive enterprise-class network storage solution available today, providing increased functionality and lower total cost of ownership when compared to competing storage systems.

We believe our business model is highly differentiated and provides us with several competitive advantages. We sell our products through an all-channel assisted sales model designed to enable us to quickly scale and cost effectively increase sales. We have built a strong internal sales team, which is spread geographically throughout the United States and in certain international markets, to assist our channel partners with, among other things, executive sales calls, service and support offerings, product matter expertise, configuration and pricing, joint sales calls, product demonstrations and design assistance. We also employ a virtual manufacturing strategy, which significantly reduces inventory and eliminates the need for in-house or outsourced manufacturing. We believe these combined strategies create an efficient and scalable business model that enables us to reduce operating costs and improve capital efficiency.

Key Financial Measures and Trends

Sources of Revenues

Revenues are comprised of product revenues, consisting of software and hardware revenues, and support and services revenues. A sale of Storage Center is typically comprised of (a) an upfront fully-paid perpetual end-user license fee, (b) the associated hardware components, (c) a software maintenance arrangement that includes telephone support, bug fixes and potential unspecified product updates, (d) a hardware maintenance agreement that includes telephone support and on-site repairs and replacement and (e) in certain cases, professional services for installation, training and consulting support. Substantially all of our revenues consist of product revenue from sales of Storage Center. We expect that support and services revenues will grow on an absolute basis as our installed base of end users continues to grow, but will remain relatively consistent as a percentage of total revenues.

We offer our products and services through value-added resellers, which we refer to as channel partners. Our channel partners purchase our products after they have received a purchase order from an end user, as they do not maintain an inventory of our products in anticipation of sales to end users. For 2009, 2008 and 2007, our top ten channel partners accounted for 42%, 47% and 45% of our revenues, respectively. One channel partner, AMEX, Inc., accounted for 15% and 12% of total revenues for the years ended December 31, 2009 and 2008, respectively. Another channel partner, Insight Investments, accounted for 10% and 13% of total revenues for the years ended December 31, 2008 and 2007, respectively.

Our systems are modular and highly configurable. Variations in these configurations affect our average system order size and can significantly impact our overall revenues, cost of revenues and gross profit performance. Our revenues within a particular quarter are often significantly affected by the unpredictable procurement patterns of our end users. Historically, we have generated the majority of our revenues in the final month of each quarter primarily because many of our end users do not finalize their purchasing decisions until the final weeks or days of a quarter. We expect these purchasing patterns to continue in the future.

Product Revenues

Product revenues consist of license fees for software applications and related hardware sales of disk drives, system controllers, host bus adapters, switches and enclosures. We also derive a portion of our product revenues from software and hardware upgrades, which include new software applications and additional hardware components. We expect that product revenues will increase on an absolute basis if we are able to execute our business strategy.

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Support and Services Revenues

Support and services revenues consist of software and hardware maintenance contracts, which typically have a duration of one to three years, and professional services for installation, training and consulting support.

Maintenance.  We offer software maintenance that includes telephone support, bug fixes and unspecified product updates and hardware maintenance that includes telephone support and on-site repairs and replacement. Revenues are deferred at the time the maintenance agreement is entered into and is recognized ratably over the term of the maintenance agreement. Our historical experience has shown us that substantially all of our end users have renewed their maintenance agreements upon expiration of their existing maintenance agreements. We anticipate that maintenance revenues will grow on an absolute basis as our installed base of end users continues to grow, but will remain relatively consistent as a percentage of total revenues.

Professional Services.  We generally sell professional services on a time-and-materials basis and recognize revenues when the services are performed. Professional services include installation, training and consulting support. We expect that professional services revenues will grow on an absolute basis as our installed base of end users continues to grow, but remain relatively consistent as a percentage of total revenues.

Cost of Revenues and Gross Profit

Cost of revenues is comprised of cost of product revenues and cost of support and services. Cost of product revenues consist primarily of the cost of component hardware charged by our component suppliers, shipping and handling, provisions for excess and obsolete inventory, overhead allocations, and employee salaries, benefits, and stock-based compensation expense. We expect cost of product revenues to increase in absolute dollars, but remain relatively constant as a percentage of total product revenues. Cost of support and services consists of employee salaries, benefits, stock-based compensation expense for our customer service and technical support team and service fees charged by our third-party hardware maintenance provider. We expect cost of support and services revenues to increase as we expand the size of our customer service and technical support team and incur increased third-party services fees associated with anticipated future revenues growth.

Our gross profit has been and will be affected by many factors, including:

•  the demand for Storage Center and related services;

•  discount levels and price competition;

•  average system order size and end user mix;

•  hardware and software component mix;

•  the cost of component;

•  the level of fixed costs of customer service and personnel;

•  the mix of services as a percentage of revenue;

•  new product introductions and enhancements; and

•  geographic sales mix.

We do not expect any material changes to our gross profit, as compared to current levels.

Operating Expenses

Operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories. We expect to continue to hire a significant number of new employees to support our anticipated growth.

Our business strategy is to be a leading provider of enterprise-class network storage solutions. For us to achieve our goals, substantial investments in our infrastructure were, and continue to be, necessary to facilitate rapid expansion. Our sales and marketing team geographically covers the entire United States, and certain international

35

markets, with employees predominately located at either our corporate headquarters or working remotely. With our increased sales and marketing headcount, and the correlating growth in our revenues, we have also expanded our support functions such as sales management, sales operations, information technology, finance and human resources to leverage our corporate structure to further our business strategy.

Sales and Marketing.  Sales and marketing expense consists primarily of:

•  salaries, related personnel costs and stock-based compensation expense for our sales and marketing personnel;

•  commissions;

•  travel expenses;

•  marketing programs; and

•  other related overhead.

We expect sales and marketing expense to increase on an absolute basis for the foreseeable future as we increase the number of sales and marketing professionals and, to a lesser extent, increase our marketing activities. We expect sales and marketing expense to decrease as a percentage of revenues if our revenues grow as we anticipate.

Research and Development.  Research and development expense consists primarily of:

•  salaries, related personnel costs and stock-based compensation expense for our research and development personnel;

•  depreciation on equipment; and

•  other related overhead.

To date, all of our research and development expenses have been expensed as incurred. We expect research and development expense to increase on an absolute basis for the foreseeable future as we enhance and expand our product offerings. We expect research and development expense to decrease as a percentage of revenues if our revenues grow as we anticipate.

General and Administrative.  General and administrative expense consists primarily of:

•  salaries, related personnel costs and stock-based compensation for our finance, human resource, and information technology personnel and certain executive officers;

•  accounting, tax and legal professional fees; and

•  other related overhead.

We expect general and administrative expenses to increase on an absolute basis for the foreseeable future as we increase personnel to support growth of our operations. We expect general and administrative expenses to decrease as a percentage of revenues if our revenues grow as we anticipate.

Other Income, net

Other Income, net.  Other income, net consists primarily of interest income and realized gains and losses on investments.

Income Tax Expense

Income Tax.  Income tax expense consists primarily of U.S. federal alternative minimum income tax expense, state income tax expenses and foreign income tax expenses.

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Critical Accounting Policies and Estimates

The discussion of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, we are required to make various estimates, judgments and assumptions that have a significant impact on the results reported in the consolidated financial statements. We base our estimates on historical experience and other assumptions that we believed to be reasonable under the circumstances. Changes to these estimates could have a material effect on our consolidated financial statements. We have discussed the development, selection and disclosure of these estimates with the audit committee of our board of directors.

Our significant accounting policies can be found in Note 1 of our Notes to the consolidated financial statements. We believe the following accounting policies may include a higher degree of judgment and complexity in their application and are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.

Revenue Recognition

We recognize product revenues when:

•  Persuasive Evidence of an Arrangement Exists.  We determine that persuasive evidence of an arrangement exists by receiving a purchase order or by obtaining a signed quote.

•  Delivery has Occurred.  Substantially all products are shipped to end users. Delivery is deemed to have occurred upon shipment as title transferred. Products shipped with acceptance criteria are not recognized as revenues until all conditional criteria are satisfied.

•  The Fee is Fixed or Determinable.  Fees are considered fixed and determinable upon establishment of an arrangement that contains the final terms of sale including description, quantity and price of each product or service purchased, and the payment term is less than twelve months.

•  Collectability is Probable.  Probability of collection is assessed on a case-by-case basis. Customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. If we are unable to determine from the outset of an arrangement that collectability is probable based upon our review process, revenues are recognized upon cash receipt.

We use channel partners to sell our products. Revenues under channel partner arrangements are not recognized until delivery occurs, the fee is fixed and determinable, collectability is probable and supported, and an end user has been identified. We maintain contractual arrangements with our channel partners, which contain provisions that specify that the risk of loss and title transfers upon shipment. In circumstances where we sell directly to an end user, our revenues are the price we charge the end user and revenues are recognized upon delivery.

A sale is typically a multiple-element arrangement including software, hardware, software maintenance, hardware maintenance and, in certain cases, services. Our determination of fair value of each element in these multiple-element arrangements is based on vendor-specific objective evidence, or VSOE. We have analyzed all of the elements included in our multiple-element arrangements and have determined that we have sufficient VSOE to allocate revenues to all undelivered elements of a contract. VSOE is evaluated and determined by us based on separate sales of the specific elements. No software products remain undelivered at the inception of the arrangement. Accordingly, assuming all other revenue recognition criteria are met, revenues from software and hardware are recognized upon delivery using the residual method, and revenues from software maintenance and hardware maintenance are recognized ratably over the respective support period. For multiple-element arrangements that include only hardware and hardware maintenance, we have determined that we have objective and reliable evidence of fair value to allocate revenues separately to hardware and hardware maintenance.

We generally sell professional services on a time-and-materials basis and recognize revenues when the services are performed.

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Allowance for Doubtful Accounts

In the vast majority of sales, we sell our products to channel partners for resale to end users. In certain limited circumstances, we may sell directly to the end user, primarily due to concerns of the credit worthiness of the channel partner. We perform ongoing evaluations of our channel partners and end users and continuously monitor collections and payments. We record an allowance for doubtful accounts for potentially uncollectible receivables. The allowance is established based on a specific assessment of accounts with known collection exposure, a review of the age of the receivable, the customer’s payment history, the customer’s financial condition and industry and general economic conditions, as well as a general assessment of collection exposure in the remaining receivable population based upon bad debt history. Our actual bad debt exposure could differ significantly from our estimates if the financial condition of our channel partners or end users were to deteriorate, resulting in an impairment of their ability to make payments.

Inventory Valuations

Inventories are recorded at the lower of cost, determined on the first-in, first-out method, or market value (estimated net realizable value). Each quarter, we evaluate our inventories for obsolescence and excess quantities. We record provisions for excess and obsolete inventory. The amounts of these provisions are based upon our analysis of current inventory levels, expected product lives, historical loss trends and projections of future sales demand. However, our inventory provision may not be sufficient if future demand for our products decreased because of economic or competitive conditions, or if products became obsolete because of technical advancements in the industry or by us. Under these and other circumstances, additional inventory write-downs would be required and would adversely affect income in the period the write-down is made.

Stock-Based Compensation

We measure and recognize compensation expense for all share-based payment awards made to employees and non-employee directors based on fair value. Determining the appropriate fair value model and calculating the fair value of stock option grants requires the input of highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Stock-based compensation expense is significant to our financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management’s judgment. Significant estimates include the risk free interest rate, the expected life of the option, stock price volatility, the dividend yield and the forfeiture rate. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon bonds at the date of grant with maturity dates approximately equal to the expected life of the options at their grant date. The expected life of the options is based on evaluations of historic expected lives from a selected publicly traded peer group, believed to be comparable after consideration of size, maturity, profitability, growth, risk and return on investment. Volatility is based on historic volatilities from traded shares of the same publicly traded peer group. We have not paid dividends in the past and do not expect to in the foreseeable future. We utilize historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Any changes in these highly subjective assumptions could significantly impact the amount of stock-based compensation expense recognized, which could have a material impact on our financial statements.

Income Taxes

We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense and assessing temporary differences resulting from differing treatment of items for financial statement and income tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Increases in the valuation allowance result in the recognition of additional income tax expense. Income tax expense could be materially different from actual results because of changes in our expectations regarding future taxable income, the relationship between book and taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.

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We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We have recorded unrecognized tax benefits of $430,000 at December 31, 2009, which are netted against the corresponding deferred tax assets on the balance sheet.

Our deferred tax assets are comprised primarily of net operating loss, or NOL, carryforwards, federal and state research and development credit carryforwards and federal alternative minimum tax, or AMT, credit carryforwards. As of December 31, 2009, we had federal tax NOL carryforwards of approximately $24.2 million. The NOL carryforwards are available to offset taxable income through 2027 and will begin to expire in 2022. Our various state NOL carryforwards are available to offset future state taxable income. These state NOL carryforwards typically will have the same expirations as our federal tax NOL carryforwards. We had approximately $1.6 million of federal research and development credit carryforwards, $578,000 of state research and development credit carryforwards and $278,000 of federal AMT credit carryforwards. The federal and state research and development credit carryforwards will begin to expire in 2022, while the federal AMT credit carryforwards do not have an expiration date. In addition, under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership could place limitations on the availability of our NOL carryforwards.

Based on the level of projected future taxable income over the periods in which the deferred tax assets are deductible, our past history of losses and the positive and negative evidence available, we have concluded it is more likely than not that we will not realize the benefits of our net deferred tax assets. Accordingly, we have recorded a full valuation allowance against our net deferred tax assets as of December 31, 2009 and 2008 of $14.2 million and $15.1 million, respectively. We continue to evaluate the realization of deferred tax assets and at the point in time when we determine that it is more likely than not that a portion of our deferred tax assets will be realized, we will evaluate our valuation allowance and release an amount that is expected to be realized.

Results of Operations

The following table sets forth a summary of our Consolidated Statements of Operations and the related changes for the periods indicated (in thousands):

	Year Ended											Year Ended
	December 31,					Change						December 31,						Change
	2009		2008			$			%			2008			2007			$		%
Revenues
Product	$	90,938	$	72,417		$	18,521			25.6	%	$	72,417		$	42,831		$	29,586		69.1	%
Support and services		34,337		18,479			15,858			85.8			18,479			8,368			10,111		120.8
Total revenues		125,275		90,896			34,379			37.8			90,896			51,199			39,697		77.5
Cost of revenues
Product		45,809		34,949			10,860			31.1			34,949			21,554			13,395		62.1
Support and services		11,592		7,011			4,581			65.3			7,011			4,423			2,588		58.5
Total cost of revenues		57,401		41,960			15,441			36.8			41,960			25,977			15,983		61.5
Gross profit		67,874		48,936			18,938			38.7			48,936			25,222			23,714		94.0
Operating expenses
Sales and marketing		45,392		35,834			9,558			26.7			35,834			23,520			12,314		52.4
Research and development		12,687		10,060			2,627			26.1			10,060			7,632			2,428		31.8
General and administrative		6,066		6,224			(158	)		(2.5	)		6,224			3,324			2,900		87.2
Total operating expenses		64,145		52,118			12,027			23.1			52,118			34,476			17,642		51.2
Operating income (loss)		3,729		(3,182	)		6,911			*			(3,182	)		(9,254	)		6,072		65.6
Other income, net		1,782		2,766			(984	)		(35.6	)		2,766			1,425			1,341		94.1
Income (loss) before income taxes		5,511		(416	)		5,927			*			(416	)		(7,829	)		7,413		94.7
Income tax expense		718		—			718			*			—			—			—		—
Net income (loss)	$	4,793	$	(416	)	$	5,209			*		$	(416	)	$	(7,829	)	$	7,413		94.7	%

* - not a meaningful percentage

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Comparison of Years Ended December 31, 2009 and 2008

Revenues

Revenues and the related changes for the years ended December 31, 2009 and 2008 were as follows (in thousands):

	Year Ended December 31,
	2009					2008
			%					%
			of Total					of Total			Change
	$		Revenues			$		Revenues			$		%
Revenues
Product	$	90,938		72.6	%	$	72,417		79.7	%	$	18,521		25.6	%
Support and services		34,337		27.4			18,479		20.3			15,858		85.8
Total revenues	$	125,275		100.0	%	$	90,896		100.0	%	$	34,379		37.8	%

Product Revenues.  Product revenues derived from system sales primarily increased due to a 39% increase in the number of systems sold. The increase in systems sales was driven by an increase of 107 channel partners, an increase in sales and marketing headcount to 212 people from 163 people, and additional marketing programs. While we continued to experience lower revenues per megabyte for disk drives, this was offset by increased revenues from enhanced capacity and complexity of systems purchased by our end users. Product revenues derived from upgrade sales increased due to the ongoing growth in the number of our total end users, which increased to 1,812 as of December 31, 2009 from 1,278 as of December 31, 2008.

Support and Services Revenues.  Support revenues increased 87% primarily due to the renewal of maintenance agreements by existing end users and the growth of the installed base. Services revenues increased 80% due to an increase in end user and channel partner training programs and an increase in Storage Center installations. These increases were due to both an increase in the number of products sold and our efforts to grow services revenues.

Cost of Revenues and Gross Profit

Cost of revenues and gross profit and the related changes for the years ended December 31, 2009 and 2008 were as follows (in thousands):

	Year Ended December 31,
	2009					2008
			%					%
			of Related					of Related			Change
	$		Revenues			$		Revenues			$		%
Cost of revenues
Product	$	45,809		50.4	%	$	34,949		48.3	%	$	10,860		31.1	%
Support and services		11,592		33.8			7,011		37.9			4,581		65.3
Total cost of revenues	$	57,401		45.8	%	$	41,960		46.2	%	$	15,441		36.8	%
Gross profit				54.2	%				53.8	%

Cost of Product Revenues.  Cost of product revenues increased primarily due to increased component hardware costs associated with the increased number of systems and upgrades purchased by our end users.

Cost of Support and Services Revenues.  Cost of support and services revenues increased primarily due to increased salaries, employee benefits and stock-based compensation expense of $2.0 million related to growth in our customer service and technical support headcount to 63 people from 41 people, increased travel expense of $143,000, increased hardware service fees of $2.0 million charged by our third-party hardware maintenance provider associated with the continuing growth of our installed base and $477,000 for allocations of facilities related costs and depreciation expense.

40

Gross Profit.  Gross profit increased due to revenues increasing faster than cost of revenues as discussed above.

Operating Expenses

Operating expenses and the related changes for the years ended December 31, 2009 and 2008 were as follows (in thousands):

	Year Ended December 31,
	2009					2008
			%					%
			of Total					of Total			Change
	$		Revenues			$		Revenues			$			%
Operating expenses
Sales and marketing	$	45,392		36.1	%	$	35,834		39.4	%	$	9,558			26.7	%
Research and development		12,687		10.1			10,060		11.1			2,627			26.1
General and administrative		6,066		4.8			6,224		6.8			(158	)		(2.5	)
Total operating expenses	$	64,145		51.2	%	$	52,118		57.3	%	$	12,027			23.1	%

Sales and Marketing Expense.  Sales and marketing expense increased primarily due to an increase in sales and marketing headcount to 212 people from 163 people, resulting in a $6.1 million increase in salaries, employee benefits, commissions and stock-based compensation expense, a $479,000 increase in sales and marketing related travel and support costs and a $297,000 increase in channel partner commissions due to increased third-party selling activities. Increased marketing efforts led to an additional $2.6 million of expense related to partner programs, trade shows and other promotional activities.

Research and Development Expense.  Research and development expense increased primarily due to an increase in research and development headcount to 75 people from 58 people, resulting in a $2.0 million increase in salaries, employee benefits and stock-based compensation expense. Depreciation expense increased $511,000 due to an increase in our purchases of lab equipment throughout 2009.

General and Administrative Expense.  General and administrative expense decreased primarily due to a decrease in professional and compliance fees of $589,000 for outside legal and consulting services from prior year, which pertained predominately to public company reporting and compliance requirements related to our initial public offering in October 2007. In the prior year, we also incurred $778,000 of additional legal and settlement expenses in defense and settlement of claims brought against us. These decreases were somewhat offset by an increase in salaries, employee benefits and stock-based compensation expense of $983,000 due to an increase in staff headcount in finance, information technology, and human resources from 17 people to 22 people and for compensation increases to reflect current market conditions. In addition, our accounting fees increased $182,000 due to an increase in tax services for one-time projects.

Other Income, Net

Other Income, Net.  Other income, net decreased $984,000 primarily due to decreased interest income resulting from lower interest rates partially offset by interest income on increased cash, cash equivalents and investment balances.

Income Tax Expense

Income Tax Expense.  Income tax expense of $718,000 for the year-ended December 31, 2009 consisted of $256,000 for U.S. federal alternative minimum income tax expense, $409,000 for state income tax expense and $53,000 for foreign income tax expense. There was no income tax expense or benefit incurred in 2008.

41

Comparison of Years Ended December 31, 2008 and 2007

Revenues

Revenues and the related changes for the years ended December 31, 2008 and 2007 were as follows (in thousands):

	Year Ended December 31,
	2008					2007
			%					%
			of Total					of Total			Change
	$		Revenues			$		Revenues			$		%
Revenues
Product	$	72,417		79.7	%	$	42,831		83.7	%	$	29,586		69.1	%
Support and services		18,479		20.3			8,368		16.3			10,111		120.8
Total revenues	$	90,896		100.0	%	$	51,199		100.0	%	$	39,697		77.5	%

Product Revenues.  Product revenues derived from system sales primarily increased due to a 42% increase in the number of systems sold. The increase in systems sales was driven by an increase of approximately 80 channel partners, an increase in sales and marketing headcount to 163 people from 119 people, and additional marketing programs. While we continued to experience lower revenues per megabyte for disk drives, this was offset by increased revenues from enhanced capacity and complexity of systems purchased by our end users. Product revenues derived from upgrade sales increased due to the ongoing growth in the number of our total end users, which increased to over 1,275 as of December 31, 2008 from over 740 as of December 31, 2007.

Support and Services Revenues.  Support revenues increased 113% primarily due to the renewal of maintenance agreements by existing end users and the growth of the installed base. Support pricing remained relatively flat with an adjustment for immaterial inflationary price increases. Services revenues increased 204% due to an increase in end user and channel partner training programs and an increase in Storage Center installations. These increases were due to both an increase in the number of products sold and our efforts to grow services revenues.

Cost of Revenues and Gross Profit

Cost of revenues and gross profit and the related changes for the years ended December 31, 2008 and 2007 were as follows (in thousands):

	Year Ended December 31,
	2008					2007
			%					%
			of Related					of Related			Change
	$		Revenues			$		Revenues			$		%
Cost of revenues
Product	$	34,949		48.3	%	$	21,554		50.3	%	$	13,395		62.1	%
Support and services		7,011		37.9			4,423		52.9			2,588		58.5
Total cost of revenues	$	41,960		46.2	%	$	25,977		50.7	%	$	15,983		61.5	%
Gross profit				53.8	%				49.3	%

Cost of Product Revenues.  Cost of product revenues increased primarily due to increased component hardware costs associated with the increased number of systems and upgrades purchased by our end users.

Cost of Support and Services Revenues.  Cost of support and services revenues increased primarily due to increased salaries, employee benefits and stock-based compensation expense of $806,000 related to growth in our customer service and technical support headcount to 41 people from 26 people, increased travel expense of $226,000, increased hardware service fees of $1.1 million charged by our third-party hardware maintenance provider associated with the continuing growth of our installed base and $445,000 of product cost predominately for obligations owed to customers pursuant to terms of our hardware and software maintenance contracts.

42

Gross Profit.  Gross profit increased due to revenues increasing faster than cost of revenues as discussed above.

Operating Expenses

Operating expenses and the related changes for the years ended December 31, 2008 and 2007 were as follows (in thousands):

	Year Ended December 31,
	2008					2007
			% of Total					% of Total			Change
	$		Revenues			$		Revenues			$		%
Operating expenses
Sales and marketing	$	35,834		39.4	%	$	23,520		45.9	%	$	12,314		52.4	%
Research and development		10,060		11.1			7,632		14.9			2,428		31.8
General and administrative		6,224		6.8			3,324		6.5			2,900		87.2
Total operating expenses	$	52,118		57.3	%	$	34,476		67.3	%	$	17,642		51.2	%

Sales and Marketing Expense.  Sales and marketing expense increased primarily due to an increase in sales and marketing headcount to 163 people from 119 people, resulting in a $9.8 million increase in salaries, employee benefits, commissions and stock-based compensation expense, a $942,000 increase in sales and marketing related travel and support costs and a $661,000 increase in channel partner commissions due to increased third-party selling activities. Increased marketing efforts led to an additional $624,000 of expense related to partner programs, trade shows and other promotional activities.

Research and Development Expense.  Research and development expense increased primarily due to an increase in research and development headcount to 58 people from 48 people, resulting in a $2.0 million increase in salaries, employee benefits and stock-based compensation expense, and an increase of $284,000 in facilities related costs due primarily to our relocation to our new executive headquarters in March 2007.

General and Administrative Expense.  General and administrative expense increased primarily due to an increase in finance, information technology, and human resource staff headcount to 17 people from 11 people and compensation increases to reflect current market conditions, resulting in a $893,000 increase in salaries, employee benefits and stock-based compensation expense. Professional and compliance fees increased $1.1 million for outside legal, accounting, and consulting services, pertaining predominately to public company reporting and compliance requirements as we completed an initial public offering in October 2007. We also incurred $778,000 of additional legal and settlement expenses in defense and settlement of claims brought against us.

Other Income, Net

Other Income, Net.  Other income, net increased primarily due to increased interest income resulting from higher cash and cash equivalent and investment balances following the closing of the initial public offering in October 2007.

Liquidity and Capital Resources

We completed an initial public offering of our common stock on October 9, 2007 in which we sold 6,900,000 shares of our common stock at $13.50 per share for cash proceeds of $84.6 million, net of underwriting discounts and commissions and offering expenses. We have used these funds for general corporate purposes since our initial public offering and expect to continue to do so. We also completed a secondary offering of our common stock on November 17, 2009 in which we sold 600,000 shares of our common stock at $19.25 per share for cash proceeds of $10.7 million, net of underwriting discounts and commissions and offering expenses. Cash in excess of immediate operating requirements is invested in accordance with our investment policy, primarily with a goal of maintaining liquidity and capital preservation. Our cash, cash equivalents and short and long-term investments are held in highly liquid money market funds, federal agency securities, corporate debt securities, certificates of deposit, and variable rate demand notes.

43

Our cash, cash equivalents and short-term investments available to fund current operations were $64.4 million and $81.1 million at December 31, 2009 and 2008, respectively. Our cash, cash equivalents and short-term investment balances decreased between periods due to movement of funds into long-term securities to capture higher interest rates. We held $59.5 million and $19.2 million of long-term investments at December 31, 2009 and 2008, respectively. Additionally, cash provided by operating activities for the year ended December 31, 2009 was $14.9 million compared to $7.8 million for the year ended December 31, 2008.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2009, 2008 and 2007 (in thousands).

	Year Ended December 31,
	2009			2008			2007
Net cash provided by (used in) operating activities	$	14,939		$	7,849		$	(3,476	)
Net cash used in investing activities		(50,438	)		(39,107	)		(13,990	)
Net cash provided by financing activities		12,665			865			84,742
Net (decrease) increase in cash and cash equivalents	$	(22,834	)	$	(30,393	)	$	67,276

Operating Activities

Cash provided by operating activities was $14.9 million in 2009. We had net income of $4.8 million, which included non-cash charges consisting of $2.4 million in depreciation and $4.1 million in stock-based compensation expense. Cash provided by other operating activities included an increase in deferred revenues of $17.6 million and an increase in accounts payable of $6.1 million, partially offset by an increase in accounts receivable of $17.5 million. The increase in deferred revenues reflects an increase in our customer base and related increase in the purchase of our maintenance agreements, which are paid for in advance but recorded as revenues ratably over the term of the agreement. The increase in accounts payable relates to increased inventory purchases at the end of the current year as a result of increased sales in the fourth quarter. The increase in accounts receivable reflects an overall increase in revenues primarily due to the expansion of our operations.

Cash provided by operating activities was $7.8 million in 2008. We incurred a net loss of $416,000, which included non-cash charges consisting of $1.6 million in depreciation and $2.2 million in stock-based compensation expense related to employees. Cash provided by other operating activities included an increase in deferred revenues of $10.1 million and an increase in accrued compensation and accrued liabilities of $2.2 million, partially offset by an increase in accounts receivable of $5.9 million. The increase in deferred revenues reflects an increase in our customer base and related increase in the purchase of our maintenance agreements, which are paid for in advance but recorded as revenues ratably over the term of the agreement. The increase in accrued compensation and accrued liabilities relates predominately to increased employee costs for salaries, vacation, bonuses and commissions due to increased headcount, timing of payroll, and overall expansion of our operations and customer base. The increase in accounts receivable reflects an overall increase in revenues primarily due to the expansion of our operations.

Cash used in operating activities was $3.5 million in 2007. We incurred a net loss of $7.8 million, which included non-cash charges consisting of $1.2 million in depreciation and $642,000 in stock-based compensation expense related to employees. Cash used in other operating activities included an increase in accounts receivable of $5.4 million, more than offset by an increase in deferred revenues of $6.6 million and an increase in accrued compensation and accrued liabilities of $2.1 million. The increase in accounts receivable reflects an overall increase in revenues primarily due to the expansion of our operations. The increase in deferred revenues reflects an increase in our customer base and related increase in the purchase of our maintenance agreements, which are paid for in advance but recorded as revenues ratably over the term of the agreement. The increase in accrued compensation and accrued liabilities relates predominately to increased employee costs for salaries, vacation, bonuses and commissions due to increased headcount, timing of payroll, and overall expansion of our operations and customer base.

44

Investing Activities

Cash used in investing activities was $50.4 million in 2009, consisting primarily of $4.1 million for purchases of property and equipment and $123.4 million for purchases of investments, partially offset by sales and maturities of investments of $77.0 million.

Cash used in investing activities was $39.1 million in 2008, consisting primarily of $2.3 million for purchases of property and equipment and $98.5 million for purchases of investments, partially offset by sales and maturities of investments of $61.7 million.

Cash used in investing activities was $14.0 million in 2007, consisting primarily of $11.4 million for purchases of short-term investments and $2.9 million for purchases of property and equipment.

Financing Activities

Cash provided by financing activities was $12.7 million from the issuance of 306,000 shares of common stock in conjunction with the 2007 Employee Stock Purchase Plan and the exercise of stock options with cash proceeds of $2.0 million and from the issuance of 600,000 shares of common stock in conjunction with a secondary offering in November 2009 with cash proceeds of $10.7 million, net of offering expenses.

Cash provided by financing activities was $865,000 in 2008, largely from the issuance of common stock in conjunction with the 2007 Employee Stock Purchase Plan and pursuant to the exercise of stock options.

Cash provided by financing activities was $84.7 million in 2007, primarily from the issuance of 6,900,000 shares of common stock in conjunction with our initial public offering in October 2007 with cash proceeds of $84.6 million, net of underwriting discounts and commissions and offering expenses.

Operating and Capital Expenditure Requirements

We anticipate using available cash to fund growth in operations and further investments in human capital and capital equipment. In the next twelve months, capital expenditures are expected to be in the range of approximately $6.5 million to $7.5 million, primarily for product development. We believe our current cash and cash equivalents, investments, and the interest we earn on these balances, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. If these sources of cash are insufficient to satisfy our liquidity requirements beyond the next twelve months, we may seek to sell additional equity or convertible debt securities or enter into a credit facility. The sale of additional equity and convertible debt securities may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, such securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all.

Contractual Obligations

The following table summarizes our outstanding contractual obligations as of December 31, 2009 and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

	Payment Due by Period
			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Operating Leases	$	6,176	$	1,234	$	3,079	$	1,863	$	—

The table above reflects only payment obligations that are fixed and determinable. Our commitments for operating leases relate to our corporate headquarters in Eden Prairie, Minnesota and office equipment.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

45

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105), which establishes the FASB Accounting Standards Codification^tm, or the Codification or ASC, and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standards were superseded and all other accounting literature not included in the Codification is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and therefore was effective for us in the third quarter of fiscal 2009. The principal impact on our financial statements is limited to disclosures as all future references to authoritative accounting literature will be referenced in accordance with the Codification. The Codification did not have an impact on our financial condition or results of operation.

In October 2009, the FASB issued the following ASUs:

•  ASU No. 2009-13, Revenue Recognition (ASC Topic 605) — Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force; and

•  ASU No. 2009-14, Software (ASC Topic 985) — Certain Revenue Arrangements That Include Software Elements, a consensus of the FASB Emerging Issues Task Force.

ASU No. 2009-13:  This guidance modifies the fair value requirements of ASC Subtopic 605-25 Revenue Recognition Multiple-Element Arrangements by allowing the use of the “best estimate of selling price” in addition to VSOE and Vendor Objective Evidence (now referred to as third-party evidence, or TPE) for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer permitted.

ASU No. 2009-14:  This guidance modifies the scope of ASC Subtopic 965-605 Software Revenue Recognition to exclude from its requirements (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality.

These updates require expanded qualitative and quantitative disclosures and are effective for fiscal years beginning on or after June 15, 2010. However, companies may elect to adopt as early as interim periods ended September 30, 2009. We plan to adopt these updates on January 1, 2011 on a prospective basis. We are currently evaluating the impact of adopting these updates on our consolidated financial statements.

46

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates relating to our investment portfolio. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. This means that a change in prevailing interest rates may cause the principal amount of the investments to fluctuate. By policy, we minimize risk by placing our investments with high quality debt security issuers and limit the amount of credit exposure to any one issuer. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including commercial paper, money market funds and corporate debt securities. Our investment policy prohibits investment in derivative instruments. Through our money managers, we maintain risk management control systems to monitor interest rate risk. Our cash and cash equivalents as of December 31, 2009 primarily included liquid money market accounts and are held with high quality financial institutions and at times, such balances may be in excess of insurance limits. Our investments as of December 31, 2009 included federal agency securities, corporate debt securities, certificates of deposit, and variable rate demand notes. Our investments in variable rate demand notes are not subject to auction risk. We performed a sensitivity analysis on our variable and fixed rate financial investments. According to our analysis, if our blended rate of return decreased by 10% in 2009, our interest income for 2009 would have declined by approximately $239,000. While we cannot predict future market conditions or market liquidity, we have taken steps, including regularly reviewing our investments and associated risk profiles, which we believe will allow us to effectively manage the risks of our investment portfolio.

We manufacture our products in the United States and sell them worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since our sales are currently denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets and our accounts receivable more difficult to collect. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.

We believe that our international entities are subject to risks typical of any international entity, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.

47

Item 8.   Financial Statements and Supplementary Data

Compellent Technologies, Inc.

Index to Consolidated Financial Statements

	Page
Reports of Independent Registered Public Accounting Firm		49
Consolidated Balance Sheets		51
Consolidated Statements of Operations		52
Consolidated Statements of Stockholders’ Equity (Deficit)		53
Consolidated Statements of Cash Flows		54
Notes to Consolidated Financial Statements		55

48

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Compellent Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Compellent Technologies, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15 (2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Compellent Technologies, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Oversight Board (United States), Compellent Technologies, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 5, 2010 expressed an unqualified opinion.

/s/  Grant Thornton LLP

Minneapolis, Minnesota

March 5, 2010

49

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Compellent Technologies, Inc.

We have audited Compellent Technologies, Inc. (a Delaware corporation) and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the internal control over financial reporting of Compellent Technologies, Inc. and subsidiaries based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Compellent Technologies, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Compellent Technologies, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009, and our report dated March 5, 2010 expressed an unqualified opinion.

/s/  Grant Thornton LLP

Minneapolis, Minnesota

March 5, 2010

50

COMPELLENT TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
	(in thousands, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents	$	29,155		$	51,989
Short-term investments		35,218			29,146
Accounts receivable, net of allowances of $1,300 and $654 as of December 31, 2009 and 2008		36,702			19,167
Inventories		4,750			3,564
Other current assets		3,497			1,592
Total current assets		109,322			105,458
Long-term investments		59,472			19,153
Property and equipment, net		5,153			3,446
Total assets	$	173,947		$	128,057
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	8,968		$	2,885
Accrued compensation		5,489			4,834
Accrued liabilities		1,261			1,480
Deferred revenues, current		25,668			15,128
Total current liabilities		41,386			24,327
Deferred revenues, non-current		12,529			5,464
Commitments and contingencies		—			—
Stockholders’ equity
Common stock, $0.001 par value, 300,000,000 shares authorized; 31,674,940 and 30,768,706 shares issued and outstanding as of December 31, 2009 and 2008		32			31
Additional paid in capital		164,885			147,974
Accumulated deficit		(45,062	)		(49,855	)
Accumulated other comprehensive income		177			116
Total stockholders’ equity		120,032			98,266
Total liabilities and stockholders’ equity	$	173,947		$	128,057

See accompanying notes to consolidated financial statements.

51

COMPELLENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2009		2008			2007
	(in thousands, except per share amounts)
Revenues
Product	$	90,938	$	72,417		$	42,831
Support and services		34,337		18,479			8,368
Total revenues		125,275		90,896			51,199
Cost of revenues
Product		45,809		34,949			21,554
Support and services		11,592		7,011			4,423
Total cost of revenues		57,401		41,960			25,977
Gross profit		67,874		48,936			25,222
Operating expenses
Sales and marketing		45,392		35,834			23,520
Research and development		12,687		10,060			7,632
General and administrative		6,066		6,224			3,324
Total operating expenses		64,145		52,118			34,476
Operating income (loss)		3,729		(3,182	)		(9,254	)
Other income, net		1,782		2,766			1,425
Income (loss) before income taxes		5,511		(416	)		(7,829	)
Income tax expense		718		—			—
Net income (loss)	$	4,793	$	(416	)	$	(7,829	)
Net income (loss) per common share, basic	$	0.16	$	(0.01	)	$	(0.77	)
Net income (loss) per common share, diluted	$	0.15	$	(0.01	)	$	(0.77	)
Weighted average shares, basic		30,851		30,471			10,219
Weighted average shares, diluted		31,915		30,471			10,219

See accompanying notes to consolidated financial statements.

52

COMPELLENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Stockholders’ Equity (Deficit)
	Convertible																	Accumulated
	Preferred											Additional						Other
	Stock						Common Stock					Paid In			Accumulated			Comprehensive
	Shares			Amount			Shares			Amount		Capital			Deficit			Income			Total
	(in thousands)
Balance at December 31, 2006		18,939		$	59,366			4,423		$	4	$	144		$	(41,610	)	$	—		$	17,904
Conversion of convertible preferred stock to common stock		(18,939	)		(59,366	)		18,939			19		59,347			—			—			—
Common stock issued in conjunction with initial public offering, net		—			—			6,900			7		84,601			—			—			84,608
Stock-based compensation expense		—			—			—			—		642			—			—			642
Common stock issued under stock option plan		—			—			138			—		32			—			—			32
Common stock repurchased		—			—			(302	)		—		(142	)		—			—			(142	)
Stock options exercised for unvested restricted common stock		—			—			475			1		—			—			—			1
Vesting of restricted common stock		—			—			—			—		153			—			—			153
Issuance of common stock for services provided		—			—			20			—		47			—			—			47
Net loss		—			—			—			—		—			(7,829	)		—			(7,829	)
Balance at December 31, 2007		—		$	—			30,593		$	31	$	144,824		$	(49,439	)	$	—		$	95,416
Stock-based compensation expense		—			—			—			—		2,166			—			—			2,166
Common stock issued under stock option and employee stock purchase plans		—			—			176			—		865			—			—			865
Vesting of restricted common stock		—			—			—			—		119			—			—			119
Comprehensive income (loss):
Net loss		—			—			—			—		—			(416	)		—			(416	)
Cumulative translation adjustment		—			—			—			—		—			—			(14	)		(14	)
Unrealized gain on investments, net		—			—			—			—		—			—			130			130
Total comprehensive loss		—			—			—			—		—			—			—			(300	)
Balance at December 31, 2008		—		$	—			30,769		$	31	$	147,974		$	(49,855	)	$	116		$	98,266
Secondary offering issuance of stock, net		—			—			600			1		10,657			—			—			10,658
Stock-based compensation expense		—			—			—			—		4,131			—			—			4,131
Common stock issued under stock option and employee stock purchase plans		—			—			306			—		1,960			—			—			1,960
Tax benefits related to stock option exercises		—			—			—			—		47			—			—			47
Vesting of restricted common stock		—			—			—			—		116			—			—			116
Comprehensive income (loss):
Net income		—			—			—			—		—			4,793			—			4,793
Cumulative translation adjustment		—			—			—			—		—			—			(13	)		(13	)
Unrealized gain on investments, net		—			—			—			—		—			—			74			74
Total comprehensive income		—			—			—			—		—			—			—			4,854
Balance at December 31, 2009		—		$	—			31,675		$	32	$	164,885		$	(45,062	)	$	177		$	120,032

See accompanying notes to consolidated financial statements.

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COMPELLENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2009			2008			2007
	(in thousands)
Operating activities
Net income (loss)	$	4,793		$	(416	)	$	(7,829	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		2,414			1,591			1,208
Stock-based compensation expense		4,131			2,166			642
Excess tax benefits from stock-based compensation		(47	)		—			—
Issuance of common stock for services provided		—			—			40
Changes in operating assets and liabilities
Accounts receivable		(17,535	)		(5,856	)		(5,393	)
Inventories		(1,186	)		(1,026	)		(785	)
Other current assets		(1,905	)		(546	)		(726	)
Accounts payable		6,130			(331	)		677
Accrued compensation and accrued liabilities		539			2,197			2,140
Deferred revenues		17,605			10,070			6,550
Net cash provided by (used in) operating activities		14,939			7,849			(3,476	)
Investing activities
Purchases of property and equipment		(4,121	)		(2,288	)		(2,898	)
Purchases of investments		(123,364	)		(98,503	)		(11,350	)
Proceeds from sales of investments		55,770			48,090			—
Proceeds from maturities of investments		21,277			13,594			258
Net cash used in investing activities		(50,438	)		(39,107	)		(13,990	)
Financing activities
Proceeds from issuance of common stock		1,960			865			33
Proceeds from secondary offering issuance of stock, net		10,658			—			—
Excess tax benefits from stock-based compensation		47			—			—
Proceeds from initial public offering, net		—			—			84,851
Payments for repurchase of common stock		—			—			(142	)
Net cash provided by financing activities		12,665			865			84,742
Net (decrease) increase in cash and cash equivalents		(22,834	)		(30,393	)		67,276
Cash and cash equivalents, beginning of period		51,989			82,382			15,106
Cash and cash equivalents, end of period	$	29,155		$	51,989		$	82,382
Supplemental cash flow disclosure:
Cash paid for taxes	$	811		$	—		$	—
Supplemental non-cash disclosure:
Vesting of restricted common stock	$	116		$	119		$	153
Unrealized gain on available-for-sale investments, net	$	74		$	130		$	—
Conversion of convertible preferred stock to common stock	$	—		$	—		$	59,366
Accounts payable corresponding to IPO expenses	$	—		$	—		$	243
Issuance of common stock for services provided	$	—		$	—		$	7

See accompanying notes to consolidated financial statements.

54

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business and Summary of Significant Accounting Policies

Nature of Business and Basis of Presentation

Compellent Technologies, Inc., individually or in any combination with its consolidated subsidiaries, “we”, “us”, or “our”, was incorporated in March 2002. We develop, market and service enterprise-class network storage solutions, which include software and hardware. We sell products through an all-channel assisted sales model. Corporate headquarters are in Eden Prairie, Minnesota, and we have channel partners and end users located in the United States and certain international markets.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.

Principles of Consolidation

Our consolidated financial statements include the accounts of Compellent Technologies, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation. The reclassifications were deemed immaterial to the financial statements as they had no effect on net earnings, total stockholders’ equity, total assets or cash flows.

Use of Estimates

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The items in our consolidated financial statements requiring significant estimates and judgments are revenue recognition, allowance for doubtful accounts, inventory valuations, stock-based compensation and income taxes, each of which is disclosed below and under the heading “Critical Accounting Policies and Estimates” in Part II, Item 7 of this Annual Report on Form 10-K.

Concentrations of Risk

We receive a substantial portion of our revenues from a limited number of channel partners. Our top ten channel partners accounted for 42%, 47%, and 45% of total revenues for the years ended December 31, 2009, 2008 and 2007, respectively. One channel partner, AMEX, Inc., accounted for 15% and 12% of total revenues for the years ended December 31, 2009 and 2008, respectively. Another channel partner, Insight Investments, accounted for 10% and 13% of total revenues for the years ended December 31, 2008 and 2007, respectively. Loss of one or more of these key channel partners could adversely affect our operating results in the near term.

At December 31, 2009 and 2008 we had amounts due from one customer, AMEX, Inc., that represented over 10% of our accounts receivable balance.

We rely on a limited number of key suppliers to supply components. One supplier, Xyratex Corporation, comprised 36%, 36%, and 28% of total purchases, and another supplier, Bell Microproducts, Inc., comprised 21%, 23%, and 23% of total purchases for the years ended December 31, 2009, 2008 and 2007, respectively. We rely on one third-party hardware maintenance provider. Management believes alternate sources of component materials and maintenance services are available; however, disruption or termination of these relationships could adversely affect our operating results in the near term.

55

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid instruments with an original maturity of three months or less when acquired. Cash equivalents consist primarily of money market securities at December 31, 2009 and 2008. We hold our cash and cash equivalents with high quality financial institutions and at times, such balances may be in excess of insurance limits.

Investments

Investments are comprised primarily of federal agency securities, corporate debt securities, municipal securities, certificates of deposit, and variable rate demand notes that are classified as available-for-sale and are recorded at their fair market values. Investments with remaining effective maturities of more than twelve months from the balance sheet date are typically classified as long-term investments. However, our portfolio includes variable rate demand notes that have stated maturities beyond twelve months, but are priced and traded as short-term instruments due to the liquidity provided through the interest reset mechanism of 7 to 35 days. Any unrealized holding gains or losses on these investments are reported in accumulated other comprehensive income, a component of stockholders’ equity, until realized.

Receivables and Allowance for Doubtful Accounts

We record accounts receivable at face amount less an allowance for doubtful accounts for potentially uncollectible receivables. We perform ongoing evaluations of our channel partners and end users and continuously monitor collections and payments. We record an allowance for doubtful accounts based on a specific assessment of accounts with known collection exposure, a review of the age of the receivable, the customer’s payment history, the customer’s financial condition and industry and general economic conditions, as well as a general assessment of collection exposure in the remaining receivable population based upon bad debt history. The uncollectible portion of receivables is charged against the allowance for doubtful accounts when collections efforts have ceased. To date, accounts receivable balances written off have been within management’s expectations and have not exceeded the allowances provided.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. We record provisions for excess and obsolete inventory based upon our analysis of current inventory levels, expected product lives, historical loss trends and projections of future sales demand.

Property and Equipment

Property and equipment are stated at cost. Additions and improvements that extend the lives of assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the estimated useful lives of the related assets or life of the lease.

The estimated useful lives are:

Computer equipment	2 — 3 years
Computer software	2 — 3 years
Office furniture and fixtures	5 years
Leasehold improvements	5 — 7 years

We review our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. The carrying amount of a long-lived asset

56

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

group is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset group. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset group exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. To date, we have not recognized any impairment loss for property and equipment.

Fair Value of Financial Instruments

The reported amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued compensation and accrued liabilities approximate fair value due to their short-term maturities.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, such as cumulative translation adjustments and unrealized gains and losses on available-for-sale securities, are reported as a separate component of the stockholders’ equity section of the balance sheet. Such items, along with net income (loss), are components of comprehensive income.

Revenue Recognition

We recognize product revenues when:

•  Persuasive Evidence of an Arrangement Exists.  We determine that persuasive evidence of an arrangement exists by receiving a purchase order or by obtaining a signed quote.

•  Delivery has Occurred.  Substantially all products are shipped to end users. Delivery is deemed to have occurred upon shipment as title transferred. Products shipped with acceptance criteria are not recognized as revenues until all conditional criteria are satisfied.

•  The Fee is Fixed or Determinable.  Fees are considered fixed and determinable upon establishment of an arrangement that contains the final terms of sale including description, quantity and price of each product or service purchased, and the payment term is less than twelve months.

•  Collectability is Probable.  Probability of collection is assessed on a case-by-case basis. Customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. If we are unable to determine from the outset of an arrangement that collectability is probable based upon our review process, revenues are recognized upon cash receipt.

We use channel partners to sell our products. Revenues under channel partner arrangements are not recognized until delivery occurs, the fee is fixed and determinable, collectability is probable and supported, and an end user has been identified. We maintain contractual arrangements with our channel partners, which contain provisions that specify that the risk of loss and title transfers upon shipment. In circumstances where we sell directly to an end user, our revenues are the price we charge the end user and revenues are recognized upon delivery.

A sale is typically a multiple-element arrangement including software, hardware, software maintenance, hardware maintenance and, in certain cases, services. Our determination of fair value of each element in these multiple-element arrangements is based on vendor-specific objective evidence, or VSOE. We have analyzed all of the elements included in our multiple-element arrangements and have determined that we have sufficient VSOE to allocate revenues to all undelivered elements of a contract. VSOE is evaluated and determined by us based on separate sales of the specific elements. No software products remain undelivered at the inception of the arrangement. Accordingly, assuming all other revenue recognition criteria are met, revenues from software and hardware are recognized upon delivery using the residual method, and revenues from software maintenance and hardware maintenance are recognized ratably over the respective support period. For multiple-element arrangements that

57

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

include only hardware and hardware maintenance, we have determined that we have objective and reliable evidence of fair value to allocate revenues separately to hardware and hardware maintenance.

Product revenues consist of license fees for software applications and related hardware sales of disk drives, system controllers, host bus adapters, switches and enclosures. We also derive a portion of our product revenues from software and hardware upgrades, which include new software applications and additional hardware components. Revenues from shipping and handling are included in product revenues and its related cost is included in cost of product revenues.

Support and services revenues consist of software and hardware maintenance contracts and professional services for installation, training and consulting support. We offer software maintenance that includes telephone support, bug fixes and unspecified product updates and hardware maintenance that includes telephone support and on-site repairs and replacement. Revenues related to software and hardware maintenance are deferred at the time the maintenance agreement is entered into and is recognized ratably over the term of the maintenance agreement, typically one to three years. We generally sell professional services on a time-and-materials basis and recognize revenues when the services are performed.

Research and Development Costs

Research and development costs relate to software development and enhancements to existing products. All such costs are expensed as incurred. Costs related to the development of software products are capitalized between the time when technological feasibility has been established and when the product is available for general release to customers. To date, we have not capitalized any software development costs as the time has been short and the costs have been immaterial from the date of establishing technological feasibility to the date of commercial release.

Income Taxes

We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense and assessing temporary differences resulting from differing treatment of items for financial statement and income tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Increases in the valuation allowance result in the recognition of additional income tax expense. Income tax expense could be materially different from actual results because of changes in our expectations regarding future taxable income, the relationship between book and taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We have recorded unrecognized tax benefits of $430,000 at December 31, 2009, which are netted against the corresponding deferred tax assets on the balance sheet.

Our deferred tax assets are comprised primarily of net operating loss, or NOL, carryforwards, federal and state research and development credit carryforwards and federal alternative minimum tax, or AMT, credit carryforwards. As of December 31, 2009, we had federal tax NOL carryforwards of approximately $24.2 million. The NOL carryforwards are available to offset taxable income through 2027 and will begin to expire in 2022. Our various state NOL carryforwards are available to offset future state taxable income. These state NOL carryforwards typically will have the same expirations as our federal tax NOL carryforwards. We had approximately $1.6 million of federal research and development credit carryforwards, $578,000 of state research and development credit carryforwards and $278,000 of federal AMT credit carryforwards. The federal and state research and development credit

58

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carryforwards will begin to expire in 2022, while the federal AMT credit carryforwards do not have an expiration date. In addition, under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership could place limitations on the availability of our NOL carryforwards.

Based on the level of projected future taxable income over the periods in which the deferred tax assets are deductible, our past history of losses and the positive and negative evidence available, we have concluded it is more likely than not that we will not realize the benefits of our net deferred tax assets. Accordingly, we have recorded a full valuation allowance against our net deferred tax assets as of December 31, 2009 and 2008 of $14.2 million and $15.1 million, respectively. We continue to evaluate the realization of deferred tax assets and at the point in time when we determine that it is more likely than not that a portion of our deferred tax assets will be realized, we will evaluate our valuation allowance and release an amount that is expected to be realized.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of vested shares of common stock outstanding during the period. Diluted net income per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock. As we had net losses for the years ended December 31, 2008 and 2007, all potential common shares were determined to be anti-dilutive. Accordingly, diluted net loss per common share is equivalent to basic net loss per common share for the years ended December 31, 2008 and 2007.

Stock-Based Compensation

We recognize compensation expense for all share-based payment awards made to employees and non-employee directors in our income statement based on their fair values at the date of grant. We recognize stock-based compensation expense on a straight-line basis over the vesting period for all awards, net of an estimated forfeiture rate, resulting in the recognition of compensation expense for only those shares expected to vest. Compensation expense is recognized for all awards over the vesting period to the extent the employees or directors meet the requisite service requirements, whether or not the award is ultimately exercised. Conversely when an employee or director does not meet the requisite service requirements and forfeits the award prior to vesting, any compensation expense previously recognized for the award is reversed. See Note 8 for additional discussion.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105), which establishes the FASB Accounting Standards Codification^tm, or the Codification or ASC, and amended the hierarchy of U.S. GAAP such that the ASC became the single source of authoritative U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standards were superseded and all other accounting literature not included in the Codification is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and therefore was effective for us in the third quarter of fiscal 2009. The principal impact on our financial statements is limited to disclosures as all future references to authoritative accounting literature will be referenced in accordance with the Codification. The Codification did not have an impact on our financial condition or results of operation.

In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (ASC Topic 605) — Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.” This guidance modifies the fair value requirements of ASC Subtopic 605-25 Revenue Recognition-Multiple-Element

59

COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Arrangements by allowing the use of the “best estimate of selling price” in addition to VSOE and Vendor Objective Evidence (now referred to as third-party evidence, or TPE) for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer permitted.

In October 2009, the FASB issued ASU No. 2009-14, “Software (ASC Topic 985) — Certain Revenue Arrangements That Include Software Elements, a consensus of the FASB Emerging Issues Task Force.” This guidance modifies the scope of ASC Subtopic 965-605 Software-Revenue Recognition to exclude from its requirements (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. These updates require expanded qualitative and quantitative disclosures and are effective for fiscal years beginning on or after June 15, 2010. However, companies may elect to adopt as early as interim periods ended September 30, 2009. We plan to adopt these updates on January 1, 2011 on a prospective basis. We are currently evaluating the impact of adopting these updates on our consolidated financial statements.

2.   Fair Value Measurements and Investments

Fair Value Measurements

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants as of the measurement date. A hierarchy for inputs used in measuring fair value is in place to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.

The following table presents information about our financial assets included in our consolidated balance sheets that are measured at fair value on a recurring basis for the periods presented, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The hierarchy is broken down into three levels. Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2 inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 inputs are generated from model-based techniques that use significant assumptions not observable in the market.

	December 31,		Fair Value Measurements at December 31, 2009 Using:
Description	2009		Level 1		Level 2		Level 3
			(in thousands)
Available-for-sale investments:
Corporate debt securities(1)	$	50,172	$	50,172	$	—	$	—
Variable rate demand notes(2)		6,806		—		6,806		—
U.S. agency securities(1)		27,394		—		27,394		—
Municipal bonds(1)		5,925		—		5,925		—
Commercial paper(2)		2,998		—		2,998		—
Certificates of deposit(2)		1,396		—		1,396		—
Money market funds(4)		27,878		27,878		—		—
Total	$	122,569	$	78,050	$	44,519	$	—

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COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,		Fair Value Measurements at December 31, 2008 Using
Description	2008		Level 1		Level 2		Level 3
			(in thousands)
Available-for-sale investments:
Corporate debt securities(1)	$	12,934	$	11,363	$	1,571	$	—
Variable rate demand notes(1)		7,291		—		7,291		—
U.S. agency securities(1)		23,612		—		23,612		—
Certificates of deposit(3)		7,406		—		7,406		—
Money market funds(4)		36,496		36,496		—		—
Total	$	87,739	$	47,859	$	39,880	$	—

(1)	Included in short-term and long-term investments on the consolidated balance sheets.
(2)	Included in short-term investments on the consolidated balance sheets.
(3)	Included in cash and cash equivalents and short-term investments on the consolidated balance sheets.
(4)	Included in cash and cash equivalents on the consolidated balance sheets.

Available-for-sale investments are carried at fair value based on unadjusted quoted market prices, if available, and are based on significant observable inputs when quoted market prices are not available. Such inputs may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data.

Investments

The amortized cost, gross unrealized gains and losses, fair values and contractual maturities of available-for-sale investments for the periods presented, consist of the following (in thousands):

				Gross Unrealized
At December 31, 2009	Contractual Maturities	Cost		Gains		Losses			Fair Value
Corporate debt securities	Less than 3 years	$	49,972	$	323	$	(123	)	$	50,172
Variable rate demand notes	Less than 12 months		6,806		—		—			6,806
U.S. agency securities	Less than 3 years		27,399		34		(39	)		27,394
Municipal bonds	Less than 2 years		5,915		13		(3	)		5,925
Commercial paper	Less than 12 months		2,998		—		—			2,998
Certificates of deposit	Less than 12 months		1,396		—		—			1,396
Money market funds	Less than 12 months		27,878		—		—			27,878
Total		$	122,364	$	370	$	(165	)	$	122,569
At December 31, 2008
Corporate debt securities		$	12,899	$	52	$	(17	)	$	12,934
Variable rate demand notes			7,291		—		—			7,291
U.S. agency securities			23,514		98		—			23,612
Certificates of deposit			7,409		—		(3	)		7,406
Money market funds			36,496		—		—			36,496
Total		$	87,609	$	150	$	(20	)	$	87,739

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our proceeds from sales and maturities of available-for-sale investments were $77.0 million, $61.7 million and $0.3 million in 2009, 2008 and 2007, respectively. We realized gross gains of $82,000, $13,000 and $0 and no gross losses on those sales and maturities in 2009, 2008 and 2007, respectively.

3.   Inventories

Inventories consist of the following (in thousands):

	December 31,
	2009		2008
Component materials	$	1,652	$	280
Finished systems		3,098		3,284
	$	4,750	$	3,564

4.   Property and Equipment

Property and equipment consists of the following (in thousands):

	December 31,
	2009			2008
Computer equipment	$	8,855		$	5,510
Computer software		951			710
Office furniture and fixtures		1,200			820
Leasehold improvements		1,217			1,065
		12,223			8,105
Accumulated depreciation and amortization		(7,070	)		(4,659	)
	$	5,153		$	3,446

Depreciation and amortization expense was $2.4 million, $1.6 million and $1.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

5.   Reverse Stock Split

On September 14, 2007, we effected a one-for-two-and-one-half (1:2.5) reverse split of our common stock and convertible preferred stock. In this report, share and per share data have been adjusted retroactively to reflect the reverse stock split.

6.   Convertible Preferred Stock

The following outstanding classes of convertible preferred stock were outstanding at December 31, 2006:

•  Series A-1 preferred stock; $0.001 par value, 7,723,996 shares authorized; 7,723,994 issued and outstanding.

•  Series A-2 preferred stock; $0.001 par value, 4,104,791 shares authorized; 4,104,788 issued and outstanding.

•  Series B preferred stock; $0.001 par value, 4,943,154 shares authorized; 4,943,149 issued and outstanding.

•  Series C preferred stock; $0.001 par value, 2,167,238 shares authorized; 2,167,233 issued and outstanding.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The holders of preferred stock could, at their option, convert at any time their shares of preferred stock into shares of common stock. Each share of preferred stock could be automatically converted into shares of common stock if 70% of the shares of preferred stock, voting as a single class voted in favor of a conversion or if a public offering is closed at $20.78 (amended to $8.00 on September 14, 2007 in conjunction with the reverse stock split — see Note 5) or more per share and cash proceeds (net of underwriting discounts, commissions and expenses) to us of at least $30 million (see Note 7), in each case at the conversion rate on the date of the event. The preferred stock was converted to common stock on a 1-for-1 ratio at the time of the public offering.

7.   Initial Public Offering and Secondary Offering

On October 9, 2007, we completed an initial public offering in which we sold 6,900,000 shares of common stock at $13.50 per share for cash proceeds of $84.6 million, net of underwriting discounts and commissions and offering expenses. In connection with the closing of the initial public offering, all of our shares of convertible preferred stock outstanding at the time of the closing of the offering were automatically converted into 18,939,164 shares of common stock and we filed an amended and restated certificate of incorporation with the Delaware Secretary of State authorizing 300,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock.

On November 17, 2009, we completed a secondary offering in which we sold 600,000 shares of our common stock at $19.25 per share for cash proceeds of $10.7 million, net of underwriting discounts and commissions and offering expenses.

8.   Stock-Based Compensation

2007 Employee Stock Purchase Plan

The 2007 Employee Stock Purchase Plan, or ESPP, became effective in October 2007 in conjunction with our initial public offering, and authorizes, as of December 31, 2009, the issuance of 1,717,490 shares of common stock pursuant to purchase rights granted to our employees or to employees of our designated affiliates. Generally, all employees, including executive officers, may participate in the ESPP and may contribute up to the lesser of 15% of their earnings or the statutory limit under the U.S. Internal Revenue Code for the purchase of our common stock at a price per share equal to the lower of (a) 85% of the fair market value of a share of common stock on the first date of an offering period or (b) 85% of the fair market value of a share of common stock on the date of purchase. Standard offering periods are approximately six months in duration, with purchase dates on or about May 15 and November 15. During the years ended December 31, 2009 and 2008, there were 113,946 and 88,996 shares of common stock purchased under the ESPP, respectively. The weighted average purchase price was $8.53 and $8.57 per share for the years ended December 31, 2009 and 2008, respectively.

2002 Stock Option Plan

The 2002 Stock Option Plan, or 2002 Plan, became effective in July 2002. Options granted under this plan typically vest over a four-year period and expire within a maximum term of ten years from the date of grant. New common shares are issued upon exercise of stock options. Certain stock option agreements include early exercise provisions; however, we retain the right to repurchase any unvested shares. In conjunction with our initial public offering, the 2002 Plan was terminated in October 2007 and no further awards may be granted under this plan.

2007 Equity Incentive Plan

The 2007 Equity Incentive Plan, or 2007 Plan, became effective in October 2007 in conjunction with our initial public offering. The 2007 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards, all of which may be granted to employees,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

including officers, non-employee directors and consultants. The aggregate number of shares of common stock that may be issued, as of December 31, 2009, pursuant to stock awards under the 2007 Plan is 6,654,486, plus any shares subject to outstanding stock awards granted under the 2002 Plan that expire or terminate for any reason prior to their exercise or settlement. The 2007 Plan also provides that grants of incentive and nonstatutory stock options cannot be less than 100% of the fair market value of our common stock on the date of grant. Options typically vest over a four-year period and expire within a maximum of ten years from the date of grant. New common shares are issued upon exercise of stock options.

A summary of option activity for the 2002 and 2007 Plans for the year ended December 31, 2009 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise Price		Contractual		Intrinsic
	of Shares			per Share		Life		Value
Options outstanding at December 31, 2008		2,539,035		$	6.70		6.94	$	8,591,841
Granted		1,155,412			14.11		—		—
Exercised		(192,288	)		5.21		—		—
Cancelled		(128,098	)		10.50		—		—
Options outstanding at December 31, 2009		3,374,061		$	9.19		6.00	$	45,521,477
Options exercisable at December 31, 2009		1,469,868		$	6.13		6.01	$	24,327,413

Cash received from the exercise of stock options was $2.0 million, $865,000 and $33,000 for the years ended December 31, 2009, 2008 and 2007, respectively. The income tax benefit realized from the exercise of stock options and recorded as an increase to additional paid-in capital was $47,000 for the year ended December 31, 2009. The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $2.2 million, $896,000, and $2.8 million, respectively.

As of December 31, 2009, there is a total of 4,157,019 shares of common stock reserved for future grants to eligible employees, directors, and outside consultants under our 2007 Plan.

Stock-Based Compensation Expense

We estimate the grant date fair value of stock-based awards using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2009			2008			2007
Risk-free interest rate		2.14	%		2.86	%		4.46	%
Expected life (years)		5			5			5
Expected volatility		52.47	%		50.69	%		63.72	%
Expected dividend yield		—			—			—

We review these assumptions at the time of each new option award and adjust them as necessary to ensure proper option valuation. The risk-free interest rate is based on the yield of constant maturity U.S. treasury bonds with a remaining term equal to the expected life of the awards at the grant date. The expected life represents the period that the stock option awards are expected to be outstanding. The expected life is based on an evaluation of historic expected lives from a selected publicly traded peer group, believed to be comparable after consideration of size, maturity, profitability, growth, risk and return on investment. Volatility is based on historic volatilities from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

traded shares of the same publicly traded peer group. The expected dividend yield is zero, as we have not paid or declared any dividends on our common stock and do not expect to pay dividends in the foreseeable future. We utilize historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

Forfeitures have been insignificant during each of the periods presented herein.

The stock-based compensation expense for the 2007 Plan, 2002 Plan and ESPP included in the consolidated statements of operations is as follows (in thousands):

	Year Ended December 31,
	2009			2008		2007
Cost of product	$	50		$	207	$	91
Cost of support and services		194			—		—
Sales and marketing		1,848			979		430
Research and development		761			421		154
General and administrative		1,278			559		87
Stock-based compensation expense before income tax benefit		4,131			2,166		762
Income tax benefit		(47	)		—		—
Total stock-based compensation expense, net of tax benefit	$	4,084		$	2,166	$	762

The total number of options granted during the years ended December 31, 2009, 2008 and 2007 were 1.2 million, 1.4 million and 929,000, respectively. The weighted-average fair values of the options granted during the years ended December 31, 2009, 2008 and 2007 were $6.56, $4.43, and $4.68, respectively.

As of December 31, 2009 and 2008 there was $10.4 million and $7.0 million of total unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under our stock option plans. As of December 31, 2009 and 2008 this expense will be amortized on a straight-line basis over a weighted-average period of approximately 2.8 years and 2.6 years, respectively.

Stock Options Exercised for Unvested Restricted Common Stock

Certain stock options granted under the 2002 Stock Option Plan provide the employee option holder the right to early exercise unvested options in exchange for shares of restricted common stock. The restrictions on such common stock lapse over a time frame similar to how the original underlying options vested. We have a right to repurchase any unvested restricted shares at the original exercise price in the event the respective optionee’s employment is terminated. This right usually lapses 25% on the first anniversary of the vesting start date and in 36 equal monthly amounts thereafter. The cash received from employees for early exercise of unvested options is treated as a refundable deposit and is recorded as a liability in our financial statements. There were no early exercises of options during the years ended December 31, 2009 and 2008, and for the year ended December 31, 2007 cash received for early exercise of options was $429,000.

During the year ended December 31, 2007, we purchased 301,667 unvested shares of restricted stock at a price of $1.25 per share, which was above the original exercise price of $0.30 per share. We also issued new option agreements to purchase the same number of shares at an exercise price of $1.25 per share. These transactions resulted in substance to be a modification of the original award. We fair valued the original award just before the modification and the new award just after the modification using the Black Scholes methodology. It was determined that the fair value of the new awards was greater than the value of the original awards, as modified. In addition, a settlement of the original awards was deemed to have occurred. We recorded compensation expense of $120,000 representing the additional value of the new awards and a settlement charge of $116,000 related to the original awards, as modified. The employees immediately early exercised their right to purchase restricted shares under the new option awards.

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COMPELLENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of activity for unvested restricted common stock is as follows:

	Number of
	Shares
Balance at December 31, 2006		348,000
Stock options exercised for unvested restricted shares		475,000
Vested		(249,189	)
Repurchased		(301,667	)
Balance at December 31, 2007		272,144
Vested		(120,324	)
Balance at December 31, 2008		151,820
Vested		(118,325	)
Balance at December 31, 2009		33,495

9.   Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of vested shares of common stock outstanding during the period. Diluted net income per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock. As we had net losses for the years ended December 31, 2008 and 2007, all potential common shares were determined to be anti-dilutive. Accordingly, diluted net loss per common share is equivalent to basic net loss per common share for the years ended December 31, 2008 and 2007.

The following table sets forth the computation of net income (loss) per common share (in thousands, except per share data):

	Year Ended December 31,
	2009		2008			2007
Basic weighted-average common shares outstanding		30,851		30,471			10,219
Dilutive effect of stock options and unvested restricted common stock		1,064		—			—
Total diluted weighted-average common shares outstanding		31,915		30,473			10,219
Net income (loss)	$	4,793	$	(416	)	$	(7,829	)
Net income (loss) per common share, basic	$	0.16	$	(0.01	)	$	(0.77	)
Net income (loss) per common share, diluted	$	0.15	$	(0.01	)	$	(0.77	)

Potential common share equivalents of 1.1 million related to our outstanding stock options were excluded from the computation of diluted earnings per share for the year ended December 31, 2009, as inclusion of these shares would have been anti-dilutive. All potential common share equivalents related to our outstanding stock options and unvested restricted common stock for the years ended December 31, 2008 and 2007 were excluded from the computation of diluted earnings per share as inclusion of these shares would have been anti-dilutive.

10.   Defined Contribution Plan

We sponsor a voluntary defined contribution employee retirement plan, or 401(k) plan, for its U.S. employees. The 401(k) plan provides that each participant may contribute pre-tax compensation up to the statutory limit allowable. Under the 401(k) plan, each participant is fully vested in their deferred salary contributions when

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contributed. Matching contributions are discretionary and vest over a four year period. No matching contributions were made by us during the years ended December 31, 2009, 2008 and 2007.

11.   Income Taxes

During the year ended December 31, 2009, we recorded income tax expense of $718,000, of which $665,000 is cash tax expense related to domestic taxes, $24,000 is cash tax expense related to foreign income taxes and $29,000 is for foreign income tax expenses due. We recorded no income tax expense for the years ended December 31, 2008 and 2007.

Federal alternative minimum tax, or AMT, was provided on the portion of our alternative minimum taxable income which could not be entirely offset by the available alternative net operating loss (NOL) carryforwards. Current tax law provides that the entire amount of the AMT paid can be carried forward indefinitely and credited against federal regular tax in future tax years to the extent the regular tax liability exceeds the AMT in those years.

For the year ended December 31, 2009, we had $4.7 million of domestic income before income taxes and $100,000 of foreign income before income taxes. We recorded a net loss for both domestic and foreign income before income taxes for the years ended December 31, 2008 and 2007. As a result of the income we earned in the year ended December 31, 2009, our components of income tax expense consisted of the following (in thousands):

	Current		Deferred
Federal	$	256	$	—
State		409		—
Foreign		53		—
Total	$	718	$	—

A reconciliation of income tax expense computed at the U.S. statutory rate to the effective income tax rate is as follows:

	Year Ended December 31,
	2009			2008			2007
Statutory rate		34.0	%		34.0	%		34.0	%
Federal AMT		3.5			—			—
State income taxes, net of federal benefits		3.3			(3.4	)		3.4
Meals and entertainment		2.0			(21.4	)		—
Stock-based compensation expense		1.7			(65.4	)		(3.2	)
Research and development (R&D) credits		(31.1	)		—			—
Impact of change in deferred tax rates		—			(149.6	)		4.0
Impact of change in valuation allowance		0.4			194.8			(37.6	)
Tax exempt interest		0.2			6.0			—
Other		(1.0	)		5.0			(0.6	)
		13.0	%		—	%		—	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income tax assets and liabilities result from temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. Significant components of our net deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2009			2008
Current deferred tax assets (liabilities):
Asset allowances	$	1,005		$	714
Accrued compensation		590			422
Deferred revenues		1,619			573
Prepaid expenses		(690	)		(199	)
NOL carryforwards		6,500			—
Accrued liabilities and other		138			154
		9,162			1,664
Long term deferred tax assets (liabilities):
Depreciation and amortization		(446	)		(115	)
Accrued stock-based compensation expense		1,508			507
Deferred revenues		369			370
R&D and AMT credit carryforwards		1,833			—
NOL carryforwards		1,770			12,654
		5,034			13,416
Total deferred tax assets		14,196			15,080
Valuation allowance		(14,196	)		(15,080	)
Net deferred tax assets	$	—		$	—

In assessing the realization of deferred tax assets, we have considered whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level of projected future taxable income over the periods in which the deferred tax assets are deductible and our history of losses, we believe that it is more likely than not that we will not realize the benefits of these deductible differences. Accordingly, we have provided a full valuation allowance against the deferred tax assets as of December 31, 2009 and 2008.

As of December 31, 2009 and 2008, we had federal tax NOL carryforwards of approximately $24.2 million and $34.7 million, respectively. These NOL carryforwards are available to offset taxable income through 2027 and will begin to expire in 2022. We also have various state NOL carryforwards available to offset future state taxable income. These state NOL carryforwards typically will have the same expirations as our federal tax NOL carryforwards. For the years ended December 31, 2009 and 2008, we have taken a deduction for the tax benefit related to stock option deductions of $1.0 million and $7,000, respectively. The tax benefit from these stock option deductions will be recorded as an increase to additional paid-in capital upon utilization of the NOL carryforwards. In addition, under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership could place limitations on the availability of our NOL carryforwards.

As of December 31, 2009, we had approximately $1.6 million of federal research and development credit carryforwards, $578,000 of state research and development credit carryforwards and $278,000 of federal AMT credit carryforwards. The federal and state research and development credit carryforwards will begin to expire in 2022, while the federal AMT credit carryforwards do not have an expiration date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As required by FASB ASC Topic 740, “Income Taxes,” we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We had recorded a liability relating to unrecognized tax benefits of $430,000 at December 31, 2009. We had no liabilities related to unrecognized tax benefits at December 31, 2008. We recognize interest and penalties related to uncertain tax provisions as part of our provision for income taxes. We have not currently reserved for any interest or penalties for such reserves. We do not expect to recognize any benefits from the unrecognized tax benefits within the next twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2009	$	—
Increases related to prior year tax positions		350
Decreases related to prior year tax positions		—
Increases related to current year tax positions		80
Settlements		—
Balance at December 31, 2009	$	430

We are subject to U.S. Federal income tax as well as state income tax in multiple jurisdictions. Tax years from 2006 through the present remain open for audit under the applicable statute of limitations. However, due to NOL carryforwards from prior periods, the Internal Revenue Service (IRS) and the appropriate state income taxing authorities could potentially review the losses related to NOL generating years from 2002 to 2008. We are also subject to income tax in two foreign jurisdictions which have open tax years varying by jurisdiction that range from 2007 to 2008. We do not expect the amount of unrecognized tax benefits to significantly change within the next twelve months.

12.   Commitments and Contingencies

Leases

The minimum lease payments, related to buildings and office equipment, that are expected to be made in each of the years indicated based on operating leases in effect at December 31, 2009 are as follows (in thousands):

Year Ended December 31,
2010	$	1,234
2011		1,528
2012		1,551
2013		1,586
2014		277
Thereafter		—
	$	6,176

Rent expense related to these operating leases for the years ended December 31, 2009, 2008 and 2007 was $1.6 million, $1.4 million, and $955,000, respectively.

Indemnification Obligations

We have agreements with our channel partners and end users, which generally include certain provisions for indemnifying the channel partners and end users against liabilities if our products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification provisions and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

have not accrued any liabilities related to such obligations in our consolidated financial statements. As permitted under Delaware law and to the maximum extent allowable under that law, we have certain obligations to indemnify our executive officers, directors and may indemnify other employees for certain events or occurrences while the executive officer, director or employee is or was serving at our request in such capacity. These indemnification obligations are valid as long as the executive officer, director or employee acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have a director and officer insurance policy that mitigates our exposure and generally enables us to recover a portion of any future amounts paid.

Legal Matters

In April 2009, Data Network Storage LLC, or Data Networks, filed a lawsuit in the U.S. District Court for the Southern District of California, against us and 14 other storage vendors, alleging, among other things, patent infringement on a universal storage management system for which it holds an exclusive license. Data Networks is seeking unspecified monetary damages and an injunction against further infringement from us and the other defendants. We filed an answer to Data Network’s complaint denying any liability and are vigorously contesting the lawsuit. We have accrued an immaterial amount of what we believe to be the probable costs in connection with this matter.

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation consisting of intellectual property, commercial and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of December 31, 2009, that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash flows.

13.   Segment and Geographic Information

We operate in one reportable industry segment: the design, marketing, and technical support of enterprise-class network storage solutions. The following table is based on the geographic location of the channel partner or end user who purchased our products. For sales to channel partners, their geographic location may be different from the geographic locations of the end user. Historically, channel partners located in the United States have generally sold our products to end users located in the United States. Revenues by geographic region were as follows (in thousands):

	Year Ended December 31,
	2009		2008		2007
United States	$	103,687	$	76,581	$	45,498
International		21,588		14,315		5,701
Total	$	125,275	$	90,896	$	51,199

We did not hold any long-lived assets outside of the United States as of December 31, 2009 and 2008.

14.   Subsequent Events

We have evaluated all subsequent events through the date the audited consolidated financial statements were issued. No subsequent events have taken place that meet the definition of a subsequent event that requires further disclosure in this filing.

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15.   Selected Quarterly Financial Data (Unaudited)

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
2009
Revenues	$	28,073		$	28,716		$	32,212		$	36,274
Gross profit	$	14,822		$	15,427		$	18,430		$	19,194
Operating income (loss)	$	793		$	(43	)	$	2,088		$	891
Net income	$	1,014		$	247		$	2,259		$	1,274
Net income per common share, basic	$	0.03		$	0.01		$	0.07		$	0.04
Net income per common share, diluted	$	0.03		$	0.01		$	0.07		$	0.04
2008
Revenues	$	18,313		$	21,012		$	24,610		$	26,961
Gross profit	$	9,558		$	11,375		$	13,208		$	14,795
Operating income (loss)	$	(2,488	)	$	(1,224	)	$	(168	)	$	698
Net income (loss)	$	(1,616	)	$	(603	)	$	464		$	1,339
Net income (loss) per common share, basic	$	(0.05	)	$	(0.02	)	$	0.01		$	0.04
Net income (loss) per common share, diluted	$	(0.05	)	$	(0.02	)	$	0.01		$	0.04

Net income (loss) per common share for each quarter is required to be computed independently. Accordingly, the sum of the quarterly net income (loss) per common share, basic and diluted, amounts may not equal the annual totals.

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Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Disclosure Controls and Procedures

Based on their evaluation as of December 31, 2009, our Chief Executive Officer and Chief Financial Officer, with the participation of management, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. Management based its assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on this assessment under the criteria set forth in Internal Control — Integrated Framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

The attestation report concerning the effectiveness of our internal control over financial reporting as of December 31, 2009, issued by Grant Thornton LLP, an independent registered public accounting firm, appears in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B.   Other Information

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance

The information required by this item with respect to our directors, executive officers and corporate governance is incorporated by reference to the information set forth in our definitive proxy statement for the 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2009. For biographical information pertaining to our executive officers, refer to the “Executive Officers of the Registrant” section of Part 1, Item 1 of this Annual Report on Form 10-K.

Item 11.   Executive Compensation

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 14.   Principal Accountant Fees and Services

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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PART IV

Item 15.   Exhibits, Financial Statement Schedules.

1. Index to Financial Statements:

See Index to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

2. Financial Statement Schedules:

Schedule II: Valuation and Qualifying Accounts

	Balance at							Balance at
	Beginning		Bad Debt					End of
Description	of Period		Expense		Deductions			Period
	(in thousands)
Year ended December 31, 2009
Allowance for doubtful accounts receivable	$	654	$	508	$	(132	)	$	1,030
Year ended December 31, 2008
Allowance for doubtful accounts receivable	$	408	$	261	$	(15	)	$	654
Year ended December 31, 2007
Allowance for doubtful accounts receivable	$	430	$	322	$	(344	)	$	408

All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.

3. Exhibits — The following exhibits are included herein or incorporated herein by reference:

Exhibit				Incorporated by Reference					Filed
Number			Exhibit Description	Form	Date	Number			Herewith
	3	.1	Amended and Restated Certificate of Incorporation of Compellent Technologies, Inc.	8-K	10/16/07		3	.1
	3	.2	Amended and Restated Bylaws of Compellent Technologies, Inc.	S-1	07/02/07		3	.4
	4	.1	Reference is made to Exhibits 3.1 and 3.2.
	4	.2	Specimen Common Stock Certificate.	S-1/A	09/21/07		4	.2
	10	.1	Amended and Restated Investor Rights Agreement, dated September 22, 2006, between Compellent and certain of its stockholders.	S-1	07/02/07		10	.1
	10	.2	Form of Indemnity Agreement for directors and officers.*	S-1/A	09/11/07		10	.2
	10	.3	2002 Stock Option Plan, as amended.*	S-1	07/02/07		10	.3
	10	.4	Form of Option Agreement under 2002 Stock Option Plan.*	S-1	07/02/07		10	.4
	10	.5	2007 Equity Incentive Plan.*	S-1/A	09/21/07		10	.5
	10	.6	Form of Option Grant Notice and Option Agreement under 2007 Equity Incentive Plan.*	S-1/A	09/21/07		10	.6
	10	.7	2007 Employee Stock Purchase Plan.*	S-1/A	09/21/07		10	.7
	10	.8	Amended and Restated Employment Agreement, by and between Compellent Technologies, Inc. and Philip E. Soran, dated February 3, 2010.*	8-K	02/04/10		10	.8

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Exhibit				Incorporated by Reference					Filed
Number			Exhibit Description	Form	Date	Number			Herewith
	10	.9	Amended and Restated Employment Agreement, by and between Compellent Technologies, Inc. and John P. Guider, dated February 3, 2010.*	8-K	02/04/10		10	.9
	10	.10	Amended and Restated Employment Agreement, by and between Compellent Technologies, Inc. and Lawrence E. Aszmann, dated February 3, 2010.*	8-K	02/04/10		10	.10
	10	.11	Amended and Restated Employment Agreement, by and between Compellent Technologies, Inc. and John R. Judd, dated February 3, 2010.*	8-K	02/04/10		10	.11
	10	.12	Amended and Restated Employment Agreement, by and between Compellent Technologies, Inc. and Brian P. Bell, dated February 3, 2010.*	8-K	02/04/10		10	.12
	10	.13(i)	2009 Management Incentive Plan, as amended.*	8-K	02/12/10		10	.1
	10	.13(ii)	2010 Management Incentive Plan.*	8-K	02/12/10		10	.2
	10	.14(i)	2009 Non-Employee Director Compensation Policy.*	10-K	03/16/09		10	.14
	10	.14(ii)	2010 Non-Employee Director Compensation Policy.*						X
	10	.15	Lease Agreement, by and between Compellent Technologies, Inc. and Liberty Property Limited Partnership, dated November 15, 2006, as amended.	S-1	07/02/07		10	.14
	10	.16	Sublease Agreement, by and between Compellent Technologies, Inc. and SurModics, Inc., dated July 17, 2009.						X
	10	.17	Lease Agreement, by and between Compellent Technologies, Inc. and Liberty Property Limited Partnership, dated December 21, 2009.						X
	10	.18	Offer Letter, by and between Compellent Technologies, Inc. and Duston Williams, dated September 29, 2008.*						X
	10	.19	Offer Letter, by and between Compellent Technologies, Inc. and Sherman Black, dated July 30, 2009.*						X
	21	.1	Subsidiaries of Compellent Technologies, Inc.						X
	23	.1	Consent of Independent Registered Public Accounting Firm.						X
	24	.1	Power of Attorney (included on the signature pages hereto).						X
	31	.1	Certification of Chief Executive Officer of Compellent Technologies, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).						X
	31	.2	Certification of Chief Financial Officer of Compellent Technologies, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).						X
	32	.1	Certification by the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).**						X

*

Management contract or compensation plan or arrangement.

**

The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Compellent Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Compellent Technologies, Inc.
(Registrant)

/s/  John R. Judd

John R. Judd

(Chief Financial Officer)

Date: March 5, 2010

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip E. Soran and John R. Judd, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below:

Signature	Title	Date
/s/  Philip E. Soran Philip E. Soran	Chairman, President and Chief Executive Officer (Principal Executive Officer)	March 5, 2010
/s/  John R. Judd John R. Judd	Chief Financial Officer (Principal Accounting and Financial Officer)	March 5, 2010
/s/  John P. Guider John P. Guider	Chief Operating Officer and Director	March 5, 2010
/s/  Charles Beeler Charles Beeler	Director	March 5, 2010
/s/  Sherman Black Sherman Black	Director	March 5, 2010
/s/  R. David Spreng R. David Spreng	Director	March 5, 2010
/s/  Sven A. Wehrwein Sven A. Wehrwein	Director	March 5, 2010
/s/  Duston M. Williams Duston M. Williams	Director	March 5, 2010

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EX-10.14.II

Exhibit 10.14(ii)

Non-Employee Director Cash Compensation Plan

Effective February 8, 2010

The following is a summary of Compellent Technologies, Inc.’s (the “Company”) annual compensation arrangement for its non-employee directors (the “Non-Employee Director Compensation Plan”) for such period of time as a non-employee director continues to serve in such capacity during the applicable calendar year:

• The non-employee members of the Board shall receive annual cash compensation in the amount of $25,000 per year.

• The Chairperson of the Audit Committee shall receive annual cash compensation in the amount of $24,000 per year. Each non-chairperson member of the Audit Committee shall receive annual cash compensation in the amount of $10,000 per year.

• The Chairperson of the Compensation Committee shall receive annual cash compensation in the amount of $11,000 per year. Each non-chairperson member of the Compensation Committee shall receive annual cash compensation in the amount of $5,000 per year.

• The Chairperson of the Nominating and Corporate Governance Committee shall receive annual cash compensation in the amount of $5,500 per year. Each non-chairperson member of the Compensation Committee shall receive annual cash compensation in the amount of $2,500 per year.

• The non-employee directors shall also be eligible for reimbursement for expenses incurred in attending Board and Committee meetings.

All sums referenced above shall be payable on a pro rata basis each quarter.

EX-10.16

Exhibit 10.16

SUBLEASE AGREEMENT

     THIS SUBLEASE (“Sublease”) is made as of the 17th day of July 2009, by and between SurModics, Inc., a Minnesota corporation, having an address of 9924 West 74^th Street, Eden Prairie, Minnesota 55344 (“Sublessor”) and Compellent Technologies, Inc., a Delaware corporation with an address at 7625 Smetana Lane, Eden Prairie, Minnesota 55344 (“Sublessee”).

BACKGROUND

     A. CNS, Inc. (“Sub-Landlord”) leased certain premises from LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“Landlord”), located at 7615 Smetana Lane, Eden Prairie, Minnesota (the “Building”), pursuant to a Lease dated December 21, 1999, as amended on April 28, 2000 (as amended, the “Prime Lease”).

     B. Sublessor leased certain space in the Building from Sub-Landlord pursuant to a Sublease Agreement dated September 24, 2007, by and between Sub-Landlord and Sublessor (the “CNS Lease”). A true and correct copy of the CNS Lease is attached hereto and made a part hereof as Exhibit A.

     C. Sublessee desires to lease from Sublessor, and Sublessor desires to lease to Sublessee, the Subleased Premises (as such term is defined below) in accordance with the terms and conditions hereinafter set forth.

TERMS

     NOW, THEREFORE, for and in consideration of the foregoing as well as the mutual covenants, promises, conditions and agreements herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:

     1. Definitions. Those capitalized terms not defined herein shall have the same meanings ascribed to them in the Prime Lease.

     2. Sublease Term and Subleased Premises

          (a) Sublease Term. Sublessor hereby leases to Sublessee and Sublessee hereby rents from Sublessor the Subleased Premises for a term (the “Sublease Term”) commencing on a date to be the later of July 1, 2009, or three (3) business days after Sublessor receives Landlord’s consent to this Sublease (referred to herein as the “Sublease Commencement Date”). Sublessor shall provide Sublessee with not less than three (3) calendar days prior written notice of the actual Sublease Commencement Date. The Sublease Term, unless terminated earlier pursuant to the terms hereof shall automatically terminate, without the necessity of notice from either party, at 11:59 p.m. on November 29, 2010 (“Sublease Expiration Date”).

               (i) Access Date. Sublesee shall have full access to use and occupy the Subleased Premises on the Sublease Commencement Date (the “Access Date”).

               (ii) Inspection of Subleased Premises. Sublessee shall have the right to enter the Subleased Premises prior to the Access Date during normal business hours and accompanied by a representative of Sublessor for purposes of inspection and evaluation of the Subleased Premises. At no time prior to the Access Date will Sublessee be permitted to make, install, or construct any alterations or improvements to the Subleased Premises.

          (b) Subleased Premises. Pursuant to this Sublease, Sublessor shall lease to Sublessee the portion of the Premises (as such term is defined under the Prime Lease), comprising of the area mapped out on Exhibit B, together with all parking spaces allocated to Sublessor under the Prime Lease (the “Subleased Premises”).

          (c) Additional Subleasing. Sublessor as part of the CNS Lease has leased additional space not included in the Subleased Premises. Sublessor shall be entitled to dispose of space over which it has control pursuant to the CNS Lease which is not made a part of this Sublease; provided, however, that in the event that Sublessor elects to sublease such space to a tenant other than Sublessee, Sublessor shall be responsible for construction of a demising wall between the Subleased Premises and any space in the building which it subleases to a tenant other than Sublessee.

     3. Rent

          (a) Base Rent. During the Sublease Term, Sublessee shall pay to Sublessor as base rent (“Base Rent”) $325,000 in equal installments over the Sublease Term, commencing on the first day of the Sublease Term and on the first day of each month during the remainder of the Sublease Term. Obligation of payment of Base Rent shall commence on the Sublease Commencement Date and terminate on the Sublease Expiration Date.

          (b) Utilities. In the event that utilities for the Subleased Premises for which Sublessor is billed exceed $98,011.40 during the Sublease Term, in the aggregate, Sublessee shall remit to Sublessor all such amounts in excess of $98,011.40, which shall constitute additional rent. Sublessor shall provide Sublessee with utility invoices demonstrating the amount paid for utilities by Sublessor at the Subleased Premises.

          (c) Place and Manner of Payment. All Base Rent and additional rent and/or any other charges herein reserved, included, or agreed to be treated as rent (all Base Rent, additional rent and such other charges are sometimes hereinafter collectively referred to as “Rent”) shall be payable at the following address, or at such other place as Sublessor may from time to time designate by notice in writing:

SurModics
9924 West 74^th Street
Eden Prairie, Minnesota 55344
Attention: Corporate Controller

     All checks shall be made payable to Sublessor. Rent shall be due beginning on the Sublease Commencement Date, and on the first day of each calendar month thereafter during the Sublease Term.

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     4. Late Charges. In addition to the remedies available to Sublessor in the event of default, if Sublessee shall fail to pay any item of Rent within fifteen (15) days after its due date, Sublessee shall pay a late charge in an amount equal to the greater of $100 or five percent (5%) of the amount due to cover the extra expense involved in handling delinquent payments. The parties agree that this is not a penalty but is a reasonable estimate of the additional expense Sublessor will incur in the event of Sublessee’s late payment.

     5. Use. Sublessee shall use and occupy the Subleased Premises only within the limitations set forth in Section 1(f) of the Prime Lease, and more specifically within that limitation, Sublessee shall use the Subleased Premises only for general office and warehouse uses. In addition to anything contained herein, Sublessee shall be subject to the same obligations and restrictions against use as provided for under Section 4 of the Prime Lease.

     6. Application of Prime Lease

          (a) Sublessee’s Obligations and Rights. This Sublease is expressly subject and subordinate to all of the terms and conditions of the CNS Lease, and to all amendments, renewals and extensions thereof, and all of the terms, provisions and covenants as contained in the CNS Lease (including as contained in the CNS, Lease by incorporation from the Prime Lease) are incorporated herein by reference, except as herein expressly set forth. Sublessee hereby covenants and agrees to observe all of the terms, conditions and covenants imposed upon the “Sublessee” under the CNS Lease and to perform all of the duties and obligations imposed upon the “Sublessee” thereunder (other than payment of rent under the CNS Lease) to the extent applicable to the Subleased Premises. Except as otherwise provided in this Sublease, all rights of “Sublessee” and obligations of “Sublessor” under the CNS Lease shall inure to the benefit of Sublessee. To the extent any provision of this Sublease is inconsistent with any provisions of the CNS Lease, this Sublease shall govern except that if the standard for performance is more stringent under the CNS Lease, the more stringent provisions shall prevail (except with respect to payment of Rent, in which case the standard for performance under this Sublease shall prevail) and Sublessee shall be obligated to comply therewith. Sublessee acknowledges that any default by it under this Sublease may constitute a default by Sublessor in its position as “Sublessee” under the CNS Lease, and that Sublessee’s liability to Sublessor shall include, but not be limited to, any damages or liabilities incurred by Sublessor to Sub-Landlord under the CNS Lease. Sublessor represents and warrants to Sublessee that as of the date of execution of this Sublease, Sublessor has received no notice of default from Sub-Landlord in its capacity as “Sublessor” under the CNS Lease and, to the knowledge of Sublessor, the Subleased Premises are in full compliance with the requirements of the Prime Lease. Sublessor covenants to Sublessee that it shall pay all rent payable by Sub-Landlord in its capacity as “Sublessee” under the CNS Lease when due, and to perform its other obligations thereunder that have not been assumed by Sublessee under this Sublease, throughout the Sublease Term, so long as Sublessee is not in default under this Sublease. Sublessor further agrees not to exercise any right it has to terminate the CNS Lease without the prior written consent of Sublessee; provided, however, that (i) no consent of Sublessee shall be necessary in the event that Sublessor and Sub-Landlord agree to terminate the CNS Lease as to Sublessor, so long as in the event of such termination, the Sub-Landlord agrees to continue this Sublease in full force and effect, thereby making Sublessee the “Sublessee” under the CNS Lease, resulting in a direct relationship between Sub-Landlord and

3

Sublessee, and (ii) Sublessor may terminate any of the CNS Lease which does not relate to the Subleased Premises described in this Sublease with no further consent required from Sublessee.

          (b) No Duty to Render Services. Sublessor is not and shall not be required to render any services (other than the obligation to provide utilities to Sublessee provided hereunder) or to perform any obligation of Sub-Landlord required in its capacity as Sublessor under the CNS Lease, nor shall it be responsible for any obligations required of Landlord under the Prime Lease. Sublessor shall not be liable to Sublessee for any default or failure on behalf of Sub-Landlord in its capacity as Sublessor under the CNS Lease or for any defaults of Landlord under the Prime Lease in the performance or nonperformance by either of their respective covenants and obligations under the CNS Lease or the Prime Lease, respectively; provided, however, that Sublessor shall use reasonable efforts to enforce the terms of the CNS Lease in the event of default or nonperformance by Sub-Landlord thereunder. If as a result of default by Sublessee, casualty or condemnation, the CNS Lease should terminate prior to the expiration of the Sublease Term, then this Sublease shall likewise terminate simultaneously with such termination and Sublessee shall have no right or cause of action against Landlord, Sub-Landlord or Sublessor by reason of such termination. It is understood and agreed that Sublessor is under no duty to make repairs, restoration, improvements or alterations to the Subleased Premises at the time of letting or at any time thereafter.

          (c) Insurance. During the Sublease Term, Sublessee agrees to maintain all insurance as required on the part of the Tenant under the Prime Lease, and shall name as additional insureds, as their interests may appear, the Landlord, Manager (as such term is defined in the Prime Lease), Sub-Landlord and Sublessor. Prior to the Sublease Commencement Date, Sublessee shall deliver to Sublessor a certificate of insurance evidencing the existence of such insurance. At least thirty (30) days before any insurance policy shall expire, Sublessee shall deliver to Sublessor replacement certificates of insurance together with receipted bills therefor as aforesaid.

          (d) Inspections. Sublessor shall have the right to enter the Subleased Premises during normal business hours and upon twenty-four (24) hours prior notice to Sublessee, for purposes of inspection and for the other purposes for which rights of entry are reserved under the Prime Lease, except that such prior notice shall not be required in the case of emergency. A representative of Sublessee shall accompany Sublessor or any other person or persons on all such inspections or other entry onto the Subleased Premises, except for: (i) in the case of an emergency; (ii) Sublessor’s entry onto the Subleased Premises is a direct result of a good faith belief that Sublessee is in violation of this Sublease or the CNS Lease; (iii) Sublessor has given advance notice of such entry as required by this Section 6(d) and Sublessee has failed to provide a representative in a timely manner; (iv) performance of scheduled or immediately necessary maintenance or cleaning services; or (v) as agreed upon by Sublessor and Sublessee in advance.

          (e) Subordination. In addition to complying with Sublessor’s obligations as Tenant under Section 19 of the Prime Lease, Subtenant agrees to subordinate this Sublease to any mortgagee or primary encumbrance now or hereafter affecting the Subleased Premises.

4

          (f) Exclusions. The following portions of the Prime Lease shall not apply to this Sublease: Sections 30, 31, 32, 34 and 36.

          (g) Utilities. It is agreed that Sublessor shall provide all utilities reasonably necessary to Sublessee for the use of the Subleased Premises permitted under this Sublease. Sublessee agrees that its use of utilities shall be solely for its own internal needs, and only for use on the Premises.

     7. Condition of Subleased Premises

          (a) Condition of Subleased Premises. On the Access Date, Sublessor shall deliver the Subleased Premises to Sublessee in broom-clean condition. Subject to Sublessor’s obligations pursuant to the foregoing sentence and subject to Sublessor’s representation in Section 6(a), the taking of occupancy or possession of the whole or any part of the Subleased Premises by Sublessee shall be conclusive evidence, as against Sublessee, that Sublessee accepts possession of the space so occupied, the same was accepted by Sublessee in its “AS IS” condition, and that the same were in good and satisfactory condition at the time such occupancy or possession was so taken, without representation, covenant or warranty, express or implied (including without limitation any implied warranty of habitability, merchantability or fitness for a particular purpose) in fact or in law, by Sublessor or its agents, and without recourse to Sublessor, Sub-Landlord or Landlord, as to any of the above.

          (b) Prime Lease; CNS Lease. Sublessee has examined the Prime Lease and CNS Lease and accepts the Subleased Premises “as is” without representation, covenant or warranty, express or implied, in fact or in law, by Sublessor or its agents, and without recourse to Sublessor, Sub-Landlord or Landlord.

          (c) Temporary Storage by Sublessor. Until October 1, 2009, or such other later time as shall be mutually agreed upon by Sublessor and Sublessee, Sublessor shall have the right to store certain of its data, telecommunications, telephony and internet equipment currently located on the Subleased Premises. The location of such equipment shall be shown on Exhibit B attached hereto. Sublessee agrees not to damage or allow to be intentionally damaged any of such equipment, but shall not be responsible for the equipment in any way, other than as stated herein.

          (d) Furniture. Sublessee shall have the right to use furniture, fixtures and equipment located at the Subleased Premises which are set forth on the attached Exhibit C during the term of the Sublease (the “Fixtures”). Sublessor shall have no duty to repair the Fixtures during the term of the Sublease, and Sublessee shall undertake all necessary repairs to keep the Fixtures in such condition as they were as of the date of the Sublease. At the end of the Sublease Term, provided that Sublessee shall not be in default of the Sublease, Sublessor shall quitclaim its interests in all Fixtures to Sublessee, by an instrument in form reasonably acceptable to both parties.

     8. Alterations/Repairs/Signage

          (a) Except as provided in the CNS Lease, Sublessee shall not make any alterations, improvements or additions to the Subleased Premises without the written consent of

5

Landlord, Sub-Landlord and Sublessor, which consent may not be unreasonably withheld or delayed.

               (i) In the event Landlord consents to any improvements by Sublessee, Sublessee shall indemnify defend and save Sublessor harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from the construction, maintenance, operation, use and removal of such improvements and alterations during the Sublease Term, and from and against all costs, expense and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators, and experts).

               (ii) At the expiration or termination of this Sublease, Sublessee shall be obligated and solely responsible to remove all of Sublessee’s improvements and alterations and restore the Subleased Premises to the condition as it existed as of the Access Date; and upon such removal, Sublessee shall repair any damage caused by installation or removal of the improvements.

          (b) Sublessee shall keep the Subleased Premises in a neat and orderly condition and shall make all repairs to maintain the Subleased Premises as required of Sublessor as Sublessee as set forth in the CNS Lease.

          (c) Sublessee may not place any signage on the Subleased Premises except for signage permitted by Section 8 of the Prime Lease. Any additional signage installed by Sublessee pursuant to Landlord’s consent is also subject to Sections 8(a)(i)-(ii) herein.

     9. Assignment or Subletting. Sublessee may not assign this Sublease, mortgage, pledge or encumber Sublessee’s interest in this Sublease or sublet all or any portion of the Subleased Premises without the prior written consent of Sublessor, Sub-Landlord and Landlord, which consent of Sublessor shall not be unreasonably withheld. If Sublessor, Sub-Landlord and Landlord consent to any such assignment or subletting, Sublessee shall remain fully and primarily liable to Sublessor, in all respects, under this Sublease.

     10. Defaults and Termination

          (a) Subject to the grace periods provided in Section 13 below, if Sublessee shall at any time be in default in the payment of Rent or of any other sum required to be paid by Sublessee under this Sublease, or in the performance of or compliance with any of the terms, covenants, conditions or provisions of this Sublease, or if Sublessee breaches or otherwise commits an event of default under those provisions of the CNS Lease applicable to Sublessee’s use and/or occupancy of the Subleased Premises, then and in addition to any other rights or remedies Sublessor may have under this Sublease and at law and in equity, shall have the following rights:

               (i) Sublessor shall have the same rights and remedies against Sublessee for default of this Sublease as the Landlord would have against Sublessor as Tenant under the Prime Lease or as Sub-Landlord would have against Sublessor under the CNS Lease, including, without limitation, the rights of rental acceleration, Sublease termination, retaking possession and damages.

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               (ii) If Sublessee shall be in default in the payment of Rent or any other sum required to be paid by Sublessee under this Sublease beyond any applicable grace period set forth in Section 13 below, Sublessee shall pay interest on the delinquent amounts at the rate of twelve percent (12%) per annum from the date due to the date paid.

               (iii) No waiver by Sublessor of any breach by Sublessee of any of Sublessee’s obligations, agreements or covenants herein shall be a waiver of any subsequent breach or of any obligation, agreement or covenant, nor shall any forbearance by Sublessor to seek a remedy for any breach by Sublessee be a waiver by Sublessor of any rights and remedies with respect to such or any subsequent breach.

               (iv) If Sublessee shall be in default in the performance of any of its obligations hereunder, Sublessor may (but shall not be obligated to do so), in addition to any other rights it may have in law or equity, cure such default on behalf of Sublessee. In such event, Sublessee shall reimburse Sublessor upon demand, as additional rent, for any costs incurred by Sublessor in curing said defaults, including without limitation reasonable attorneys’ fees from the date Sublessor incurs such costs, along with interest from the date Sublessor cures any such default until the date such sum is paid, at the rate specified in Section 10(a)(ii) herein.

          (b) If Sublessor shall be in default in the performance of any of its obligations hereunder, or under the CNS Lease, but only to the extent such default directly affects the Subleased Premises, Sublessee may (but shall not be obligated to do so), in addition to any other rights it may have in law or equity, cure such default on behalf of Sublessor. In such event, Sublessor shall reimburse Sublessee upon demand, for any costs incurred by Sublessee in curing said defaults, including without limitation reasonable attorneys’ fees from the date Sublessee incurs such costs, along with interest from the date Sublessee cures any such default until the date such sum is paid, at the rate specified in Section 10(a)(ii) herein.

          (c) If as a result of default by Sublessee, casualty or condemnation, the CNS Lease should terminate prior to the expiration of the Sublease Term, then this Sublease shall likewise terminate simultaneously with such termination and Sublessee shall have no right or cause of action against Landlord or Sublessor by reason of such termination.

     11. Access Across Subleased Premises. Sublessor shall have the right to reasonably have access across the Subleased Premises as necessary to access other parts of the Building not leased by Sublessee and to obtain access to any of Sublessor’s property which remains in the Subleased Premises as provided for herein. Sublessor shall take all reasonable actions requested by Sublessee to minimize disruption to Sublessee’s business, including, without limitation, obtaining access badges from Sublessee, checking in with Sublessee, and using good faith efforts to minimize disruption to Sublessee’s business. Sublessor shall be responsible for any damage caused by Sublessor to the Subleased Premises in such an event.

     12. Grace Period. If Sublessee shall be in default of any of the terms and provisions of this Sublease, and if the CNS Lease shall allow a grace period for cure of a default of a similar type and nature, then Sublessee shall be entitled to a grace period which is five (5) days less than the corresponding grace period in the CNS Lease.

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     13. Indemnifications.

          (a) Sublessee agrees to indemnify, defend and save Sublessor harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from the occupancy, conduct, operation or management of the Subleased Premises or from any work or thing whatsoever done or not done in and on the Subleased Premises, or arising from any breach or default on the part of Sublessee in the performance of any covenant or agreement on the part of Sublessee to be performed pursuant to the terms of this Sublease, or under the law, or arising from any act, neglect or negligence of Sublessee, or any of its agents, contractors, subtenants, servants, employees, or licensees or arising from any accident, injury or damage whatsoever caused to any person, firm, corporation or property occurring during the term of this Sublease, in or about the Subleased Premises, and from and against all costs, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators and experts).

          (b) Sublessor agrees to indemnify, defend and save Sublessee harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from any act, neglect or negligence of Sublessor, or any of its agents, contractors, subtenants, servants, employees, or licensees, arising during Sublessor’s use and occupancy of the Subleased Premises prior to the Sublease Commencement Date, and from and against all costs, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators and experts).

     14. Notices

          (a) All notices, requests and demands to be given hereunder shall be in writing, sent to at the addresses set forth below by: (i) certified mail, return receipt requested, postage prepaid; or (ii) recognized overnight courier service.

If to Sublessor:	SurModics, Inc.
	9924 West 74th Street
	Eden Prairie, MN 55344
	Attention: General Counsel
If to Sublessee:	Compellent Technologies, Inc.
	Attention:

          (b) Each such notice, request or demand shall be deemed to have been given upon the earlier of (i) actual receipt or refusal by the addressee, or (ii) deposit thereof at any main branch of the United States Post Office if sent in accordance with subsection (a)(i) above, or (iii) deposit thereof with the carrier if sent in accordance with subsection (a)(ii).

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          (c) Either party, by notice similarly given, may change the person and/or address to which future notices shall be sent.

     15. Surrender. At the expiration or earlier termination of this Sublease, Sublessee covenants that it will peaceably and quietly leave and surrender the Subleased Premises, and will leave the Subleased Premises in broom clean condition and in the same condition as Sublessee is required to maintain the same during the term of this Sublease pursuant to the terms of this Sublease. In no event shall Sublessee be required to remove any improvements or alterations existing in the Subleased Premises prior to the Access Date.

     16. Holding Over. In the event of a holding over by Sublessee or any entity claiming through Sublessee after the expiration or other termination of this Sublease, Sublessee shall become a tenant at sufferance upon all of the terms and provisions of this Sublease, except as otherwise provided herein. Sublessee shall, throughout the entire holdover period, pay for its use and occupancy an amount (on a per month basis without reduction for any partial months during such holdover) equal to 150% of the sum of the Rent due for the period immediately preceding such holding over, provided that in no event shall the Rent during the holdover period be less than the fair market rental for the Subleased Premises as determined by Sublessor in its sole and absolute discretion. The Rent payable for such holdover period shall in no event be construed as a penalty or as liquidated damages for such retention of possession. No holding over by Sublessee or payments of money by Sublessee to Sublessor after the expiration of the term of the Sublease shall be construed to extend the term of the Sublease or prevent Sublessor from recovery of immediate possession of the Subleased Premises by summary proceedings or otherwise. Without limiting the foregoing, Sublessee hereby agrees to indemnify, defend and hold harmless Sublessor from and against any and all claims, liabilities, actions, losses, damages (including, without limitation, direct, indirect, incidental and consequential) and expenses (including, without limitation, court costs and reasonable attorneys’ fees) asserted against or sustained by Sublessor and arising from or by reason of such retention of possession, which obligations shall survive the expiration or termination of the Sublease.

     17. No Other Rights Conveyed. This Sublease shall not be construed to convey to Sublessee any expansion options, rights of first offer, rights of first refusal, renewal rights or options or any other rights, options or privileges of Sublessor under the CNS Lease which are not specifically set forth in this Sublease, all of which shall be personal and exclusive to Sublessor.

     18. Fire or Other Casualty/Waiver of Subrogation. Sublessor and Sublessee hereby release the other and all persons claiming under them, and Sublessee hereby also releases Sub-Landlord and Landlord from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties, or any other insured casualty, even if such fire or other casualty shall be brought about by the fault or negligence of the other party, or any persons claiming under it. Sublessor hereby agrees that, in the event of any casualty or condemnation affecting the Subleased Premises, any elections which may be made by Sublessor under the terms of the CNS Lease in connection therewith (e.g., elections regarding termination or repair) shall instead be made by Sublessee.

     19. Waiver of Jury Trial. IT IS UNDERSTOOD AND AGREED BY AND AMONG SUBLESSOR AND SUBLESSEE THAT EACH OF THEM HEREBY WAIVES

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TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SUBLEASE OR THE USE OR OCCUPANCY OF THE SUBLEASED PREMISES, OR OTHERWISE. IT IS FURTHER AGREED BY AND BETWEEN THE PARTIES HERETO THAT IN THE EVENT SUBLESSOR COMMENCES ANY SUMMARY PROCEEDINGS FOR NON-PAYMENT OF RENT, SUBLESSEE WILL NO INTERPOSE ANY COUNTERCLAIM OF WHATEVER NATURE OR DESCRIPTION IN ANY SUCH PROCEEDING.

     20. Intentionally Deleted

     21. Entire Agreement. This Sublease together with the CNS Lease and all exhibits hereto and thereto contains the entire agreement between the parties hereto and there are no collateral agreements or understandings. This Sublease shall not be modified in any manner except by an instrument in writing executed by Sublessor, Sublessee and Landlord.

     22. Successors and Assigns. Subject to the provisions of Section 9 above, this Sublease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

     23. Governing Law. This Sublease shall be governed and construed in accordance with the laws of Minnesota.

     24. Time. Time is of the essence in this Sublease and with regard to all provisions herein contained.

     25. Severability. If any provision hereof shall be found to be illegal, void or unenforceable, this Sublease shall be construed as if said provisions were not herein contained, so as to give full force and effect, as nearly as possible, to the original intent of the parties hereto.

     26. Relationship. Nothing herein contained shall be deemed to create any partnership or joint venture between the parties hereto, and the relationship of the parties shall be solely that of sublessor and sublessee.

     27. Landlord’s Approval; Sub-Landlord’s Approval; Estoppel. This Sublease is contingent upon the prior written approval of Landlord and Sub-Landlord.

     28. Brokers. Sublessor and Sublessee each represent and warrant to the other that aside from Cushman & Wakefield (Sublessor’s “Broker”), neither of them has employed any broker, agent or finder in connection with this Sublease. Each party shall and does hereby indemnify and hold the other party harmless from and against any claim or claims for commissions or other fees arising from or out of any breach of the foregoing representation and warranty. Sublessor shall pay Sublessor’s Broker a leasing commission under a separate written agreement between Sublessor and Sublessor’s Broker. Sublessee’s Broker shall be paid its commission by Sublessor’s Broker under a separate agreement between the Brokers.

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     IN WITNESS WHEREOF, the parties have executed this Sublease as of the date and year first above written.

SUBLESSOR:		SUBLESSEE:
SURMODICS, INC.		COMPELLENT TECHNOLOGIES, INC.
By:	/s/ Philip D. Ankeny	By:	/s/ John R. Judd
Name:	Philip D. Ankeny	Name:	John R. Judd
Title:	Sr. VP & CFO	Title:	CFO

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EXHIBIT A

CNS Lease

Exhibit A

SUBLEASE AGREEMENT

     THIS SUBLEASE (“Sublease”) is made as of the 24^th day of September 2007, by and between CNS, INC., a Delaware corporation, having an address of 1000 GSK Drive, Moon Township, Pittsburgh, PA 15108 (“Sublessor”) and SURMODICS, INC., a Minnesota corporation with an address at 9924 West 74^th Street, Eden Prairie, MN 55344, Attn: Bryan Phillips (“Sublessee”).

BACKGROUND

     A. Sublessor leases certain premises from LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“Landlord”), which premises and buildings thereon are located at 7615 Smetana Lane, Eden Prairie, Minnesota (the “Building”), pursuant to a Lease dated December 21, 1999, as amended on April 28, 2000 (the “Prime Lease”). A true and correct copy of the Prime Lease is attached hereto and made a part hereof as Exhibit “A”.

     B. Sublessee desires to lease from Sublessor, and Sublessor desires to lease to Sublessee, the Subleased Premises (as such term is defined below) in accordance with the terms and conditions hereinafter set forth.

TERMS

     NOW, THEREFORE, for and in consideration of the foregoing Background and the mutual covenants, promises, conditions and agreements herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:

     1. Definitions. Those capitalized terms not defined herein shall have the same meanings ascribed to them in the Prime Lease.

     2. Sublease Term and Subleased Premises

          (a) Sublease Term. Sublessor hereby leases to Sublessee and Sublessee hereby rents from Sublessor the Subleased Premises for a term (the “Sublease Term”) commencing on a date to be the later of September 1, 2007, or three (3) business days after Sublessor receives Landlord’s consent to this Sublease (referred to herein as the “Sublease Commencement Date”). Sublessor shall provide Sublessee with not less than three (3) calendar days prior written notice of the actual Sublease Commencement Date. The Sublease Term, unless terminated earlier pursuant to the terms hereof shall automatically terminate, without the necessity of notice from either party, at 11:59 p.m. on November 29, 2010 (“Sublease Expiration Date”).

               (i) Access Date. Subleasee shall have full access to use and occupy the Subleased Premises on the Sublease Commencement Date (the “Access Date”).

               (ii) Inspection of Subleased Premises. Sublessee shall have the right to enter the Subleased Premises prior to the Access Date during normal business hours and

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accompanied by a representative of Sublessor for purposes of inspection and evaluation of the Subleased Premises. At no time prior to the Access Date will Sublessee be permitted to make, install, or construct any alterations or improvements to the Subleased Premises.

          (b) Subleased Premises. Pursuant to this Sublease, Sublessor shall lease to Sublessee the portion of the Premises (as such term is defined under the Prime Lease), comprising approximately 73,000 rentable square feet in the Building and 3.8 unreserved parking spaces for each 1,000 rentable square feet of the Premises, as allocated to Sublessor under the Prime Lease and the First Amendment to the Lease dated April 28, 2000 (“Subleased Premises”). A copy of the floor plan of the Subleased Premises is attached hereto and made a part hereof as Exhibit “B”.

     3. Rent

          (a) Base Rent. During the Sublease Term, Sublessee shall pay to Sublessor as base rent (“Base Rent”) for the Subleased Premises, the amounts set forth on the Rental Schedule attached hereto and made a part hereof as Exhibit “C.” Notwithstanding anything to the contrary contained herein, Sublessee shall not be obligated for payment of Base Rent during the first four (4) months of the Sublease Term. Base Rent payments will commence on that date which is four (4) months after the Sublease Commencement Date (“Base Rent Commencement Date”).

          (b) Taxes, Operating Expenses and Additional Rent. Commencing on the Sublease Commencement Date, Sublessee shall pay directly to Sublessor all Operating Expenses (as such term is defined in § 7(a)-(f) of the Prime Lease), including but not limited to taxes, utilities, maintenance or other sums due under the Prime Lease with respect to the Subleased Premises and/or this Sublease.

               (i) In the event Landlord agrees to furnish to the Subleased Premises services requested by Sublessee other than or in addition to those provided under the Prime Lease, Sublessee shall be solely responsible to pay all amounts which may become due for such services directly to Landlord. Sublessee’s failure to do so shall be a default under this Sublease.

               (ii) If Sublessee’s Intended Use of the Subleased Premises causes the rate of fire or other insurance carried by Landlord to be increased, Sublessee shall be solely responsible to Landlord for any such increase.

          (c) Place and Manner of Payment. All Base Rent and additional rent and/or any other charges herein reserved, included, or agreed to be treated as rent (all Base Rent, additional rent and such other charges are sometimes hereinafter collectively referred to as “Rent”) shall be payable at the following address (except those items which, pursuant to clauses 3(b)(i) and (ii) are payable directly to Landlord), or at such other place as Sublessor may from time to time designate by notice in writing:

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GlaxoSmithKline
1000 GSK Drive
Moon Township
Pittsburgh, PA 15108
Attn: Don Rimbey MS PBI000

     All checks shall be made payable to Sublessor. Sublessor may, in its sole discretion, deliver to Sublessee an invoice each month during the Sublease Term, which details all items of Rent due for the previous month. In no event shall Sublessor be obligated to provide such invoice to Sublessee. Subject to Section 3(a) Rent shall be due beginning on the Sublease Commencement Date, and on the first day of each calendar month thereafter during the Sublease Term.

          (d) Security Deposit. Contemporaneously with the execution of this Sublease, Sublessee shall provide to Sublessor a security deposit in the form of a standby Letter of Credit in the amount of $328,500 ($4.50 psf) (the “Security Deposit”), which shall be held by Sublessor to secure Sublessee’s performance of its obligations under this Sublease. The Security Deposit shall be reduced by 50% after the first twelve (12) months of paid Rent, assuming that all other obligations of the Sublessee under this Sublease have been met. The Letter of Credit shall be in a form and issued by a banking institution approved by Sublessor. Such approval shall not be unreasonably withheld. The Security Deposit is not an advance payment of Rent or a measure or limit of Sublessor’s damages upon a default by Sublessee. Sublessor may, from time to time following such default and without prejudice to any other remedy, draw upon the Letter of Credit and use and apply any portion of the proceeds to perform any obligation Sublessee fails to perform hereunder. Following any such application of the Security Deposit, Sublessee shall within ten (10) business days after Sublessor’s notice to Sublessee of such use or application, cause the issuing bank to restore the Letter of Credit to its original amount as set forth herein, and Sublessee’s failure to do so shall constitute an event of default under this Sublease. Provided that Sublessee has performed all of its obligations hereunder, Sublessor shall, within ten (10) business days after the Sublease Term ends, return to Sublessee the Letter of Credit less the proceeds of any draw Sublessor shall have made to satisfy any of Sublessee’s obligations as provided hereunder.

     4. Late Charges. In addition to the remedies available to Sublessor in the event of default, if Sublessee shall fail to pay any item of Rent within fifteen (15) days after its due date, Sublessee shall pay a late charge in an amount equal to the greater of $100 or five percent (5%) of the amount due to cover the extra expense involved in handling delinquent payments. The parties agree that this is not a penalty but is a reasonable estimate of the additional expense Sublessor will incur in the event of Sublessee’s late payment.

     5. Use. Sublessee shall use and occupy the Subleased Premises for and only for the use specified in Section 1(f) of the Prime Lease: general office, warehouse and assembly; provided, however, that Sublessee may, with Landlord’s consent, use the Subleased Premises for research and development and laboratory work, including but not limited to those activities described in Exhibit “D” attached hereto so long as performed in accordance with applicable laws (“Sublessee’s Intended Use”). Sublessee shall be subject to the same obligations and restrictions against use as provided for under Section 4 of the Prime Lease.

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          (a) Sublessor does not warrant or represent that Landlord will provide consent for Sublessee’s Intended Use of the Subleased Premises.

          (b) In the event Landlord consents to Sublessee’s Intended Use of the Subleased Premises, Sublessee agrees to indemnify, defend and save Sublessor harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from Sublessee’s Intended Use of the Subleased Premises, including, but not limited to, any obligation under the Prime Lease to remove any improvements installed by Sublessee in the Subleased Premises, and any and all environmental contamination, remediation, decontamination or decommissioning of the Subleased Premises necessary at the end of the Sublease Term as a result of Sublessee’s use of the Subleased Premises, and from and against all costs, expenses and liabilities incurred in connection with any such claim or action or proceeding brought on account of Sublessee’s breach of its obligations under this Section 5(b) (including, without limitation, the reasonable fees of attorneys, investigators and experts).

     6. Application of Prime Lease

          (a) Sublessee’s Obligations and Rights. This Sublease is expressly subject and subordinate to all of the terms and conditions of the Prime Lease, and to all amendments, renewals and extensions thereof, and all of the terms, provisions and covenants as contained in the Prime Lease are incorporated herein by reference, except as herein expressly set forth. Sublessee hereby covenants and agrees to observe all of the terms, conditions, covenants imposed upon the “Tenant” under the Prime Lease and to perform all of the duties and obligations imposed upon the Tenant thereunder (other than payment of rent under the Prime Lease) to the extent applicable to the Subleased Premises. Except as otherwise provided in this Sublease, all rights of Sublessor and obligations of Landlord under the Prime Lease shall inure to the benefit of Sublessee. To the extent any provision of this Sublease is inconsistent with any provisions of the Prime Lease, this Sublease shall govern except that if the standard for performance is more stringent under either the Prime Lease or this Sublease, the more stringent provisions shall prevail (except with respect to payment of Rent, in which case the standard for performance under this Sublease shall prevail) and Sublessee shall be obligated to comply therewith. Sublessee acknowledges that any default by it under this Sublease may constitute a default by Sublessor as Tenant under the Prime Lease, and that Sublessee’s liability to Sublessor shall include, but not be limited to, any damages or liabilities incurred by Sublessor to Landlord under the Prime Lease. Sublessor represents and warrants to Sublessee that as of the date of execution of this Sublease, Sublessor has received no notice of default from Landlord under the Prime Lease and, to the knowledge of Sublessor, the Subleased Premises are in full compliance with the requirements of the Prime Lease. Sublessor agrees to pay all rent payable by Sublessor as Tenant under the Prime Lease when due, and to perform its other obligations thereunder that have not been assumed by Sublessee under this Sublease, throughout the Sublease Term, so long as Sublessee is not in default under this Sublease. Sublessor further agrees not to exercise any right it has to terminate the Prime Lease without the prior written consent of Sublessee, provided, however, that no consent of Sublessee shall be necessary in the event that Sublessor and Landlord agree to terminate the Prime Lease as to Sublessor, so long as in the event of such termination, the Landlord agrees to continue this Sublease in full force and effect, thereby

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making Sublessee the “tenant” under the Prime Lease, resulting in a direct relationship between Landlord and Sublessee.

          (b) No Duty to Render Services. Sublessor is not and shall not be required to render any services or utilities of any kind whatsoever to Sublessee or to perform any obligation of Landlord under the Prime Lease. Sublessor shall not be liable to Sublessee for any default or failure on behalf of the Landlord under the Prime Lease in the performance or nonperformance by the Landlord of any of its covenants and obligations under the Prime Lease; provided, however, that Sublessor shall use reasonable efforts to enforce the terms of the Prime Lease in the event of default or nonperformance by Landlord thereunder. If as a result of default by Sublessee, casualty or condemnation, the Prime Lease should terminate prior to the expiration of the Sublease Term, then this Sublease shall likewise terminate simultaneously with such termination and Sublessee shall have no right or cause of action against Landlord or Sublessor by reason of such termination. It is understood and agreed that Sublessor is under no duty to make repairs, restoration, improvements or alterations to the Subleased Premises at the time of letting or at any time thereafter.

          (c) Insurance. During the Sublease Term, Sublessee agrees to maintain all insurance as required on the part of the Tenant under the Prime Lease, and shall name as additional insureds, as their interests may appear, the Landlord, Manager (as such term is defined in the Prime Lease) and Sublessor. Prior to the Sublease Commencement Date, Sublessee shall deliver to Sublessor a certificate of insurance evidencing the existence of such insurance. At least thirty (30) days before any insurance policy shall expire, Sublessee shall deliver to Sublessor replacement certificates of insurance together with receipted bills therefor as aforesaid.

          (d) Inspections. Sublessor shall have the right to enter the Subleased Premises during normal business hours and upon twenty-four (24) hours prior notice to Sublessee, for purposes of inspection and for the other purposes for which rights of entry are reserved under the Prime Lease, except that such prior notice shall not be required in the case of emergency. A representative of Sublessee shall accompany Sublessor or any other person or persons on all such inspections or other entry onto the Subleased Premises, except for: (i) in the case of an emergency; (ii) Sublessor’s entry onto the Subleased Premises is a direct result of a good faith belief that Sublessee is in violation of this Sublease or the Prime Lease; (iii) Sublessor has given advance notice of such entry as required by this Section 6(d) and Sublessee has failed to provide a representative in a timely manner; (iv) performance of scheduled or immediately necessary maintenance or cleaning services; or (v) as agreed upon by Sublessor and Sublessee in advance.

          (e) Subordination. In addition to complying with Sublessor’s obligations as Tenant under Section 19 of the Prime Lease, Sublessee agrees to subordinate this Sublease to any mortgagee or primary encumbrance now or hereafter affecting the Subleased Premises.

          (f) Exclusions. The following portions of the Prime Lease shall not apply to this Sublease: Sections 30, 31, 32, 34 and 36.

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     7. Condition of Subleased Premises

          (a) Prime Lease. Sublessee has examined the Prime Lease and accepts such “as is” without representation, covenant or warranty, express or implied, in fact or in law, except as herein provided, by Sublessor or its agents, and without recourse to Sublessor or Landlord. Sublessor shall indemnify Sublessee from and against all costs, indemnities and liabilities (including, without limitation, the reasonable fees of attorneys and experts) arising out of or in connection with the failure of the Subleased Premises to be in full compliance with the requirements of the Prime Lease prior to the Sublease Commencement Date.

          (b) Condition of Subleased Premises. On or before the Access Date, Sublessor shall remove the racking located in the warehouse portion of the Subleased Premises, grind the bolts flush with the floor, and fill any holes in the floor. Sublessor shall deliver the Subleased Premises to Sublessee in broom-clean condition on the Access Date. Subject to Sublessor’s obligations pursuant to the foregoing sentence and subject to Sublessor’s representation in Section 6(a), the taking of occupancy or possession of the whole or any part of the Subleased Premises by Sublessee shall be conclusive evidence, as against Sublessee, that Sublessee accepts possession of the space so occupied, the same was accepted by Sublessee in its “AS IS” condition, and that the same were in good and satisfactory condition at the time such occupancy or possession was so taken, without representation, covenant or warranty, express or implied (including without limitation any implied warranty of habitability, merchantability or fitness for a particular purpose) in fact or in law, by Sublessor or its agents, and without recourse to Sublessor or Landlord, as to any of the above, except the indemnity of Sublessor set forth in Section 7(a).

          (c) Furniture, Fixtures and Equipment. Sublessee shall have the right to use all of Sublessor’s furniture, fixtures and equipment, subject to an agreed upon list attached hereto as Exhibit “E” (the “Fixtures”) in the Subleased Premises during the Sublease Term. Sublessee shall keep and maintain all Fixtures in good and working condition, and shall make all necessary repairs to the Fixtures to keep them in such condition as they are as of the Access Date; provided, however, that Sublessee shall not be obligated to repair or replace any Fixture which becomes obsolete or whose useful life expires during the Sublease Term. Upon completion of the Sublease Term, Sublessor shall transfer legal title to the Fixtures to Sublessee pursuant to a Bill of Sale, the form of which is attached hereto as Exhibit “F”.

     8. Alterations/Repairs/Signage

          (a) Except as provided in the Prime Lease, Sublessee shall not make any alterations, improvements or additions to the Subleased Premises without the written consent of Landlord and Sublessor, which consent may not be unreasonably withheld or delayed. Notwithstanding anything to the contrary contained herein or in the Prime Lease, Sublessee shall have the right, subject to Landlord’s consent, to construct the improvements described in Exhibit “G” attached hereto and made a part hereof.

               (i) In the event Landlord consents to Sublessee’s proposed improvements as described in Exhibit “G”, Sublessee shall indemnify defend and save Sublessor harmless from and against any and all claims by or on behalf of any persons, firms or

6.

corporations arising from the construction, maintenance, operation, use and removal of such improvements and alterations during the Sublease Term, and from and against all costs, expense and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators, and experts).

               (ii) At the expiration or ‘termination of this Sublease, Sublessee shall be obligated and solely responsible to remove all of Sublessee’s improvements and alterations and restore the Subleased Premises to the condition as it existed as of the Access Date; and upon such removal, Sublessee shall repair any damage caused by installation or removal of the improvements.

          (b) Sublessee shall keep the Subleased Premises in a neat and orderly condition and shall make all repairs to maintain the Subleased Premises as required of Sublessor as Tenant as set forth in the Prime Lease.

          (c) Sublessee may not place any signage on the Subleased Premises except for signage permitted by Section 8 of the Prime Lease. Notwithstanding anything to the contrary contained herein or in the Prime Lease, Sublessee shall have the right, subject to Landlord’s consent, to install the signage described in Exhibit “H” attached hereto and made a part hereof. Any additional signage installed by Sublessee pursuant to Landlord’s consent is also subject to Sections 8(a)(i)-(ii) herein.

     9. Assignment or Subletting. Sublessee may not assign this Sublease, mortgage, pledge or encumber Sublessee’s interest in this Sublease or sublet all or any portion of the Subleased Premises without the prior written consent of Sublessor and Landlord, which consent of Sublessor shall not be unreasonably withheld. If Sublessor and Landlord consent to any such assignment or subletting, Sublessee shall remain fully and primarily liable to Sublessor, in all respects, under this Sublease.

     10. Defaults and Termination

          (a) Subject to the grace periods provided in Section 13 below, if Sublessee shall at any time be in default in the payment of Rent or of any other sum required to be paid by Sublessee under this Sublease, or in the performance of or compliance with any of the terms, covenants, conditions or provisions of this Sublease, or if Sublessee breaches or otherwise commits an event of default under those provisions of the Prime Lease applicable to Sublessee’s use and/or occupancy of the Subleased Premises, then and in addition to any other rights or remedies Sublessor may have under this Sublease and at law and in equity, shall have the following rights:

               (i) Sublessor shall have the same rights and remedies against Sublessee for default of this Sublease as the Landlord would have against Sublessor as Tenant under the Prime Lease, including, without limitation, the rights of rental acceleration, Sublease termination, retaking possession and damages.

               (ii) If Sublessee shall be in default in the payment of Rent or any other sum required to be paid by Sublessee under this Sublease beyond any applicable grace period set

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forth in Section 13 below, Sublessee shall pay interest on the delinquent amounts at the rate of twelve percent (12%) per annum from the date due to the date paid.

               (iii) No waiver by Sublessor of any breach by Sublessee of any of Sublessee’s obligation, agreements or covenants herein shall be a waiver of any subsequent breach or of any obligation, agreement of covenant, nor shall any forbearance by Sublessor to seek a remedy for any breach by Sublessee be a waiver by Sublessor of any rights and remedies with respect to such or any subsequent breach.

               (iv) If Sublessee shall be in default in the performance of any of its obligations hereunder, Sublessor may (but shall not be obligated to do so), in addition to any other rights it may have in law or equity, cure such default on behalf of Sublessee. In such event, Sublessee shall reimburse Sublessor upon demand, as additional rent, for any costs incurred by Sublessor in curing said defaults, including without limitation reasonable attorneys’ fees from the date Sublessor incurs such costs, along with interest from the date Sublessor cures any such default until the date such sum is paid, at the rate specified in Section 10(a)(ii) herein.

          (b) If Sublessor shall be in default in the performance of any of its obligations hereunder, or under the Prime Lease, but only to the extent such default directly affects the Subleased Premises, Sublessee may (but shall not be obligated to do so), in addition to any other rights it may have in law or equity, cure such default on behalf of Sublessor. In such event, Sublessor shall reimburse Sublessee upon demand, for any costs incurred by Sublessee in curing said defaults, including without limitation reasonable attorneys’ fees from the date Sublessee incurs such costs, along with interest from the date Sublessee cures any such default until the date such sum is paid, at the rate specified in Section 10(a)(ii) herein.

          (c) If as a result of default by Sublessee, casualty or condemnation, the Prime Lease should terminate prior to the expiration of the Sublease Term, then this Sublease shall likewise terminate simultaneously with such termination and Sublessee shall have no right or cause of action against Landlord or Sublessor by reason of such termination.

     11. Intentionally Deleted

     12. Intentionally Deleted

     13. Grace Period. If Sublessee shall be in default of any of the terms and provisions of this Sublease, and if the Prime Lease shall allow a grace period for cure of a default of a similar type and nature, then Sublessee shall be entitled to a grace period which is five (5) days less than the corresponding grace period in the Prime Lease.

     14. Indemnifications.

          (a) Sublessee agrees to indemnify, defend and save Sublessor harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from the occupancy, conduct, operation or management of the Subleased Premises or from any work or thing whatsoever done or not done in and on the Subleased Premises, or arising from any breach or default on the part of Sublessee in the performance of any covenant or agreement on the part of Sublessee to be performed pursuant to the terms of this Sublease, or under the law, or

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arising from any act, neglect or negligence of Sublessee, or any of its agents, contractors, subtenants, servants, employees, or licensees or arising from any accident, injury or damage whatsoever caused to any person, firm, corporation or property occurring during the term of this Sublease, in or about the Subleased Premises, and from and against all costs, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators and experts).

          (b) Sublessor agrees to indemnify, defend and save Sublessee harmless from and against any and all claims by or on behalf of any persons, firms or corporations arising from any act, neglect or negligence of Sublessor, or any of its agents, contractors, subtenants, servants, employees, or licensees, arising during Sublessor’s use and occupancy of the Subleased Premises prior to the Sublease Commencement Date and during any entry of Sublessor into the Subleased Premises after the Sublease Commencement Date, including any inspection or right of entry exercised by Sublessor pursuant to Section 6(d) of this Sublease, and from and against all costs, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon (including, without limitation, the reasonable fees of attorneys, investigators and experts).

     15. Notices

          (a) All notices, requests and demands to be given hereunder shall be in writing, sent to at the addresses set forth below by: (i) certified mail, return receipt requested, postage prepaid; or (ii) recognized overnight courier service.

If to Sublessor:	GlaxoSmithKline
	1250 South Collegeville Road, UP4205
	Collegeville, PA 19426
	Attention: Jack Smith, Real Estate
With a copy to:	GlaxoSmithKline
	One Franklin Plaza, FP2355
	Philadelphia, PA 19102
	Attention: Justin Huang, Legal Operations
If to Sublessee:	SurModics, Inc.
	9924 West 74th Street
	Eden Prairie, MN 55344
	Attention: Bryan Phillips

          (b) Each such notice, request or demand shall be deemed to have been given upon the earlier of (i) actual receipt or refusal by the addressee, or (ii) deposit thereof at any main branch of the United States Post Office if sent in accordance with subsection (a)(i) above, or (iii) deposit thereof with the carrier if sent in accordance with subsection (a)(ii).

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          (c) Either party, by notice similarly given, may change the person and/or address to which future notices shall be sent.

     16. Surrender. At the expiration or earlier termination of this Sublease, Sublessee covenants that it will peaceably and quietly leave and surrender the Subleased Premises, and will leave the Subleased Premises in broom clean condition and in the same condition as Sublessee is required to maintain the same during the term of this Sublease pursuant to the terms of this Sublease. In no event shall Sublessee be required to remove any improvements or alterations existing in the Subleased Premises prior to the Access Date or put the Subleased Premises in better condition than the condition that exists on the Access Date.

     17. Holding Over. In the event of a holding over by Sublessee or any entity claiming through Sublessee after the expiration or other termination of this Sublease, Sublessee shall become a tenant at sufferance upon all of the terms and provisions of this Sublease, except as otherwise provided herein. Sublessee shall; throughout the entire holdover period, pay for its use and occupancy an amount (on a per month basis without reduction for any partial months during such holdover) equal to 150% of the sum of the Rent due for the period immediately preceding such holding over, provided that in no event shall the Rent during the holdover period be less than the fair market rental for the Subleased Premises as determined by Sublessor in its sole and absolute discretion. The Rent payable for such holdover period shall in no event be construed as a penalty or as liquidated damages for such retention of possession. No holding over by Sublessee or payments of money by Sublessee to Sublessor after the expiration of the term of the Sublease shall be construed to extend the term of the Sublease or prevent Sublessor from recovery of immediate possession of the Subleased Premises by summary proceedings or otherwise. Without limiting the foregoing, Sublessee hereby agrees to indemnify, defend and hold harmless Sublessor from and against any and all claims, liabilities, actions, losses, damages (including, without limitation, direct, indirect, incidental and consequential) and expenses (including, without limitation, court costs and reasonable attorneys’ fees) asserted against or sustained by Sublessor and arising from or by reason of such retention of possession, which obligations shall survive the expiration or termination of the Sublease.

     18. No Other Rights Conveyed. This Sublease shall not be construed to convey to Sublessee any expansion options, rights of first offer, rights of first refusal, renewal rights or options or any other rights, options or privileges of Sublessor under the Prime Lease which are not specifically set forth in this Sublease, all of which shall be personal and exclusive to Sublessor.

     19. Fire or Other Casualty/Waiver of Subrogation. Sublessor and Sublessee hereby release the other and all persons claiming under them, and Sublessee hereby also releases Landlord from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties, or any other insured casualty, even if such fire or other casualty shall be brought about by the fault or negligence of the other party, or any persons claiming under it. Sublessor hereby agrees that, in the event of any casualty or condemnation affecting the Subleased Premises, any elections which may be made by Sublessor under the terms of the Prime Lease in connection therewith (e.g., elections regarding termination or repair) shall instead be made by Sublessee.

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     20. Waiver of Jury Trial. IT IS UNDERSTOOD AND AGREED BY AND AMONG SUBLESSOR AND SUBLESSEE THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SUBLEASE OR THE USE OR OCCUPANCY OF THE SUBLEASED PREMISES, OR OTHERWISE. IT IS FURTHER AGREED BY AND BETWEEN THE PARTIES HERETO THAT IN THE EVENT SUBLESSOR COMMENCES ANY SUMMARY PROCEEDINGS FOR NON-PAYMENT OF RENT, SUBLESSEE WILL NO INTERPOSE ANY COUNTERCLAIM OF WHATEVER NATURE OR DESCRIPTION IN ANY SUCH PROCEEDING.

     21. Intentionally Deleted

     22. Entire Agreement. This Sublease together with the Prime Lease and all exhibits hereto and thereto contains the entire agreement between the parties hereto and there are no collateral agreements or understandings. This Sublease shall not be modified in any manner except by an instrument in writing executed by Sublessor, Sublessee and Landlord.

     23. Successors and Assigns. Subject to the provisions of Section 9 above, this Sublease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

     24. Governing Law. This Sublease shall be governed and construed in accordance with the laws of Minnesota.

     25. Time. Time is of the essence in this Sublease and with regard to all provisions herein contained.

     26. Severability. If any provision hereof shall be found to be illegal, void or unenforceable, this Sublease shall be construed as if said provisions were not herein contained, so as to give full force and effect, as nearly as possible, to the original intent of the parties hereto.

     27. Relationship. Nothing herein contained shall be deemed to create any partnership or joint venture between the parties hereto, and the relationship of the parties shall be solely that of sublessor and sublessee.

     28. Landlord’s Approval; Estoppel. This Sublease is contingent upon the prior written approval of Landlord.

     29. Brokers. Sublessor and Sublessee each represent and warrant to the other that aside from Jones Lang LaSalle (“Sublessor’s Broker”) and Northstar Partners Cushman & Wakefield (“Sublessee’s Broker”) (collectively, the “Brokers”), neither of them has employed any broker, agent or finder in connection with this Sublease. Each party shall and does hereby indemnify and hold the other party harmless from and against any claim or claims for commissions or other fees arising from or out of any breach of the foregoing representation and warranty. Sublessor shall pay Sublessor’s Broker a leasing commission under a separate written agreement between Sublessor and Sublessor’s Broker. Sublessee’s Broker shall be paid its commission by Sublessor’s Broker under a separate agreement between the Brokers.

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     30. Counterparts. This Agreement may be signed in one or more copies. All such signed copies shall be considered an original Agreement, including copies transmitted by telecopy, electronic mail, or FAX, any one of which shall constitute an original of this Agreement. When facsimile copies have been executed by all parties, they shall have the same effect as if the signatures of each copy were upon the same document and copies of such documents shall be deemed valid as originals. The parties agree that all such signatures may be transferred to a single document upon the request of any party.

     IN WITNESS WHEREOF, the parties have executed this Sublease as of the date and year first above written.

	SUBLESSOR:
	CNS, INC.
Date: 9/10/07	By:	/s/ Eleanor Barger
	Name:	Eleanor Barger
	Title:	Senior Vice President Finance
		GSW Consumer Healthcare
	SUBLESSEE:
	SURMODICS, INC.
Date: 9/17/07	By:	/s/ Philip D. Ankeny
	Name:	Philip D. Ankeny
	Title:	Sr. VP and CFO

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EXHIBIT “A”

Prime Lease

Exhibit 10.30

     THIS LEASE AGREEMENT is made by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“LANDLORD”) with its address at 10400 Viking Drive, Suite 130, Eden Prairie, Minnesota 55344, and CNS, INC., a corporation organized under the laws of                      (“TENANT”) with its address at 4400 West 78th Street, Bloomington, Minnesota 55435, and is dated as of the date on which this lease has been fully executed by Landlord and Tenant.

1. Summary of Terms and Certain Definitions.

(a) “PREMISES”: Approximate rentable square feet: 73,000 (Section 2)

(b)	“BUILDING”: (§2)	Approximate rentable square feet: 93,000 Address:
(c)	‘‘TERM”: §5)	One hundred twenty (120)) months plus any partial month from the Commencement Date until the first day of the first full calendar month during the Term

(i)	“COMMENCEMENT DATE”: See Rider
(ii)	“EXPIRATION DATE”: See Section 5

(d) Minimum Rent (§6) & Operating Expenses (§7)

(i) “MINIMUM ANNUAL RENT”: $682,550.04 (Six hundred eighty-two thousand five hundred fifty and 04/100 Dollars), payable in monthly installments of $56,879.17 (Fifty-six thousand eight hundred seventy-nine and 17/100 Dollars), increased as follows:

Lease Year	Annual		Monthly		Lease Year		Annual		Monthly
2	$	696,201.00	$	58,016.75		6	$	753,590.40	$	62,799.20
3		710,125.08		59,177.09		7		768,662.16		64,055.18
4		724,327.56		60,360.63		8		784,035.36		65,336.28
5		738,814.08		61,567.84		9		799,716.12		66,643.01
						10		815,710.44		67,975.87

(ii) Estimated “ANNUAL OPERATING EXPENSES”: $173,010.00 (One Hundred Seventy-three Thousand Ten and no/100 Dollars), payable in monthly installments of $14,417.50 (Fourteen Thousand Four Hundred Seventeen and 50/100 Dollars), based on estimated annual operating expenses of $2.37 per rentable square feet for calendar year 2000, subject to adjustment (§7(a))

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(e)	“PROPORTIONATE SHARE” (§7(a)): 78.5% (Ratio of approximate rentable square feet in the Premises to approximate rentable square feet in the Building)
(f)	“USE” (§4): general office, warehouse and assembly
(g)	“SECURITY DEPOSIT” (§28): None
(h)	CONTENTS: This lease consists of the Index, pages 1 through 11 containing Sections 1 through 37 and the following, all of which are attached hereto and made a part of this lease:

Exhibits:
“A”- Plan showing Premises	“E”-Drawings
“B”- Commencement Certificate Form	“F”- Exclusions from Operating
“C”-Building Rules Expenses	“G”-TI Plans
“D”-Estoppel Certificate Form

2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises as shown on preliminary floor plan attached hereto as Exhibit “A” within the Building to be constructed pursuant to the provisions of Section 29 hereof (the Building and the lot on which it is located, the “PROPERTY”), together with the nonexclusive right with Landlord and other occupants of the Building to use all areas and facilities provided by Landlord for the use of all tenants in the Property including any driveways, sidewalks and parking, loading and landscaped areas (the “COMMON AREAS”). The Premises will consist of approximately 73,000 rentable square feet (29,340 rentable square feet devoted to office use and 43,660 rentable square feet devoted to warehouse use). Upon substantial completion of the Premises and Building, (i) at the request of either party, Landlord and Tenant shall enter into an amendment to this Lease replacing Exhibit “A” with a drawing outlining the Premises as constructed, and (ii) Landlord shall cause Landlord’s architect to determine the as-built square footage of the Premises and Building, and, if the square footages, as measured, vary from the square footages set forth in Section 1 of this Lease, the parties shall enter into an appropriate amendment to this lease incorporating the actual square footage, with a corresponding pro rata adjustment to Minimum Annual Rent and Tenant’s Proportionate Share.

3. Acceptance of Premises. See the provisions of Section 32 below.

4. User Compliance.

     (a) Permitted Use. Tenant shall occupy and use the Premises for and only for the Use specified in Section 1(f) above and in such a manner as is lawful and will not create any nuisance or otherwise interfere with any other tenant’s normal operations or the management of the Building. Landlord represents that, as of the Commencement Date, the Property will be zoned to permit the Use specified in Section 1(f) above. All Common Areas shall be subject to Landlord’s exclusive control and management at all times. Tenant shall not use or permit the use of any portion of the Property for outdoor storage or installations outside of the Premises nor for any use that would interfere with any other person’s use of any portion of the Property outside of the Premises.

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     (b) Compliance. Landlord represents that, as of the date of this lease, there is no action required with respect to the Premises or Common Areas under any laws (including Title III of the ADA), ordinances, notices, orders, rules, regulations and requirements applicable to the Premises or to the Common Areas. From and after the Commencement Date, Tenant shall comply promptly, at its sole expense, (including making any alterations or improvements) with all laws (including the ADA), ordinances, notice, orders, rules, regulations and requirements regulating the Property during the Term which impose any duty upon Landlord or Tenant specifically with respect to Tenant’s use, occupancy or alteration of, or Tenant’s installations in or upon, the Property including the Premises, (as the same may be amended, the “LAWS AND REQUIREMENTS”) and the building roles attached as Exhibit “C”, as amended by Landlord from time to time (the “BUILDING RULES”). Notwithstanding the foregoing, Tenant shall not be required to comply with the Laws and Requirements with respect to the footings, foundations, structural steel columns and girders forming a part of the Property unless the need for such compliance arises out of Tenant’s specific use, occupancy or alteration of the Property, or by any act or omission of Tenant or any employees, agents, contractors, licensees or invitees (“AGENTS”) of Tenant. With respect to Tenant’s obligations as to the Property, other than the Premises, at Landlord’s option and at Tenant’s expense, Landlord may comply with any repair, replacement or other construction requirements of the Laws and Requirements and Tenant shall pay to Landlord all costs thereof as additional rent. Landlord agrees to enforce the Building Rules in a uniform and nondiscriminatory manner. No amendment to the Building Rules shall be effective until the date that is 30 days after the date that Landlord notifies Tenant of the amendment.

     (c) Environmental. Tenant shall comply, at its sole expense, with all Laws and Requirements as set forth above, all manufacturers’ instructions and all requirements of insurers relating to the treatment, production, storage, handling, transfer, processing, transporting, use, disposal and release of hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum products, toxic or radioactive matter (the “RESTRICTED ACTIVITIES”). Tenant shall deliver to Landlord copies of all notices, filings, permits and any other material written communications relating to ‘tenant’s operations from or to Tenant and any entity regulating any Restricted Activities.

     (d) Notice. If at any time during or after the Term, Tenant becomes aware of any inquiry, investigation or proceeding regarding the Restricted Activities or becomes aware of any material claims, actions or investigations regarding the ADA, Tenant shall give Landlord written notice, within 5 days after first learning thereof, providing all available information and copies of any notices.

5. Term. See Section 33 below.

6. Minimum Annual Rent. Tenant agrees to pay to Landlord the Minimum Annual Rent in equal monthly installments in the amount set forth in Section 1(d) (as increased at the beginning of each lease year as set forth in Section 1(d)), in advance, on the first day of each calendar month during the Term, without notice, demand or setoff except as expressly provided for in this lease, at Landlord’s address designated at the beginning of this lease unless Landlord designates otherwise; provided that rent for the first full month shall be paid at the signing of this lease. If the Commencement Date falls on a day other than the first day of a calendar month, the

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rent shall be apportioned pro rata on a per diem basis for the period from the Commencement Date until the first day of the following calendar month and shall be paid on or before the Commencement Date. As used in this lease, the term “lease year” means the period from the Commencement Date through the succeeding 12 full calendar months (including for the first lease year any partial month from the Commencement Date until the first day of the first full calendar month) and each successive 12 month period thereafter during the Term.

7. Operation of Property: Payment of Expenses.

     (a) Payment of Operating Expenses. Tenant shall pay to Landlord the Annual Operating Expenses in equal monthly installments in the amount set forth in Section 1(d) (prorated for any partial month), from the Commencement Date and continuing throughout the Term on the first day of each calendar month during the Term, as additional rent, without notice, demand or setoff except as expressly provided for in this lease; provided that the monthly installment for the first full month shall be paid at the signing of this lease. Landlord shall apply such payments to the Operating Expenses owed to Landlord by Tenant pursuant to the following Sections 7(b)-(f). The amount of the Annual Operating Expenses set forth in Section 1(d) represents Tenant’s Proportionate Share of the estimated Operating Expenses during the first calendar year of the Term on an annualized basis; from time to time Landlord may adjust such estimated amount if the estimated Operating Expenses increase. By April 30th of each year (and as soon as practical after the expiration or termination of this lease or at any time in the event of a sale of the Property), Landlord shall provide Tenant with a statement of the actual amount of such expenses for the preceding calendar year or part thereof Landlord or Tenant shall pay to the other the amount of any deficiency or overpayment then due from one to the other or, at Tenant’s option, Landlord will credit Tenant’s account for any overpayment. Tenant’s obligation to pay the Annual Operating Expenses pursuant to this Section 7 shall survive the expiration or termination of this lease. The term “Operating Expenses” in this lease means all amounts owed to Landlord by Tenant pursuant to the following Sections 7(b)-(f). Any provision to the contrary in this lease notwithstanding, Operating Expenses shall not include any of the items listed on attached Exhibit “F”.

     (b) Taxes and Other Impositions. Tenant shall pay prior to delinquency all levies, taxes (including sales taxes and gross receipt taxes), assessments, liens, license and permit fees. which arc applicable to the Term, and which arc imposed by any authority or under any law, ordinance or regulation thereof, or pursuant to any recorded covenants or agreements, and the reasonable cost of contesting any of the foregoing (the “IMPOSITIONS”) upon or with respect to the Premises, or any improvements thereto, or directly upon this lease or the Rent (defined in Section 7(f) or amounts payable by any subtenants or other occupants of the Premises, or against Landlord because of Landlord’s estate or interest herein. Additionally, Tenant shall pay as aforesaid its Proportionate Share of any Imposition which is not imposed upon the Premises as a separate entity but which is imposed upon all or part of the Property or upon the leases or rents relating to the Property.

          (i) Nothing herein contained shall be interpreted as requiring Tenant to pay any income, excess profits or corporate capital stock tax imposed or assessed upon Landlord, unless such tax or any similar tax is levied or assessed in lieu of all or any part of any Imposition or an increase in any Imposition.

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          (ii) If it shall not be lawful for Tenant to reimburse Landlord for any of the Impositions, the Minimum Annual Rent shall be increased by the amount of the portion of such Imposition allocable to Tenant, unless prohibited by law.

          (iii) If Landlord receives any rebate, refund or similar payment relating to any Impositions paid by ur charged back to Tenant, Landlord shall promptly pay to Tenant Tenant’s Proportionate Share of such rebate or refund, net of any expenses incurred by Landlord in obtaining the same. Tenant may request that Landlord initiate an action to contest or challenge an Imposition, and Landlord agrees to consult with Tenant regarding such contest or challenge and to take such action as Landlord deems reasonable and appropriate wider the circumstances as a result of such consultation. Tenant shall not initiate any action to contest any Impositions without Landlord’s prior written consent.

     (c) Insurance.

          (i) Property. Landlord shall keep in effect, and Tenant shall pay to Landlord its Proportionate Share of the cost of, insurance against loss or damage to the Building or the Property by fire and such other casualties as may be included within fire, extended coverage and special form insurance covering the full replacement cost of the Building (but excluding coverage of Tenant’s personal property in, and any alterations by Tenant to, the Premises), and such other insurance as Landlord may reasonably deem appropriate or as may be required from time-to-time by any mortgagee. Landlord shall deliver to Tenant on or before the Commencement Date, a certificate of insurance evidencing such coverage and the waiver of subrogation described below.

          (ii) Liability. Tenant, at its own expense, shall keep in effect comprehensive general public liability insurance with respect to the Premises and the Property, including contractual liability insurance, with such limits of liability for bodily injury (including death) and property damage as reasonably may be required by Landlord from time-to-time, but not less than a combined single limit of $1,000,000 per occurrence and a general aggregate limit of not less than $3,000,000 (which aggregate limit shall apply separately to each of Tenant’s locations if more than the Premises); however, such limits shall not limit the liability of Tenant hereunder. The policy of comprehensive general public liability insurance also shall name Landlord and Landlord’s agent as insured parties with respect to the Premises, shall provide that it is primary with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, shall provide that it shall not be cancelable or reduced without at least 30 days prior written notice to Landlord and shall be issued in form satisfactory to Landlord. The insurer shall be a responsible insurance carrier which is authorized to issue such insurance and licensed to do business in the state in which the Property is located and which has at all times during the Term a rating of no less than A VII in the most current edition of Bert’s Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date, and subsequently renewals of a certificate of insurance evidencing such coverage and the waiver of subrogation described below.

          (iii) Waiver of Subrogation. Landlord and Tenant shall have included in their respective property insurance policies waivers of their respective insurers’ right of subrogation against the other party. If such a waiver should be unobtainable or unenforceable, then such

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policies of insurance shall state expressly that such policies shall not be invalidated if, before a casualty, the insured waives the right of recovery against any party responsible for a casualty covered by the policy.

          (iv) Increase of Premiums. Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord’s insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. If any breach of the preceding sentence by Tenant causes the rate of fire or other insurance to be increased, Tenant shall pay the amount of such increase as additional rent promptly upon being billed.

     (d) Repairs and Maintenance; Common Areal; Building Management. Except as specifically otherwise provided in this Section (d), Tenant at its sole expense shall maintain the Premises in good order and condition, promptly make all repairs necessary to maintain such condition, and repair any damage to the Premises caused by Tenant or its Agents. All repairs made by Tenant shall utilize materials and equipment which are comparable to those originally used in constructing the Building and Premises. When used in this Section (d), the term “repairs” shall include replacements and renewals when necessary.

          (i) Landlord, at its sole expense, shall make all necessary repairs to the footings, foundations, structural steel columns and girders forming a part of the Premises. If Tenant becomes aware of the need for such repair, Tenant shall promptly notify Landlord thereof.

          (ii) Landlord, at Tenant’s sole expense, shall maintain and repair the HVAC systems exclusively serving the Premises.

          (iii) Landlord shall make all necessary repairs to the roof, exterior portions of the Premises and the Building, utility and communications lines, equipment and facilities in the Building, which serve more than one tenant, and to the Common Areas, the cost of which shall be an Operating Expense of which Tenant shall pay its Proportionate Share. If Tenant becomes aware of the need for such repair, Tenant shall promptly notify Landlord thereof Landlord shall operate and manage the Property and shall maintain all Common Areas and any paved areas appurtenant to the Property in a clean and orderly condition. Landlord reserves the right to make alterations to the Common Areas from time to time provided that (A) absent Tenant’s prior written consent, there shall be no material change in the nature and extent of the Common Areas and the benefits extended to the Premises by the Common Areas, and (B) any such alterations must be completed in a manner so as not to unreasonably interfere with Tenant’s use of the Common Areas or Tenant’s business activities within the Premises. Operating Expenses also shall include (A) all sums expended by Landlord for the supervision, maintenance, repair, replacement and operation of the Common Areas (including the costs of utility services), (B) any costs of building improvements made by Landlord to the Property that are required by any governmental authority or for the purpose of reducing Operating Expenses and (C) a management and administrative fee (not to exceed 4% of gross rents) applicable to the overall operation of the Property.

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          (iv) Notwithstanding anything herein to the contrary, repairs and replacements to the Property including the Premises made necessary by Tenant’s use, occupancy or alteration of, or Tenant’s installation in or upon the Property or by any act or omission of Tenant or its Agents shall be made at the sole expense of Tenant to the extent not covered by any applicable insurance proceeds paid to Landlord. Tenant shall not bear the expense of any repairs or replacements to the Property arising out of or caused by any other tenant’s use, occupancy or alteration of, or any other tenant’s installation in or upon, the Property or by any act or omission of any other tenant or any other tenant’s Agents.

     (e) Utility Charges. Tenant shall pay for water, sewer, gas, electricity, heat, power, telephone and other communication services and any other utilities supplied to or consumed in or on the Premises. Landlord shall not be responsible or liable for any interruption in utility service, nor shall such interruption affect the continuation or validity of this lease. Notwithstanding the foregoing, if any interruption In utility service is the result of Landlord’s negligence or willful misconduct, and such interruption prevents Tenant from conducting its business in and from the Premises, then all Rent hereunder shall abate from the date of such interruption until such utility service is restored.

     (f) Net lease. Except for the obligations of Landlord expressly set forth herein, this lease is a “triple net lease” and Landlord shall receive the Minimum Annual Rent as net income from the Premises, not diminished any expenses other than payments under any mortgages, and Landlord is not and shall not be required to render any services of any kind to Tenant. The term “RENT” as used in this lease means the Minimum Annual Rent, Annual Operating Expenses and any other additional rent or sums payable by Tenant to Landlord pursuant to this lease, all of which shall be deemed rent for purposes of Landlord’s rights and remedies with respect thereto. Tenant shall pay all Rent to Landlord within 30 days after Tenant is billed, unless otherwise provided in this lease, and interest shall accrue on all sums due but unpaid.

     (g) Access to Books and Records. Tenant shall be entitled at any reasonable time during regular business hours, but no more than once in each calendar year, after giving to Landlord at least five (5) business days prior written notice, to inspect in Landlord’s business office all Landlord’s records regarding Operating Expenses for the Building (which records shall be retained or made available in the Minneapolis/St. Paul metropolitan area) necessary to satisfy itself that all Operating Expenses have been correctly allocated to Tenant, for either or both of the two (2) calendar years immediately preceding the Year during which such notice is given, and to obtain an audit thereof by an independent certified public accountant (selected by Tenant with Landlord’s written consent, which shall not be withheld unreasonably) to determine the accuracy of Landlord’s certification of the amount of additional rent charged Tenant. If it is determined that Tenant’s liability for additional rent for either such calendar year is less than ninety-five percent (95%) of that amount which Landlord previously certified to Tenant for such calendar year, Landlord shall pay to Tenant the cost of such audit (provided, however, that Landlord shall not be required to pay the cost of any audit based on a contingency fee or percentage of the amount recovered for Tenant) and regardless of such percentage Landlord shall refund promptly to Tenant the amount of the additional rent paid by Tenant for such calendar year which exceeds the amount for which Tenant actually is liable, as determined following such audit. If it is determined that Tenant’s liability for additional rent for either such calendar year is more than the amount which Landlord previously certified to Tenant for such calendar year,

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Tenant shall promptly pay to Landlord (net of the cost to Tenant of the audit) the amount of the additional rent underpaid by Tenant, as determined following such audit. Except as provided above, Tenant shall bear the total cost of any such audit. Tenant shall keep, and shall cause Tenant’s auditor to keep, the results of such audit confidential.

8. Signs. Except for signs which are located wholly within the interior of the Premises and not visible from the exterior of the Premises, no signs shall be placed on the Property without the prior written consent of Landlord. All signs installed by Tenant shall be maintained by Tenant in good condition and Tenant shall remove all such signs at the termination of this lease and shall repair any damage caused by such installation, existence or removal.

     The foregoing notwithstanding, Tenant shall have the right to procure, install and maintain, at Tenant’s sole cost and expense, the following identification signage on or about the Building:

(a)	One building-mounted identification sign on the south face of the Building;
(b)	Signage on one monument sign serving the Building; and
(c)	Loading dock signage, signage identifying Tenant’s employee entrance and signage identifying Tenant on Tenant’s entrance door(s),

     The design, size and location of all Tenant signage shall be consistent with Landlord’s sign criteria and otherwise subject to Landlord’s approval, which approval shall not be unreasonably withheld. Tenant shall cause all Tenant signage to comply with all Laws and Requirements applicable thereto. Upon the expiration or termination of this Lease, Tenant shall remove the signage and shall repair any damage occasioned by such removal.

9. Alterations and Fixtures.

     (a) Subject to Section 10, Tenant shall have the right to install its trade fixtures in the Premises, provided that no such installation or removal thereof shall materially and adversely affect any structural portion of the Property nor any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant. At the expiration or termination of this lease and at the option of Landlord or Tenant, Tenant shall remove such installation(s) and, in the event of such removal, Tenant shall repair any damage caused by such installation or removal; if Tenant, with Landlord’s written consent, elects not to remove such installation(s) at the expiration or termination of this lease, all such installations shall remain on the Property and become the property of Landlord without payment by Landlord.

     (b) Except for alterations that are non-structural, that do not materially and adversely affect any of the electrical, mechanical, HVAC, lire-safety, plumbing, security or other systems serving the Building, and that do not exceed $25,000 in the aggregate with respect to any project, Tenant shall not make or permit to be made any alterations to the Premises without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed. Tenant shall pay the costs of any required architectural/engineering reviews. In making any alterations, (i) Tenant shall deliver to Landlord the plans, specifications and necessary permits, together with certificates evidencing that Tenant’s contractors and subcontractors have adequate insurance

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coverage naming Landlord and Landlord’s agent as additional insureds, at least 10 days prior to commencement thereof, (ii) such alterations shall not impair the structural strength of the Building or any other improvements or reduce the value of the Property or affect any utility lines, communications lines, equipment or facilities in the Building serving any tenant other than Tenant, (iii) Tenant shall comply with Section 10 and (iv) the occupants of the Building and of any adjoining property shall not be materially disturbed thereby. All alterations to the Premises by Tenant shall be the property of Tenant until the expiration or termination of this lease; at that time all such alterations shall remain on the Property and become the property of Landlord without payment by Landlord unless Landlord gives written notice to Tenant to remove the same, in which event Tenant will remove such alterations and repair any resulting damage. At Tenant’s request prior to Tenant making any alterations, Landlord shall notify Tenant in writing, whether Tenant is required to remove such alterations at the expiration or termination of this lease.

10. Mechanics’ Liens. Tenant shall pay promptly any contractors and materialmen who supply labor, work or materials to Tenant at the Property and shall take all steps permitted by law in order to avoid the imposition of any mechanic’s lien upon all or any portion of the Property. Should any such lien or notice of lien be filed for work performed for Tenant other than by Landlord, Tenant shall bond against or discharge the same within 10 days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim. Nothing in this lease is intended to authorize Tenant to do or cause any work to be done or materials to be supplied for the account of Landlord, all of the same to be solely for Tenant’s account and at Tenant’s risk and expense. Throughout this lease the term “mechanic’s lien” is used to include any lien, encumbrance or charge levied or imposed upon all or any portion of, interest in or income from the Property on account of any mechanic’s, laborer’s; materialman’s or construction lien or arising out of any debt or liability to or any claim of any contractor, mechanic, supplier, materialman or laborer and shall include any mechanic’s notice of intention to file a lien given to Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of refusal to pay naming Landlord or Tenant and any injunctive or equitable action brought by any person claiming to be entitled to any mechanic’s lien.

11. Landlord’s Right of Entry. Tenant shall permit Landlord and its Agents to enter the Premises at all reasonable times following reasonable notice (except in the event of an emergency), for the purpose of inspection, maintenance or making repairs, alterations or additions as well as to exhibit the Premises for the purpose of sale or mortgage and, during the last 12 months of the Term, to exhibit the Premises to any prospective tenant. Landlord will make reasonable efforts not to inconvenience Tenant in exercising the foregoing rights, but shall not be liable for any loss of occupation or quiet enjoyment thereby occasioned.

12. Damage by Fire or Other Casualty.

     (a) If the Premises or Building shall be damaged or destroyed by fire or other casualty, Tenant promptly shall notify Landlord and Landlord, subject to the conditions set forth in this Section 12, shall repair such damage and restore the Premises to substantially the same condition in which they were immediately prior to such damage or destruction, but not including the repair, restoration or replacement of the fixtures or alterations installed by Tenant. Landlord shall notify Tenant in wilting, within 30 days after the date of the casualty, if Landlord

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anticipates that the restoration will take more than 180 days from the date of the casualty to complete; in such event, either Landlord or Tenant may terminate this lease effective as of the date of casualty by giving written notice to the other within 10 days after Landlord’s notice. Further, if a casualty occurs during the last 12 months of the Term or any extension thereof, Landlord may cancel this lease unless Tenant has the right to extend the Term for at least 3 more years and does so within 30 days after the date of the casualty.

     (b) Landlord shall maintain a 12 month rental coverage endorsement or other comparable form of coverage as part of its fire, extended coverage and special form insurance. Tenant will receive an abatement of its Minimum Annual Rent and Annual Operating Expenses to the extent the Premises are rendered untenantable.

13. Condemnation.

     (a) Termination. If (i) all of the Premises are taken by a condemnation or otherwise for any public or quasi-public use, (ii) any part of the Premises is so taken and the remainder thereof is insufficient for the reasonable operation of Tenant’s business or (iii) any of the Property is so taken, and, in Landlord’s opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder of the Property, then this lease shall terminate and all unaccrued obligations hereunder shall cease as of the day before possession is taken by the condemnor.

     (b) Partial Taking. If there is a condemnation and this lease has not been terminated pursuant to this Section, (i) Landlord shall restore the Building and the improvements which are a part of the Premises to a condition and size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the date upon which the condemnor took possession and (ii) the obligations of Landlord and Tenant shall be unaffected by such condemnation except that there shall be an equitable abatement of the Minimum Annual Rent according to the rental value of the Premises before and after the date upon which the condemnor took possession and/or the date Landlord completes such restoration.

     (c) Award. In the event of a condemnation affecting Tenant, Tenant shall have the right to make a claim against the condemnor for moving expenses and business dislocation damages to the extent that such claim does not reduce the sums otherwise payable by the condemnor to Landlord. Except as aforesaid and except as set forth in (d) below, Tenant hereby assigns all claims against the condemnor to Landlord.

     (d) Temporary Taking. No temporary taking of the Premises shall terminate this lease or give Tenant any right to any rental abatement. Such a temporary taking will be treated as if Tenant had sublet the Premises to the condemnor and had assigned the proceeds of the subletting to Landlord to be applied on account of Tenant’s obligations hereunder. Any award for such a temporary taking during the Term shall be applied first, to Landlord’s costs of collection and, second, on account of sums owing by Tenant hereunder, and if such amounts applied on account of sums owing by Tenant hereunder should exceed the entire amount owing by Tenant for the remainder of the Term, the excess will be paid to Tenant.

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14. Non-Abatement of Rent. Except as otherwise expressly provided as to damage by fire or other casualty in Section 12(b) and as to condemnation in Section 13(b) and except as otherwise specifically provided in this lease, there shall be no abatement or reduction of the Rent for any cause whatsoever, and this lease shall not terminate, and Tenant shall not be entitled to surrender the Premises.

15. Indemnification. Subject to Sections 7(c)(iii) and 16, Tenant will protect, indemnify and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liability and expense (including fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property in or about the Premises or arising out of the occupancy or use of the Premises by Tenant or its Agents or occasioned wholly or in part by any act or omission of Tenant or its Agents, whether prior to, during or after the Term, except to the extent such loss, injury or damage was caused by the negligence of Landlord or its Agents. In case any action or proceeding is brought against Landlord and/or its Agents by reason of the foregoing, Tenant, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Landlord and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Tenant and approved by Landlord and its Agents. Tenant’s obligations pursuant to this Section 15 shall survive the expiration or termination of this lease.

     Subject to Sections 7(c)(iii) and 16, Landlord will protect, indemnify and hold harmless Tenant and its Agents from and against any and all claims, actions, damages, liability and expense (including fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property caused to any person in or about the Premises occasioned wholly or in part by the negligence of Landlord or its Agents, except to the extent such loss, injury or damage was caused by the negligence of Tenant or its Agents. In case any action or proceeding is brought against Tenant and/or its Agents by reason of the foregoing, Landlord, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Tenant and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Landlord and approved by Tenant and its Agents. Landlord’s obligations pursuant to this Section shall survive the expiration or termination of this lease.

16. Waiver of Claims. Landlord and Tenant each hereby waives all claims for recovery against the other for any loss or damage which may be inflicted upon the property of such party even if such loss or damage shall be brought about by the fault or negligence of the other party or its Agents; provided, however, that such waiver by Landlord shall not be effective with respect to any liability of Tenant described in Sections 4(c) and 7(d)(iv).

17. Outlet Employment. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the exceptions, reservations and conditions of this lease.

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18. Assignment and Subletting.

     (a) Limitation. Tenant shall not transfer this lease, voluntarily or by operation of law, without the prior written consent of Landlord which shall not be withheld unreasonably. However, Landlord’s consent shall not be required in the event of any transfer by Tenant to an affiliate of Tenant which is at least as creditworthy as Tenant as of the date of this lease and provided Tenant delivers to Landlord the instrument described in Section (c)(iii) below, together with a certification of such creditworthiness by Tenant and such affiliate. Any transfer not in conformity with this Section 18 shall be void at the option of Landlord, and Landlord may exercise any or all of its rights under Section 23. A consent to one transfer shall not be deemed to be a consent to any subsequent transfer. “Transfer” shall include any sublease, assignment, license or concession agreement, change in ownership or control of Tenant, mortgage or hypothecation of this lease or Tenant’s interest therein or in all or a portion of the Premises.

     (b) Offer to Landlord. Tenant acknowledges that the terms of this lease, including the Minimum Annual Rent, have been based on the understanding that Tenant physically shall occupy the Premises for the entire Term. Therefore, upon Tenant’s request to transfer all or a portion of the Premises, at the option of Landlord, Tenant and Landlord shall execute an amendment to this lease removing such space from the Premises, Tenant shall be relieved of any liability with respect to such space and Landlord shall have the right to lease such space to any party, including Tenant’s proposed transferee. The provisions of this subsection 18(b) notwithstanding, if Landlord so elects to recapture all or a portion of the Premises, Tenant shall have the right to withdraw Tenant’s request for Landlord’s consent to the transfer, provided that Tenant withdraw such request in a written notice to Landlord given not less than 5 business days following Landlord’s election.

     (c) Conditions. Notwithstanding the above, the following shall apply to any transfer, with or without Landlord’s consent:

          (i) As of the date of any transfer, Tenant shall not be in default under this lease nor shall any act or omission have occurred which would constitute a default with the giving of notice and/or the passage of time.

          (ii) No transfer shall relieve Tenant of its obligation to pay the Rent and to perform all its other obligations hereunder. The acceptance of Rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this lease or to be a consent to any transfer.

          (iii) Each transfer shall be by a written instrument in form and substance satisfactory to Landlord which shall (A) include an assumption of liability by any transferee of all Tenant’s obligations and the transferee’s ratification of and agreement to be bound by all the provisions of this lease, (B) afford Landlord the right of direct action against the transferee pursuant to the same remedies as are available to Landlord against Tenant and (C) be executed by Tenant and the transferee.

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          (iv) Tenant shall pay, within 10 days of receipt of an invoice, Landlord’s reasonable attorneys’ fees and costs in connection with the review, processing and documentation of any transfer for which Landlord’s consent is requested.

19. Subordination: Mortgagee’s Rights.

     (a) This lease shall be subordinate to any first mortgage or other primary encumbrance hereafter affecting the Premises. Although the subordination is self-operative, within 10 days after written request, Tenant shall execute and deliver any further commercially reasonable and customary instruments of attornment and nondisturbance that may be desired by any such mortgagee or Landlord. The foregoing notwithstanding, so long as Tenant is not in default under this lease, this lease shall remain in Ml force and effect and the mortgagee and any purchaser at a foreclosure sale thereof shall not disturb Tenant’s possession hereunder. However, any mortgagee may at any time subordinate its mortgage to this lease, without Tenant’s consent, by giving written notice to Tenant, and thereupon this lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery; provided, however, that such subordination shall not affect any mortgagee’s right to condemnation awards, casualty insurance proceeds, intervening liens or any right which shall arise between the recording of such mortgage and the execution of this lease.

     (b) It is understood and agreed that any mortgagee shall not be liable to Tenant for any funds paid by Tenant to Landlord unless such funds actually have been transferred to such mortgagee by Landlord.

     (c) Notwithstanding the provisions of Sections 12 and 13 above, Landlord’s obligation to restore the Premises after a casualty or condemnation shall be subject to such commercially reasonable procedures and controls as may be imposed by Landlord’s mortgagee, including, but not limited to, such mortgagee’s rights, if any, to approve restoration plans and such mortgagee’s rights, if any, to require that casualty or condemnation proceeds be disbursed pursuant to standard construction loan disbursing procedures.

20. Recording Tenant’s Certificate. Tenant shall not record this lease or a memorandum thereof without Landlord’s prior written consent. Within 10 days after Landlord’s written request from time to time:

     (a) Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying the Commencement Date and Expiration Date of this lease, that this lease is in full force and effect and has not been modified and otherwise as set forth in the form of estoppel certificate attached as Exhibit “D” or with such modifications as may be necessary to reflect accurately the stated facts and/or such other certifications as may be requested by a mortgagee or purchaser. Tenant understands that its failure to execute such documents may cause Landlord serious financial damage by causing the failure of a financing or sale transaction.

     (b) Tenant shall furnish to Landlord, Landlord’s mortgagee, prospective mortgagee or purchaser reasonably requested financial information,

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21. Surrender; Abandoned Property.

     (a) Subject to the terms of Sections 9(b), 12(a) and 13(b), at the expiration or termination of this lease, Tenant promptly shall yield up in the same condition, order and repair in which they are required to be kept throughout the Term, the Premises and all improvements thereto, and all fixtures and equipment servicing the Building, ordinary wear and tear excepted.

     (b) Upon or prior to the expiration or termination of this lease, Tenant shall remove any personal property from the Property. Any personal property remaining thereafter shall be deemed conclusively to have been abandoned, and Landlord, at Tenant’s expense, may remove, store, and, unless Tenant retrieves such Property from Landlord (and reimburses Landlord for Landlord’s cost of removal and storage) within 10 days following the expiration or termination of this lease, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property as its properly. If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage and any Rent due under this lease.

     (c) If Tenant, or any person claiming through Tenant, shall continue to occupy the Premises after the expiration or termination of this lease or any renewal thereof, such occupancy shall be deemed to be under a month-to-month tenancy under the same terms and conditions set forth in this lease, except that the monthly installment of the Minimum Annual Rent during such continued occupancy shall be 150% of the amount applicable to the last month of the Term. Anything to the contrary notwithstanding, any holding over by Tenant without Landlord’s prior written consent shall constitute a default hereunder and shall be subject to all the remedies available to Landlord

22. Curing Tenant’s Defaults. If Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without any obligation to do so, in addition to any other rights it may have in law or equity, may elect to cure such default on behalf of Tenant after 30 days’ written notice (except in the case of emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including interest thereon from the respective dates of Landlord’s incurring such costs, which sums and costs together with interest shall be deemed additional rent.

23. Defaults — Remedies.

     (a) Defaults. It shall be an event of default:

          (i) If Tenant does not pay in full when due any and all Rent;

          (ii) If Tenant fails to observe and perform or otherwise breaches any other provision of this lease;

          (iii) (Intentionally Deleted);

          (iv) If Tenant becomes insolvent or bankrupt in any sense or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in

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bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant’s assets is commenced, or if any of the real or personal property of Tenant shall be levied upon; provided, however, that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute a default until such proceeding has continued unstayed for more than 60 consecutive days.

     (b) Remedies. Then, and in any such event, Landlord shall have the following rights:

          (i) To charge a late payment fee equal to the greater of $100 or 5% of any amount owed to Landlord pursuant to this lease which is not paid within 5 days after the due date.

          (ii) To enter and repossess the Premises, by breaking open locked doors if necessary, and remove all persons and all or any property therefrom, by action at law or otherwise, without being liable for prosecution or damages therefor, and Landlord may, at Landlord’s option, make alterations and repairs in order to relet the Premises and relet all or any part(s) of the Premises for Tenant’s account. Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. In the event of reletting without termination of this lease, Landlord may at any time thereafter elect to terminate this lease for such previous breach.

          (iii) To accelerate the whole or any part of the Rent for the balance of the Term, and declare the same to be immediately due and payable.

          (iv) To terminate this lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken.

     (c) Grace Period. Notwithstanding anything hereinabove stated, neither party will exercise any available right because of any default of the other, except those remedies contained in subsection (b)(i) of this Section, unless such party shall have first given 10 days written notice thereof to the defaulting party, and the defaulting party shall have failed to cure the default within such period; provided, however, that:

          (i) No such notice shall be required if Tenant fails to comply with the provisions of Sections 10 or 20(a), in the case of emergency as set forth in Section 22 or in the event of any default enumerated in subsections (a)(iii) and (iv) of this Section.

          (ii) Landlord shall not be required to give such 10 days notice more than 2 times during any 12 month period.

          (iii) If the default consists of something other than the failure to pay money which cannot reasonably be cured within 30 days, neither party will exercise any right if the defaulting party begins to cure the default within the 30 days and continues actively and diligently in good faith to completely cure said default.

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          (iv) Tenant agrees that any notice given by Landlord pursuant to this Section which is served in compliance with Section 27 shall be adequate notice for the purpose of Landlord’s exercise of any available remedies.

     (d) Non-Waiver; Non-Exclusive. No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant’s default shall not constitute a waiver of Landlord’s right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this lease shall be deemed to be other than on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of Rent due, or Landlord’s right to pursue any other available remedy.

     (e) Costs and Attorneys’ Fees. If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party attorneys’ fees, costs of suit, investigation expenses and discovery costs, including costs of appeal.

     (f) Curing Landlord’s Defaults. If (i) Landlord shall be in default of any of its maintenance and repair obligations under the Lease or shall fail to provide any of the services to be provided by Landlord under this Lease, and (ii) such default materially interferes with Tenant’s use and occupancy of the Premises for the conduct of Tenant’s business therein, and (iii) Tenant gives Landlord written notice specifying the nature of the default and specifying that Tenant intends to exercise its self-help rights under this subsection, and (iv) Landlord fails to cure such default within 30 days (or within a period of 72 hours if an emergency or shorter reasonable period if Landlord fails to timely remove snow) after Landlord receives Tenant’s notice (or within such reasonable additional time as may be necessary to cure such default provided Landlord commences such cure within said period and thereafter diligently prosecutes such cure to completion), then Tenant may without any obligation to do so, cure such default on behalf of Landlord. Landlord shall reimburse Tenant within 30 days of demand for any reasonable out-of-pocket sums paid or costs incurred by Tenant in curing such default (“Tenant’s Cost of Cure”), which demand shall be accompanied by invoices or other reasonable documentation evidencing amounts incurred by Tenant. To the extent Tenant’s Cost of Cure include items properly includable in Operating Expenses, Landlord may include in Operating Expenses such amounts reimbursed by Landlord.

24. Representations of Tenant. Tenant represents to Landlord and agrees that:

     (a) The word “Tenant” as used herein includes the Tenant named above as well as its successors and assigns, each of which shall be under the same obligations and liabilities and each of which shall have the same rights, privileges and powers as it would have possessed had it

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originally signed this lease as Tenant. Each and every of the persons named above as Tenant shall be bound jointly and severally by the terms, covenants and agreements contained herein. However, no such rights, privileges or powers shall inure to the benefit of any assignee of Tenant immediate or remote, unless Tenant has complied with the terms of Section 18 and the assignment to such assignee is permitted or has been approved in writing by Landlord. Any notice required or permitted by the terms of this lease may be given by or to any one of the persons named above as Tenant, and shall have the same force and effect as if given by or to all thereof.

     (b) If Tenant is a corporation, partnership or any other form of business association or entity, Tenant is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this lease constitutes a valid and binding obligation enforceable in accordance with its terms. Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of this lease at the time of such execution.

25. Liability of Landlord. The word “Landlord” as used herein includes the Landlord named above as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this lease as Landlord. Any such person or entity, whether or not named herein, shall have no liability hereunder after it ceases to hold title to the Premises except for obligations already accrued (and, as to any unapplied portion of Tenant’s Security Deposit, Landlord shall be relieved of all liability therefor upon transfer of such portion to its successor in interest) and Tenant shall look solely to Landlord’s successor in interest for the performance of the covenants and obligations of the Landlord hereunder which thereafter shall accrue. Neither Landlord nor any principal of Landlord nor any owner of the Property, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this lease or the Premises, and if Landlord is in breach or default with respect to Landlord’s obligations under this lease or otherwise, Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of Tenant’s claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding to the interest of Landlord hereunder (either in terms of ownership or possessory rights) shall be (a) liable for any previous act or omission of a prior landlord, (b) subject to any rental offsets or defenses against a prior landlord or (c) bound by any amendment of this lease made without its written consent, or by payment by Tenant of Minimum Annual Rent in advance in excess of one monthly installment.

26. Interpretation; Definitions.

     (a) Captions. The captions in this lease are for convenience only and are not apart of this lease and do not in any way define, limit, describe or amplify the terms and provisions of this lease or the scope or intent thereof.

     (b) Entire Agreement. This lease represents the entire agreement between the parties hereto and there arc no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises or the Property. No rights, easements or licenses are

30.

acquired in the Property or any land adjacent to the Property by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. This lease shall not be modified in any manner except by an instrument in writing executed by the parties. The masculine (or neuter) pronoun and the singular number shall include the masculine, feminine and neuter genders and the singular and plural number. The word “including” followed by any specific item(s) is deemed to refer to examples rather than to be words of limitation. Both parties having participated fully and equally in the negotiation and preparation of this lease, this lease shall not be more strictly construed, nor any ambiguities in this lease resolved, against either Landlord or Tenant.

     (c) Covenants. Each covenant, agreement, obligation, term, condition or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this lease unless otherwise expressly provided. All of the terms and conditions set forth in this lease shall apply throughout the Term unless otherwise expressly set forth herein.

     (d) Interest. Wherever interest is required to be paid hereunder, such interest shall be at the highest rate permitted under law but not in excess of 15% per annum.

     (e) Severability; Governing Law. If any provisions of this lease shall be declared unenforceable in any respect, such unenforccability shall not affect any other provision of this lease, and each such provision shall be deemed to be modified, if possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth herein. This lease shall be construed and enforced in accordance with the laws of the state in which the Property is located.

     (f) “Mortgage” and “Mortgagee.” The word “mortgage” as used herein includes any lien or encumbrance on the Premises or the Property or on any part of or interest in or appurtenance to any of the foregoing, including without limitation any ground rent or ground lease if Landlord’s interest is or becomes a leasehold estate. The word “mortgagee” as used herein includes the holder of any mortgage, including any ground lessor if Landlord’s interest is or becomes a leasehold estate. Wherever any right is given to a mortgagee, that right may be exercised on behalf of such mortgagee by any representative or servicing agent of such mortgagee.

     (g) “Person.” The word “person” is used herein to include a natural person, a partnership, a corporation, an association and any other form of business association or entity.

     (h) Proportionate Share. At any time or times, upon request of Landlord or of any tenant of the Building, the method for allocating Tenant’s Proportionate Share of any Impositions, cost, charge, rent, expense or payment then or thereafter payable shall be redetermined by an independent qualified expert. The cost of such redetermination shall be borne by the tenants of the Building in the same proportion as that determined by such expert for reallocation of said relevant sum; except that if such redetermination is requested by a tenant, the cost thereof shall be borne entirely by such tenant if the proportionate share of said relevant sum allocable to such tenant as the result of such redetermination shall not vary by at least 5% from the amount which would have been allocable to such tenant in accordance with the percentage

31.

based on square foot area. Except as otherwise expressly provided in this lease, Landlord shall not increase or decrease the physical size of the Building without Tenant’s prior written consent.

27. Notice. Any notice or other communication under this lease shall be in writing and addressed to Landlord or Tenant at their respective addresses specified at the beginning of this lease, except that after the Commencement Date Tenant’s address shall be at the Premises, (or to such other address as either may designate by notice to the other) with a copy to any mortgagee or other party designated by Landlord. Each notice or other communication shall be deemed given if sent by prepaid overnight delivery service or by certified mail, return receipt requested, postage prepaid or in any other manner, with delivery in any case evidenced by a receipt, and shall be deemed received on the day of actual receipt by the intended recipient or on the business day delivery is refused. The giving of notice by Landlord’s attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord; however, the foregoing provisions governing the date on which a notice is deemed to have been received shall mean and refer to the date on which a party to this lease, and not its counsel or other recipient to which a copy of the notice may be sent, is deemed to have received the notice.

28. Security Deposit. [Intentionally Deleted].

29. Premises. The Premises will consist of 73,000 rentable square feet (29,340 rentable square feet devoted to office use and 43,6450 rentable square feet devoted to warehouse use) in the single story Building to be constructed by Landlord as provided in Section 30 below, as depicted on the floor plan attached to this lease as Exhibit “A”.

30. Building Construction. The base Building shell shall be completed by Landlord substantially in accordance with the drawings attached hereto as Exhibit “E”. All construction shall be done in a good and workmanlike manner and shall comply in all material respects with all applicable laws codes, regulations, rules and requirements of the governmental authorities having jurisdiction, as applied, enforced and interpreted as of the date the building permit is issued, including, but not limited to, all requirements of Title III of the ADA as applicable to commercial facilities. This lease, and the obligations of Landlord and Tenant hereunder, is contingent upon Landlord obtaining all necessary municipal and other governmental approvals and permits for the development and construction of the base Building for the uses contemplated herein and of the planned development of which the base Building is a part. Landlord will use all reasonable efforts to obtain such approvals. If Landlord has not obtained the building permit for the construction of the base Building on or before April 20, 2000, either Landlord or Tenant can terminate this lease by giving written notice of termination to the other on or before April 30, 2000.

31. Tenant Improvements; Tenant Improvement Allowance.

31.1 Initial Tenant Improvements. The initial tenant improvements (the “Initial Tenant Improvements”) shall be constructed either by Landlord or Tenant, based on Tenant’s election described in Section 31.3 below, in accordance with the Tenant Improvement Plans, as defined in Section 31.2 below. Regardless of whether constructed under contract with Landlord or with Tenant, the contracting party

32.

	shall cause the construction to be done in a good and workmanlike manner in compliance with all applicable Laws and Requirements.
31.2	“Tenant Improvement Plans. Landlord and Tenant have approved the space plans for the Initial Tenant Improvements attached hereto as, or listed on attached, Exhibit G (the “Preliminary Plans”). Tenant will provide Landlord, on or before the date that is 120 days after the date of this Lease, complete construction drawings and specifications for the Initial Tenant Improvements. The construction drawings and specifications shall be consistent with the Preliminary Plans. Within 10 business days alter its receipt of the construction drawings and specifications, Landlord shall notify Tenant of its approval or disapproval thereof (which approval shall not be unreasonably withheld), and if Landlord disapproves thereof, the revisions that Landlord requires in order to obtain such approval. It is agreed that Landlord will not object to construction drawings and specifications to the extent that they conform to the Preliminary Plans. As promptly as reasonably possible thereafter, but no later than 10 business days after Landlord’s response, Tenant shall submit to Landlord modified construction drawings incorporating appropriate revisions. Upon approval of the final construction drawings and specifications, Landlord’s and Tenant’s authorized representatives shall each evidence such approval by initialing the top of each sheet of the approved construction drawings and specifications. The approved construction drawings and specifications are herein termed the “Tenant Improvement Plans”. Once approved, neither party will change any of the Tenant Improvement Plans without Tenant’s consent, which consent shall not be unreasonably withheld, conditioned or delayed.
31.3	Construction. On or before April 15, 2000, time being of the essence, Tenant may elect by written notice to Landlord, to perform through a general contractor selected by Tenant the construction of the Initial Tenant Improvements. If Tenant timely elects to construct the Initial Tenant Improvements, the Initial Tenant Improvements shall be constructed pursuant to the approved Tenant Improvement Plans, shall be constructed by a general contractor approved by Landlord, which approval shall not be unreasonably withheld, and shall otherwise be constructed in accordance with the provisions of Sections 9 and 10 of this lease. Tenant shall deliver to Landlord copies of all certificates of occupancy, permits and licenses required to be issued by any authority in connection with Tenant’s construction. If Tenant fails to timely make such election, Landlord, through a general contractor selected by Landlord. shall perform the construction of the Initial Tenant Improvements in accordance with the provisions of this Section 31.
31.4	Tenant Improvement Allowance. Landlord shall provide Tenant a leasehold improvement allowance of up to $876,000 (based on $12.00 per rentable square foot) (the “Allowance”) toward the cost of the Initial Tenant Improvements (including the cost of architectural, engineering and construction drawings, of obtaining necessary permits and of constructing the interior improvements other than trade fixtures, equipment, furniture or other removable personal property of Tenant). If Tenant contracts for the construction of the Initial Tenant

33.

Improvements, the Allowance shall be disbursed to Tenant by Landlord promptly after submission by Tenant to Landlord of evidence of the costs and expenses of the Initial Tenant Improvements, evidence of payment thereof by Tenant, lien waivers from all persons supplying labor or materials to the initial leasehold improvements, and any other information or documentation that Landlord may reasonably request. If the costs and expenses of the Initial Tenant Improvements, whether constructed by Landlord or by Tenant, exceed the Allowance (as the same may have been increased pursuant to the following paragraph), Tenant shall be solely responsible for payment of any excess.

At Tenant’s request (which request must be made on or prior to April 1, 2000), Landlord will increase the Allowance by an amount not to exceed $146,000 (based on $2.00 per rentable square foot) (the “Increase”). In such event, the Minimum Annual Rent will be increased by an amount equal to the Increase multiplied by .1654. For example, if the Increase is the full $146,000, the Minimum Annual Rent will increase by $24,148.40 (or $.3308 per rentable square foot).

32. Completion Dates; Access; Acceptance.

32.1	If Tenant Constructs Initial Tenant Improvements. If Tenant elects to construct the Initial Tenant improvements, Landlord shall cause the base Building to be Substantially Completed (as defined below) on or before September 1, 2000, subject to extension for any delays caused by Tenant or delays resulting from matters outside of Landlord’s reasonable control. “Substantial Completion” shall be deemed to occur on the date that (i) the base Building shell (including HVAC, plumbing, electrical and other mechanical systems to be constructed by Landlord pursuant to Section 30.1 above) are sufficiently complete to allow access to the Premises by Tenant for the installation of the Initial Tenant Improvements, and (ii) a temporary or permanent certificate of occupancy with respect to the Base Building has been issued by the City of Eden Prairie.
	On or about the time of Substantial Completion of the base building, Landlord, Tenant and Landlord’s general contractor shall jointly inspect the Premises and agree in writing on a final punchlist of Landlord’s work that is unfinished or defective, Tenant’s acceptance of delivery of the Premises to Tenant for the construction of the Initial Tenant Improvements shall constitute acceptance of the Premises, subject only to the punchlist items. Landlord shall cause Landlord’s general contractor to complete all items on the approved punchlist within 30 days, subject only to delays outside of Landlord’s reasonable control.
	Tenant shall at all reasonable times following Substantial Completion of the Base Building until the Commencement Date have access to the Premises, at Tenant’s own risk, expense and responsibility, for purposes of installing the Initial Tenant improvements, furniture, trade fixtures and equipment. Moreover, Tenant shall, upon Tenant’s request, be afforded limited access to the Premises prior to the Substantial Completion of the Base Building for the purpose of installing cables

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	or other equipment, including, but not limited to, racking and a conveyor system, that properly requires installation before the completion of the Base Building and for the purpose of constructing the mezzanine over the office area; Landlord shall have the right to control such access so that it does not interfere with the timely completion of the Base Building. In connection with all access by Tenant prior to the Commencement Date, Tenant shall abide by the terms and conditions of this Lease including carrying the insurance specified by the Lease, as if the term of this Lease had already commenced, except that Tenant shall have no obligation to pay the Minimum Annual Rent or Annual Operating Expenses until the Commencement Data Tenant shall, however, pay the charges for all utilities furnished to the Premises during Tenant’s early-access period and after the substantial completion of the Base Building, as reasonably estimated by Landlord.
32.2	If Landlord Constructs Initial Tenant Improvements, if Landlord constructs the Initial Tenant Improvements, Landlord shall cause Landlord’s Work (meaning the construction of the ban Building and the Initial Tenant Improvements) to be Substantially Completed (as defined below) on or before October 15, 2000, subject to extension for any delays caused by Tenant or resulting from matters outside of Landlord’s reasonable control. “Substantial Completion” shall be deemed to occur on the date that (i) Landlord’s Work is completed but for minor unfinished items that do not materially interfere with Tenant’s scheduled installation of its trade fixtures, equipment or furnishings or with Tenant’s scheduled occupancy of the Premises, and (ii) a temporary or permanent certificate of occupancy has been issued by the City of Eden Prairie.
	On or about the time of Substantial Completion of Landlord’s Work, Landlord, Tenant and Landlord’s general contractor shall jointly inspect the Premises and agree in writing on a final punchlist of Landlord’s Work that is unfinished or defective. Tenant’s taking of possession of the Premises shall constitute acceptance of the Premises, subject only to the punchlist items. Landlord shall cause Landlord’s general contractor to complete all items on the approved punchlist within 30 days, subject only to delays outside of Landlord’s reasonable control.
	Tenant shall at all reasonable times following Substantial Completion of Landlord’s Work until the Commencement Date have access to the Premises, at Tenant’s own risk, expense and responsibility, for purposes of installing Tenant’s furniture, trade fixtures and equipment. Moreover, Tenant shall, upon Tenant’s request be afforded limited access to the Premises prior to the Substantial Completion of Landlord’s Work for the purpose of installing cables or other equipment that properly requires installation before the completion of Landlord’s Work; Landlord shall have the right to control such access so that it does not interfere with the performance of Landlord’s Work. In connection with all access by Tenant prior to the Commencement Date, Tenant shall abide by the terms and conditions of this Lease including carrying the insurance specified by the Lease, as if the term of this Lease had already commenced, except that Tenant shall have no obligation to pay the Minimum Annual Rent or Annual Operating Expenses

35.

until the Commencement Date. Tenant shall, however, pay the charges for all utilities furnished to the Premises during Tenant’s early-access period and after substantial completion of Landlord’s Work, as reasonably estimated by Landlord.

33. Term. The Term of this Lease shall commence on she Commencement Date (as defined below) and shall end at 11:59 p.m. on the last day of the Term (the “EXPIRATION DATE”), without the necessity of notice from either party, unless sooner terminated in accordance with the terms hereof. At Landlord’s request, Tenant shall confirm the Commencement Date and Expiration Date by executing a lease commencement certificate in the form attached as Exhibit “B”.

If Tenant elects pursuant to Section 31.3 above to contract for the construction of the Initial Tenant Improvements, then the Commencement Date shall be the later of (i) the date that is 90 days following the date that the base Building is Substantially Completed and access to the Premises is delivered by Landlord to Tenant for Tenant’s construction of the Initial Tenant Improvements as provided in Section 32.1 above, and (ii) December 1, 2000.

If Landlord contracts for the construction of the Initial Tenant Improvements, then the Commencement Date shall be the later of (i) the date that is 45 days following the date that Landlord’s Work (as defined in Section 32.2 above) is Substantially Completed and access to the Premises is delivered by Landlord to Tenant for the installation of Tenant’s trade fixtures, furniture and equipment, and (ii) December 1, 2000.

34. Extension Option. Tenant shall have the right and option to extend the Term of this Lease for two (2) additional extension terms of five (5) years each. Each such option must be exercised, if at all, by giving Landlord prior written notice, at least one year in advance (the “Exercise Deadline”) of the expiration date of the then current lease Term, of Tenant’s election to extend the lease Term; it being agreed that time is of the essence and that this option is personal to Tenant and is non-transferable to any assignee or sub lessee (regardless of whether any such assignment or sublease was made with as without Landlord’s consent) or other party. Except as follows, and subject to the following conditions, each extension Term shall be under the same terms and conditions as provided in the Lease:

     (a) Tenant’s extension option shall be void at Landlord’s option if there exists any event of default by Tenant under this Lease beyond any applicable notice and cure period at the time Tenant exercises an extension option or as of the commencement date of an extension term;

     (b) there shall be no further options to extend the term beyond the second extension term;

     (c) Tenant shall accept the Premises in their “as is” condition, without any obligation on the part of Landlord to provide any tenant improvements or tenant improvement allowance; and

     (d) The Minimum Annual Rent for the extension term will be the “Market Rent” for the Premises as determined and defined pursuant to the provisions of this Section.

36.

     The Market Rent shall be determined as follows: Within 10 business days after Landlord receives timely notice from Tenant exercising Tenant’s extension option, Landlord will give notice to Tenant of its determination of the Market Rent of the Premises, and Landlord’s determination will constitute the Market Rent unless Tenant objects by giving Landlord written notice of objection within 10 business days after Tenant’s receipt of Landlord’s determination. If Tenant so objects, and the parties are unable to agree upon the Market Rear within 30 days after the Tenant’s objection, then by written notice to Landlord within 2 business days thereafter Tenant may request arbitration of the Market Rent under this paragraph. If Tenant does not timely give ouch notice requesting arbitration, Tenant’s exercise of the extension option will be deemed rescinded, and Tenant’s extension option shall be null and void. If arbitration is timely requested by Tenant, the Market Rent will be determined by appraisal within 90 days after Tenant’s request by a board of appraisers consisting of three reputable real estate professionals experienced in the leasing of commercial office/industrial space (each an “Expert”). One Expert will be appointed by Tenant, and the second Expert will be appointed by Landlord. Landlord and Tenant will each appoint their respective Experts within 30 days following Tenant’s arbitration request. The third Expert will be appointed by the first two Experts. If the first two Experts are unable to agree on a third Expert within 10 business days after the appointment of the second Expert, or if either party refuses or neglects to appoint an Expert as herein provided, then the third Expert or the second Expert, whose appointment was not made as provided above, may be appointed by any judge of the Hennepin County District Court. Any Expert appointed by a judge of the Hennepin County District Court shall be a reputable real estate appraiser experienced in appraising the rental value of commercial office space, and shall boa member of the American Institute of Real Estate Appraisers with the designation of “MA I.” The Experts shall be instructed to reach their respective determinations within 45 days of the appointment of the third Expert. If determinations of at least two of the Experts are identical in amount, that amount will be determined to be the Market Rent. lithe determinations of all three Experts are different in amount, the highest appraised value will be averaged with the middle value (that average being referred to as “Sum A”). The lowest appraised value will be averaged with the middle value (that average being referred to as “Sum B”), and the Market Rent will be determined as follows: (i) if neither Sum A nor Sum B differs from the middle appraised value by more than 10% of the middle appraised value, then the Market Rent will be the average of the three appraisals, (ii) if either Sum A or Sum B (but not both) differs from the middle appraised value by more than 10% of the middle appraised value, then the Market Rent will be the average of the middle appraised value and the appraised value closer in amount to the middle appraised value, and (iii) if both Stun A and Sum B differ from the middle appraised value by more than 10% of the middle appraised value, then the Market Rent will be equal to the middle appraised value. Written notice of the Market Rent as duly determined in accordance with this Section shall be promptly given to Landlord and Tenant and will be binding and conclusive on them. Each party will bear its own expenses in connection with the board proceeding (including the Expert appointed by it), and the fees of the third Expert will be borne equally. If, for any reason, the Market Rent has not been determined at the time of the commencement of the extension term, then the Market Rent will be the amount set forth in Landlord’s determination, and if the determination of the Experts as provided above indicates that a lesser or greater amount should have been paid than that which was actually paid, a proper adjustment will be made in a payment from Landlord to Tenant, or Tenant to Landlord, as the case may be.

37.

     For purposes of this Section, “Market Rent” means the net annual rent that a willing tenant would pay, and a willing lessor would accept, in arms-length, bona fide negotiations, if the premises at issue were leased to a single tenant for the period in question under a lease pursuant to which such tenant would not receive any rental concession, such as rental abatements or “free rent” periods or rental assumption, inducements or any leasehold improvement allowance, and otherwise taking into account any other pertinent factors, including, but not limited to, the net effective annual rates per rentable square foot for leases of comparable space in comparable buildings recently or then being entered into in the southwest suburban Minneapolis area (“Comparable Rates”). In determining the Market Rent and using Comparable Rates in connection with such determination, the following factors (and any other factors then known to be pertinent) shall be considered: the size of the Premises; the length of the term; permitted use; quality of services provided; location and/or floor level; definition of rentable area; existing leasehold improvements; leasehold improvements to be provided by the lessor, whether directly or by allowance; the quality, age and location of the building; financial strength of the applicable tenant; rental concessions (such as rental abatements or “free rent” periods and rent assumptions); inducements; the respective obligations of the lessor and the tenant, the manna in which the rents are then subject to escalation and the time the particular rate under consideration became or will become effective. In the event a Comparable Rate used for comparison is a “gross” rate (i.e., the rate includes an allowance for operating expenses or taxes), then such Comparable Rate shall be appropriately adjusted to the end that such rate is net of operating expenses and taxes to the same extent as provided in this Lease, and in the event a Comparable Rate is a “net” rate (i.e. the rate does not include an allowance for operating expenses or taxes), any difference between operating expenses and taxes payable under this Lease and under the lease as to which the Comparable Rate applies shall be taken into account. Upon the timely exercise of an extension option, at the request of either party the parties hereto will enter into an appropriate amendment to the Lease incorporating the terms of the Lease extension.

35. Parking. Landlord shall provide, and Tenant shall be entitled to the use of, not less than 4.5 unreserved parking spaces for each 1,000 rentable square feet of the Premises. Such parking shall be nonexclusive, undesignated and unreserved parking provided as part of the Building’s common area parking facilities, except that Landlord will allow Tenant to designate up to 10 of said parking spaces for the parking of Tenant’s visitors and guests (the location and the signage of such visitor parking being subject to Landlord’s reasonable approval).

36. Expansion Rights.

36.1 Expansion Option. Tenant may elect by written notice to Landlord given on or before April 1, 2000 to expand the Premises by approximately 20,000 rentable square feet (the “Expansion Space”) so as to include in the Premises 100% of the rentable area of the Building,. in such event, all of the terms and conditions of this lease applicable to the original Premises (including, but not limited to, the Tenant Improvement Allowance of 512.00 per rentable square foot (subject to increase under the terms and conditions of the second paragraph of Section 31.4)) shall apply to the Expansion Space; and the Minimum Annual Rent for each lease year as set forth in Section 1(d) shall be increased by an amount equal to the scheduled Minimum Annual Rent per rentable square foot for the original

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Premises multiplied by the rentable square feet in the Expansion Space. If Tenant timely exercises this expansion option, at the request of either party, the parties shall enter into an amendment to this lease adding the Expansion Space to the Premises and incorporating into the schedule of Minimum Annual Rent the rental increase resulting from the increase In the rentable square footage of the Premises, The Tenant Improvement Allowance for the Expansion Space may be used for leasehold improvements constructed in the original Premises as well as for leasehold improvements constructed in the Expansion Space, but it shall not be used for trade fixtures, equipment, furniture or other removable personal property of Tenant.

36.2

First Notice. Tenant acknowledges that Tenant has no rights in and to the Expansion Space other than the rights specified in Section 36.1 above. If, however, Tenant fails to exercise its rights to expand into the Expansion Space as provided above, Landlord will, as a courtesy to Tenant, endeavor to provide Tenant notice at such time Landlord believes that Landlord is close to entering into an initial /ease or commitment to lease the Expansion Space to a third party. Such notice may be given by telephone or other informal means. This provision is not intended to provide Tenant any rights of first offer, first refusal or other rights with respect to the Expansion Space, and Landlord shall have no liability to Tenant if Landlord fails to provide the notice contemplated in this Section 36.2. The provisions of this Section 361 shall only apply to the initial leasing of the Expansion Space, and shall not apply to any subsequent leasing or re-leasing thereof.

37. Landlord’s Environmental Representations.

37.1 Landlord has provided Tenant a copy of the following environmental assessments and reports regarding the Property:

•	Phase I Environmental Site Assessment prepared by LAW ENGINEERING AND ENVTRONMENTAL SERVICES, INC. Dated January 9, 1998, Project 5200-7-1363-02b-916.
•	Phase I Environmental Site Assessment prepared by LAW ENGINEERING AND ENWERONMENTAL SERVICES, INC. Dated January 9, 1998, Project 5200.7-1363-02c-9 16.
Landlord represents to Tenant that the foregoing is a complete list of all studies and reports in Landlord’s possession or under Landlord’s control with respect to hazardous substances or Restricted Activities (as defined in Section 4 of the lease) on or about the Property. Landlord will provide Tenant a copy of any additional or updated environmental assessments obtained by Landlord in connection with its acquisition or development of the Property. Landlord has received no notice from any governmental authority regarding of any inquiry, investigation or proceeding regarding hazardous substances or Restricted Activities on or about the Property,

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37.2

Landlord represents that the base Building will be constructed in compliance, in all material respects, with all applicable environmental Laws and Requirements as applied, enforced and interpreted as of the date the building permit is issued.

37.3

Landlord will protect, indemnify and hold harmless Tenant from and against any and all claims, actions, damages, liability and expense (including fens of attorneys, investigators and experts) arising out of the breach by Landlord of Landlord’s representations in this Section 37. Landlord, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Tenant) designated by Landlord and approved by Tenant. Landlord’s obligations pursuant to this Section shall survive the expiration or termination of this lease.

          IN WITNESS WHEREOF, and in consideration of the mutual entry into this lease and for other good and valuable consideration, and intending to be legally bound, Landlord and Tenant have executed this lease.

	Landlord:
Date signed: December 21, 1999	LIBERTY PROPERTY LIMITED PARTNERSHIP
	By:	Liberty Property Trust, Sole General Partner
		By:	/s/ Robert L. Kiel
			Its: Sr Vice President – Reg Dir
Date signed: December 21, 1999	Tenant:
		CNS, INC.
		By:	/s/ Marti Morfitt
			Its: President and Chief Operating Officer

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41.

EXHIBIT “B”

LEASE COMMENCEMENT CERTIFICATE

     The undersigned, as duly authorized officers and/or representatives of LIBERTY PROPERTY LIMITED PARTNERSHIP (“Landlord”) and                      (“Tenant”), hereby agree as follows with respect to the Lease Agreement (the “Lease”) between them for premises located at                                          (the “Premises”):

1. Date of Lease:                     , 19___

2. Commencement Date:                     , 19___

3. Expiration Date:                     , 19___

4. Rent and Operating Expenses due on or before the Commencement Date for the period from the Commencement Date until the first day of the next calendar month (Not applicable if the Commencement Date is the first day of the calendar month):

Apportioned Minimum Rent:	$
Apportioned Operating Expenses:	$
TOTAL:	$

Thereafter regular monthly payments due in the following amounts until adjusted in accordance with the Lease:

Monthly Rent Installment:	$
Monthly Operating Payment:	$
TOTAL MONTHLY PAYMENT:	$

5. Tenant certifies that, as of the date hereof, (a) the Lease is in full force and effect and has not been amended, (h) Tenant has no offsets or defenses against any provision of the Lease and (c) Landlord has substantially completed any improvements to be performed by Landlord in accordance with the Lease, excepting the Punch List items set forth on the Schedule attached hereto and initialed by Landlord and Tenant, if any.

42.

     IN WITNESS WHEREOF, Landlord and Tenant, intending to be legally bound, have executed this Certificate as of                     , 19___

Landlord:
LIBERTY PROPERTY LIMITED PARTNERSHIP
By:	Liberty Property Trust, Sole General Partner
		By:
			Name:
			Title:
TENANT:
By:
	Name:
	Title:

43.

EXHIBIT “C”

BUILDING RULES

     1. [Intentionally Deleted]

     2. Any sidewalks, lobbies, passages and stairways shall not be obstructed or used by Tenant for any purpose other than ingress and egress from and to the Premises. Landlord shall in all cases retain the right to control or prevent access by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, peace or character of the Property.

     3. The toilet rooms, toilets, urinals, sinks, faucets, plumbing or other service apparatus of any kind shall not be used for any purposes other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith or left in any lobbies, passages, elevators or stairways.

     4. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency, No person shall go on the roof without Landlord’s permission.

     5. Skylights, windows, doors and transoms shall not be covered or obstructed by Tenant, and Tenant shall not install any window covering which would affect the exterior appearance of the Building, except as approved in writing by Landlord. Tenant shall not remove, without Landlord’s prior written consent, any shades, blinds or curtains in the Premises.

     6. Without Landlord’s prior written consent, Tenant shall not hang, install, mount, suspend or attach anything from or to any sprinkler, plumbing, utility or other lines. If Tenant hangs, installs, mounts, suspends or attaches anything from or to any doors, windows, walls, floors or ceilings, Tenant shall spackle and sand all holes and repair any damage caused thereby or by the removal thereof at or prior to the expiration or termination of the lease. If Tenant elects to seal the floor, Tenant shall seal the entire unfinished floor area within the Premises. If Tenant elects to paint all or any portion of the Premises, Tenant, prior to the termination of the lease. shall restore all or such portion(s) of the Premises to the painted or unpainted condition thereof as of the Commencement Date,

     7. Tenant shall not change any locks nor place additional locks upon any doors and shall surrender all keys and passes at the end of the Term.

     8. Tenant shall not use nor keep in the Building any matter having an offensive odor, nor explosive or highly flammable material, nor shall any animals other than seeing eye dogs in the company of their masters be brought into or kept in or about the Premises.

     9. If Tenant desires to introduce electrical, signaling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices, Landlord shall direct where and how the same are to be placed, and except as so directed, no installation boring or cutting shall be permitted. Landlord shall have the right to prevent and to cut off the transmission of excessive or dangerous current of electricity or annoyances into or through the Building or the Premises

44.

and to require the changing of wiring connections or layout at Tenant’s expense, to the extent that Landlord may deem necessary, and further to require compliance with such reasonable rules as Landlord may establish relating thereto, and in the event of non-compliance with the requirements or rules, Landlord shall have the right immediately to cut wiring or to do what it considers necessary to remove the danger, annoyance or electrical interference with apparatus in any part of the Building. All wires installed by Tenant must be clearly tagged at the distributing boards and junction boxes and elsewhere where required by Landlord, with the number of the office to which said wires lead, and the purpose for which the wires respectively arc used, together with the name of the concern, if any, operating same.

     10. Tenant shall not place weights anywhere beyond the safe carrying capacity of the Building.

     11. The use of rooms as sleeping quarters is strictly prohibited at all times.

     12. Tenant shall have the right, at Tenant’s sole risk and responsibility, to use its proportional share of the parking spaces at the Property as reasonably determined by Landlord. Tenant shall comply with all parking regulations promulgated by Landlord from time to time for the orderly use of the vehicle parking areas, including without limitation the following: Parking shall be limited to automobiles, passenger or equivalent vans, motorcycles, light four wheel pickup trucks and (in designated areas) bicycles. No vehicles shall be left m the parking lot overnight. Parked vehicles shall not be used for vending or any other business or other activity while parked in the parking areas. Vehicles shall be parked only in striped parking spaces, except for loading and unloading, which shall occur solely in zones marked for such purpose, and be so conducted as to not unreasonably interfere with traffic flow within the Property or with loading and unloading areas of other tenants. Employee and tenant vehicles shall not be parked in spaces marked for visitor parking or other specific use. All vehicles entering or parking in the parking areas shall do so at owner’s sole risk and Landlord assumes no responsibility for any damage, destruction, vandalism or theft. Tenant shall cooperate with Landlord in any measures implemented by Landlord to control abuse of the parking areas, including without limitation access control programs, tenant and guest vehicle identification programs, and validated parking programs, provided that no such validated parking program shall result in Tenant being charged for spaces to which it has a right to free use under its lease. Each vehicle owner shall promptly respond to any sounding vehicle alarm or horn, and failure to do so may result in temporary or permanent exclusion of such vehicle from the parking areas. Any vehicle which violates the parking regulations may be cited, towed at the expense of the owner, temporarily or permanently excluded from the parking areas, or subject to other lawful consequence.

     13. If Landlord designates the Building as a non-smoking building and provides outdoor smoking area(s), Tenant and its Agents shall not smoke in the Building.

     14. If at Tenant’s request, Landlord consents to Tenant having a dumpster at the Property, Tenant shall locate the dumpster in the area designated by Landlord and shall keep and maintain the dumpster clean and painted with lids and doors in good working order and, at Landlord’s request, locked.

45.

     15. Tenant shall provide Landlord with a written identification of any vendors engaged by Tenant to perform services for Tenant at the Premises (examples: cleaners, security guards/monitors, trash haulers, telecommunications installers/maintenance).

     16. Tenant shall cause all of Tenant’s Agents to comply with these Building Rules.

     17. Landlord reserves the right to rescind, suspend or modify any rules or regulations and to make such other rules and regulations as, in Landlord’s reasonable judgment, may from time to time be needed for the safety, care, maintenance, operation and cleanliness of the Property. Notice of any action by Landlord referred to In this paragraph, given to Tenant, shall have the same force and effect as if originally made a part of the foregoing lease. New rules or regulations will not, however, be unreasonably inconsistent with the proper and rightful enjoyment of the Premises by Tenant under the lease.

     18. These Building Rules arc not intended to give Tenant any rights or claims in the event that Landlord does not enforce any of them against any other tenants or if Landlord does not have the right to enforce them against any other tenants and such nonenforcement will not constitute a waiver as to Tenant.

     19. Tenant shall be deemed to have read these Building Rules and to have agreed to abide by them as a condition to Tenants occupancy of the Premises.

46.

EXHIBIT “D”

TENANT ESTOPPEL CERTIFICATE

     Please refer to the documents described in Schedule 1 hereto, (the “Lease Documents”) including the ‘Lease” therein described; all defined terms in this Certificate shall have the same meanings as set forth in the Lease unless otherwise expressly set forth herein The undersigned Tenant hereby certifies that it is the tenant under the Lease. Tenant hereby further acknowledges that it has been advised that the Lease may be collaterally assigned in connection with a proposed financing secured by the Property and/or may be assigned in connection with a sale of the Property and certifies both to Landlord and to any and all prospective mortgagees and purchasers of the Property, including any trustee on behalf of any holders of notes or other similar instruments, any holders from time to time of such notes or other instruments, and their respective successors and assigns (the “Mortgagees”) that as of the date hereof:

     1. The information set forth in attached Schedule 1 is true and correct.

     2. Tenant is in occupancy of the Premises and the Lease is in full force and effect, and, except by such writings as are identified on Schedule 1, has not been modified, assigned, supplemented or amended since its original execution, nor are there any other agreements between Landlord and Tenant concerning the Premises, whether oral or written.

     3. All conditions and agreements under the Lease to be satisfied or performed by Landlord have been satisfied and performed.

     4. Tenant is not in default under the Lease Documents, Tenant has not received any notice of default under the Lease Documents, and, to Tenant’s knowledge, there are no events which have occurred that, with the giving of notice and/or the passage of time, would result in a default by Tenant under the Lease Documents.

     5. Tenant has not paid any Rent due under the Lease more than 30 days in advance of the date due under the Lease and Tenant has no rights of setoff, counterclaim, concession or other rights of diminution of any Rent due and payable under the Lease except as set forth in Schedule 1.

     6. To Tenant’s knowledge, there arc no uncured defaults on the part of Landlord under the Lease Documents, Tenant has not sent any notice of default under the Lease Documents to Landlord, and there are no events which have occurred that, with the giving of notice and/or the passage of time, would result in a default by Landlord thereunder, and that at the present time Tenant has no claim against Landlord under the Lease Documents.

     7. Except as expressly set forth in Part G of Schedule 1, there arc no provisions for any, and Tenant has no, options with respect to the Premises or all or any portion of the Property.

     8. Except as set forth on Part M of Schedule 1, no action, voluntary or involuntary, is pending against Tenant under federal or state bankruptcy or insolvency law.

47.

     9. The undersigned has the authority to execute and deliver this Certificate on behalf of Tenant and acknowledges that all Mortgagees will rely upon this Certificate in purchasing the Property or extending credit to Landlord or its successors in interest.

     10. This Certificate shall be binding upon the successors, assigns and representatives of Tenant and any party claiming through or under Tenant and shall inure to the benefit of all Mortgagees.

     IN WITNESS WHEREOF, Tenant has executed this Certificate this ___ day of                     , 19___

Name of Tenant

By:

Title:

48.

SCHEDULE 1 TO TENANT ESTOPPEL CERTIFICATE

Lease Documents, Lease Terms and Current Status

A. Date of Lease;

B. Parties:

1.	Landlord:
2.	Tenant d/b/a:

C. Premises known as:

D. Modifications, Assignments, Supplements or Amendments to Lease:

E. Commencement Date:

F. Expiration of Current Term:

G. Options:

H. Security Deposit Paid to Landlord: $

I. Current Fixed Minimum Rent (Annualized): $

J. Current Additional Rent (and if applicable, Percentage Rent)(Annualized): $

K. Current Total Rent: $

L. Square Feet Demised:

M. Tenant’s Bankruptcy or other Insolvency Actions:

49.

50.

51.

EXHIBIT “F”

List of Excluded Operating Expenses

a. Real estate taxes, maintenance and other expenses relating to separately assessed or separately maintained out parcels or other adjacent tracts not reserved for the benefit of the Property.

b. All costs incurred in connection with or directly related to the original construction (as distinguished from operation, maintenance and repair) of the Property Building, Common Areas or any expansion or renovation thereof.

c. Financing and refinancing costs, interest on debt or amortization payments on any mortgage, and rental under any ground or underlying lease.

d. Costs of correcting defects in the design or construction of the Property, Building or Common Areas (including latent defects), and costs of correcting any damage caused by subsidence or adverse or substandard soil conditions.

e. Legal and other fees, leasing commissions, so-called “take-over” or “buy out” obligations, advertising expenses and other costs incurred in connection with the leasing of the project or disputes with tenants.

f. Costs incurred in renovating or otherwise improving or decorating or redecorating space for tenants or other occupants.

g. Expenses related to vacant space, including utility costs, security and renovation.

h. Any items not otherwise excluded to the extent Landlord is reimbursed by insurance (or would have been reimbursed by insurance if Landlord carried the insurance required by this lease) or otherwise compensated, including direct reimbursement by any tenant, less the out-of-pocket cost of collection.

i. Bad debt loss, rent loss or reserves for bad debts or rent loss, or any other reserve for anticipated future expenses.

j. Any item of cost (other than management or administrative fees) which Is otherwise includable in Operating Expenses, but which represents an amount paid to an affiliate of Landlord or an affiliate of any partner or shareholder of Landlord, to the extent the same is in excess of the fair market value of said item or service.

k. Interest or penalties incurred as a result of Landlord’s failure to pay any costs as the same become due, except resulting from the failure of Tenant to rent in a timely manner.

l. Administrative charges or other add-ons to the total of any Operating Expenses, except as expressly permitted in the lease.

52.

m. Any and all costs associated with the operation of the business of the entity which constitutes Landlord (excluded items specifically include, but are not limited to, formation of the entity, internal accounting and legal matters, including but not limited to preparation of tax returns and financial statements and gathering of data therefor, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interests in the Property, costs of any disputes between Landlord and its employees, disputes between Landlord and managers of the shopping center, and disputes between Landlord and tenants or occupants within the Property (including, without limitation, Tenant)).

n. the wages, salaries, bonuses and benefits of all management personnel above the level of any on-site building manager and the costs of preparation and handling of accounts receivable and accounts payable.

o.  All costs, to the extent material, of services, utilities and other benefits supplied for the use of a tenant or occupant in the building in a quantity and/or of a quality in excess of that provided to Tenant.

p. Any expenses incurred as a result of the negligence or intentional misconduct of Landlord or of any other tenant of the Building, or their respective agents, servants, or employees, or arising out of Landlord’s negligent failure to manage the Property consistently with the standards required by this lease.

q. Costs of removal and/or abatement of hazardous or toxic substances, wastes or materials from or within the Property unless required as a result of changes in the Laws and Requirements, fines, penalties, and liens.

r. Any fines, penalties, or interest due to violations by Landlord or any other tenant of the Property or Building of any governmental law, code, rule, or regulation, including, without limitation, the Americans With Disabilities Act, as the same may be amended.

s. Other common area maintenance, operation or repair expenses not considered normal or customary under generally accepted accounting principles or office-warehouse industry standards, unless expressly permitted under this lease.

t. The cost of improvements which must be capitalized under generally accepted accounting principles shall be amortized over the useful life thereof and Operating Expenses shall include only that portion of the amortized cost of such capital improvement or expenditure, including reasonable interest and financing charges thereon, which falls within the Term, including any extension.

53.

54.

4.17.00

FIRST AMENDMENT TO LEASE

     This Amendment (“Amendment’) is made as of the 28 day of April, 2000 by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“LANDLORD”), and CNS, INC., a corporation organized under the laws of                      (“TENANT”).

BACKGROUND:

A	Landlord and Tenant are parties to that certain Lease (the “Lease”) dated January 6, 2000 (executed by Landlord on January 6, 2000 and executed by Tenant on December 21, 1999) with respect to approximately 73,000 rentable square feet in the Building to be constructed by Landlord in Eden Prairie, Minnesota in accordance with the terms and provisions of the Lease.
B	In connection with its site plan review and project approval process, the City of Eden Prairie has required certain modifications to the parking planned for the Building, and, accordingly, Landlord, and Tenant desire to amend the Lease so that the parking ratios and site plan referenced in the lease are consistent with the site plan being submitted to the City for approval.

AGREEMENT:

For good and valuable consideration, Landlord and Tenant hereby agree as follows:

     1. The site plan attached to the Lease as part of Exhibit “E” is hereby replaced with the site plan attached to this Amendment as Attachment “1”.

     2. The first sentence of Section 35 of the Lease (entitled “Parking”) is hereby amended and restated in its entirety as follows: “Landlord shall provide, and Tenant shall be entitled to the use of, not less than 3,8 unreserved parking spaces for each 1,000 rentable square feet of the Premises.”

     3. Except as expressly modified in this Amendment, the Lease remains in full force and effect in accordance with its terms. All capitalized terms used in this Amendment that are not separately defined herein shall have the meaning assigned to them in the Lease.

55.

     Landlord and Tenant have executed this Amendment as of the date set forth in the opening paragraph of this Amendment. This Amendment may be executed and delivered in counterparts. This Amendment may be delivered by facsimile transmission of a signed original.

	Landlord:
Date signed: 4/28/00
	LIBERTY PROPERTY LIMITED PARTNERSHIP
	By:	Liberty Property Trust, Sole General Partner
			By:	/s/ Robert L. Kiel
				Its: Senior Vice President
				Regional Director
	Tenant:
Date signed: 4/26/00	CNS, INC.
	By:	/s/ [Not legible]
		Its: CFO

56.

Attachment “1”

57.

58.

59.

EXHIBIT “B”

Floor Plan of Subleased Premises (excluding parking)

60.

EXHIBIT “C”

Rental Schedule

Base Rent: $438,000 per year

Sublease Term	Monthly Base Rent
See §2(a) and § 3(a) of Sublease (rent payments commencing four (4) months after Sublease Commencement Date)	$	36,500

61.

EXHIBIT “D”

Use of Subleased Premises

SurModics plans to use the warehouse area in the leased space to support the following activities:

• Manufacturing and warehousing of a finished pharmaceutical product utilizing a steroid as the Active Pharmaceutical Ingredient (API), in clinical quantities. This product is an ophthalmic implant. Manufacturing will take place in a modular cleanroom suite placed inside the warehouse, fume hoods with adequate ventilation will be utilized in various locations inside and outside the cleanroom. Manufacturing processes will include solution preparation, spray coating, assembly of components and packaging. These processes will be done in accordance with FDA Current Good Manufacturing Practices to prevent contamination and control exposure of the API and other processing chemicals to the environment and personnel.

• Manufacturing and warehousing of three classes of products that support in-vitro Diagnostic markets. These products are used by our customers as raw materials for test kits that aid in detection of small molecules in the body. None of the products are biohazardous materials. Manufacturing will take place in a modular cleanroom suite placed inside the warehouse, fume hoods with adequate ventilation will be utilized in various locations inside and outside the cleanroom. The processes that manufacture these products are mainly mix and fill operations, where the ingredients of our proprietary formulations are combined in aqueous mixing tanks and then bottled appropriately. The aqueous mixing is not solvent based, but uses purified water as the main ingredient. Only one of the products is manufactured with a solvent (acetone).

• Analytical chemistry equipment, with associated solvents and fume hood ventilation, may be temporarily placed into the warehouse or office spaces.

62.

EXHIBIT “E”

Fixtures

Office Equipment
Aren Chairs		90
File Cabinets		75
Cubes		90
Credenza		8
	Chairs		Tables
Bryant		4		1
Calhoun		8		1
Gull		4		1
Harriet		4		1
Hiawatha		4		1
Itasca		6		1
Minnetonka		12		1
Nokomis		6		1
Pepin		4		1
Phalen		4		1
Smetana		14		1
Sturgeon		12		1
Superior		6		1
Vermillion		4		1
Winchester		6		1

All current equipment in fitness room

63.

EXHIBIT “F”

BILL OF SALE

     This BILL OF SALE is effective as of                     , 2010 by and between SMITHKLINE BEECHAM CORPORATION d/b/a GLAXOSMITHKLINE, a Pennsylvania corporation, having an address of                      (“Seller”) and SURMODICS, INC., a Minnesota corporation with an address at                      (“Buyer”).

RECITALS

     WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller certain furniture, fixtures and equipment listed on the attached Exhibit A (the “Fixtures”), which Fixtures are located in the building located at 7615 Smetana Lane, Eden Prairie, Minnesota, in which building Buyer has subleased from Seller pursuant to a Sublease Agreement dated                     , 2007; and

     WHEREAS, Seller is providing Buyer with this Bill of Sale, evidencing Seller’s conveyance to Buyer of the Fixtures.

     NOW, THEREFORE, in consideration of the receipt of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

     1. Conveyance. Seller does hereby sell, transfer, convey, assign and deliver to Buyer and its successors and assigns, forever, Seller’s respective rights, title and interest in the Fixtures.

     2. Successors and Assigns. Seller and its successors and assigns covenant and agree that it and they will execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such other and further instruments and will take such other actions, or cause such other actions to be taken to carry out more effectively the intents and purposes of this Bill of Sale. This Bill of Sale shall bind and inure to the benefit of Buyer and its successors and assigns.

     3. Governing Law. This Bill of Sale shall be governed and construed in accordance with the laws of Minnesota.

64.

     IN WITNESS WHEREOF, Seller and Buyer caused this Bill of Sale to be executed on the date first written above.

SELLER:

SMITHKLINE BEECHAM CORPORATION d/b/a/ GLAXOSMITHKLINE

By:

Name:

Title:

BUYER:

SURMODICS, INC.

By:

Name:

Title:

65.

EXHIBIT “G”

Sublessee’s Improvements

66.

EXHIBIT “H”

Sublessee’s Signage

1.

Exhibit B

2.

Exhibit C

Smentana Conference Room Furniture	Table
	14 Chairs
	Sofa
	Projector/remotes
Lobby Furniture
	7 Chairs
	1 bench
	1 table
	Area Rug
Shelving — All in storage rooms
Dishwashers
20 Lockers and Bench
8 locker room lockers

1.

EX-10.17

Exhibit 10.17

LEASE AGREEMENT

LIBERTY PROPERTY LIMITED PARTNERSHIP
Landlord

AND

COMPELLENT TECHNOLOGIES, INC.
Tenant

AT

Lake Smetana Business Center
7615 Smetana Lane
Eden Prairie, Minnesota

LEASE AGREEMENT

INDEX

§ Section	Page
1. Basic Lease Terms and Definitions	1
2. Premises	2
3. Use	2
4. Term; Possession	2
5. Rent	2
6. Operating Expenses	2
7. Services; Utilities	3
8. Insurance; Waivers; Indemnification	3
9. Maintenance and Repairs	4
10. Compliance	4
11. Signs	5
12. Alterations	5
13. Mechanics’ Liens	5
14. Right of Entry	5
15. Damage by Fire or Other Casualty	6
16. Condemnation	6
17. Quiet Enjoyment	6
18. Assignment and Subletting	6
19. Subordination; Mortgagee’s Rights	7
20. Tenant’s Certificate; Financial Information	7
21. Surrender	7
22. Defaults — Remedies	8
23. Tenant’s Authority	9
24. Liability of Landlord	9
25. Miscellaneous	9
26. Notices	10
27. Security Deposit	10
28. Parking	10
29. Satellite Dish Antenna	10
30. Extension Option	10
31. Right of First Offer	12

i

          THIS LEASE AGREEMENT is made by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (“Landlord”) and COMPELLENT TECHNOLOGIES, INC., a corporation organized under the laws of Delaware (“Tenant”), and is dated as of the date on which this Lease has been fully executed by Landlord and Tenant.

1. Basic Lease Terms and Definitions.

(a)	Premises: As shown on Exhibit “A”, consisting of approximately 73,000 rentable square feet.
(b)	Building: Approximately 93,444 rentable square feet Address: 7615 Smetana Lane, Eden Prairie, Minnesota 55344
(c)	Term: 39 months.
(d)	Commencement Date: December 1, 2010.
(e)	Expiration Date: The last day of the Term.
(f)	Minimum Annual Rent: Payable in monthly installments as follows:

Months	Rent PSF			Annual			Monthly
1-12*	$	8.00	*	$	584,000.04	*	$	48,666.67	*
13-24		8.24			601,520.04			50,126.67
25-36		8.49			619,770.00			51,647.50
37-39		8.74			638,019.96			53,168.33

* The foregoing notwithstanding Minimum Annual Rent, but not Operating Expense payments, shall be abated for the first 2 months of the Term. Should this Lease or Tenant’s right to possess the Premises be terminated on account of a Tenant default, Landlord shall be entitled to recover from Tenant (in addition to all other rights and remedies available to Landlord) all abated Minimum Annual Rent. Landlord’s management fee shall not be reduced on account of the abatement in Minimum Annual Rent, and the Minimum Annual Rent abatement shall be disregarded for purposes of calculating any management fee based on a percentage of rental revenues.

(g)	Annual Operating Expenses: $378,140.04, payable in monthly installments of $31,511.67, subject to adjustment as provided in this Lease.
(h)	Tenant’s Share: 78.12% (also see Definitions)
(i)	Use: General office and warehouse, provided that the office space shall not exceed that permitted by applicable zoning.
(j)	Security Deposit: None
(k)	Addresses For Notices:

Landlord: Liberty Property Limited Partnership
10400 Viking Drive, Suite 130
Eden Prairie, MN 55344
Attention: Vice President/City Manager Tenant: Compellent Technologies, Inc.
7625 Smetana Lane
Eden Prairie, MN 55344

(l)	Guarantor: N/A
(m)	Additional Defined Terms: See Rider 1 for the definitions of other capitalized terms.
(n)	Contents: The following are attached to and made a part of this Lease:

Rider 1 – Additional Definitions	Exhibits:	“A” – Plan showing Premises
		“B” – Building Rules
		“C” – Estoppel Certificate Form

1.

2. Premises. Landlord leases to Tenant and Tenant leases from Landlord the Premises, together with the right in common with others to use the Common Areas. Tenant accepts the Premises, Building and Common Areas “AS IS”, without relying on any representation, covenant or warranty by Landlord other than as expressly set forth in this Lease. Landlord and Tenant (a) acknowledge that all square foot measurements are approximate and (b) stipulate and agree to the rentable square footages set forth in Sections 1(a) and (b) above for all purposes with respect to this Lease.

3. Use. Tenant shall occupy and use the Premises only for the Use specified in Section 1 above. Tenant shall not permit any conduct or condition which may endanger, disturb or otherwise interfere with any other Building occupant’s normal operations or with the management of the Building. Tenant shall not use or permit the use of any portion of the Property for outdoor storage or installations outside of the Premises. Tenant may use all Common Areas only for their intended purposes. Landlord shall have the right to control all Common areas at all times.

4. Term; Possession. The Term of this Lease shall commence on the Commencement Date and shall end on the Expiration Date, unless sooner terminated in accordance with this Lease. If Landlord is delayed in delivering possession of all or any portion of the Premises to Tenant as of the Commencement Date, Tenant will take possession on the date Landlord delivers possession, which date will then become the Commencement Date (and the Expiration Date will be extended so that the length of the Term remains unaffected by such delay). Landlord shall not be liable for any loss or damage to Tenant resulting from any delay in delivering possession due to circumstances outside of Landlord’s reasonable control.

5. Rent. Tenant agrees to pay to Landlord, without demand, deduction or offset, Minimum Annual Rent and Annual Operating Expenses for the Term. Tenant shall pay the Monthly Rent, in advance, on the first day of each calendar month during the Term, at Landlord’s address designated in Section 1 above unless Landlord designates otherwise; provided that Monthly Rent for the first full month shall be paid at the signing of this Lease. If the Commencement Date is not the first day of the month, the Monthly Rent for that partial month shall be apportioned on a per diem basis and shall be paid on or before the Commencement Date. Tenant shall pay Landlord a service and handling charge equal to 5% of any Rent not paid within 5 days after the date due. In addition, any Rent, including such charge, not paid within 5 days after the due date will bear interest at the Interest Rate from the date due to the date paid. If any taxes, special assessments, fees or other charges are imposed against Landlord by any authority with respect to the Rent, Tenant will pay these amounts to Landlord when due.

6. Operating Expenses. The amount of the Annual Operating Expenses set forth in Section 1(g) above represents Tenant’s Share of the estimated Operating Expenses for the calendar year in which the Term commences. Landlord may adjust such amount from time to time if the estimated Annual Operating Expenses increase or decrease; Landlord may also invoice Tenant separately from time to time for Tenant’s Share of any extraordinary or unanticipated Operating Expenses. By April 30^th of each year (and as soon as practical after the expiration or termination of this Lease or, at Landlord’s option, after a sale of the Property), Landlord shall provide Tenant with a statement of Operating Expenses for the preceding calendar year or part thereof. Within 30 days after delivery of the statement to Tenant, Landlord or Tenant shall pay to the other the amount of any overpayment or deficiency then due from one to the other or, at Landlord’s option, Landlord may credit Tenant’s account for any overpayment. If Tenant does not give Landlord notice within 60 days after receiving Landlord’s statement that Tenant disagrees with the statement and specifying the items and amounts in dispute, Tenant shall be deemed to have waived the right to contest the statement. During the period that is 60 days following Tenant’s receipt of Landlord’s annual reconciliation statement, Tenant shall be entitled at any reasonable time during regular business hours, after giving to Landlord at least 5 business days prior written notice, to inspect in Landlord’s business office all Landlord’s records necessary to satisfy itself that all charges have been correctly allocated to Tenant for the calendar year immediately preceding the year during which such notice is given, and to obtain an audit thereof by an independent certified public accountant (selected by Tenant with Landlord’s written consent, which shall not be withheld unreasonably) to determine the accuracy of Landlord’s certification of the amount of Operating Expenses charged Tenant, provided, however, that Tenant shall make all payments of Operating Expenses without delay, and that Tenant’s obligation to pay such Operating Expenses shall not be contingent on any such right. Tenant shall be deemed to have waived its right to contest any component of Operating Expenses to which it does not object (which objection must contain reasonable supporting detail) within said 60 day period; provided, however, that if Tenant’s audit discloses errors in Landlord’s determination of Operating Expenses, Tenant may review or audit the particular item or items subject to the error for the two (2) previous years. If following the audit it is determined that Tenant’s liability for Operating Expenses for any calendar year is less than ninety-five percent (95%) of that amount which Landlord previously certified to Tenant for such calendar year, Landlord shall pay to Tenant the cost of such audit (provided, however, that Landlord shall not be required to pay the cost of any audit based on a contingency fee or percentage of the amount recovered for Tenant) and regardless of such percentage Landlord shall refund promptly to Tenant the amount of the Operating Expenses paid by Tenant for such calendar year which exceeds the amount for which Tenant actually is liable, as determined following such audit (nothing herein shall be deemed to prevent Landlord from disputing the results of any audit conducted on behalf of Tenant). If the audit determines that Tenant’s liability for Operating Expenses is more than the amount which Landlord previously certified to Tenant for such calendar year, Tenant shall promptly pay to Landlord (net of the cost to Tenant of the audit) the amount of the Operating Expenses underpaid by Tenant, as determined following such audit. Except as provided above, Tenant shall bear the total cost of any inspection or audit performed by or for Tenant. Tenant shall keep, and shall cause Tenant’s auditor to keep, the results of such audit or inspection

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confidential. Landlord’s and Tenant’s obligation to pay any overpayment or deficiency due the other pursuant to this Section shall survive the expiration or termination of this Lease. Notwithstanding any other provision of this Lease to the contrary, Landlord may, in its reasonable discretion, determine from time to time the method of computing and allocating Operating Expenses, including the method of allocating Operating Expenses to various types of space within the Building to reflect any disparate levels of services provided to different types of space.

Tenant shall not initiate any action to reduce or contest real estate taxes on the Property. However, Landlord agrees to initiate such an action upon Landlord’s reasonable determination that the assessor has overvalued the Property, and that a contest is likely to be successful. If Tenant so requests, Landlord agrees to consult with and cooperate with Tenant in evaluating the merits of initiating a tax contest.

Landlord will, at the request of Tenant, consult with Tenant regarding the level of services to be provided by Landlord and standard of maintenance to be observed by Landlord with a view toward managing and controlling Operating Expenses in a reasonable and prudent manner consistent with the standards observed with respect to comparable buildings in the southwest suburban submarket of the Minneapolis/St. Paul metropolitan area. In no event shall Landlord be obligated to reduce standards of maintenance below those appropriate and necessary to maintain the Property in good condition and repair, consistent with the maintenance standards prevailing among comparable buildings.

7. Services; Utilities. Tenant shall pay for water, sewer, gas, electricity, heating, ventilation and air conditioning and any other utilities or services supplied to the Premises. Except to the extent Landlord elects to provide any such services and invoice Tenant for the cost or include the cost in Operating Expenses, Tenant shall obtain service in its own name and timely pay all charges directly to the provider. If Tenant requests, and if Landlord is able to furnish, services in addition to those identified above, Tenant shall pay Landlord’s reasonable charge for such supplemental services. Landlord shall not be responsible or liable for any interruption in such services, nor shall such interruption affect the continuation or validity of this Lease. Landlord shall have the exclusive right to select, and to change, the companies providing the foregoing services to the Building or Premises. Tenant will directly contract with the service provider for trash removal, janitorial services and telecommunications services. The companies providing these services to Tenant shall be subject to Landlord’s reasonable approval, which approval shall not be unreasonably withheld. Any wiring, cabling or other equipment necessary to connect Tenant’s telecommunications equipment shall be Tenant’s responsibility, and shall be installed in a manner approved by Landlord, which approval shall not be unreasonably withheld. In the event Tenant’s consumption of any utility or other service included in Operating Expenses is excessive when compared with other occupants of the Property, Landlord may invoice Tenant separately for, and Tenant shall pay on demand, the cost of Tenant’s excessive consumption, as reasonably determined by Landlord.

8. Insurance; Waivers; Indemnification.

     (a) Landlord shall maintain insurance against loss or damage to the Building or the Property with coverage for perils as set forth under the “Causes of Loss-Special Form” or equivalent property insurance policy in an amount equal to the full insurable replacement cost of the Building (excluding coverage of Tenant’s personal property and any Alterations by Tenant), and such other insurance, including rent loss coverage, as Landlord may reasonably deem appropriate or as any Mortgagee may require.

     (b) Tenant, at its expense, shall keep in effect commercial general liability insurance, including blanket contractual liability insurance, covering Tenant’s use of the Property, with such coverages and limits of liability as Landlord may reasonably require, but not less than a $1,000,000 combined single limit with a $3,000,000 general aggregate limit (which general aggregate limit may be satisfied by an umbrella liability policy) for bodily injury or property damage; however, such limits shall not limit Tenant’s liability hereunder. The policy shall name Landlord, Liberty Property Trust and any other associated or affiliated entity as their interests may appear and at Landlord’s request, any Mortgagee(s), as additional insureds, shall be written on an “occurrence” basis and not on a “claims made” basis and shall be endorsed to provide that it is primary to and not contributory to any policies carried by Landlord and to provide that it shall not be cancelable or reduced without at least 30 days prior notice to Landlord. The insurer shall be authorized to issue such insurance, licensed to do business and admitted in the state in which the Property is located and rated at least A VII in the most current edition of Best’s Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date or any earlier date on which Tenant accesses the Premises, and at least 30 days prior to the date of each policy renewal, a certificate of insurance evidencing such coverage.

     (c) Landlord and Tenant each waive, and release each other from and against, all claims for recovery against the other for any loss or damage to the property of such party arising out of fire or other casualty coverable by a standard “Causes of Loss-Special Form” property insurance policy with, in the case of Tenant, such endorsements and additional coverages as are considered good business practice in Tenant’s business, even if such loss or damage shall be brought about by the fault or negligence of the other party or its Agents; provided, however, such waiver by Landlord shall not be effective with respect to Tenant’s liability described in Sections 9(b) and 10(d) below. This waiver and release is effective regardless of whether the releasing party actually maintains the insurance described above in this subsection and is not limited to the amount of insurance

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actually carried, or to the actual proceeds received after a loss. Each party shall have its insurance company that issues its property coverage waive any rights of subrogation, and shall have the insurance company include an endorsement acknowledging this waiver, if necessary. Tenant assumes all risk of damage of Tenant’s property within the Property, including any loss or damage caused by water leakage, fire, windstorm, explosion, theft, act of any other tenant, or other cause.

     (d) Tenant shall not be permitted to satisfy any of its insurance obligations set forth in this Lease through any self-insurance or self-insured retention in excess of $25,000.

     (e) Subject to subsection (c) above, and except to the extent caused by the negligence or willful misconduct of Landlord or its Agents, Tenant will indemnify, defend, and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liability and expense (including fees of attorneys, investigators and experts) which may be asserted against, imposed upon, or incurred by Landlord or its Agents and arising out of or in connection with loss of life, personal injury or damage to property in or about the Premises or arising out of the occupancy or use of the Property by Tenant or its Agents or occasioned wholly or in part by any act or omission of Tenant or its Agents, whether prior to, during or after the Term. Tenant’s obligations pursuant to this subsection shall survive the expiration or termination of this Lease. Subject to subsection (c) above, and except to the extent caused by the negligence or willful misconduct of Tenant or its Agents, Landlord will indemnify, defend, and hold harmless Tenant from and against any and all claims, actions, damages, liability and expense (including reasonable fees of attorneys) which may be asserted against, imposed upon, or incurred by Tenant and arising out of or in connection with loss of life, personal injury or damage to property in or about the Property to the extent occasioned wholly or in part by any negligence or willful misconduct of Landlord or its Agents, whether prior to, during or after the Term. Landlord’s obligations pursuant to this subsection shall survive the expiration or termination of this Lease.

9. Maintenance and Repairs.

     (a) Landlord shall Maintain the Building, including the Premises, the Common Areas, the Building Systems and any other improvements owned by Landlord located on the Property. If Tenant becomes aware of any condition that is Landlord’s responsibility to repair, Tenant shall promptly notify Landlord of the condition. The foregoing notwithstanding, at Landlord’s option Tenant shall be solely responsible for the Maintenance of any HVAC unit and related equipment serving any computer, server, or similar specialized space within the Premises. In such event, Tenant shall enter into a maintenance contract reasonably acceptable to Landlord with a vendor reasonably acceptable to Landlord. Landlord shall not be liable for any loss or damage to Tenant resulting from any interruption in such service.

     (b) Tenant at its sole expense shall keep the Premises in a neat and orderly condition. Tenant is responsible at Tenant’s expense to provide trash removal and janitorial services in and to the Premises. Tenant shall ensure that its janitorial service provider shall clean and maintain the Premises to the standards prevailing for comparable buildings in the southwest suburban Minneapolis market. Tenant’s janitorial service provider shall comply with Landlord’s standard vendor insurance requirements, and provide Landlord a certificate of insurance evidencing the same. Alterations, repairs and replacements to the Property, including the Premises, made necessary because of Tenant’s Alterations or installations, any use or circumstances special or particular to Tenant, or any act or omission of Tenant or its Agents shall be made at the sole expense of Tenant to the extent not covered by any applicable insurance proceeds paid to Landlord.

10. Compliance.

     (a) Tenant will, at its expense, promptly comply with all Laws now or subsequently pertaining to the Premises or Tenant’s use or occupancy. Tenant will pay any taxes or other charges by any authority on Tenant’s property or trade fixtures or relating to Tenant’s use of the Premises. Neither Tenant nor its Agents shall use the Premises in any manner that under any Law would require Landlord to make any Alteration to or in the Building or Common Areas (without limiting the foregoing, Tenant shall not use the Premises in any manner that would cause the Premises or the Property to be deemed a “place of public accommodation” under the ADA if such use would require any such Alteration). Tenant shall be responsible for compliance with the ADA, and any other Laws regarding accessibility, with respect to the Premises.

     (b) Tenant will comply, and will cause its Agents to comply, with the Building Rules.

     (c) Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord’s insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. If any breach of the preceding sentence by Tenant causes the rate of fire or other insurance to be increased, Tenant shall pay the amount of such increase as additional Rent within 30 days after being billed.

     (d) Tenant agrees that (i) no activity will be conducted on the Premises that will use or produce any Hazardous Materials, except for activities which are part of the ordinary course of Tenant’s business and are conducted in accordance with all Environmental Laws (“Permitted Activities”); (ii) the Premises will not be used for storage of any Hazardous Materials,

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except for materials used in the Permitted Activities which are properly stored in a manner and location complying with all Environmental Laws; (iii) no portion of the Premises or Property will be used by Tenant or Tenant’s Agents for disposal of Hazardous Materials; (iv) Tenant will deliver to Landlord copies of all Material Safety Data Sheets and other written information prepared by manufacturers, importers or suppliers of any chemical; and (v) Tenant will immediately notify Landlord of any violation by Tenant or Tenant’s Agents of any Environmental Laws or the release or suspected release of Hazardous Materials in, under or about the Premises, and Tenant shall immediately deliver to Landlord a copy of any notice, filing or permit sent or received by Tenant with respect to the foregoing. If at any time during or after the Term, any portion of the Property is found to be contaminated by Tenant or Tenant’s Agents or subject to conditions prohibited in this Lease caused by Tenant or Tenant’s Agents, Tenant will indemnify, defend and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, attorneys’ fees, damages and obligations of any nature arising from or as a result thereof, and Landlord shall have the right to direct remediation activities, all of which shall be performed at Tenant’s cost. Tenant’s obligations pursuant to this subsection shall survive the expiration or termination of this Lease.

11. Signs. Except as expressly permitted in this Section, Tenant shall not place any signs on the Property without the prior consent of Landlord, other than signs that are located wholly within the interior of the Premises and not visible from the exterior of the Premises. Tenant may install signage on the exterior of the Building and on the Building monument sign. The design, size and location of Tenant’s signage shall be consistent with Landlord’s sign criteria and otherwise subject to Landlord’s approval, which approval shall not be unreasonably withheld. All Tenant signage shall be installed and maintained at Tenant’s sole cost and expense and must comply with all Laws. Tenant shall maintain all signs installed by Tenant in good condition. Tenant shall remove its signs at the termination of this Lease, shall repair any resulting damage, and shall restore the Property to its condition existing prior to the installation of Tenant’s signs.

12. Alterations. Except for non-structural Alterations that (i) do not exceed $25,000 in the aggregate, (ii) are not visible from the exterior of the Premises, (iii) do not affect any Building System or the structural strength of the Building, (iv) do not require penetrations into the floor, ceiling or walls, and (v) do not require work within the walls, below the floor or above the ceiling, Tenant shall not make or permit any Alterations in or to the Premises without first obtaining Landlord’s consent, which consent shall not be unreasonably withheld. With respect to any Alterations made by or on behalf of Tenant (whether or not the Alteration requires Landlord’s consent): (i) not less than 10 days prior to commencing any Alteration, Tenant shall deliver to Landlord the plans, specifications and necessary permits for the Alteration, together with certificates evidencing that Tenant’s contractors and subcontractors have adequate insurance coverage naming Landlord, Liberty Property Trust and any other associated or affiliated entity as their interests may appear as additional insureds, (ii) Tenant shall obtain Landlord’s prior written approval of any contractor or subcontractor, (iii) the Alteration shall be constructed with new materials, in a good and workmanlike manner, and in compliance with all Laws and the plans and specifications delivered to, and, if required above, approved by Landlord, (iv) Tenant shall pay Landlord all reasonable out-of-pocket costs and expenses incurred to third party engineers or architects in connection with Landlord’s review of Tenant’s plans and specifications, and of any supervision or inspection of the construction Landlord deems necessary, and (v) upon Landlord’s request Tenant shall, prior to commencing any Alteration, provide Landlord reasonable security against liens arising out of such construction. Any Alteration by Tenant shall be the property of Tenant until the expiration or termination of this Lease; at that time without payment by Landlord the Alteration shall remain on the Property and become the property of Landlord unless Landlord gives notice to Tenant to remove it, in which event Tenant will remove it, will repair any resulting damage and will restore the Premises to the condition existing prior to Tenant’s Alteration. At Tenant’s request prior to Tenant making any Alterations, Landlord will notify Tenant whether Tenant is required to remove the Alterations at the expiration or termination of this Lease. Tenant may install its trade fixtures, furniture and equipment in the Premises, provided that the installation and removal of them will not affect any structural portion of the Property, any Building System or any other equipment or facilities serving the Building or any occupant.

13. Mechanics’ Liens. Tenant promptly shall pay for any labor, services, materials, supplies or equipment furnished to Tenant in or about the Premises. Tenant shall keep the Premises and the Property free from any liens arising out of any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to Tenant. Tenant shall take all steps permitted by law in order to avoid the imposition of any such lien. Should any such lien or notice of such lien be filed against the Premises or the Property, Tenant shall discharge the same by bonding or otherwise within 15 days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim.

14. Right of Entry. Tenant shall permit Landlord and its Agents to enter the Premises at all reasonable times following reasonable notice (except in an emergency) to inspect, Maintain, or make Alterations to the Premises or Property, to exhibit the Premises for the purpose of sale or financing, and, during the last 12 months of the Term, to exhibit the Premises to any prospective tenant (Landlord will provide Tenant not less than 24 hours notice prior to any showings). Landlord will make reasonable efforts not to inconvenience Tenant in exercising such rights, but Landlord shall not be liable for any interference with Tenant’s occupancy resulting from Landlord’s entry. Notices under this Section may be given by telephone or other informal means.

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15. Damage by Fire or Other Casualty. If the Premises or Common Areas shall be damaged or destroyed by fire or other casualty, Tenant shall promptly notify Landlord, and Landlord, subject to the conditions set forth in this Section, shall repair such damage and restore the Premises or Common Areas to substantially the same condition in which they were immediately prior to such damage or destruction, but not including the repair, restoration or replacement of the fixtures, equipment, or Alterations installed by or on behalf of Tenant. Landlord shall notify Tenant, within 30 days after the date of the casualty, if Landlord anticipates that the restoration will take more than 180 days from the date of the casualty to complete; in such event, either Landlord or Tenant (unless the damage was caused by Tenant) may terminate this Lease effective as of the date of casualty by giving notice to the other within 10 days after Landlord’s notice. If a casualty occurs during the last 12 months of the Term, Landlord may terminate this Lease unless Tenant has the right to extend the Term for at least 3 more years and does so within 30 days after the date of the casualty. Moreover, Landlord may terminate this Lease if the loss is not covered by the insurance required to be maintained by Landlord under this Lease. Tenant will receive an abatement of Minimum Annual Rent and Annual Operating Expenses to the extent the Premises are rendered untenantable as a result of the casualty.

16. Condemnation. If (a) all of the Premises are Taken, (b) any part of the Premises is Taken and the remainder is insufficient in Landlord’s and Tenant’s opinion for the reasonable operation of Tenant’s business, or (c) any of the Property is Taken, and, in Landlord’s opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder, then this Lease shall terminate as of the date the condemning authority takes possession. If this Lease is not terminated, Landlord shall restore the Building to a condition as near as reasonably possible to the condition prior to the Taking, the Minimum Annual Rent shall be abated for the period of time all or a part of the Premises is untenantable in proportion to the square foot area untenantable, and this Lease shall be amended appropriately. The compensation awarded for a Taking shall belong to Landlord. Except for any relocation benefits to which Tenant may be entitled, Tenant hereby assigns all claims against the condemning authority to Landlord, including, but not limited to, any claim relating to Tenant’s leasehold estate.

17. Quiet Enjoyment. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this Lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the terms of this Lease.

18. Assignment and Subletting.

     (a) Except as provided in Section (b) below, Tenant shall not enter into nor permit any Transfer voluntarily or by operation of law, without the prior consent of Landlord, which consent shall not be unreasonably withheld. Without limitation, Tenant agrees that Landlord’s consent shall not be considered unreasonably withheld if (i) the business, business reputation, or creditworthiness of the proposed transferee is unacceptable to Landlord in Landlord’s reasonable discretion, (ii) Landlord or an affiliate of Landlord has comparable space available for lease by the proposed transferee or (iii) Tenant is in default under this Lease beyond any applicable cure period or any act or omission has occurred which would constitute a default with the giving of notice and/or the passage of time. A consent to one Transfer shall not be deemed to be a consent to any subsequent Transfer. In no event shall any Transfer relieve Tenant from any obligation under this Lease. Landlord’s acceptance of Rent from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer. Any Transfer not in conformity with this Section 18 shall be void at the option of Landlord.

     (b) Landlord’s consent shall not be required in the event of any Transfer by Tenant to an Affiliate provided that (i) the Affiliate has a tangible net worth at least equal to that of Tenant as of the date of this Lease, (ii) Tenant provides Landlord notice of the Transfer at least 5 business days prior to the effective date, together with current financial statements of the Affiliate Certified by an executive officer of the Affiliate, and (iii) in the case of an assignment or sublease, Tenant delivers to Landlord an assumption agreement reasonably acceptable to Landlord executed by Tenant and the Affiliate, together with a certificate of insurance evidencing the Affiliate’s compliance with the insurance requirements of Tenant under this Lease.

     (c) The provisions of subsection (a) above notwithstanding, if Tenant proposes to Transfer all of the Premises (other than to an Affiliate), Landlord may terminate this Lease, either conditioned on execution of a new lease between Landlord and the proposed transferee or without that condition. If Tenant proposes to enter into a Transfer of less than all of the Premises (other than to an Affiliate), Landlord may amend this Lease to remove the portion of the Premises to be transferred, either conditioned on execution of a new lease between Landlord and the proposed transferee or without that condition. If this Lease is not so terminated or amended, Tenant shall pay to Landlord, immediately upon receipt, 50% of the excess of (i) all compensation received by Tenant for the Transfer (net of all reasonable leasing costs incurred by Tenant in connection with such assignment or subletting, including, but not limited to, marketing costs, attorneys’ fees, leasing commissions, leasehold improvements and tenant inducements) over (ii) the Rent allocable to the Premises transferred.

     (d) If Tenant requests Landlord’s consent to a Transfer, Tenant shall provide Landlord, at least 10 business days prior to the proposed Transfer, current financial statements of the transferee certified by an executive officer of the transferee, a complete copy of the proposed Transfer documents, and any other information Landlord reasonably requests. Immediately following any approved assignment or sublease, Tenant shall deliver to Landlord an assumption agreement reasonably acceptable

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to Landlord executed by Tenant and the transferee, together with a certificate of insurance evidencing the transferee’s compliance with the insurance requirements of Tenant under this Lease. Tenant agrees to reimburse Landlord for reasonable attorneys’ fees in connection with the documentation of any Transfer for which Landlord’s consent is requested.

19. Subordination; Mortgagee’s Rights.

     (a) Tenant accepts this Lease subject and subordinate to any Mortgage now or in the future affecting the Premises, provided that Tenant’s right of possession of the Premises shall not be disturbed by the Mortgagee so long as Tenant is not in default under this Lease. This clause shall be self-operative, but within 10 days after request, Tenant shall execute and deliver any further instruments confirming the subordination of this Lease and any further instruments of attornment that the Mortgagee may reasonably request. However, any Mortgagee may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by giving notice to Tenant, and this Lease shall then be deemed prior to such Mortgage without regard to their respective dates of execution and delivery; provided that such subordination shall not affect any Mortgagee’s rights with respect to condemnation awards, casualty insurance proceeds, intervening liens or any right which shall arise between the recording of such Mortgage and the execution of this Lease.

     (b) No Mortgagee shall be (i) liable for any act or omission of a prior landlord, (ii) subject to any rental offsets or defenses against a prior landlord, (iii) bound by any amendment of this Lease made without its written consent, or (iv) bound by payment of Monthly Rent more than one month in advance or liable for any other funds paid by Tenant to Landlord unless such funds actually have been transferred to the Mortgagee by Landlord.

     (c) The provisions of Sections 15 and 16 above notwithstanding, Landlord’s obligation to restore the Premises after a casualty or condemnation shall be subject to the consent and prior rights of any Mortgagee.

20. Tenant’s Certificate; Financial Information. Within 10 days after Landlord’s request from time to time, (a) Tenant shall execute, acknowledge and deliver to Landlord, for the benefit of Landlord, Mortgagee, any prospective Mortgagee, and any prospective purchaser of Landlord’s interest in the Property, an estoppel certificate in the form of attached Exhibit “C” (or other form requested by Landlord), modified as necessary to accurately state the facts represented, and (b) Tenant shall furnish to Landlord, Landlord’s Mortgagee, prospective Mortgagee and/or prospective purchaser reasonably requested financial information.

21. Surrender.

     (a) On the date on which this Lease expires or terminates, Tenant shall return possession of the Premises to Landlord in good condition, except for ordinary wear and tear, and except for casualty damage or other conditions that Tenant is not required to remedy under this Lease. Prior to the expiration or termination of this Lease, Tenant shall remove from the Property all furniture, trade fixtures, equipment, non-electrical wiring and cabling (unless Landlord directs Tenant otherwise), and all other personal property installed by Tenant or its assignees or subtenants. Tenant shall repair any damage resulting from such removal and shall restore the Property to good order and condition. Any of Tenant’s personal property not removed as required shall be deemed abandoned, and Landlord, at Tenant’s expense, may remove, store, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property or sale proceeds as its property. If Tenant does not return possession of the Premises to Landlord in the condition required under this Lease, Tenant shall pay Landlord all resulting damages Landlord may suffer. At Tenant’s request, Landlord will do a walkthrough of the Premises with Tenant approximately 30 days prior to the expiration of the Lease in order to identify (i) the items that Tenant is required to remove and (ii) Tenant’s repair and restoration obligations.

     (b) If Tenant remains in possession of the Premises after the expiration or termination of this Lease, Tenant’s occupancy of the Premises shall be that of a tenancy at will. Tenant’s occupancy during any holdover period shall otherwise be subject to the provisions of this Lease (unless clearly inapplicable), except that the Monthly Rent shall be 150% of the Monthly Rent payable for the last full month immediately preceding the holdover. No holdover or payment by Tenant after the expiration or termination of this Lease shall operate to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. Any provision in this Lease to the contrary notwithstanding, any holdover by Tenant shall constitute a default on the part of Tenant under this Lease entitling Landlord to exercise, without obligation to provide Tenant any notice or cure period, all of the remedies available to Landlord in the event of a Tenant default, and, if Tenant holds over for more than 30 days without Landlord’s consent, Tenant shall be liable for all damages, including consequential damages, that Landlord suffers as a result of the holdover.

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22. Defaults — Remedies.

     (a) It shall be an Event of Default:

          (i) If Tenant does not pay in full when due any and all Rent and, except as provided in Section 22(c) below, Tenant fails to cure such default on or before the date that is 5 days after Landlord gives Tenant written notice of default;

          (ii) If Tenant enters into or permits any Transfer in violation of Section 18 above;

          (iii) If Tenant fails to observe and perform or otherwise breaches any other provision of this Lease, and, except as provided in Section 22(c) below, Tenant fails to cure the default on or before the date that is 30 days after Landlord gives Tenant notice of default; provided, however, if the default cannot reasonably be cured within 30 days following Landlord’s giving of notice, Tenant shall be afforded additional reasonable time (not to exceed 60 days following Landlord’s notice) to cure the default if Tenant begins to cure the default within 30 days following Landlord’s notice and continues diligently in good faith to completely cure the default; or

          (iv) If Tenant becomes insolvent or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant’s assets is commenced, or if any of the real or personal property of Tenant shall be levied upon; provided that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute an Event of Default until such proceeding has continued unstayed for more than 60 consecutive days.

     (b) If an Event of Default occurs, Landlord shall have the following rights and remedies:

          (i) Landlord, without any obligation to do so, may elect to cure the default on behalf of Tenant, in which event Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord (together with an administrative fee of 15% thereof) in curing the default, plus interest at the Interest Rate from the respective dates of Landlord’s incurring such costs, which sums and costs together with interest at the Interest Rate shall be deemed additional Rent;

          (ii) To enter and repossess the Premises, by breaking open locked doors if necessary, and remove all persons and all or any property, by action at law or otherwise, without being liable for prosecution or damages. Landlord may, at Landlord’s option, make Alterations and repairs in order to relet the Premises and relet all or any part(s) of the Premises for Tenant’s account. Tenant agrees to pay to Landlord on demand any deficiency (taking into account all costs incurred by Landlord) that may arise by reason of such reletting. In the event of reletting without termination of this Lease, Landlord may at any time thereafter elect to terminate this Lease for such previous breach;

          (iii) To accelerate the whole or any part of the Rent for the balance of the Term, and declare the same to be immediately due and payable; and

          (iv) To terminate this Lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken.

     (c) Any provision to the contrary in this Section 22 notwithstanding, (i) Landlord shall not be required to give Tenant the notice and opportunity to cure provided in Section 22(a) above more than twice in any consecutive 12-month-period, and thereafter Landlord may declare an Event of Default without affording Tenant any of the notice and cure rights provided under this Lease, and (ii) Landlord shall not be required to give such notice prior to exercising its rights under Section 22(b) if Tenant fails to comply with the provisions of Sections 13, 20 or 27 or in an emergency.

     (d) If (i) Landlord shall be in default of any of its maintenance and repair obligations under this Lease or shall fail to provide any of the services to be provided by Landlord under this Lease, and (ii) such default prevents Tenant from using and occupying the Premises for the conduct of Tenant’s business therein, and (iii) Tenant gives Landlord written notice specifying the nature of the default and specifying that Tenant intends to exercise its self-help rights under this subsection, and (iv) Landlord fails to cure such default within 30 days after Landlord receives Tenant’s notice (or within such reasonable additional time as may be necessary to cure such default provided Landlord commences such cure within said period and thereafter diligently prosecutes such cure to completion), then Tenant may, without any obligation to do so, cure such default on behalf of Landlord. Landlord shall reimburse Tenant within 30 days of demand for any reasonable out-of-pocket sums paid or costs incurred by Tenant in curing such default (“Tenant’s Cost of Cure”), which demand shall be accompanied by invoices or other reasonable documentation evidencing amounts incurred by Tenant. To the extent Tenant’s Cost of Cure include items

8.

properly includable in Operating Expenses, Landlord may include in Operating Expenses such amounts reimbursed by Landlord, but only to the extent of the amount the repair or service would have cost Landlord had Landlord or its vendor performed it.

     (e) No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant’s default shall not constitute a waiver of Landlord’s right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this Lease shall be deemed to be other than on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of Rent due, or Landlord’s right to pursue any other available remedy.

     (f) If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the other party attorneys’ fees, costs of suit, investigation expenses and discovery costs, including costs of appeal.

     (g) Landlord and Tenant waive the right to a trial by jury in any action or proceeding based upon or related to, the subject matter of this Lease.

23. Tenant’s Authority. Tenant represents and warrants to Landlord that: (a) Tenant is duly formed, validly existing and in good standing under the laws of the state under which Tenant is organized, and qualified to do business in the state in which the Property is located, and (b) the person(s) signing this Lease are duly authorized to execute and deliver this Lease on behalf of Tenant.

24. Liability of Landlord. The word “Landlord” in this Lease includes the Landlord executing this Lease as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this Lease as Landlord. Any such person or entity, whether or not named in this Lease, shall have no liability under this Lease after it ceases to hold title to the Premises except for obligations already accrued (and, as to any unapplied portion of Tenant’s Security Deposit, Landlord shall be relieved of all liability upon transfer of such portion to its successor in interest). Tenant shall look solely to Landlord’s successor in interest for the performance of the covenants and obligations of the Landlord hereunder which subsequently accrue, Landlord shall not be deemed to be in default under this Lease unless Tenant gives Landlord notice specifying the default and Landlord fails to cure the default within a reasonable period following Tenant’s notice. In no event shall Landlord be liable to Tenant for any loss of business or profits of Tenant or for consequential, punitive or special damages of any kind. Neither Landlord nor any principal of Landlord nor any owner of the Property, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this Lease or the Premises; Tenant shall look solely to the equity of Landlord in the Property for the satisfaction of any claim by Tenant against Landlord.

25. Miscellaneous.

     (a) The captions in this Lease are for convenience only, are not a part of this Lease and do not in any way define, limit, describe or amplify the terms of this Lease.

     (b) This Lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises or the Property. No rights, easements or licenses are acquired in the Property or any land adjacent to the Property by Tenant by implication or otherwise except as expressly set forth in this Lease. This Lease shall not be modified in any manner except by an instrument in writing executed by the parties. The masculine (or neuter) pronoun and the singular number shall include the masculine, feminine and neuter genders and the singular and plural number. The word “including” followed by any specific item(s) is deemed to refer to examples rather than to be words of limitation. The word “person” includes a natural person, a partnership, a corporation, a limited liability company, an association and any other form of business association or entity. Both parties having participated fully and equally in the negotiation and preparation of this Lease, this Lease shall not be more strictly construed, nor any ambiguities in this Lease resolved, against either Landlord or Tenant.

     (c) Each covenant, agreement, obligation, term, condition or other provision contained in this Lease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided. All of the terms and conditions set forth in this Lease shall apply throughout the Term unless otherwise expressly set forth herein.

9.

     (d) If any provisions of this Lease shall be declared unenforceable in any respect, such unenforceability shall not affect any other provision of this Lease, and each such provision shall be deemed to be modified, if possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth herein. This Lease shall be construed and enforced in accordance with the laws of the state in which the Property is located.

     (e) This Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, personal representatives and permitted successors and assigns. All persons liable for the obligations of Tenant under this Lease shall be jointly and severally liable for such obligations.

     (f) Tenant shall not record this Lease or any memorandum without Landlord’s prior consent.

26. Notices. Any notice, consent or other communication under this Lease shall be in writing and addressed to Landlord or Tenant at their respective addresses specified in Section 1 above (or to such other address as either may designate by notice to the other) with a copy to any Mortgagee or other party designated by Landlord. Each notice or other communication shall be deemed given if sent by prepaid overnight delivery service or by certified mail, return receipt requested, postage prepaid or in any other manner, with delivery in any case evidenced by a receipt, and shall be deemed to have been given on the day of actual delivery to the intended recipient or on the business day delivery is refused. The giving of notice by Landlord’s attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord.

27. Security Deposit. [Intentionally Omitted.]

28. Parking. Tenant shall be entitled to the use of 275 parking spaces at the Property without charge. Tenant shall not utilize parking in excess of that afforded Tenant in this Lease.

29. Satellite Dish Antenna. Tenant shall have the right to install, maintain and repair a satellite dish antenna (the “Antenna”) on the roof of the Building under and subject to the following conditions:

     (a) Tenant shall obtain all necessary approvals and comply with all Laws. Tenant shall take all necessary steps to prevent the Antenna from interfering with the equipment of any other tenant or occupant of the Building.

     (b) Tenant shall obtain Landlord’s prior approval of the location of the Antenna and of the specifications for the Antenna. Tenant agrees to consult with Landlord’s roofing contractor prior to installation and strictly to comply with the roofing contractor’s recommendations and requirements. Tenant shall pay all costs incurred by Landlord in connection with the Antenna including without limitation all architectural, engineering, contractors’ and legal fees.

     (c) At least 3 business days prior to installation, Tenant shall notify Landlord of the date and time of the installation. Tenant shall install the Antenna only if Landlord is present with Tenant at the installation.

     (d) Tenant shall maintain the Antenna in a safe, good and orderly condition. The installation, maintenance, repair and removal of the Antenna shall be performed at Tenant’s sole expense in a manner which will not impair the integrity of, damage or adversely affect the warranty applicable to, the roof or any other portion of the Property. Tenant’s contractor shall comply with Landlord’s standard insurance requirements, and provide Landlord a certificate of insurance evidencing the same prior to any installation, maintenance, repair or removal of the Antenna(e). No later than the expiration or sooner termination of the Term, at Tenant’s sole expense, Tenant shall remove the Antenna and repair any resulting damage.

     (e) Tenant’s indemnification of Landlord pursuant to Section 8 of this lease also applies to the Antenna and Tenant’s use of any portion of the Property therefor. Without limiting the foregoing, Tenant solely shall be responsible for any damages or injury caused by or in any way relating to the Antenna, including, but not limited to, damage or injury caused by reason of the Antenna collapsing or being blown from the roof.

30. Extension Option. Provided that there then exists no Event of Default by Tenant under this Lease, Tenant shall have the right and option to extend the Term of this Lease for one extension term of 5 years. Such option must be exercised, if at all, by giving Landlord prior written notice, not earlier than 18 months, and not later than one year in advance (the “Exercise Deadline”) of the expiration date of the then current lease Term, of Tenant’s election to extend the lease Term; it being agreed that time is of the essence. The extension Term shall be under the same terms and conditions as provided in the Lease except as follows:

     (a) there shall be no further options to extend the Term;

10.

     (b) Tenant shall accept the Premises in their “as is” condition, without any obligation on the part of Landlord to provide any tenant improvements or tenant improvement allowance; and

     (c) the Minimum Annual Rent for each lease year of the applicable extension term shall be the “Market Rent” as defined below and determined as follows. Within 30 days after Landlord receives timely notice from Tenant exercising Tenant’s extension option, Landlord will give notice to Tenant of its determination of the Market Rent of the Premises, and Landlord’s determination will constitute the Market Rent unless Tenant objects by giving Landlord written notice of objection (including Tenant’s determination of the Market Rent) within 10 days after Tenant’s receipt of Landlord’s determination. If Tenant so objects, and the parties are unable to agree upon the Market Rent within 30 days after the Tenant’s objection, then by written notice to the other either party may demand that Market Rent be determined by the appraisal process set forth below. If determination by appraisal is demanded, the Market Rent will be determined by a board consisting of three independent and disinterested reputable real estate professionals with at least 10 years experience in the leasing of commercial office space in the Minneapolis St. Paul metropolitan area (each an “Expert”). Landlord and Tenant will each appoint its respective Expert within 30 days following the appraisal demand. The third Expert will be appointed by the first two Experts. If the first two Experts are unable to agree on a third Expert within 30 days after the appointment of the second Expert, then the third Expert shall be appointed by any District Court Judge of the judicial district in which the Property is located. Any Expert so appointed by the judge shall be a disinterested reputable real estate appraiser with at least 10 years experience in appraising the rental value of commercial office space in the Minneapolis St. Paul metropolitan area, and shall be a member of the American Institute of Real Estate Appraisers with the designation of “MAI.” The Experts shall be instructed to each independently reach their respective determinations within 45 days of the appointment of the third Expert. If determinations of at least two of the Experts are identical in amount, that amount will be determined to be the fair market Minimum Annual Rent. If the determinations of all three Experts are different in amount, the highest appraised value will be averaged with the middle value (that average being referred to as “Sum A”). The lowest appraised value will be averaged with the middle value (that average being referred to as “Sum B”), and the fair market Minimum Annual Rent will be determined as follows: (i) if neither Sum A nor Sum B differs from the middle appraised value by more than 7% of the middle appraised value, then the fair market Minimum Annual Rent will be the average of the three appraisals, (ii) if either Sum A or Sum B (but not both) differs from the middle appraised value by more than 7% of the middle appraised value, then the fair market Minimum Annual Rent will be the average of the middle appraised value and the appraised value closer in amount to the middle appraised value, and (iii) if both Sum A and Sum B differ from the middle appraised value by more than 7% of the middle appraised value, then the fair market Minimum Annual Rent will be equal to the middle appraised value. Written notice of the fair market Minimum Annual Rent as duly determined in accordance with this paragraph shall be promptly given to Landlord and Tenant and will be binding and conclusive on them. Each party will bear its own expenses in connection with the appraisal proceeding (including the Expert appointed by it), and the fees of the third Expert will be borne equally. If, for any reason, the fair market Minimum Annual Rent has not been determined at the time of the commencement of the extension Term, then the fair market Minimum Annual Rent will be the amount set forth in Landlord’s original determination, and if the determination of the Experts as provided above indicates that a lesser or greater amount should have been paid than that which was actually paid, a proper adjustment will be made in a payment from Landlord to Tenant, or Tenant to Landlord, as the case may be.

For purposes of this Section, “Market Rent” means the net annual rent that a willing tenant would pay, and a willing lessor would accept, in arms-length, bona fide negotiations, if the premises at issue were leased to a single tenant for the period in question under a lease pursuant to which such tenant would not receive any rental concession, such as rental abatements or “free rent” periods or rental assumption, inducements or any leasehold improvement allowance, and otherwise taking into account any other pertinent factors, including, but not limited to, the net effective annual rates per rentable square foot for leases of comparable space in comparable buildings recently or then being entered into in the applicable submarket of the Minneapolis/St. Paul metropolitan area (“Comparable Rates”). In determining the Market Rent and using Comparable Rates in connection with such determination, the following factors (and any other factors then known to be pertinent) shall be considered: the size of the Premises; the length of the term; permitted use; quality of services provided; location and/or floor level; definition of rentable area; existing leasehold improvements; leasehold improvements to be provided by the lessor, whether directly or by allowance; the quality, age and location of the building; financial strength of the applicable tenant; rental concessions (such as rental abatements or “free rent” periods and rent assumptions); inducements; the respective obligations of the lessor and the tenant, the manner in which the rents are then subject to escalation and the time the particular rate under consideration became or will become effective.

Upon the timely exercise of an extension option and determination of the Minimum Annual Rent for the extension term, at the request of either party the parties hereto will enter into an appropriate amendment to the Lease incorporating the terms of the Lease extension.

31. Right of First Offer. In the event any space contiguous to the Premises (“Offer Space”) becomes available for lease at any time during the Term of this Lease, and the party, if any, in possession of such Offer Space does not desire to remain in possession, Landlord shall give Tenant written notice (the “Offer Notice”) of the availability of such Offer Space and of the proposed Minimum Annual Rent for such Offer Space (which shall be the then prevailing rate for comparable space and terms as

11.

determined by Landlord in good faith), and Tenant shall have the right, at its option, to lease such Offer Space on the terms set forth in the Offer Notice provided Tenant delivers to Landlord written notice exercising its right to lease such Offer Space within 5 business days of receipt of Landlord’s Offer Notice. At Landlord’s option, Tenant’s rights hereunder shall be void and of no force or effect if an Event of Default on the part of Tenant exists at the time Landlord would otherwise be required to give its Offer Notice, at the time Tenant exercises its right to lease the Offer Space or at the time Tenant is to take possession of the Offer Space. If Tenant fails to exercise timely its right to lease such Offer Space with respect to a particular Offer Notice given by Landlord, Tenant will have no further right to lease such Offer Space, and this right of first offer shall terminate. If Tenant elects to exercise its right to lease such Offer Space, the terms, conditions and covenants applicable to such Offer Space shall be as set forth in this Lease, except that the Minimum Annual Rent regarding such space shall be at the then prevailing rate for comparable space and terms as determined by Landlord and as stated in the Offer Notice, and the Offer Space shall be delivered to Tenant in an “as is” condition (without any leasehold improvements or leasehold improvement allowance to be provided by Landlord). The commencement date for the lease of the Offer Space shall be the date following the exercise of such option on which the Offer Space is first made available to Tenant. If Tenant exercises its right to lease the Offer Space, Landlord and Tenant shall execute and deliver an appropriate amendment to this Lease adding the Offer Space to the Premises. The rights provided Tenant in this Section shall be subject to any prior rights of any existing tenant of the Building. The foregoing offer rights shall not apply to any space in the Building vacant as of the date this lease is entered into. The foregoing notwithstanding, Tenant shall have no right to lease any Offer Space unless (i) Tenant is then occupying the entire Premises, and (ii) at least two (2) full years remain in the Term hereof following the availability of the Offer Space or unless Tenant has the right to extend the Term and does so in connection with its lease of the Offer Space. The rights afforded Tenant in this Section are personal to Tenant, and shall not extend to any assignee of Tenant or any subtenant of the Premises. The rights of Tenant under this Section shall not be severed from the Lease or separately sold, assigned or transferred and will expire upon the expiration or termination of the Lease.

Landlord’s approval:	/s/ [not legible]
	Senior Vice President, Regional Director

12.

Landlord and Tenant have executed this Lease on the respective date(s) set forth below.

Landlord:

LIBERTY PROPERTY LIMITED PARTNERSHIP

By: Liberty Property Trust, Sole General Partner

Date signed:	By:	/s/ David M. Jellison
12/21/09		Name:	David M. Jellison
		Title:	Vice President/City Manager

Date signed:	Tenant:
	COMPELLENT TECHNOLOGIES, INC.
Attest:
	By:	/s/ John R. Judd
Name:	Print	Name: John R. Judd
Title:	Print	Title CFO

13.

Rider 1 to Lease Agreement

(Multi-Tenant Office)

ADDITIONAL DEFINITIONS

“ADA” means the Americans With Disabilities Act of 1990 (42 U.S.C. § 1201 et seq.), as amended and supplemented from time to time.

“Affiliate” means (i) any entity controlling, controlled by, or under common control of, Tenant, (ii) any successor to Tenant by merger, consolidation or reorganization, and (iii) any purchaser of all or substantially all of the assets of Tenant as a going concern.

“Agents” of a party means such party’s employees, agents, representatives, contractors, licensees or invitees.

“Alteration” means any addition, alteration or improvement to the Premises or Property, as the case may be.

“Building Rules” means the rules and regulations attached to this Lease as Exhibit “B” as they may be amended from time to time.

“Building Systems” means any electrical, mechanical, structural, plumbing, heating, ventilating, air conditioning, sprinkler, life safety or security systems serving the Building.

“Common Areas” means all areas and facilities as provided by Landlord from time to time for the use or enjoyment of all tenants in the Building or Property, including, if applicable, lobbies, hallways, restrooms, driveways, sidewalks, parking, loading and landscaped areas.

“Environmental Laws” means all present or future federal, state or local laws, ordinances, rules or regulations (including the rules and regulations of the federal Environmental Protection Agency and comparable state agency) relating to the protection of human health or the environment.

“Event of Default” means a default described in Section 22(a) of this Lease.

“Hazardous Materials” means pollutants, contaminants, toxic or hazardous wastes or other materials the removal of which is required or the use of which is regulated, restricted, or prohibited by any Environmental Law.

“Interest Rate” means interest at the rate of 1% per month.

“Land” means the lot or plot of land on which the Building is situated or the portion thereof allocated by Landlord to the Building.

“Laws” means all laws, ordinances, rules, orders, regulations, guidelines and other requirements of federal, state or local governmental authorities or of any private association or contained in any restrictive covenants or other declarations or agreements, now or subsequently pertaining to the Property or the use and occupation of the Property.

“Lease Year” means the period from the Commencement Date through the succeeding 12 full calendar months (including for the first Lease Year any partial month from the Commencement Date until the first day of the first full calendar month) and each successive 12-month period thereafter during the Term.

“Maintain” means to provide such maintenance, repair and, to the extent necessary and appropriate, replacement, as may be needed to keep the subject property in good condition and repair.

“Monthly Rent” means the monthly installment of Minimum Annual Rent plus the monthly installment of estimated Annual Operating Expenses payable by Tenant under this Lease.

“Mortgage” means any mortgage, deed of trust or other lien or encumbrance on Landlord’s interest in the Property or any portion thereof, including without limitation any ground or master lease if Landlord’s interest is or becomes a leasehold estate.

Page 1 of 2

“Mortgagee” means the holder of any Mortgage, including any ground or master lessor if Landlord’s interest is or becomes a leasehold estate.

“Operating Expenses” means all costs, charges and expenses incurred or charged by Landlord in accordance with Generally Accepted Accounting Principles (GAAP) in connection with the ownership, operation, maintenance and repair of, and services provided to, the Property, including, but not limited to, (i) the charges at standard retail rates for any services provided by Landlord pursuant to Section 7 of this Lease, (ii) the cost of insurance carried by Landlord pursuant to Section 8 of this Lease together with the cost of any deductible paid by Landlord in connection with an insured loss, (iii) Landlord’s cost to Maintain the Property pursuant to Section 9 of this Lease, (iv) [omitted], (v) all levies, taxes (including real estate taxes, sales taxes and gross receipt taxes), assessments, liens, license and permit fees, together with the reasonable cost of contesting any of the foregoing (but only to the extent of any reduction if the contest was not approved by Tenant), which are applicable to the Term, and which are imposed by any authority or under any Law, or pursuant to any recorded covenants or agreements, upon or with respect to the Property, or any improvements thereto, or directly upon this Lease or the Rent or upon amounts payable by any subtenants or other occupants of the Premises, or against Landlord because of Landlord’s estate or interest in the Property, (vi) the annual amortization (over their estimated economic useful life or payback period, whichever is shorter) of the costs (including reasonable financing charges) of capital improvements or replacements (a) required by any Laws, (b) made for the purpose of reducing Operating Expenses, or (c) made for the purpose of directly enhancing the safety of tenants in the Building, (vii) a management and administrative fee equal to 4% of annual Operating Expenses and Minimum Annual Rent, and (viii) a tenant service charge. The foregoing notwithstanding, Operating Expenses will not include: (i) depreciation on the Building, (ii) financing and refinancing costs (except as provided above), interest on debt or amortization payments on any mortgage, or rental under any ground or underlying lease, (iii) leasing commissions, advertising expenses, tenant improvements or other costs directly related to the leasing of the Property, (iv) income, excess profits or corporate capital stock tax imposed or assessed upon Landlord, unless such tax or any similar tax is levied or assessed in lieu of all or any part of any taxes includable in Operating Expenses above, (v) costs for the original construction of the Building, costs of correcting construction defects or costs of correcting legal violations existing as of the date of this Lease, (vi) contributions to Operating Expense reserves if such reserves will not be used during the calendar year in which such reserve is created, (vii) all bad debt loss, rent loss or reserve for bad debt or rent loss, (viii) interest, amortization or other costs, including legal fees, associated with any mortgage, loan or refinancing of all or any part of the Property, (ix) late fees, (x) any and all costs (including legal fees and costs of lawsuits) associated with the operation of the business of the entity which constitutes Landlord, or (xi) salaries of Landlord’s employees above the level of Building manager. Landlord shall have the right to directly perform (by itself or through an affiliate) any services provided under this Lease provided that the Landlord’s charges included in Operating Expenses for any such services shall not exceed competitive market rates for comparable services.

“Property” means the Land, the Building, the Common Areas, and all appurtenances to them.

“Rent” means the Minimum Annual Rent, Annual Operating Expenses and any other amounts payable by Tenant to Landlord under this Lease.

“Taken” or “Taking” means acquisition by a public authority having the power of eminent domain by condemnation or conveyance in lieu of condemnation

“Tenant’s Share” means the percentage obtained by dividing the rentable square feet of the Premises by the rentable square feet of the Building, as set forth in Section 1 of this Lease.

“Transfer” means (i) any assignment, transfer, pledge or other encumbrance of all or a portion of Tenant’s interest in this Lease, (ii) any sublease, license or concession of all or a portion of Tenant’s interest in the Premises, or (iii) any transfer of a controlling interest in Tenant.

2.

EXHIBIT “B”

BUILDING RULES

     1. Any sidewalks, lobbies, passages, and stairways shall not be obstructed or used by Tenant for any purpose other than ingress and egress from and to the Premises. Landlord shall in all cases retain the right to control or prevent access by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, peace or character of the Property.

     2. The toilet rooms, toilets, urinals, sinks, faucets, plumbing or other service apparatus of any kind shall not be used for any purposes other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith or left in any lobbies, passages, elevators or stairways.

     3. Tenant shall not impair in any way the fire safety system and shall comply with all security, safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. No person shall go on the roof without Landlord’s prior written permission.

     4. Skylights, windows, doors and transoms shall not be covered or obstructed by Tenant, and Tenant shall not install any window covering which would affect the exterior appearance of the Building, except as approved in writing by Landlord. Tenant shall not remove, without Landlord’s prior written consent, any shades, blinds or curtains in the Premises.

     5. Without Landlord’s prior written consent, Tenant shall not hang, install, mount, suspend or attach anything from or to any sprinkler, plumbing, utility or other lines. If Tenant hangs, installs, mounts, suspends or attaches anything from or to any doors, windows, walls, floors or ceilings, Tenant shall spackle and sand all holes and repair any damage caused thereby or by the removal thereof at or prior to the expiration or termination of the Lease. If Tenant elects to seal the floor, Tenant shall seal the entire unfinished floor area within the Premises.

     6. Tenant shall not change any locks nor place additional locks upon any doors without first obtaining Landlord’s consent, which consent shall not be unreasonably withheld. Any such locks must comply with Landlord’s standard specifications, and Tenant shall provide Landlord the necessary pass keys, cards or access codes, as applicable.

     7. Tenant shall not use nor keep in the Building any matter having an offensive odor, nor explosive or highly flammable material, nor shall any animals other than handicap assistance dogs in the company of their masters be brought into or kept in or about the Property.

     8. If Tenant desires to introduce electrical, signaling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices, Landlord shall direct where and how the same are to be placed, and except as so directed, no installation boring or cutting shall be permitted. Landlord shall have the right to prevent and to cut off the transmission of excessive or dangerous current of electricity or annoyances into or through the Building or the Premises and to require the changing of wiring connections or layout at Tenant’s expense, to the extent that Landlord may deem necessary, and further to require compliance with such reasonable rules as Landlord may establish relating thereto. All wires installed by Tenant must be clearly tagged at the distributing boards and junction boxes and elsewhere where required by Landlord, with the number of the office to which said wires lead, and the purpose for which the wires respectively are used, together with the name of the concern, if any, operating same. Tenant shall not use any method of heating, air conditioning or air cooling other than that provided by Landlord without first obtaining Landlord’s written approval, which approval will not be unreasonably withheld.

     9. Tenant shall not place weights anywhere beyond the safe carrying capacity of the Building.

     10. The use of rooms as sleeping quarters is strictly prohibited at all times.

     11. Tenant shall comply with all parking regulations promulgated by Landlord from time to time for the orderly use of the vehicle parking areas, including without limitation the following: Parking shall be limited to automobiles, passenger or equivalent vans, motorcycles, light four wheel pickup trucks and (in designated areas) bicycles. Occasional overnight parking is permitted, subject to applicable municipal ordinances. However, long-term overnight parking of vehicles, overnight truck parking, or parking of trucks or trailers for temporary storage is prohibited. Parked vehicles shall not be used for vending or any other business or other activity while parked in the parking areas. Vehicles shall be parked only in striped parking spaces, except for loading and unloading, which shall occur solely in zones marked for such purpose, and be so conducted as to not unreasonably interfere with traffic flow within the Property or with loading and unloading areas of other tenants. Employee and tenant vehicles shall not be parked in spaces marked for visitor parking or other specific use. All vehicles entering or parking in the parking areas shall do so at owner’s sole risk and Landlord assumes no responsibility for any damage, destruction, vandalism

B-1

or theft. Tenant shall cooperate with Landlord in any measures implemented by Landlord to control abuse of the parking areas, including without limitation access control programs, tenant and guest vehicle identification programs, and validated parking programs, provided that no such validated parking program shall result in Tenant being charged for spaces to which it has a right to free use under its Lease. Each vehicle owner shall promptly respond to any sounding vehicle alarm or horn, and failure to do so may result in temporary or permanent exclusion of such vehicle from the parking areas. Any vehicle which violates the parking regulations may be cited, towed at the expense of the owner, temporarily or permanently excluded from the parking areas, or subject to other lawful consequence.

     12. Tenant and its Agents shall not smoke in the Building or at the Building entrances and exits.

     13. If at Tenant’s request, Landlord consents to Tenant having a dumpster at the Property, Tenant shall locate the dumpster in the area designated by Landlord and shall keep and maintain the dumpster clean and painted with lids and doors in good working order and, at Landlord’s request, locked.

     14. Tenant shall provide Landlord with a written identification of any vendors engaged by Tenant to perform services for Tenant at the Premises (examples: cleaners, security guards/monitors, trash haulers, telecommunications installers/maintenance), and all vendors shall be subject to Landlord’s reasonable approval. No mechanics shall be allowed to work on the Building or Building Systems other than those engaged by Landlord. Tenant assumes all responsibility for protecting its Premises from theft and vandalism and Tenant shall see each day before leaving the Premises that all lights are turned out and that the windows and the doors are closed and securely locked.

     15. Tenant shall comply with any move-in/move-out rules provided by Landlord.

     16. Tenant shall not place oversized cartons, crates or boxes in any area for trash pickup without Landlord’s prior approval.

     17. Tenant shall cause all of Tenant’s Agents to comply with these Building Rules.

     18. Landlord reserves the right to rescind, suspend or modify any rules or regulations and to make such other rules and regulations as, in Landlord’s reasonable judgment, may from time to time be needed for the safety, care, maintenance, operation and cleanliness of the Property. Notice of any action by Landlord referred to in this section, given to Tenant, shall have the same force and effect as if originally made a part of the foregoing Lease. New rules or regulations will not, however, be unreasonably inconsistent with the proper and rightful enjoyment of the Premises by Tenant under the Lease.

     19. These Building Rules are not intended to give Tenant any rights or claims in the event that Landlord does not enforce any of them against any other tenants or if Landlord does not have the right to enforce them against any other tenants and such nonenforcement will not constitute a waiver as to Tenant.

B-2

EXHIBIT “C”

TENANT ESTOPPEL CERTIFICATE

     Please refer to the documents described in Schedule 1 hereto, (the “Lease Documents”) including the “Lease” therein described; all defined terms in this Certificate shall have the same meanings as set forth in the Lease unless otherwise expressly set forth herein. The undersigned Tenant hereby certifies that it is the tenant under the Lease. Tenant hereby further acknowledges that it has been advised that the Lease may be collaterally assigned in connection with a proposed financing secured by the Property and/or may be assigned in connection with a sale of the Property and certifies both to Landlord and to any and all prospective mortgagees and purchasers of the Property, including any trustee on behalf of any holders of notes or other similar instruments, any holders from time to time of such notes or other instruments, and their respective successors and assigns (the “Beneficiaries”) that as of the date hereof:

     1. The information set forth in attached Schedule 1 is true and correct.

     2. Tenant is in occupancy of the Premises and the Lease is in full force and effect, and, except by such writings as are identified on Schedule 1, has not been modified, assigned, supplemented or amended since its original execution, nor are there any other agreements between Landlord and Tenant concerning the Premises, whether oral or written.

     3. All conditions and agreements under the Lease to be satisfied or performed by Landlord have been satisfied and performed.

     4. Tenant is not in default under the Lease Documents, Tenant has not received any notice of default under the Lease Documents, and, to Tenant’s knowledge, there are no events which have occurred that, with the giving of notice and/or the passage of time, would result in a default by Tenant under the Lease Documents.

     5. Tenant has not paid any Rent due under the Lease more than 30 days in advance of the date due under the Lease and Tenant has no rights of setoff, counterclaim, concession or other rights of diminution of any Rent due and payable under the Lease except as set forth in Schedule 1.

     6. To Tenant’s knowledge, there are no uncured defaults on the part of Landlord under the Lease Documents, Tenant has not sent any notice of default under the Lease Documents to Landlord, and there are no events which have occurred that, with the giving of notice and/or the passage of time, would result in a default by Landlord thereunder, and that at the present time Tenant has no claim against Landlord under the Lease Documents.

     7. Except as expressly set forth in Part G of Schedule 1, there are no provisions for any, and Tenant has no, options with respect to the Premises or all or any portion of the Property.

     8. No action, voluntary or involuntary, is pending against Tenant under federal or state bankruptcy or insolvency law.

     9. The undersigned has the authority to execute and deliver this Certificate on behalf of Tenant and acknowledges that all Beneficiaries will rely upon this Certificate in purchasing the Property or extending credit to Landlord or its successors in interest.

     10. This Certificate shall be binding upon the successors, assigns and representatives of Tenant and any-party claiming through or under Tenant and shall inure to the benefit of all Beneficiaries.

     IN WITNESS WHEREOF, Tenant has executed this Certificate this       day of                     , 2     .

Name of Tenant

By:

Title:

C-1

SCHEDULE I TO TENANT ESTOPPEL CERTIFICATE

Lease Documents, Lease Terms and Current Status

A.	Date of Lease:
B.	Parties:

1.	Landlord:
2.	Tenant:

C.	Premises:
D.	Modifications, Assignments, Supplements or Amendments to Lease:
E.	Commencement Date:
F.	Expiration of Current Term:
G.	Option Rights:
H.	Security Deposit Paid to Landlord: $
1.	Current Minimum Annual Rent: $
J.	Current Annual Operating Expenses: $
K.	Current Total Rent: $
L.	Square Feet Demised:

C-2

EX-10.18

Exhibit 10.18

[Compellent Technologies, Inc. Letterhead]

September 29, 2008

Duston Williams

153 Fremont Avenue

Los Altos, CA 94022

Dear Duston,

On behalf of the Compellent Technologies Board of Directors and team, I am pleased to extend this offer for you to join our Board of Directors effective October 1, 2008.

This offer includes board fees of $20,000 per year plus $5,000 per year for membership on the Audit Committee. All fees are paid quarterly during the third month of the quarter.

In addition to the cash fees above, you will also be granted a stock option valued at $250,000 using the pricing variables of the Black-Scholes option valuation model. I currently estimate this will approximate 35,000 shares but the exact number will be calculated as of October 1, 2008. The exercise price will be the “Fair Market Value” of the Company’s Common Stock as determined in accordance with the terms of the 2007 Plan, which is the closing price as reported on the NYSE Arca on the grant date. The terms and vesting associated with these options are contained in the Employee Stock Option Agreement which is included with this letter. The option will vest over three years.

Duston, the entire Compellent team is excited to have you join the team! Please signify your acceptance to this offer with your signature below and return a signed copy to Jack Judd, Chief Financial Officer, by September 30, 2008. Congratulations!

Sincerely,	Accepted by:
/s/ Phil Soran	/s/ Duston Williams
Phil Soran	Date: 9/30/08
President & CEO
Enclosures

EX-10.19

Exhibit 10.19

[Compellent Technologies, Inc. Letterhead]

July 30, 2009

Sherman Black
10764 Purdey Road
Eden Prairie, MN 55347

Dear Sherman,

On behalf of the Compellent Technologies Board of Directors and team, I am pleased to extend this offer for you to join our Board of Directors effective July 30, 2009.

This offer includes board fees of $20,500 per year and $6,000 per year for membership on the Audit Committee. All fees are paid quarterly during the third month of the quarter.

In addition to the cash fees above, you will also be granted a stock option valued at $250,000 using the pricing variables of the Black-Scholes option valuation model. I currently estimate this will approximate 31,250 shares but the exact number will be calculated as of your start date. The exercise price will be the “Fair Market Value” of the Company’s Common Stock as determined in accordance with the terms of the 2007 Plan, which is the closing price as reported on the NYSE on the grant date. The terms and vesting associated with these options are contained in the Employee Stock Option Agreement which is included with this letter. The option will vest over three years.

Your acceptance signature below indicates that Compellent has discussed the need to honor the confidentiality of current and previous employers’ and board directorship’s proprietary assets, has specifically informed you not to bring any proprietary assets belonging to a third party to Compellent, and that you understand that it is not acceptable for you to use those assets which rightfully belong to a current or previous employer or board directorships. Your acceptance signature below also indicates that you are not under any contractual obligations to any previous employer or third party that would preclude your membership on the Board of Directors with Compellent.

Sherman, the entire Compellent team is excited to have you join the team! Please signify your acceptance to this offer with your signature below and return a signed copy to Jack Judd, Chief Financial Officer, by July 31, 2009. Congratulations!

Sincerely,	Accepted by:
/s/ Phil Soran	/s/ Sherman Black
Phil Soran	Date: 7/30/09
President & CEO
Enclosures

EX-21.1

Exhibit 21.1

COMPELLENT TECHNOLOGIES, INC.

SUBSIDIARIES OF THE REGISTRANT

Subsidiary Legal Name	Jurisdiction of Incorporation/Formation
Compellent Technologies International Limited	United Kingdom
Compellent Technologies Canada, Inc.	Canada

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We have issued our reports dated March 5, 2010, with respect to the consolidated financial statements, financial statement schedule and internal control over financial reporting included in the Annual Report of Compellent Technologies, Inc. and subsidiaries on Form 10-K for the year ended December 31, 2009. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Compellent Technologies, Inc. on Forms S-8 (File No. 333-146612, effective October 10, 2007, File No. 333-153063, effective August 18, 2008 and File No. 333-159120, effective May 11, 2009).

/s/ Grant Thornton LLP  

Minneapolis, Minnesota
March 5, 2010

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Philip E. Soran, certify that:

1. I have reviewed this Annual Report on Form 10-K of Compellent Technologies, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 5, 2010

/s/ Philip E. Soran

Philip E. Soran

Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, John R. Judd, certify that:

1. I have reviewed this Annual Report on Form 10-K of Compellent Technologies, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 5, 2010

/s/ John R. Judd

John R. Judd

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Philip E. Soran, Chairman, President and Chief Executive Officer of Compellent Technologies, Inc. (the “Company”), and John R. Judd, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2009, to which this Certification is attached as Exhibit 32.1 (the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 5th day of March, 2010.

/s/ Philip E. Soran	/s/ John R. Judd
Philip E. Soran	John R. Judd
Chairman, President and Chief Executive Officer	Chief Financial Officer

A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), has been provided to Compellent Technologies, Inc. and will be retained by Compellent Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Compellent Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.