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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-26339
JUNIPER NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0422528
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
385 RAVENDALE DRIVE MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(650) 526-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.00001 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
As of March 7, 2000, there were 156,504,433 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based on the closing price for the Common
Stock on the Nasdaq National Market on March 7, 2000) was approximately
$29,023,901,284.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2000 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended December 31, 1999.
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JUNIPER NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 25
Item 3 Legal Proceedings........................................... 25
Item 4 Submission of Matters to a Vote of Security Holders......... 25
Executive Officers of the Registrant........................ 26
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 27
Item 6 Selected Financial Data..................................... 27
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 7A Quantitative and Qualitative Disclosures about Market
Risk........................................................ 27
Item 8 Financial Statements and Supplementary Data................. 28
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 28
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 28
Item 11 Executive Compensation...................................... 28
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13 Certain Relationships and Related Transactions.............. 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 29
Signatures.................................................. 31
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PART I
ITEM 1 BUSINESS
OVERVIEW
We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers, to
meet the demands resulting from the rapid growth of the Internet. We deliver
next generation Internet backbone routers that are specifically designed, or
purpose-built, for service provider networks and offer our customers increased
reliability, performance, scalability, interoperability and flexibility, and
reduced complexity and cost compared to current alternatives. Our flagship
product is the M40 Internet backbone router, and we recently introduced the M20,
an Internet backbone router purpose-built for emerging service providers. Our
Internet backbone routers combine the features of our JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and Internet-optimized
architecture into a purpose-built solution for service providers. Unlike
conventional routers, which were originally developed for enterprise
applications and are increasingly inadequate for service provider use in public
networks, our Internet backbone routers are specifically designed to accommodate
the size and scope of the Internet.
INDUSTRY BACKGROUND
The Internet has evolved from an academic research project into a network
of hundreds of separately administered, public and private networks
interconnected using Internet Protocol (IP). IP traffic is growing
exponentially, driven by increasing numbers of new users, connected devices and
Internet transactions. The result of the widespread use of IP is a ubiquitous
network that today carries a large and growing amount of data traffic enabling
millions of users to share information and conduct electronic commerce. Industry
research firms, forecast continued dramatic growth worldwide in the Internet and
Internet traffic. The importance of IP continues to increase as the number of
users, connected devices and transactions over the Internet grows. This growth
highlights the potential for the Internet to replace the traditional telephone
network and the pervasive public network.
The rapid adoption of the Internet and the tremendous growth of IP traffic
have prompted service providers to construct large scale data networks. These
networks are being optimized to transport data traffic as compared to
traditional telephone networks, which were optimized to transport voice traffic.
The architecture of these next generation networks is being driven by two key
technologies: packet/cell switching and optical networking.
Advantages of Packet/Cell Switching. Packet/cell switching technology,
which divides data traffic into distinct units called packets or cells and
routes each packet or cell independently, provides superior use of available
network capacity compared to traditional circuit switching technology. In a
circuit switched network, each data stream, such as a voice telephone call
between two points, is provided with a dedicated channel, or circuit, for the
duration of the telephone call. This approach leads to inefficient use of
network resources because a channel is fully dedicated to each transaction,
whether or not data is actually flowing at any given moment. As a result, a
circuit switched architecture is highly inefficient for Internet applications
which tend to create large bursts of data traffic followed by long periods of
silence. Packet/cell switching architectures enable greater utilization out of a
fixed capacity circuit by combining traffic that has different capacity demands
of the circuit at different times. Packet/cell switches more efficiently fill
the available network bandwidth with packets of data from many users, thereby
reducing the wasted bandwidth due to silence from any one particular user. The
use of packet/cell switching is driving the architecture of the Internet to be
fundamentally different from traditional circuit switched voice based networks.
In packet/cell switched networks, IP has emerged as the de facto standard for
providing services to end users. Primary packet/cell switching products include
frame relay switches, ATM switches and routers.
Rapid Advances in Optical Networking. Optical networking technology uses
pulses of light, rather than pulses of electricity, to transmit data in a
network, and uses fiber optic connections instead of wires. Optical networking
can be used to transmit much more information over a given connection than
electrical signals can
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convey. Optical networking advances, such as dense wavelength division
multiplexing, or DWDM, which allows transmission of several frequencies of light
over one strand of optical fiber, have enabled still higher data transmission
rates and improved efficiency of bandwidth utilization. Currently available DWDM
technology enables the transmission of up to 128 frequencies which allows a
service provider to multiply the transmission capacity of a fiber optic network
by a factor of up to 128.
Packet/Cell Technologies Have Not Kept Up With Optical Technologies. Many
service providers are installing DWDM equipment and are increasingly focusing on
combining IP and optical networking technologies. However, traditional packet
switching equipment is not capable of forwarding packets at rates sufficient to
keep pace with optical transmission speeds. As affordable fiber optic
transmission capacity becomes widely available, the performance and complexity
of current packet/cell switching architectures is increasingly constraining the
growth of the Internet.
THE NEW REQUIREMENTS OF THE INTERNET
The reliability and performance of current Internet infrastructure
equipment have become critical issues for service providers as they continue to
support dramatic growth in IP traffic and increasingly seek to offer new revenue
generating, mission-critical services, such as Virtual Private Networks, or
(VPNs), and voice-over IP. New requirements for next generation networks are
driving a set of new requirements for Internet infrastructure equipment,
including:
- high reliability;
- high performance;
- high performance under stressful conditions;
- scalability;
- interoperability;
- reduced complexity; and
- cost effectiveness.
High Reliability. As businesses and consumers increasingly rely on the
Internet for mission-critical applications, high network reliability becomes
essential. Service providers are increasingly expected to provide a similar
degree of reliability on the Internet that users have become accustomed to on
the traditional telephone network. The "five nines" (99.999%) reliability
standard of the traditional telephone network is becoming the target to which
suppliers of next-generation Internet platforms are being compared. As service
providers begin to bundle voice and data on their networks, this high degree of
reliability is becoming even more critical.
High Performance. To handle the rapid growth in IP traffic, today's
networks increasingly require routers that can operate at interface speeds as
high as 2.5 billion bits of information per second (Gbps), and in the near
future, 10 Gbps. The processing of data packets at these high speeds requires
sophisticated forwarding technology to inspect each packet and assign it to a
destination based on priority, data type and other considerations. Since a large
number of IP packets, many of which perform critical administrative functions,
are small in size, high performance Internet routers need to achieve their
specified transmission speeds even for small packet sizes. Since smaller packets
increase packet processing demands, routing large numbers of smaller packets
tends to be more resource intensive than routing of larger packets. Routers
based on general-purpose microprocessors traditionally are unable to forward
small packets at maximum rates, and, as a consequence, fail to operate at wire
speed, which results in data loss, packet retransmission and network
instability. A wire speed router, which achieves its specified transmission rate
for any type of traffic passing through it, can accomplish this task. Unlike the
enterprise environment, where network capacity is relatively inexpensive and
service quality requirements are not as demanding, the additional capacity and
related costs of network bandwidth and low service levels resulting from
retransmission of dropped packets are increasingly
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unacceptable to service providers. Thus, provisioning of mission-critical
services increasingly requires the high performance enabled by wire speed
processing.
High Performance Under Stressful Conditions. In a large and complex
network, individual components inevitably fail. However, the failure of an
individual device or link must not compromise the network as a whole. In a
typical network, when a failure occurs, the network loses some degree of
capacity and, in turn, a greater load falls on the remaining network routers,
which must provide alternate routes. Routers must quickly adjust to the new
state of the network to maintain packet forwarding rates and avoid dropping
significant numbers of packets when active routes are lost or when large numbers
of routes change. Routing protocols are used to accomplish this convergence, a
process that places even greater stress on the router. Given the complexity of
Internet infrastructure, particularly compared to enterprise networks, the
convergence process is far more complex and places a far greater load on the
routing software, thereby requiring a much more sophisticated device.
Scalability. Due to the rapid growth in Internet users and IP traffic,
service providers must continuously expand their networks, both in terms of
increased numbers of access points of presence (PoPs), and also greater capacity
per PoP. To facilitate this expansion process, Internet infrastructure equipment
must be highly scalable. Next generation routers therefore need to be
upgradeable and configurable to function within constantly changing networks
while incurring minimal downtime.
Interoperability. Service providers do not have the time or inclination to
change their existing networks to favor introduction of new products; rather,
new products must be compatible with the existing environment. Given the open
and inter-connected nature of the Internet, the complexity of running an
Internet backbone network requires a service provider to control and police
relations with other service providers. For example, service providers must
carefully control what traffic is accepted under what conditions from other
providers. Major service providers connect their respective networks via peering
arrangements, in which service providers agree to exchange traffic with one
another. These arrangements are prone to abuse, such as the illicit use by one
service provider of another service provider's backbone to carry excess traffic.
Service provider relationships are controlled by a set of rules called policies,
implemented through a data protocol called Border Gateway Protocol 4, or BGP4.
The software in each router must offer 100% compatibility with all aspects of
BGP4, as well as 100% compatibility with the interior protocols and standards
used within each service provider's backbone network. The compatibility level
must be maintained despite changes to software equipment configuration and
network architecture and upgrades to the various protocol standards. Thus,
routing software must be flexible and quickly upgradeable to support any
necessary revisions. This level of compatibility, in turn, cannot impact the
performance, scalability or reliability of the equipment. Attaining this
sophisticated level of interoperability is highly challenging and requires
significant testing to ensure compatibility.
Reduced Complexity. Today's Internet architectures are highly complex.
Since traditional routers have not fully met service providers' needs, many
service providers have tried to improve Internet backbone performance by adding
additional network devices such as ATM switches in the core of the network. As a
result, service providers have built networks with ATM switches surrounded by an
overlay network of lower capacity routers. These different layers of equipment
lead to higher capital costs and the need to manage distinct network elements.
ATM switches are also poorly suited to carrying IP traffic, which results in
inefficient use of network bandwidth. Moreover, this network design can cause
unpredictable router behavior during periods of stress because the routers are
not aware of the ATM backbone infrastructure and thus cannot quickly converge if
there is a partial network outage.
Cost Effectiveness. Exponential growth in IP traffic and intense price
competition in the telecommunications market is increasingly requiring service
providers to seek solutions that significantly reduce the capital expenditures
required to build and operate their networks. In addition to the basic cost of
equipment such as routers, service providers incur substantial ancillary costs
in terms of space required to deploy the equipment, power consumption and
on-going operations and maintenance. Service providers therefore want to deploy
dense and varied equipment configurations in limited amounts of rack and floor
space. Currently, service providers are moving from OC-3 (155 million bits per
second, or Mbps) and OC-12 (622 Mbps) speed
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networks at the core to higher capacity OC-12 and OC-48 (2.5 gigabits per
second, or Gbps) speed networks. In turn, the connections from each PoP to the
core are evolving from 100 Mbps and OC-3 speeds to gigabit and OC-12
transmission rates. Therefore, in order to continue to scale their networks
toward higher data speeds in a cost effective manner, service providers need the
ability to mix and match easily many different speed connections at appropriate
densities, without significantly increasing the consumption of space or power.
There is a clear need for next generation routers that can support high
speeds and offer new IP-based services. Network operators are eagerly seeking
new solutions that increase the level of scalability and reliability within
their networks and reduce the cost and complexity of their architectures.
THE JUNIPER NETWORKS SOLUTION
We develop, market and sell what we believe is the first commercially
available purpose-built Internet backbone router optimized for the specific high
performance needs of service providers. Our flagship product, the M40 Internet
backbone router, combines the features of our JUNOS Internet Software,
high-performance ASIC-based packet forwarding technology and Internet-optimized
architecture. As the need for core bandwidth has continued to increase, it
created the need for service rich platforms at the edge of the network. In
December 1999 we introduced the M20 backbone router, purpose-built to alleviate
capacity demand on access points in the PoP. The M40 router operates at the
Internet's core while the M20 router extends purpose-built performance
capability to service provider entry points. The M20 router is also a
cost-efficient solution for new and emerging IP carriers (smaller service
providers) capable of enabling a high-bandwidth core and high-speed services for
the service provider edge in one device.
The M40 and M20 platforms share common software and services, and common
ASIC technology for full compatibility and scalability. Critical service
provider applications including high-speed access, peering, and hosting are
served by both platforms. Physical interfaces are interchangeable between
platforms, increasing user flexibility and allowing common sparing.
JUNOS Internet Software. Our Internet software, called JUNOS, is one of our
key competitive differentiators. JUNOS is designed to meet the IP network
routing, operations and control requirements of the world's largest service
providers and is an integral component of our product family system
architecture. The ability of JUNOS to manage the complex network sharing
relationships among service providers allows our products to be placed at
critical points in the core of a service provider's network. The JUNOS Internet
Software allows our products to have widespread network placement due to its
interoperability with Cisco's Internetwork Operating System, or IOS, currently
the most broadly deployed routing operating system. The ability to coexist has
enabled the M40 to achieve successful deployment where other products in the
past have failed.
Unconstrained by legacy routing software, we developed JUNOS using a
modular design, in which distinct functions are implemented as separate modules
with well defined interfaces and interactions, simplifying troubleshooting and
maintenance. JUNOS operates in protected memory mode. These features keep
functionality distinct, and minimize the impact of any failure that may occur to
the specific software application in which the failure occurs. Also, we believe
JUNOS' software modularity will enable the continuous upgrade of new enhanced
capabilities, while protecting reliability and compatibility with existing
networks. The design and development of the JUNOS Internet Software has been
possible due to the significant Internet engineering expertise of our
development team. Our expert engineers have authored or co-authored 22 Requests
for Comments, which are documents by industry experts that define major
standards for Internet protocols.
High Performance ASIC-based Packet Forwarding Technology. The M40 Internet
backbone router contains five major application specific integrated circuits
that we designed and built using the most advanced ASIC technology. These ASICs
contain over five million gates in total, with three of the designs each having
a larger number of transistors than the Intel Pentium II microprocessor. The
result is a system that is substantially faster than today's general purpose
microprocessor based routers in its ability to process and forward IP packets,
allowing our products to deliver high performance at wire speed. The ability to
enhance and implement large scale ASICs will be a long-term differentiator for
us, particularly as the sophistication
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required to forward traffic across higher speed networks increases. As with the
introduction of the M20, we expect to continue to leverage our existing ASIC
technology in future products and continue to capitalize on our advanced ASIC
design capabilities.
Internet Optimized Architecture. As purpose-built Internet backbone
routers, our products employ an architecture designed exclusively for the
Internet. The system architecture provides a clean separation between the
routing and packet-forwarding functions. Separating these two functions enables
us to develop independently a full-featured routing protocol and traffic
engineering functionality through our JUNOS Internet Software and wire speed
packet forwarding performance through high performance ASICs. Furthermore, with
the routing and forwarding functions segregated, the products do not sacrifice
performance, even when there is a failure in the network. When a failure occurs,
JUNOS detects the failure and is able to quickly converge to the new state of
the network while the ASICs continue to forward packets at wire speed until they
receive updated routes from JUNOS.
The key benefits of our solution are:
- carrier class reliability;
- wire speed performance;
- scalability;
- interoperability;
- flexibility;
- reduced complexity; and
- cost effectiveness.
Carrier Class Reliability. Our products' system architecture provides
reliable operation for service providers in large complex networks even under
abnormal conditions. This architecture, combined with JUNOS' modular software
design, limits the impact of a failure to the specific software application. In
addition, the hardware used in our products has been designed with a very high
level of integration to maximize the mean time between failure. Moreover, data
and instructions have appropriate error correction and parity checks in memory
to guarantee their integrity.
Wire Speed Performance. We believe the M40 is the first Internet backbone
router that can forward minimum-sized IP packets over OC-48 links at wire speed.
This maximizes network stability and the capacity utilization of expensive wide
area circuits. In contrast to available solutions, the M40 is able to maintain
packet forwarding rates and to avoid dropping significant numbers of packets
when active routes are lost or when large numbers of routes change.
Scalability. Our JUNOS Internet Software is designed to accommodate service
providers' scale requirements. In addition, the ASIC interface links have been
oversized, enabling the M40 to easily scale with growing levels of data traffic.
We believe our software and ASIC designs represent a competitive advantage,
because it is very difficult for existing vendors to graft these capabilities to
their prior generation designs.
Interoperability. The M40 has demonstrated consistent interoperability with
existing network infrastructures. Our internal test environments confirm
interoperability with Cisco routers, a variety of leading ATM and Gigabit
Ethernet switches and SONET add drop multiplexers. Deployment of the M40 at
several major carriers has demonstrated that JUNOS is interoperable with
installed Cisco routers for both routing and administration. In addition, JUNOS
enables service providers to manage their complex peering relationships with
other service providers despite frequent software, equipment configuration and
network architecture changes.
Flexibility. Our ASICs are programmable and provide the flexibility to add
support for new protocols or changes in existing protocols. Since JUNOS is
modular in architecture and already supports existing and emerging protocols, it
is also a platform for efficiently introducing new interfaces and new services
in the network.
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Reduced Complexity. Our products are purpose-built for service providers
and allow a simple and more structured approach to building Internet backbones
compared to the complex topologies in place today. With the M40 and the M20,
service providers can build more efficient networks with less dependence on
devices like ATM switches, which reduce the operational burdens of running
multiple distinct network layers.
Additionally, our products offer a thorough implementation of traffic
engineering based on MPLS, including the ability to dynamically adapt traffic
flows according to rules adopted by the network operator. Traffic engineering
refers to a set of capabilities for understanding underlying traffic trends in
the network and maximizing the utilization of the network on multiple
dimensions.
Cost Effectiveness. We have integrated these customer benefits into a
system that provides critical routing and forwarding functions at lower overall
cost. Our products' wire speed performance allows service providers to reduce
network operating cost by making more efficient use of their networks. In
addition, we designed the M40 to support a broad variety and density of
interfaces in a unit that occupies half a typical telecommunications rack. As a
result, service providers can cost effectively deploy the M40, which can be
easily upgraded, to connect to a variety of speed and circuit types at the
network core.
THE JUNIPER NETWORKS STRATEGY
Our objective is to become the primary supplier of high performance
Internet backbone infrastructure. The key elements of our strategy include:
- leverage early lead as supplier of purpose-built Internet infrastructure;
- work very closely with key customers;
- increase penetration at major service providers;
- leverage early success to penetrate new customers rapidly;
- expand sales and distribution network;
- maintain and extend technology leadership; and
- enable new IP-based services.
Leverage Early Lead as Supplier of Purpose-Built Internet
Infrastructure. From inception we have focused solely on designing and building
Internet infrastructure for service providers. We have integrated purpose-built
software and hardware into an Internet optimized architecture that specifically
meets service providers' needs and have seen significantly positive initial
responses from our existing and potential customers. We believe that many of
these customers will deploy Internet backbone infrastructure equipment from only
a few vendors. The purpose-built advantages of our products provide us with a
time-to-market lead, which is a critical advantage in gaining rapid penetration
as one of these selected vendors. Once our products are widely deployed in a
service provider's network as the primary or even secondary Internet backbone
infrastructure equipment, we believe we create a significant barrier to entry to
potential competitors who do not currently offer commercially-viable next
generation routing solutions.
Work Very Closely with Key Customers. In developing our products, including
our JUNOS Internet Software, we worked very closely with customers to design and
build a product specifically to meet their complex needs. Since JUNOS has been
available and used by our customers for over a year, we understand clearly the
challenges facing these carriers, enabling us to subsequently design additional
features and capabilities into both our software and hardware. We believe our
close relationships with, and constant feedback from, our customers have been
key elements in our design wins and rapid deployment to date. We plan to
continue to work very closely with our key customers to implement enhancements
to current products as well as to design future products that specifically meet
their evolving needs. We are also actively involved with these customers in
developing key standards, such as MPLS, and are an active participant in
standards organizations such as the Internet Engineering Task Force and the
Optical Internetworking Forum.
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Increase Penetration at Major Service Providers. Our initial focus has been
to penetrate several of the largest service providers, where operators have the
technical sophistication, resources and desire to test and evaluate our solution
against potential alternatives. While we have received initial orders from major
service providers, such as UUNet (MCI Worldcom), Cable & Wireless, AT&T/IBM
Global Services, Frontier GlobalCenter and Verio, we believe that there is a
significant opportunity to further penetrate these large and complex networks
given the advantages of our products. As the growth of the Internet requires
these service providers to continue to build their networks and replace outdated
equipment, we will pursue further opportunities to capture greater market share
within these large accounts.
Leverage Early Successes to Penetrate New Customers Rapidly. We believe
that the Internet infrastructure equipment buying patterns of the medium and
smaller-sized service providers typically lag behind those of the larger service
providers. Since the network challenges that the large service providers face
today are likely to be the problems encountered by smaller service providers in
the near future, we believe smaller service providers are likely to deploy
equipment similar to larger service providers. Furthermore, smaller service
providers often lack the technical resources to thoroughly test different
vendors' products. Therefore, they typically piggyback on larger service
providers' evaluation efforts by purchasing the same platforms deployed by the
larger service providers. Since we have begun to sell to several of the largest
service providers, we intend to leverage this success by allocating our
marketing efforts towards a greater number of medium and smaller-sized service
providers.
Expand Sales and Distribution Network. In order to pursue the large number
of potential customers for our Internet infrastructure solutions, we plan to
continue to aggressively add to our sales and distribution capabilities. We are
adding to our direct sales and support capabilities for our major customers in
North America and adding value-added resellers to sell to and support our other
domestic and international customers. In the quarter ended December 31, 1999, we
added 12 people to the sales organization for a total of 72 people.
Maintain and Extend Technology Leadership. Our Internet software, ASIC
technology and Internet-optimized architecture have been key elements to
establishing our technology leadership. We believe that these elements are
highly leverageable into future products we are currently developing. We intend
to maintain and extend our technological leadership in the Internet
infrastructure market through continued significant investment in JUNOS Internet
Software and ASIC designs to enhance the feature richness of our products and to
develop future differentiated offerings for service providers.
Enable New IP-based Services. Our platform enables service providers to
build networks cost effectively and to offer new differentiated services for
their customers more efficiently than conventional products. While we believe
that current service providers are likely to be the largest and most successful
IP network operators in the near term, many new service providers are likely to
emerge oriented around the delivery of IP-based services. These services, which
include web hosting, outsourced Internet and intranet services, VPNs, outsourced
enterprise applications and voice-over IP, are cost-effectively enabled by our
Internet infrastructure platform. Although the market for our products today is
driven primarily by the need for traditional Internet network capacity, as other
IP-based services and applications continue to grow in importance, the total
potential market for our products will continue to grow commensurately.
TECHNOLOGY
Our core technology consists of our Internet backbone router architecture,
JUNOS Internet Software and ASIC hardware expertise. Our general-purpose
architecture is initially embodied in the M40, but also is designed to serve as
the platform for future generations of products, such as the M20.
M40 Architecture
The architecture of our products is exemplified by the M40. The M40
architecture delivers the forwarding rates and network control necessary to
scale Internet backbones rapidly and reliably. The M40 system includes a Routing
Engine, or RE, and a Packet Forwarding Engine, or PFE. The clean separation of
the routing and forwarding functions ensures that the two functions do not
compete for the same resources.
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The Routing Engine. The RE consists of the JUNOS Internet Software
operating on an Intel-based platform. The JUNOS Internet Software features
Internet-scale protocol support, with flexible policy software that enables
maximum control over the acceptance, modification and advertisement of route
prefixes. In addition, the JUNOS Internet Software offers a range of
configuration management tools that simplify the configuration process and help
protect against operator error. The RE conducts the processing intensive
activity of maintaining the routing table, from which the forwarding table
residing in the PFE is derived. The RE is connected to the PFE through a
dedicated 100 Mbps link. After constructing or updating the forwarding table,
the RE downloads a copy of the table to the PFE. Updates to the forwarding table
are done atomically in small incremental steps so that packet forwarding is not
interrupted by routing changes.
The Packet Forwarding Engine. The M40 delivers wire speed packet forwarding
using our ASIC designs. All links between ASICs are oversized, dedicated
channels, and the PFE architecture is free from the bottlenecks faced by
traditional crossbar switches, which use intelligent agent software to perform
both routing and forwarding functions over multiple connections to either parts
of the network. Bottlenecks can occur in a crossbar switch because the routing
and forwarding functions are not separated. The heart of the PFE is the Internet
Processor ASIC. With over one million gates and a lookup rate of over 40 million
packets per second, or Mpps, the Internet Processor represents the largest and
fastest route lookup ASIC currently available, capable of processing data at
throughput rates in excess of 40 Gbps.
All lookup rates reflect longest-match route table lookups for all packets
and all lookups are performed in hardware. There is no caching mechanism, which
is a mechanism by which critical information, such as destinations for traffic,
is stored in rapidly accessible memory to make the process of looking up traffic
destinations faster. In addition there is no risk of cache misses in the system
which can result in slower storage access and thus considerably slower traffic
delivery. In addition, the forwarding table can be updated without affecting
forwarding rates. The Internet Processor is programmable to support up to four
different forwarding tables (layer 2 and/or layer 3) simultaneously. Supported
forwarding protocols currently include unicast and multicast IPv4 and MPLS.
Finally, the Internet Processor maintains its performance regardless of length
of lookups or table size.
The PFE also features a shared memory system with single-stage buffering,
so packets are written to and read from memory only once. Single-stage buffering
greatly reduces the complexities and throughput delays associated with
multistage buffering systems. The pooled memory is distributed across the
Flexible PIC Concentrator, or FPC, cards, allowing memory to scale as interfaces
are added. The Internet Processor also features prefix accounting mechanisms
that operate at rates in excess of 20 Mpps.
JUNOS Internet Software: Traffic Engineering and Control
JUNOS Internet Software offers a full suite of Internet-scale,
Internet-tested routing protocols. Protocols and software tools, which are used
to control and direct network traffic, are critical to an Internet backbone
routing solution. Software control is made more important by the fact that the
size and complexity of backbone networks are increasing at a time when service
providers are looking to differentiate themselves through value-added service
offerings.
JUNOS Internet Software features implementations of all major Internet
protocols, including BGP4, DVMRP, PIM, IS-IS, Open Shortest Path First. IS-IS
and Open Shortest Path First are algorithms broadly used in enterprise networks
and by service providers to determine and update the running state of the
network and available destinations in the network. These implementations were
developed in-house by our design team which has extensive experience in
addressing the scaling issues of rapidly growing service providers.
JUNOS Internet Software also provides a new level of traffic engineering
capabilities with its implementation of MPLS. Developed in conjunction with the
Internet Engineering Task Force, our MPLS capability offers enhanced visibility
into traffic patterns and the ability to control the path traffic takes through
the network. Path selection enables service providers to engineer traffic for
efficient use of network capacity and avoidance of congestion. We expect MPLS
and its traffic engineering capabilities to become a crucial tool for service
providers as they scale their networks.
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JUNOS Internet Software features a modular design, with separate programs
running in protected memory space in conjunction with an independent operating
system. Unlike monolithic, unprotected operating system designs, which are prone
to system wide failure, the protected, modular approach improves reliability by
ensuring that modifications made to one module have no unwanted side-effects on
other sections of the software. In addition, having clean software interfaces
between modules facilitates software development and maintenance, enabling
faster response to customer needs and delivery of new features.
JUNOS Internet Software has been extensively tested in multiple service
provider networks to ensure compatibility with Cisco's IOS. Since each major
service provider's network is different, this extensive testing is necessary to
ensure seamless introduction into existing service provider environments.
PRODUCTS
M40 Internet Backbone Router
The M40 Internet backbone router is specifically designed for the
specialized needs of service providers. The M40 features leading-edge
packet-forwarding performance, very high port density and flexibility, and
purpose-built Internet software. The M40 delivers higher speed performance for
service providers than current alternatives. The M40 helps solve the critical
problem of managing backbone networks by ensuring greater control over traffic
and better use of network capacity and by providing service providers with the
necessary traffic engineering tools, such as MPLS.
Features of the M40 Internet Backbone Router
Port Density Per Rack-Inch. Our M40 Internet backbone router offers very
high port density per rack-inch, ensuring optimal use of valuable and scarce PoP
rack space. Because the forwarding engine is oversized, all interfaces perform
at wire speed for all packet sizes.
The M40 router features a highly flexible combination of backbone interface
speeds on the market today. In a 35-inch chassis, the M40 router provides 8
OC-48/STM-16, 32 OC-12/STM-4, 128 OC-3/STM-1 or 128 DS3 interfaces. M40
interfaces are located on Physical Interface Cards, or PICs, which plug into FPC
boards. There are eight FPC slots on the M40 and each FPC slot supports up to
four PICs and an aggregate throughput rate of more than 2.5 Gbps. In addition to
supporting wire speed OC-48 interfaces, each FPC supports various combinations
of interfaces, permitting the mixing of interface types and speeds on a single
FPC. Supported PIC interfaces include:
- 1-port OC-48/STM-16 SONET/SDH;
- 1-port OC-12/STM-4 SONET/SDH;
- 1-port OC-12/STM-4 ATM;
- 4-port OC-3/STM-1 SONET/SDH;
- 2-port OC-3/STM-1 ATM;
- 4-port DS3; and
- 1-port Gigabit Ethernet.
The PIC interface cards are sold both as part of the initial product
configuration and also, subsequently, as add-on items. Interfaces are typically
added as the customer's network expands or the capacity of individual links is
upgraded.
Class-of-Service Flexibility. The M40 router is designed for a variety of
class-of-service applications. The M40's queuing mechanism is based on a
weighted round-robin selection among multiple queues on outgoing interfaces.
Queues can be configured with drop profiles to control the rate of packet drops
based on utilization of buffer capacity.
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Low Power Consumption. As provider PoPs have grown and become more fully
populated with systems, power consumption has become a significant concern.
Access to sufficient power can be a constraint on the ability of a facility to
support a larger network. Because of its low part count and efficient design,
our M40 Internet backbone router draws less than 1700 watts of power (35A at
48V) in a fully loaded configuration, enabling it to offer very high performance
and port density per watt.
Engineered for Stressful Conditions. The M40 architecture is designed to
reliably handle stressful network conditions. For example, the route lookup
capacity of our Internet Processor has been oversized with respect to interface
speeds. In addition, the separation of routing and processing enables the M40 to
converge quickly while maintaining wire speed.
Built for Reliability. In addition to preserving network reliability, the
M40 router is designed to ensure system reliability. The M40's cooling system is
fully redundant to protect against individual fan failure. Similarly, the M40's
dual power supplies are fully redundant, each capable of supporting the full
power load of the system. The M40 can boot off of any one of multiple redundant
storage media, ensuring that the system remains operational in the event of a
disk failure. For software reliability, JUNOS Internet Software features a
protected, modular design with separate processes running in protected memory
space on top of an independent operating system. A modular design protects
against system wide failures, ensuring that modifications made to one module
have no unwanted side-effects on other portions of the code base. Finally, a low
component count and an efficient design combine to give the M40 system superior
reliability.
M20 Internet Backbone Router
The M20 is purpose-built for new emerging carriers and smaller service
providers. It can serve a variety of high speed uses, starting at the core. As
new carriers build out the core, they determine that there is a need for high
speed connectivity to end customers, other carriers and hosting environments.
The M20, with its services and configuration flexibility can provide the
solution in one chassis, which is both cost and space effective.
The M20's small size, high performance and high port density make it an
optimum platform for high-speed access applications. Its Gigabit Ethernet port
density and 802.1q VLAN support makes it attractive for hosting applications.
The M20 also provides forwarding performance and the rich BGP4 and policy
implementations (with JUNOS Internet Software) needed for peering applications.
Although the M20 measures only 14 inches (35.56 cm) in height, it brings
new levels of port density and performance to provider edge applications,
supporting nearly 200 DS-3s in a single chassis and 1000 DS-3s in a standard
seven-foot (2.13 m) rack. The M20 supports a wide range of interfaces including:
- 1-port OC-48/STM-16 SONET/SDH;
- 1-port OC-12/STM-4 SONET/SDH;
- 1-port OC-12/STM-4 ATM;
- 4-port OC-3/STM-1 SONET/SDH;
- 2-port OC-3/STM-1 ATM;
- 4-port DS3;
- 1-port Gigabit Ethernet; and
- Channelized OC-12/STM-4 to DS-3.
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CUSTOMERS
The following is a representative list of our customers as of December 31,
1999:
<TABLE>
<CAPTION>
END USERS: DISTRIBUTORS:
---------- -------------
<S> <C>
AboveNet Communications Alcatel
AT&T Ericsson
AT&T/IBM Global Services 3Com
Broadband Office K-Net Ltd.
Cable & Wireless Nissho Electronics
Frontier GlobalCenter NTT PC Communications
Globix OKI Electronics
GST Network Funding Samsung America
Level 3 Communications Softway
MCI WorldCom-vBNS Solunet
MIBH
PSINet
Qwest Communications International
TCG CERFnet
University of Washington
UUNet
Verio
</TABLE>
We recognize revenue from the shipment of products at the time of shipment
unless we have future obligations for network interoperability or if we have to
obtain customer acceptance. In those cases, we defer recognition of the revenue
until we have met our obligations.
Two customers, UUNet and Cable & Wireless, comprised approximately 58% of
our recognized revenues for the year ended December 31, 1999.
SALES AND MARKETING
We sell and market our products primarily through our direct sales
organization, value-added resellers and an original equipment manufacturer.
Direct Sales. Our North American direct sales organization is divided into
Western and Eastern regional operations. Our direct sales efforts are focused on
the largest service providers. The direct sales account managers cover the
market on an assigned account basis and work as a team with account oriented
systems engineers. They are directed by a regional operations manager who
reports to the North American Director of Sales. We also have technical
engineers that consult with and provide our customers with guidance and
assistance on the evolution of their networks as it relates to the deployment of
our products. These consulting engineers also help in defining the features that
are required for our products to be successful in specific applications. A key
feature of our sales effort is the relationship we establish at various levels
in our customers' organization. Our sales team maintains contact with key
individuals who have service planning and infrastructure buildout
responsibility.
Value Added Resellers. We have complemented our direct sales effort in the
United States through the addition of several highly focused value added
resellers. Our arrangements with value added resellers typically have been
non-exclusive and provide the value added reseller with discounts based upon the
volume of their orders.
Original Equipment Manufacturer Partner. We have established a strategic
distribution relationship with Ericsson. We believe that Ericsson has
significant customer relationships in place and offers products which complement
ours. Ericsson will provide the first level of support to its customers. Our
agreement with Ericsson allows it to distribute our products on a worldwide,
non-exclusive basis with discounts based upon the volume of orders it receives.
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International Resellers. In order to further our international sales
objectives, we have established a number of country specific value added
resellers such as Alcatel. These resellers have expertise in deploying complex
Internet infrastructure equipment in their respective markets and provide the
first level of support required by our international customers.
As of December 31, 1999, we employed 72 people in our sales support and
marketing organizations.
CUSTOMER SERVICE AND SUPPORT
We believe that a broad range of support services is essential to the
successful installation and ongoing support of our products. We have hired
support engineers with proven Internet experience. We offer the following
services: 24 hours a day, seven days a week technical assistance (on-line,
telephone and on-site), professional services, educational services, logistics
services and web-based information.
We offer a variety of flexible and comprehensive support programs,
including basic hardware and software warranty services, next day onsite parts
and labor, 24 hours a day, seven days a week same day parts and labor and
on-site resident engineers. We deliver these services directly to major end
users and also utilize a two-tiered support model, leveraging the capabilities
of our partners and third party organizations. We also train our partners in the
delivery of education and support services.
Customer service and support provide front line product support and is the
problem resolution interface to our partners and direct end users. If customer
service and support are unable to resolve an issue themselves, they duplicate
the problem scenario and provide the failure information, such as logs, dumps,
traces and system configuration to appropriate subject matter experts in our
engineering department.
Based on the severity of the problem and the impact to our customers'
network, there are strict escalation guidelines to ensure that the appropriate
technical resource and management attention is brought to bear on the problem in
a timeframe commensurate with problem priority. The overall goal is to fix the
problem, at the appropriate level, in the right timeframe in order to ensure our
customers' satisfaction.
As of December 31, 1999, we employed 31 people in our customer service and
support organization, with the majority located in our Mountain View, California
corporate headquarters.
RESEARCH AND DEVELOPMENT
We have assembled a team of skilled engineers with extensive experience in
the fields of high end computing, network system design, Internet routing
protocols and embedded software. These individuals have been drawn from leading
computer data networking and telecommunications companies. In addition to
building complex hardware and software systems, the engineering team has
experience in delivering very large, highly integrated ASICs and extremely
scalable Internet software.
Our research and development department is organized into teams that work
in parallel on several projects in a way similar to the development of
successive generations of complex microprocessors. As a result, we will seek to
offer our customers next generation products as they are needed.
We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional
applications, incorporating that technology and maintaining the competitiveness
of our product and service offerings. We are leveraging our first generation
ASICs, developing additional network interfaces targeted to our customer
applications and continuing to develop next generation technology to support the
anticipated growth in network bandwidth requirements. We continue to expand the
functionality of our JUNOS Internet Software to improve performance and
scalability, and to provide an enhanced user interface.
Our research and development process is driven by the availability of new
technology, market demand and customer feedback. We have invested significant
time and resources in creating a structured process for undertaking all product
development projects. This process involves all functional groups and all levels
within our company. Following an assessment of market demand, our research and
development team develops a full set of comprehensive functional product
specifications based on inputs from the product management and
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<PAGE> 15
sales organizations. This process is designed to provide a framework for
defining and addressing the steps, tasks and activities required to bring
product concepts and development projects to market.
As of December 31, 1999, we employed 170 people in our research and
development organization.
Our research and development expenses totaled $41.5 million for the year
ended December 31, 1999, $24.0 million for the year ended December 31, 1998,
$9.4 million for the year ended December 31, 1997 and $1.9 million for the
period from February 2, 1996, the date of our inception, to December 31, 1996.
MANUFACTURING
Our manufacturing operation is entirely outsourced. We have developed a
strategic relationship with Solectron, under which we have subcontracted our
manufacturing activity. This subcontracting activity extends from prototypes to
full production and includes activities such as material procurement, final
assembly, test, control and shipment to our customers. We design, specify and
monitor all of the tests that are required to meet internal and external quality
standards. We have recently established a relationship with an additional third
party to manufacture certain of our products. These arrangements provide us with
the following benefits:
- we operate without dedicating any space to manufacturing operations;
- we conserve the working capital that would be required for funding
inventory;
- we can adjust manufacturing volumes quickly to meet changes in demand;
and
- we can quickly deliver products to customers through Solectron's turnkey
manufacturing and drop shipment capabilities.
Our ASICs are manufactured by IBM using its 0.25 micron process. IBM is
responsible for all aspects of the production of the ASICs using our proprietary
designs.
COMPETITION
Competition in the Internet infrastructure market is intense. The market
historically has been dominated by Cisco Systems, Inc., with other companies
such as Nortel Networks and Lucent Technologies Inc. providing products to a
smaller segment of the market. In addition, a number of private companies have
announced plans for new products to address the same problems which our products
address.
Cisco traditionally has been the dominant supplier of solutions to this
market. We believe this is the result of its early leadership position in the
enterprise router market. As the Internet has grown rapidly, Cisco has leveraged
this position and has developed a broad product line of routers which support
all major local area and wide area interfaces. We believe that our ability to
compete with Cisco depends upon our ability to demonstrate that our products are
superior in meeting the needs of service providers and are extremely compatible
with Cisco's current and future products. Although we believe that we are
currently among the top providers of Internet infrastructure solutions
worldwide, we cannot assure you that we will be able to compete successfully
with Cisco, currently the leading provider in this market.
We expect that, over time, large companies with significant resources,
technical expertise, market experience, customer relationships and broad product
lines, such as Lucent and Nortel, will introduce new products which are designed
to compete more effectively in this market. As a result, we expect to face
increased competition in the future from larger companies with significantly
more resources than we have. Although we believe that our technology and the
purpose-built features of our products make them unique and will enable us to
compete effectively with these companies, we cannot assure you that we will be
successful.
Many of our current and potential competitors, such as Cisco, Lucent and
Nortel, have significantly broader product lines than we do and may bundle their
products with other networking products in a manner that may discourage
customers from purchasing our products. Also, many of our current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged.
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<PAGE> 16
Increased competition could result in price reduction, fewer customer orders,
reduced gross margins and loss of market share, any of which could seriously
harm our operating results.
There are also many small private companies which claim to have products
with greater capabilities than our products. Consolidation in this industry has
begun, with one or more of these smaller private companies being acquired by
large, established suppliers of Internet infrastructure products, and we believe
it is likely to continue. As a result, we expect to face increased competition
in the future from larger companies with significantly more resources than we
have.
Several companies also provide solutions which can substitute for some uses
of routers. For example, high bandwidth asynchronous transfer mode, or ATM,
switches, are used in the core of certain major backbone service providers. ATM
switches can carry a variety of traffic types, including voice, video and data,
using fixed, 53 byte cells. Companies that use ATM switches are enhancing their
products with new software technologies such as multi-protocol label switching,
or MPLS, which can potentially simplify the task of mixing routers and switches
in the same network. These substitutes can reduce the need for large numbers of
routers.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
internally developed technology and know how. We have two patents issued
relating to high speed switching devices. These patents will expire in 2017 and
2016, respectively. In addition we have seven patent applications pending in the
United States relating to the design of our products. Our engineering teams have
significant expertise in ASIC design and we own all rights to the design of the
ASICs which form the core of the M40. Our JUNOS Internet Software was developed
internally and is protected by United States and other copyright laws.
While we rely on patent, copyright, trade secret and trademark law to
protect our technology, we also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. There can be no assurance that
others will not develop technologies that are similar or superior to our
technology.
Our success will depend upon our ability to obtain necessary intellectual
property rights and protect our intellectual property rights. We cannot be
certain that we will be able to obtain the necessary intellectual property
rights or that other parties will not contest our intellectual property rights.
EMPLOYEES
As of December 31, 1999, we had 335 full-time employees, 170 of whom were
engaged in research and development, 72 in sales and marketing, 31 in customer
support and 62 in finance, administration and operations. None of our employees
are represented by a labor union. We have not experienced any work stoppages and
we consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement requiring service for any defined
period of time. The loss of the services of one or more of our key employees
could have a material adverse effect on our business, financial condition and
results of operations. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we can retain our key personnel in the future.
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<PAGE> 17
RISK FACTORS
OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM MAINTAINING
PROFITABILITY.
We have incurred significant losses since inception. As of December 31,
1999, we had an accumulated deficit of $52.2 million. Although our net revenues
have grown from zero in the quarter ended September 30, 1998 to $45.4 million in
the quarter ended December 31, 1999, we cannot be certain that our revenues will
continue to grow. We have large fixed expenses and we expect to continue to
incur significant and increasing sales and marketing, product development and
administrative expenses. As a result, we will need to generate significantly
higher revenues to maintain profitability.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.
As a result of our limited operating history, it is difficult to forecast
accurately our revenues, and we have limited meaningful historical financial
data upon which to base planned operating expenses. Specifically, we began
operations in February 1996, introduced our M40 Internet backbone router product
in September 1998, began shipping the M40 in volume in October 1998 and
introduced the M20 in December 1999. In addition, our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term. The revenue and
income potential of our products and business are unproven and the market that
we are addressing is rapidly evolving. If we do not achieve our expected
revenues, our operating results will be below our expectations and the
expectations of investors and market analysts, which could cause the price of
our convertible notes and common stock to decline.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS
THAT WILL ACHIEVE MARKET ACCEPTANCE.
We cannot assure you that we will be able to develop new products or
product enhancements in a timely manner, or at all. Any failure to develop new
products or product enhancements will substantially decrease market acceptance
and sales of our present and future products which will significantly harm our
business and financial results. Even if we are able to develop and commercially
introduce new products and enhancements, we cannot assure you that the new
products or enhancements will achieve widespread market acceptance. Any failure
of our future products to achieve market acceptance could harm our business and
financial results.
THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS, AS WELL AS OUR
EXPECTATION THAT CUSTOMERS WILL SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD
TIMES MAY CAUSE REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM
QUARTER TO QUARTER.
A customer's decision to purchase our products involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. As a result, our sales cycle may be lengthy. Throughout the sales
cycle, we often spend considerable time educating and providing information to
prospective customers regarding the use and benefits of the products. Even after
making the decision to purchase, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely and depends on the
skill set of the customer, the size of the network deployment, the complexity of
the customer's network environment and the degree of hardware and software
configuration necessary to deploy the products. Customers with large networks
usually expand their networks in large increments on a periodic basis.
Accordingly, we expect to receive purchase orders for significant dollar amounts
on an irregular basis. Because of our limited operating history, we cannot
predict these sales and development cycles. These long cycles, as well as our
expectation that customers will tend to sporadically place large orders with
short lead times, may cause our revenues and operating results to vary
significantly and unexpectedly from quarter to quarter.
WE HAVE A LIMITED NUMBER OF CUSTOMERS UPON WHOM WE RELY, AND ANY DECREASE IN
REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE EFFECT ON US.
We began recognizing revenues from sales of the M40 in the quarter ended
December 31, 1998. A significant portion of our revenues to date have been
recognized from a limited number of customers, with two
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customers, UUNet and Cable & Wireless, representing 58% of our revenues for the
year ended December 31, 1999. We expect that the majority of our revenues will
continue to depend on sales of our products to a small number of customers. Any
downturn in the business of these customers or potential new customers could
significantly decrease the sales of our products to these customers which could
seriously harm our revenues and results of operations.
IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATIONS
MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY.
Our future success depends on the continued growth of the Internet as a
widely used medium for commerce and communication. If the Internet does not
continue to expand as a widespread communications medium and commercial
marketplace, the growth of the market for Internet infrastructure equipment may
not continue and the demand for our products could decline significantly.
WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE.
Competition in the Internet infrastructure market is intense. This market
has historically been dominated by Cisco Systems with other companies such as
Nortel Networks and Lucent Technologies providing products to a smaller segment
of the market. In addition, a number of private companies have announced plans
for new products to address the same problems which our products address.
In order to compete effectively in the Internet router market we must
deliver products which:
- provide extremely high network reliability;
- provide high performance interfaces and packet processing capabilities;
- scale easily and efficiently with minimum disruption to the network;
- interoperate with existing network designs and equipment vendors;
- reduce the complexity of the network by decreasing the need for
overlapping equipment; and
- provide a cost-effective solution for service providers.
If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, reduced gross margins and
loss of market share, any one of which could materially and adversely affect our
business, operating results and financial condition.
WE MUST EXPAND SUBSTANTIALLY OUR DIRECT AND INDIRECT SALES OPERATIONS IN ORDER
TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS.
Our products and services require a sophisticated sales effort targeted at
several key people within each of our prospective customers' organizations. This
sales effort requires the efforts of select personnel as well as specialized
system and consulting engineers. We have recently expanded our direct sales
force and plan to hire additional qualified sales personnel and system and
consulting engineers. Competition for these individuals is intense, and we might
not be able to hire the kind and number of sales personnel and system and
consulting engineers we need. In addition, we believe that our future success is
dependent upon establishing successful relationships with a variety of
distribution partners. We have entered into agreements with several value added
resellers, some of whom also sell products that compete with our products. We
cannot be certain that we will be able to reach agreement with additional
resellers on a timely basis or at all, or that they will devote adequate
resources to selling our products.
If we are unable to expand our direct and indirect sales operations, we may
not be able to increase market awareness or sales of our products, which may
prevent us from maintaining profitability.
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IF WE DO NOT EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION SUBSTANTIALLY,
SALES OF OUR PRODUCTS MAY BE SIGNIFICANTLY REDUCED.
The complexity of our products and the difficulty of installing them
require highly trained customer service and support personnel. We currently have
a small customer service and support organization and will need to increase our
staff to support new customers and the expanding needs of existing customers.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of the Internet. If we are unable to expand
our customer service and support organization, we may not be able to increase
sales of our products, which would seriously harm our business.
WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL KEY
COMPONENTS, AND IF WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE
WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS.
We currently purchase several key components, including ASICs and power
supplies, from single or limited sources. We worked with IBM for over three
years to develop several of our key proprietary application specific integrated
circuits, or ASICs, which are custom designed integrated circuits built to
perform a specific function more rapidly than a general purpose microprocessor.
IBM is currently our sole source supplier of these ASICs. These ASICs are very
complex, and we may not be able to develop an alternate source to IBM in a
timely manner, which could hurt our ability to deliver our products to our
customers. We also purchase power supplies from a single source and purchase
other custom components from other sole or limited sources. If we are unable to
buy these components on a timely basis, we will not be able to deliver the
products to our customers, which would negatively impact present and future
sales and revenue which would, in turn, seriously harm our business.
WE CURRENTLY DEPEND PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF WE HAVE TO
QUALIFY A NEW CONTRACT MANUFACTURER WE MAY LOSE REVENUE AND DAMAGE OUR CUSTOMER
RELATIONSHIPS.
Solectron, a third party manufacturer for numerous companies, manufactures
the M40 and M20 at its Milpitas, California facility on a purchase order basis
and is our primary manufacturer. We currently do not have a long-term supply
contract with Solectron. If we should fail to effectively manage our
relationship with Solectron, or if Solectron experiences delays, disruptions or
quality control problems in its manufacturing operations, our ability to ship
products to our customers could be delayed. We have begun the process to qualify
a new third party contract manufacturer. Qualifying a new contract manufacturer
and commencing volume production is expensive and time consuming. If we are
required or choose to change contract manufacturers, we may lose revenue and
damage our customer relationships.
IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR
ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.
Because we currently do not have a long-term supply contract with
Solectron, it is not obligated to supply products to us for any specific period,
in any specific quantity or at any certain price, except as may be provided in a
particular purchase order. We provide forecasts of our demand to Solectron up to
six months prior to scheduled delivery of products to our customers. If we
overestimate our requirements, Solectron may have excess inventory, which would
increase our costs. If we underestimate our requirements, Solectron may have an
inadequate inventory, which could interrupt manufacturing of our products and
result in delays in shipments and revenues. In addition, lead times for
materials and components we order vary significantly and depend on factors such
as the specific supplier, contract terms and demand for each component at a
given time. We also may experience shortages of certain components from time to
time, which also could delay the manufacturing of our products.
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THE UNPREDICTABILITY AND SEASONALITY OF OUR QUARTERLY RESULTS MAY ADVERSELY
AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause our stock price to fluctuate. The primary factors that
may affect us include the following:
- demand for our products;
- the timing of sales of our products;
- the timing of recognizing revenue and deferred revenue;
- new product introductions by our competitors;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
- our ability to obtain sufficient supplies of the sole or limited source
components, including ASICs and power supplies for our products;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels
for our products;
- Internet growth and demand for Internet infrastructure;
- prototype expenses;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the Internet and
related industries.
In addition, we are dependent on decisions by customers to build their
Internet infrastructure, which decisions are in turn dependent upon the success
and expected demand for the services offered by those customers. Furthermore,
the long sales and implementation cycles for our products, as well as the degree
to which customers will sporadically place large orders with short lead times,
may cause revenues and operating results to vary significantly from quarter to
quarter.
We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative functions to address the
increased reporting and other administrative demands, that have resulted from
being a publicly traded company and the increasing size of our business. Our
operating expenses are largely based on anticipated revenue trends and a high
percentage of our expenses are, and will continue to be, fixed in the short
term. As a result, a delay in generating or recognizing revenue for the reasons
set forth above, or for any other reason, could cause significant variations in
our operating results from quarter to quarter and could result in substantial
operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarters, our operating results
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock and the convertible notes may fall.
IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS
WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS
WHICH COULD HARM OUR BUSINESS.
Our products are designed to interface with our customers' existing
networks, each of which has different specifications and utilizes multiple
protocol standards. Many of our customers' networks contain multiple generations
of products that have been added over time as these networks have grown and
evolved. Our
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<PAGE> 21
products must interoperate with all of the products within these networks as
well as future products in order to meet our customers' requirements. If we find
errors in the existing software used in our customers' networks, we must modify
our JUNOS Internet Software to fix or overcome these errors so that our products
will interoperate and scale with the existing software and hardware. If our
products do not interoperate with those of our customers' networks,
installations could be delayed, orders for our products could be cancelled or
our products could be returned. This would also seriously harm our reputation,
which could seriously harm our business and prospects.
BECAUSE OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS, THEY
MAY HAVE ERRORS OR DEFECTS THAT WE FIND ONLY AFTER FULL DEPLOYMENT, WHICH COULD
SERIOUSLY HARM OUR BUSINESS.
Our products are highly complex and designed to be deployed in very large
and complex networks. Although we have thoroughly tested our products, because
of the nature of the product, it can only be fully tested when deployed in very
large networks with high amounts of traffic. To date, our products have been
deployed only on a limited basis. Consequently, our customers may discover
errors or defects in the hardware or the software after it has been fully
deployed. If we are unable to fix errors or other problems that may be
identified in full deployment, we could experience:
- loss of or delay in revenues and loss of market share;
- loss of customers;
- failure to achieve market acceptance;
- diversion of development resources;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
CUSTOMER PRODUCT LIABILITY CLAIMS BASED ON ERRORS IN OUR SOFTWARE OR MISTAKES IN
PERFORMING OUR SERVICES COULD RESULT IN COSTLY LITIGATION AGAINST US.
We may be subject to claims based on errors in our software or mistakes in
performing our services, including claims relating to damages to our customers'
internal systems. Our contracts with our customers generally contain provisions
designed to limit our exposure to potential product liability claims, such as
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. We believe our product liability insurance
is adequate to cover potential product liability claims. However, a product
liability claim, whether successful or not, could seriously impact our capital
reserves, harm our reputation, and direct the attention of key personnel away
from our business, any of which could harm our business.
PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS'
PRODUCTS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION.
Service providers typically use our products in conjunction with products
from other vendors. As a result, when problems occur, it may be difficult to
identify the source of the problem. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.
OUR PRODUCTS ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS
AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE HARMED.
The Internet infrastructure market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards will be adopted by
our
21
<PAGE> 22
customers and competitors. If the standards adopted are different from those
which we have chosen to support, market acceptance of our products may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the introduction of products embodying new technologies and the
emergence of new industry standards could render our existing products obsolete.
In addition, in order to introduce products embodying new technologies and
new industry standards, we must be able to gain access to the latest
technologies of our suppliers such as IBM. Any failure to gain access to the
latest technologies could harm our business and operating results.
OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN
DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR
PRODUCTS.
Our future success will also depend upon our ability to develop and manage
key customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new products
may cause customers to forego purchases of our products and purchase those of
our competitors, which could seriously harm our business.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, FINANCIAL CONDITION
AND PROSPECTS COULD BE SERIOUSLY HARMED.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations domestically and
internationally and have grown our headcount substantially. At December 31,
1998, we had a total of 156 employees and at December 31, 1999, we had a total
of 335 employees. In addition, we plan to continue to hire a significant number
of employees this year. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and will
need to continue to expand, train and manage our work force worldwide.
Furthermore, we expect that we will be required to manage multiple relationships
with various customers and other third parties.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED.
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel. None
of our officers or key employees is bound by an employment agreement for any
specific term and we do not have "key person" life insurance policies covering
any of our employees.
We also intend to hire a significant number of engineering, sales,
marketing and support personnel in the future, and we believe our success
depends, in large part, upon our ability to attract and retain these key
employees. Competition for this personnel is intense, especially in the San
Francisco Bay area. In particular, we have experienced difficulty in hiring
qualified ASIC, software, system and test and customer support engineers and
there can be no assurance that we will be successful in attracting and retaining
these individuals. The loss of the services of any of our key employees, the
inability to attract or retain qualified personnel in the future, or delays in
hiring required personnel, particularly engineers and sales personnel, could
delay the development and introduction of and negatively impact our ability to
sell our products.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received claims of this kind in the past and we
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<PAGE> 23
cannot assure you that we will not receive claims of this kind in the future as
we seek to hire qualified personnel or that those claims will not result in
material litigation. We could incur substantial costs in defending ourselves
against these claims, regardless of their merits.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially reasonable
terms, if at all. The inability to obtain any third-party license required to
develop new products and product enhancements could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost either of which could seriously harm our business, financial condition and
results of operations.
WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS
WHICH COULD SERIOUSLY HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have never
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Claims for alleged
infringement and any resulting lawsuit, if successful, could subject us to
significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could also force us to do one or more
of the following:
- stop selling, incorporating or using our products that use the challenged
intellectual property;
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
- redesign those products that use such technology.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed. For more information concerning our
intellectual property rights, see "Business -- Intellectual Property."
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We market, sell and service our products in the United States and
internationally. We have established offices in England, The Netherlands, France
and Germany to market, sell and service our products in Europe and in Japan,
Hong Kong and Australia to market, sell and service our products in the Asia
Pacific region.
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<PAGE> 24
We intend to expand substantially our international operations and enter
new international markets. This expansion will require significant management
attention and financial resources to develop successfully direct and indirect
international sales and support channels. We may not be able to maintain or
increase international market demand for our products.
We currently have limited experience in marketing and distributing our
products internationally and in developing versions of our products that comply
with local standards. In addition, international operations are subject to other
inherent risks, including:
- greater difficulty in accounts receivable collection and longer
collection periods;
- difficulties and costs of staffing and managing foreign operations;
- the impact of recessions in economies outside the United States;
- unexpected changes in regulatory requirements;
- certification requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences; and
- political and economic instability.
Our export revenues were $22,500,000 for the year ended December 31, 1999
and are generally denominated in U.S. dollars. Consequently, we do not currently
engage in currency hedging activities. However, a portion of our international
revenues may be denominated in foreign currencies in the future.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL
CONDITION.
We intend to make investments in complementary companies, products or
technologies. In the event of any such investments or acquisitions, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt;
- assume liabilities;
- incur amortization expenses related to goodwill and other intangible
assets; or
- incur large and immediate write-offs.
These acquisitions also involve numerous risks, including:
- problems combining the purchased operations, technologies or products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees, particularly those of the acquired
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future.
RISKS RELATED TO THE 4.75% SUBORDINATED CONVERTIBLE NOTES DUE MARCH 15, 2007
The Company recently completed an offering (the "Debt Offering") of 4.75%
Subordinated Convertible Notes Due March 15, 2007 (the "Convertible Notes"). As
a result of the Debt Offering we have substantial
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<PAGE> 25
amounts of outstanding indebtedness, primarily the Convertible Notes. As a
result of this indebtedness, our principal and interest payment obligations will
increase substantially. There is the possibility that we may be unable to
generate cash sufficient to pay the principal of, interest on and other amounts
due in respect of our indebtedness when due. We may also add additional
equipment loans and lease lines to finance capital expenditures and may obtain
additional long-term debt, working capital lines of credit and lease lines.
Our substantial leverage could have significant negative consequences,
including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage relative to less
leveraged competitors and competitors that have better access to capital
resources.
ITEM 2 PROPERTIES
We sublease approximately 60,000 square feet in two buildings located in
Mountain View, California. Approximately 33,000 square feet are subleased
pursuant to a sublease that expires December 31, 2001, and approximately 27,000
square feet are subleased pursuant to a lease that expires June 30, 2000.
We have entered into leases for approximately 25,000, 144,000 and 122,000
square feet of office space in Sunnyvale, California. The lease on the office
space for 25,000 square feet commenced on October 1, 1999, and it will expire
two months after the later of May 1, 2000 or the completion of the improvements
on the 144,000 square foot facility. The lease on the office space for 144,000
square feet will commence on July 1, 2000 and it will expire on the later of
June 30, 2012, with certain options for extension and expansion. In addition, we
have exercised our option to lease an approximately 122,000 square feet facility
adjacent to the 144,000 square foot facility in Sunnyvale. That lease commences
on August 1, 2001.
The commercial real estate market in the San Francisco Bay area is volatile
and unpredictable in terms of available space, rental fees, occupancy rates and
preferred locations. We cannot be certain that additional space will be
available when we require it, or that it will be affordable or in a preferred
location. See Note 7 of the Notes to the Consolidated Financial Statements in
Exhibit 13.1 hereto.
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and their ages, as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott Kriens............................... 42 President, Chief Executive Officer and
Chairman of the Board
Pradeep Sindhu............................. 47 Chief Technical Officer and Vice Chairman
of the Board
Marcel Gani................................ 47 Chief Financial Officer
Steven Haley............................... 45 Vice President of Worldwide Sales and
Service
Gary Heidenreich........................... 51 Vice President of Operations
Peter L. Wexler............................ 44 Vice President of Engineering
</TABLE>
Scott Kriens has served as President, Chief Executive Officer and Chairman
of the board of directors of Juniper Networks since October 1996. From April
1986 to January 1996, Mr. Kriens served as Vice President of Sales and Vice
President of Operations at StrataCom, Inc., a telecommunications equipment
company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics
from California State University, Hayward.
Pradeep Sindhu co-founded Juniper Networks in February 1996 and served as
Chief Executive Officer and Chairman of the board of directors until September
1996. Since then, Dr. Sindhu has served as Vice Chairman of the board of
directors and Chief Technical Officer of Juniper Networks. From September 1984
to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from
March 1987 to February 1996, as the Principal Scientist, and from February 1994
to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox
Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu
holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an M.S.E.E.
from the University of Hawaii and a Masters in Computer Science and Ph.D. in
Computer Science from Carnegie-Mellon University.
Marcel Gani joined Juniper Networks as Chief Financial Officer in February
1997. From January 1996 to January 1997, Mr. Gani served as Vice President and
Chief Financial Officer of NVIDIA Corporation, a 3D graphic processor company.
Mr. Gani also held the positions of Vice President and Chief Financial Officer
at Grand Junction Networks, a data networking company acquired by Cisco Systems,
Inc., from March 1995 to January 1996, and at Primary Access Corporation, a data
networking company acquired by 3Com Corporation, from March 1993 to March 1995.
Mr. Gani holds an M.B.A. from the University of Michigan.
Steven Haley joined Juniper Networks as Vice President of Worldwide Sales
and Service in August 1997. Prior to joining Juniper Networks, Mr. Haley served
as Vice President of Sales at Cisco Systems, Inc., a data networking company,
from July 1996 to August 1997. From February 1990 to July 1996, he worked for
StrataCom, Inc., serving in a variety of management roles from Managing
Director, Europe to Vice President of Sales, Americas. He holds a B.S. in
Marketing from the University of Massachusetts, Amherst.
Gary Heidenreich joined Juniper Networks in July 1997 as Vice President of
Operations. From August 1993 to July 1997, Mr. Heidenreich served as Vice
President of Systems Manufacturing at 3Com Corporation. Mr. Heidenreich holds a
B.S.I.E. from New Mexico State University and an M.B.A. from the University of
Dallas.
Peter L. Wexler joined Juniper Networks as Vice President of Engineering in
January 1997. From April 1995 to January 1997, Mr. Wexler served as Vice
President of Engineering at Bay Networks, a data networking company. From April
1993 to April 1995, Mr. Wexler served as Director of High-End Platform
Development at Wellfleet Communications, a predecessor to Bay Networks and a
manufacturer of high-performance routers. He holds a B.S.E. from State
University of New York at Stony Brook, an M.S.E. from the University of Illinois
and an M.B.A. from Boston University.
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<PAGE> 27
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol "JNPR" since June 25, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market. Our present policy is to retain
earnings, if any, to finance future growth. We have never paid cash dividends
and have no present intention to pay cash dividends. At March 7, 2000, there
were approximately 488 stockholders of record and the price per share of our
common stock was $278.69.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1998
Second Quarter (since June 25, 1999)...................... $ 49.66 $32.96
Third Quarter............................................. $ 75.67 $41.67
Fourth Quarter............................................ $118.17 $60.71
</TABLE>
All stock information has been adjusted to reflect the three-for-one split,
effected in the form of a stock dividend to each stockholder of record as of
December 31, 1999.
On June 24, 1999, Juniper Networks commenced its initial public offering
(the "IPO") pursuant to a Registration Statement on Form S-1 (File No.
333-76681). In the IPO, Juniper Networks sold an aggregate of 16,560,000 shares
of common stock (including an over-allotment option of 2,160,000 shares) at
$11.33 per share, of which approximately 10,266,000 shares were sold by selling
stockholders. The IPO generated aggregate gross proceeds of approximately
$71,300,000 for the Company and approximately $116,400,000 for the selling
stockholders. The aggregate net proceeds to the Company were approximately
$65,200,000, after deducting underwriting discounts and commissions of
approximately $5,000,000 and expenses of the offering of approximately
$1,100,000. Of the net proceeds, the Company used approximately $53,500,000 for
general corporate purposes, including working capital and capital expenditures.
Additionally, $3,700,000 of the proceeds were used to repay capital lease
obligations and $8,000,000 of the proceeds were used to finance two equity
investments.
On October 5, 1999, the Company completed a secondary public offering in
which it sold 17,250,000 shares of common stock (including an over-allotment
option of 2,250,000 shares which was completed on October 12, 1999) at $63.33
per share, of which approximately 11,931,000 shares were sold by selling
stockholders. Proceeds to the Company from this offering, net of issuance costs,
were approximately $324,200,000.
On November 18, 1999, the Company issued an aggregate of 44,336
unregistered shares of common stock to the shareholders of Layer 5 in connection
with the merger of Layer 5 with a wholly-owned subsidiary of the Company. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.
ITEM 6 SELECTED FINANCIAL DATA
For the information required by this Item, see "Selected Financial Data" in
the 1999 Annual Report to Stockholders in Exhibit 13.1 hereto.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
For the information required by this Item, see "Management's Discussions
and Analysis of Financial Condition and Results of Operations" in the 1999
Annual Report to Stockholders in Exhibit 13.1 hereto.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For the information required by this Item, see "Management's Discussions
and Analysis of Financial Condition and Results of Operations" in the 1999
Annual Report to Stockholders, in Exhibit 13.1 hereto.
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<PAGE> 28
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the information required by this Item, see the Consolidated Financial
Statements and Notes thereto in the 1999 Annual Report to Stockholders in
Exhibit 13.1 hereto.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10 DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
our Definitive Proxy Statement with respect to our 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year.
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<PAGE> 29
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
a) Financial Statements and Financial Statement Schedules
1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- As of December 31, 1999 and 1998
Consolidated Statements of Operations -- For the Three Years Ended
December 31, 1999
Consolidated Statement of Stockholders' Equity -- For the Three Years
Ended
December 31, 1999
Consolidated Statements of Cash Flows -- For the Three Years Ended
December 31, 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Juniper Networks is filed as
part of this Report and should be read in conjunction with the Financial
Statements of Juniper Networks.
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and
Reserves
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 No. 333-96171)
4.1 Third Amended and Restated Registration Rights Agreement
dated March 9, 1999 (incorporated herein by reference to
Exhibit 4.6 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees (incorporated herein by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998 (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.5 Sublease between At Home Corporation and the Registrant
dated June 4, 1998 (incorporated herein by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.6 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.7 Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.8* Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997 and Amendments One and Two to the agreement dated
January 5, 1998 and March 2, 1998, respectively
(incorporated herein by reference to Exhibit 10.8, 10.8.1
and 10.8.2, respectively, to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.9* Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998 (incorporated herein by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.10 Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999 (incorporated herein by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.11 Lease between Mathilda Associates LLC and the Registrant
dated February 28, 2000.
13.1 1999 Annual Report to Stockholders (deemed to be filed to
the extent that information is specifically incorporated by
reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 31)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment requested and received as to certain portions.
c) Reports on Form 8-K
We filed a Current Report on Form 8-K dated November 15, 1999 to report
under Item 2 thereof the acquisition of Layer 5. The Current Report of Form 8-K
dated November 15, 1999 also reported, under Item 5 thereof, the announcement of
the approval by our Board of Directors of a three-for-one split of our common
stock.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 27th day of
March, 2000.
JUNIPER NETWORKS, INC.
By: /s/ MARCEL GANI
------------------------------------
Marcel Gani
Chief Financial Officer
(Duly Authorized Officer and
Principal
Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Lisa C. Berry and Marcel Gani, and
each of them individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities to sign any and all amendments
to this Report on Form 10-K, and to file the same with, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SCOTT KRIENS President, Chief Executive Officer March 27, 2000
- ------------------------------------- and Chairman of the Board (Principal
Scott Kriens Executive Officer)
/s/ MARCEL GANI Chief Financial Officer March 27, 2000
- ------------------------------------- (Principal Financial and Accounting
Marcel Gani Officer)
/s/ PRADEEP SINDHU Chief Technical Officer and Vice March 27, 2000
- ------------------------------------- Chairman of Board
Pradeep Sindhu
/s/ WILLIAM R. HEARST III Director March 27, 2000
- -------------------------------------
William R. Hearst III
/s/ VINOD KHOSLA Director March 27, 2000
- -------------------------------------
Vinod Khosla
/s/ C. RICHARD KRAMLICH Director March 27, 2000
- -------------------------------------
C. Richard Kramlich
/s/ WILLIAM STENSRUD Director March 27, 2000
- -------------------------------------
William Stensrud
</TABLE>
31
<PAGE> 32
JUNIPER NETWORKS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts.............. $ -- $632 $ -- $632
Year ended December 31, 1998
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ --
Year ended December 31, 1997
Allowance for doubtful accounts.............. $ -- $ -- $ -- $ --
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
3.2 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 No. 333-96171)
4.1 Third Amended and Restated Registration Rights Agreement
dated March 9, 1999 (incorporated herein by reference to
Exhibit 4.6 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors, officers and certain
employees (incorporated herein by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 No.
333-76681)
10.2 Amended and Restated 1996 Stock Plan (incorporated herein by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.3 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.4 Sublease between Trident Microsystems, Inc. and the
Registrant dated July 1, 1998 (incorporated herein by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.5 Sublease between At Home Corporation and the Registrant
dated June 4, 1998 (incorporated herein by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.6 Change of Control Agreement between Scott Kriens and the
Registrant dated October 1, 1996 (incorporated herein by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.7 Change of Control Agreement between Marcel Gani and the
Registrant dated February 18, 1997 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.8* Agreement for ASIC Design and Purchase of Products between
IBM Microelectronics and the Registrant dated August 26,
1997 and Amendments One and Two to the agreement dated
January 5, 1998 and March 2, 1998, respectively
(incorporated herein by reference to Exhibit 10.8, 10.8.1
and 10.8.2, respectively, to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.9* Standard Manufacturing Agreement between Solectron
California Corporation, Fine Pitch Technology Inc. and the
Registrant dated June 10, 1998 (incorporated herein by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 No. 333-76681)
10.10 Lease between Mathilda Associates LLC and the Registrant
dated June 18, 1999 (incorporated herein by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-1 No. 333-76681)
10.11 Lease between Mathilda Associates LLC and the Registrant
dated February 28, 2000.
13.1 1999 Annual Report to Stockholders (deemed to be filed to
the extent that information is specifically incorporated by
reference)
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page 31)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment requested and received as to certain portions.
<PAGE> 1
LEASE
BY AND BETWEEN
MATHILDA ASSOCIATES LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
AS LANDLORD
AND
JUNIPER NETWORKS, INC.,
A DELAWARE CORPORATION
AS TENANT
FEBRUARY ___, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 REFERENCE..................................................................1
1.1 References....................................................................1
ARTICLE 2 LEASED PREMISES, TERM AND POSSESSION.......................................3
2.1 Demise Of Leased Premises.....................................................3
2.2 Right To Use Outside Areas....................................................3
2.3 Lease Commencement Date And Lease Term........................................3
2.4 Delivery Of Possession........................................................3
2.5 Performance Of Tenant Improvements; Acceptance Of Possession..................3
2.6 Surrender Of Possession.......................................................3
ARTICLE 3 RENT, LATE CHARGES AND SECURITY DEPOSITS...................................4
3.1 Base Monthly Rent.............................................................4
3.2 Additional Rent...............................................................4
3.3 Year-End Adjustments..........................................................5
3.4 Late Charge, And Interest On Rent In Default..................................5
3.5 Payment Of Rent...............................................................5
3.6 Prepaid Rent..................................................................5
3.7 Security Deposit..............................................................5
ARTICLE 4 USE OF LEASED PREMISES AND OUTSIDE AREA....................................7
4.1 Permitted Use.................................................................7
4.2 General Limitations On Use....................................................7
4.3 Noise And Emissions...........................................................7
4.4 Trash Disposal................................................................7
4.5 Parking.......................................................................7
4.6 Signs.........................................................................7
4.7 Compliance With Laws And Private Restrictions.................................8
4.8 Compliance With Insurance Requirements........................................8
4.9 Landlord's Right To Enter.....................................................8
4.10 Use Of Outside Areas..........................................................8
4.11 Environmental Protection......................................................8
4.12 Rules And Regulations........................................................10
4.13 Reservations.................................................................10
ARTICLE 5 REPAIRS, MAINTENANCE, SERVICES AND UTILITIES..............................10
5.1 Repair And Maintenance.......................................................10
(a) Tenant's Obligations..................................................10
(b) Landlord's Obligation.................................................10
5.2 Utilities....................................................................11
5.3 Security.....................................................................11
5.4 Energy And Resource Consumption..............................................11
5.5 Limitation Of Landlord's Liability...........................................11
ARTICLE 6 ALTERATIONS AND IMPROVEMENTS..............................................11
6.1 By Tenant....................................................................11
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.2 Ownership Of Improvements....................................................12
6.3 Alterations Required By Law..................................................12
6.4 Liens........................................................................12
ARTICLE 7 ASSIGNMENT AND SUBLETTING BY TENANT.......................................12
7.1 By Tenant....................................................................12
7.2 Merger, Reorganization, or Sale of Assets....................................13
7.3 Landlord's Election..........................................................13
7.4 Conditions To Landlord's Consent.............................................14
7.5 Assignment Consideration And Excess Rentals Defined..........................14
7.6 Payments.....................................................................14
7.7 Good Faith...................................................................14
7.8 Effect Of Landlord's Consent.................................................15
ARTICLE 8 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY..........................15
8.1 Limitation On Landlord's Liability And Release...............................15
8.2 Tenant's Indemnification Of Landlord.........................................15
ARTICLE 9 INSURANCE.................................................................15
9.1 Tenant's Insurance...........................................................15
9.2 Landlord's Insurance.........................................................16
9.3 Mutual Waiver Of Subrogation.................................................17
ARTICLE 10 DAMAGE TO LEASED PREMISES.................................................17
10.1 Landlord's Duty To Restore...................................................17
10.2 Insurance Proceeds...........................................................17
10.3 Landlord's Right To Terminate................................................17
10.4 Tenant's Right To Terminate..................................................17
10.5 Tenant's Waiver..............................................................18
10.6 Abatement Of Rent............................................................18
ARTICLE 11 CONDEMNATION..............................................................18
11.1 Tenant's Right To Terminate..................................................18
11.2 Landlord's Right To Terminate................................................18
11.3 Restoration..................................................................18
11.4 Temporary Taking.............................................................18
11.5 Division Of Condemnation Award...............................................18
11.6 Abatement Of Rent............................................................18
11.7 Taking Defined...............................................................18
ARTICLE 12 DEFAULT AND REMEDIES......................................................19
12.1 Events Of Tenant's Default...................................................19
12.2 Landlord's Remedies..........................................................19
12.3 Landlord's Default And Tenant's Remedies.....................................20
12.4 Limitation Of Tenant's Recourse..............................................20
12.5 Tenant's Waiver..............................................................21
ARTICLE 13 GENERAL PROVISIONS........................................................21
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
13.1 Taxes On Tenant's Property...................................................21
13.2 Holding Over.................................................................21
13.3 Subordination To Mortgages...................................................21
13.4 Tenant's Attornment Upon Foreclosure.........................................22
13.5 Mortgagee Protection.........................................................22
13.6 Estoppel Certificate.........................................................22
13.7 Tenant's Financial Information...............................................22
13.8 Transfer By Landlord.........................................................22
13.9 Force Majeure................................................................22
13.10 Notices......................................................................22
13.11 Attorneys' Fees..............................................................23
13.12 Definitions..................................................................23
(a) Real Property Taxes...................................................23
(b) Landlord's Insurance Costs............................................24
(c) Property Maintenance Costs............................................24
(d) Property Operating Expenses...........................................24
(e) Law...................................................................24
(f) Lender................................................................24
(g) Private Restrictions..................................................24
(h) Rent..................................................................24
13.13 General Waivers..............................................................24
13.14 Miscellaneous................................................................25
13.15 Cooperation..................................................................25
ARTICLE 14 CORPORATE AUTHORITY BROKERS AND ENTIRE AGREEMENT..........................25
14.1 Corporate Authority..........................................................25
14.2 Brokerage Commissions........................................................25
14.3 Entire Agreement.............................................................25
14.4 Landlord's Representations...................................................25
ARTICLE 15 OPTIONS TO EXTEND.........................................................26
ARTICLE 16 TELEPHONE SERVICE.........................................................27
</TABLE>
iii.
<PAGE> 5
LEASE
THIS LEASE, dated February ___, 2000 for reference purposes only, is
made by and between MATHILDA ASSOCIATES LLC, a California limited liability
company ("Landlord") and JUNIPER NETWORKS, INC., a Delaware corporation
("Tenant"), to be effective and binding upon the parties as of the date the last
of the designated signatories to this Lease shall have executed this Lease (the
"Effective Date of this Lease").
ARTICLE 1
REFERENCE
1.1 REFERENCES. All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below set forth:
<TABLE>
<CAPTION>
<S> <C>
Tenant's Address for Notice: Prior to May 1, 2000:
--------------------
Juniper Networks, Inc.
385 Ravendale Drive
Mountain View, California 94043
After May 1, 2000:
-----------------
1194 Mathilda Avenue
Sunnyvale, California 94089
Tenant's Representative: General Counsel
Landlord's Address for Notices: c/o Menlo Equities LLC
525 University Avenue
Suite 100
Palo Alto, California 94301
Landlord's Representative: Henry Bullock/Richard Holmstrom
Phone Number: (650) 326-9300
Intended Delivery Date: May 1, 2001
Intended Commencement Date: August 1, 2001
Lease Term: Twelve (12) years
Lease Expiration Date: Twelve (12) Years from the Lease
Commencement Date, unless earlier terminated in
accordance with the terms of this Lease, or
extended by Tenant pursuant to ARTICLE 15.
Options to Renew: Two (2) option(s) to renew, each for a term of five
(5) years.
First Month's Prepaid Rent: $327,888.58 (applied to the first month in which
Base Monthly Rent is due)
Tenant's Security Deposit: $1,000,000, subject to adjustment pursuant to
Paragraph 3.7
Late Charge Amount: Five Percent (5%) of the Delinquent Amount
Tenant's Required Liability
Coverage: $3,000,000 Combined Single Limit
Tenant's Broker: Joan Haynes and Steve Gibson of Colliers
International
Landlord's Broker: Don Reimann, Gregg Von Thaden and Jon Condrey of
Colliers International
Property: That certain real property situated in the City of
Sunnyvale, County of Santa Clara, State of
California, to be improved with two (2)
building(s), which real property is shown on the
Site Plan attached hereto as Exhibit "A" and is
commonly known as or otherwise described as
follows: Mathilda Research Centre.
Building: That certain building on the Property in which the
Leased Premises are located commonly known as 1184
Mathilda Avenue (the "Building"), which Building is
shown outlined on
</TABLE>
1
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Exhibit "A" hereto (designated as Building B). The
other building on the Property located at 1194
Mathilda Avenue is referred to herein as the "1194
Building."
Outside Areas: The "Outside Areas" shall mean all areas which are
located outside of and contiguous to the Building,
as shown the Site Plan attached as Exhibit A, such
as pedestrian walkways, parking areas, landscaped
area, open areas and enclosed trash disposal areas.
Leased Premises: All the interior space within the Building,
including stairwells, connecting walkways, and
atriums, to consist of approximately rentable
122,435 square feet and, for purposes of this
Lease, agreed to contain said number of square
feet.
Tenant's Expense Share: The term "Tenant's Expense Share" shall mean the
percentage obtained by dividing the rentable square
footage of the Leased Premises at the time of
calculation by the rentable square footage of the
Building. Such percentage is currently 100%. In the
event that the rentable square footage of the
Leased Premises is changed, Tenant's Expense Share
shall be recalculated to equal the percentage
described in the first sentence of this paragraph,
so that the aggregate Tenant's Expense Share of all
tenants of the Building shall equal 100%.
Tenant's Property Share: The term "Tenant's Property Share" shall mean the
percentage obtained by dividing the rentable square
footage of the Leased Premises at the time of
calculation by the rentable square footage of all
buildings currently located or to be located on the
Property. Such percentage is currently 46%. In the
event that any portion of the Property is sold by
Landlord, or the rentable square footage of the
Leased Premises or the Property is otherwise
changed, Tenant's Property Share shall be
recalculated to equal the percentage described in
the first sentence of this paragraph, so that the
aggregate Tenant's Property Share of all tenants of
the Property shall equal 100%.
Base Monthly Rent: The term "Base Monthly Rent" shall mean the
following:
Period Monthly Amount
------ --------------
8/1/01-7/31/02 $327,888.58
At the end of the 12th month after the actual Lease
Commencement Date and at the end of each 12 month
period thereafter (until the Lease Expiration
Date), Base Monthly Rent shall be increased at a
rate of 3.5% per annum compounded annually.
Permitted Use: General Office, research and development,
marketing, sales, manufacturing, distribution,
warehouse and other related lawful uses.
Exhibits: The term "Exhibits" shall mean the Exhibits of this
Lease which are described as follows:
Exhibit "A" - Site Plan showing the Property, the
Outside Areas and delineating the Building in which
the Leased Premises are to be located.
Exhibit "B" - Work Letter
Exhibit "C" - Lease Commencement Date Certificate
Exhibit "D" - Form of Tenant Estoppel Certificate
Exhibit "E" - Form of Letter of Credit
Exhibit "F" - Form of Landlord Waiver
</TABLE>
2
<PAGE> 7
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 DEMISE OF LEASED PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, for the Lease Term and upon the terms and subject
to the conditions of this Lease, that certain interior space described in
ARTICLE 1 as the Leased Premises, reserving and excepting to Landlord the right
to fifty percent (50%) of all assignment consideration and excess rentals as
provided in ARTICLE 7 below. Tenant's lease of the Leased Premises, together
with the appurtenant right to use the Outside Areas as described in Paragraph
2.2 below, shall be conditioned upon and be subject to the continuing compliance
by Tenant with (i) all the terms and conditions of this Lease, (ii) all Laws
governing the use of the Leased Premises and the Property, (iii) all Private
Restrictions, easements and other matters now of public record respecting the
use of the Leased Premises and Property, and (iv) all reasonable rules and
regulations from time to time established by Landlord.
2.2 RIGHT TO USE OUTSIDE AREAS. As an appurtenant right to Tenant's right to the
use and occupancy of the Leased Premises, Tenant shall have the right to use the
Outside Areas in conjunction with its use of the Leased Premises solely for the
purposes for which they were designated and intended and for no other purposes
whatsoever. Tenant's right to so use the Outside Areas shall be subject to the
limitations on such use as set forth in ARTICLE 1 and shall terminate
concurrently with any termination of this Lease.
2.3 LEASE COMMENCEMENT DATE AND LEASE TERM. Subject to Paragraph 2.4 below, the
term of this Lease shall begin, and the Lease Commencement Date shall be deemed
to have occurred on the Intended Commencement Date, subject to Paragraph 2.4
below. The term of this Lease shall in all events end on the Lease Expiration
Date (as set forth in ARTICLE 1). The Lease Term shall be that period of time
commencing on the Lease Commencement Date and ending on the Lease Expiration
Date (the "Lease Term"). In the event the actual Lease Commencement Date is
different than the Intended Commencement Date, Landlord and Tenant agree to
execute a Lease Commencement Date Certificate in the form attached as Exhibit C
setting forth the actual Lease Commencement Date and the Lease Expiration Date
(such that the length of the Lease Term is the same as set forth in ARTICLE 1)
and an adjustment to the schedule of Base Monthly Rent to reflect the change in
the Lease Commencement Date and Lease Expiration Date.
2.4 DELIVERY OF POSSESSION. Landlord shall deliver to Tenant possession of the
Leased Premises upon Substantial Completion of the Tenant Improvements as that
term is defined in the Work Letter attached hereto as Exhibit B and made a part
of this Lease (the "Work Letter"). The date that the Leased Premises are so
delivered to the Tenant shall be deemed the "Delivery Date." If Landlord is
unable to so deliver possession of the Leased Premises to Tenant in the agreed
condition on or before the Intended Delivery Date, Landlord shall have until the
date that is thirty (30) days after the Intended Delivery Date (the "Delivery
Grace Period") to deliver the Leased Premises. Additionally, the Delivery Grace
Period above set forth shall be extended for such number of days as Landlord may
be delayed in delivering possession of the Leased Premises to Tenant by reason
of Force Majeure or the action or inaction of Tenant. If Landlord is unable to
deliver possession of the Leased Premises in the agreed condition to Tenant
within the Delivery Grace Period (including any extension thereof by reason of
Force Majeure or the actions or inactions of Tenant), then Tenant shall receive
as its sole remedy a credit of two (2) days of free rent for each day that the
Leased Premises are not delivered to Tenant after expiration of the Delivery
Grace Period (including any extension thereof by reason of Force Majeure or the
actions or inactions of Tenant), which free rent shall apply to the first month
in which Base Monthly Rent is due. If Landlord is unable to deliver possession
of the Leased Premises in the agreed condition to Tenant within sixty (60) days
after the expiration of the Delivery Grace Period (including any extension
thereof by reason of Force Majeure or the actions or inactions of Tenant),
Tenant may choose, as its sole remedy, to terminate this Lease, and in the event
of such termination Landlord shall not be liable in damages to Tenant for any
delay. Tenant may not terminate this Lease at any time after the date Landlord
notifies Tenant that the Leased Premises have been put into the agreed condition
and are available for delivery to Tenant, unless Landlord's notice is not given
in good faith. Tenant may occupy the Leased Premises commencing on the Delivery
Date for the Permitted Use, and for purposes of installing furniture, fixtures
and equipment, provided that Tenant shall be responsible for Additional Rent
during such period and Tenant shall comply with all other provisions of this
Lease (other than the payment of Base Monthly Rent).
2.5 PERFORMANCE OF TENANT IMPROVEMENTS; ACCEPTANCE OF POSSESSION. Landlord
shall, pursuant to the Work Letter, perform the work and make the installations
in the Leased Premises substantially as set forth in the Work Letter (such work
and installations hereinafter referred to as the "Tenant Improvements"). It is
agreed that by occupying the Leased Premises, Tenant formally accepts same and
acknowledges that the Leased Premises are in the condition called for hereunder,
subject to reasonable punchlist items and latent defects specified by Tenant to
Landlord in writing within ten (10) days of such occupancy.
2.6 SURRENDER OF POSSESSION. Immediately prior to the expiration or upon the
sooner termination of this Lease, Tenant shall remove all of Tenant's signs from
the exterior of the Building and shall remove all of Tenant's equipment, trade
fixtures, furniture, supplies, wall decorations and other personal property from
within the Leased Premises, the Building and the Outside Areas, and shall vacate
and surrender the Leased Premises, the Building, the Outside Areas and the
Property to Landlord in the same condition, broom clean, as existed at the Lease
Commencement Date, damage by casualty or condemnation (which events shall be
governed by ARTICLEs 10 and 11) and reasonable wear and tear excepted. Except
for such reasonable wear and tear, Tenant shall (i) repair all damage to the
Leased Premises, the exterior of the Building and the Outside Areas caused by
Tenant's removal of Tenant's property, (ii) patch and refinish, to Landlord's
reasonable satisfaction, all penetrations made by Tenant or its employees to the
roof, floor, interior or exterior walls or ceiling of the Leased Premises and
the Building, whether
3
<PAGE> 8
such penetrations were made with Landlord's approval or not, (iii) repair or
replace all stained or damaged ceiling tiles, wall coverings and floor coverings
to the reasonable satisfaction of Landlord, (iv) repair all damage caused by
Tenant to the exterior surface of the Building and the paved surfaces of the
Outside Areas and, where necessary, replace or resurface same. Additionally, to
the extent that Landlord shall have notified or is deemed to have notified
Tenant in writing at the time the improvements were completed that it desired to
have certain improvements made by Tenant or at the request of Tenant removed at
the expiration or sooner termination of the Lease, Tenant shall, upon the
expiration or sooner termination of the Lease, remove any such improvements
constructed or installed by Landlord or Tenant and repair all damage caused by
such removal; provided however, Tenant shall not be required to remove the
Tenant Improvements installed pursuant to the Work Letter. If the Leased
Premises, the Building, the Outside Areas and the Property are not surrendered
to Landlord in the condition required by this paragraph at the expiration or
sooner termination of this Lease, Landlord may, at Tenant's expense, so remove
Tenant's signs, property and/or improvements not so removed and make such
repairs and replacements not so made or hire, at Tenant's expense, independent
contractors to perform such work. Tenant shall be liable to Landlord for all
costs incurred by Landlord in returning the Leased Premises, the Building and
the Outside Areas to the required condition, together with interest on all costs
so incurred from the date paid by Landlord at the then maximum rate of interest
not prohibited or made usurious by law until paid. Tenant shall pay to Landlord
the amount of all costs so incurred plus such interest thereon, within ten (10)
days of Landlord's billing Tenant for same. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in surrendering the
Leased Premises, including, without limitation, any claims made by any
succeeding Tenant or any losses to Landlord with respect to lost opportunities
to lease to succeeding tenants.
ARTICLE 3
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 BASE MONTHLY RENT. Commencing on the Lease Commencement Date (as determined
pursuant to Paragraph 2.3 above) and continuing throughout the Lease Term,
Tenant shall pay to Landlord, without prior demand therefor, in advance on the
first day of each calendar month, the amount set forth as "Base Monthly Rent" in
ARTICLE 1 (the "Base Monthly Rent").
3.2 ADDITIONAL RENT. Commencing on the Lease Commencement Date (as determined
pursuant to Paragraph 2.3 above) and continuing throughout the Lease Term, in
addition to the Base Monthly Rent and to the extent not required by Landlord to
be contracted for and paid directly by Tenant, Tenant shall pay to Landlord as
additional rent (the "Additional Rent") the following amounts:
(a) An amount equal to all Property Operating Expenses (as defined in
ARTICLE 13) incurred by Landlord. Payment shall be made by whichever of the
following methods (or combination of methods) is (are) from time to time
designated by Landlord:
(i) Landlord may forward invoices or bills for such expenses
to Tenant, and Tenant shall, no later than thirty (30) days following receipt of
any such invoices or bills, pay such invoices or bills and deliver satisfactory
evidence of such payment to Landlord, and/or
(ii) Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, the amount of such expenses (or group of expenses) as
paid or incurred by Landlord, and Tenant shall pay to Landlord the amount of
such expenses within thirty (30) days after receipt of a written bill therefor
from Landlord, and/or
(iii) Landlord may deliver to Tenant Landlord's reasonable
estimate of any given expense (such as Landlord's Insurance Costs or Real
Property Taxes), or group of expenses, which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as Landlord may determine, and
Tenant shall pay to Landlord an amount equal to the estimated amount of such
expenses for such year in equal monthly installments during such year with the
installments of Base Monthly Rent.
Landlord reserves the right to change from time to time the methods of billing
Tenant for any given expense or group of expenses or the periodic basis on which
such expenses are billed.
(b) Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by ARTICLE 7.
(c) Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to ARTICLE 13; and
(d) Any other charges or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease.
Notwithstanding the foregoing, Landlord may elect by thirty (30) days prior
written notice to Tenant (provided such written notice is received by Tenant at
least thirty (30) days prior to delinquency) to have Tenant pay Real Property
Taxes or any portion thereof directly to the applicable taxing authority, in
which case Tenant shall make such payments and deliver satisfactory evidence of
payment to Landlord no later than ten (10) days before such Real Property Taxes
become delinquent.
Tenant may cause an audit of Landlord's books and records to determine the
accuracy of Landlord's billings for Property Operating Expenses under this
Lease, provided Tenant commences such audit within sixty (60) days after
Tenant's receipt of the year-end statement described in Section 3.3 above
setting forth the annual reconciliation of
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the Property Operating Expenses or any change in estimated monthly expenses
under Section 3.2(a)(iii) above. If such audit reveals that the actual Property
Operating Expenses for any given year were less than the amount that Tenant paid
for Property Operating Expenses for any such year, then Landlord shall pay to
Tenant the excess. If such audit reveals a discrepancy of more than three (3%)
percent of the actual amount of any Property Operating Expenses charges, then
Landlord shall pay the cost of the audit.
Additionally, Tenant shall have the right, by appropriate proceedings, to
protest or contest any assessment, reassessment or allocation of Real Property
Taxes or any change therein or any application of any Law to the Leased Premises
or Tenant's use thereof. Landlord will reasonably cooperate with Tenant in the
contest or proceedings. If Tenant does not pay the Real Property Taxes when due
which are the subject of such protest or contest, Tenant shall post a bond in
lieu thereof in an amount reasonably determined by Landlord but not less than
one hundred twenty-five percent (125%) of the amount demanded by the taxing
authorities which holds Landlord and the Property harmless from any damage
arising out of the contest and ensuring the payment of any judgment that may be
rendered. With respect to any contest of Real Property Taxes or Laws conducted
by Tenant, Tenant shall hold Landlord and the Property harmless from any damage
arising out of such protest or contest and shall pay any judgment that may be
rendered in connection with such contest or protest. Any protest or contest
conducted by Tenant under this paragraph shall be at Tenant's expense and if
interest or late charges become payable as a result of such contest or protest,
Tenant shall pay the same. Tenant shall receive a proportionate share of any
refund applicable to the Lease Term based on the amount of Real Property Taxes
paid by Tenant as Tenant's Property Share (if the refund is applicable to the
land) or Tenant's Expense Share (if the refund is applicable to the Building or
other improvements in the Outside Areas).
3.3 YEAR-END ADJUSTMENTS. If Landlord shall have elected to bill Tenant for the
Property Operating Expenses (or any group of such expenses) on an estimated
basis in accordance with the provisions of Paragraph 3.2(a)(iii) above, Landlord
shall furnish to Tenant within three months following the end of the applicable
calendar or fiscal year, as the case may be, a statement setting forth (i) the
amount of such expenses paid or incurred during the just ended calendar or
fiscal year, as appropriate, and (ii) the amount that Tenant has paid to
Landlord for credit against such expenses for such period. If Tenant shall have
paid more than its obligation for such expenses for the stated period, Landlord
shall, at its election, either (i) credit the amount of such overpayment toward
the next ensuing payment or payments of Additional Rent that would otherwise be
due or (ii) refund in cash to Tenant the amount of such overpayment within
thirty (30) days after it has been conclusively determined by Landlord that an
overpayment has been made by Tenant. If such year-end statement shall show that
Tenant did not pay its obligation for such expenses in full, then Tenant shall
pay to Landlord the amount of such underpayment within ten days from Landlord's
billing of same to Tenant. The provisions of this Paragraph shall survive the
expiration or sooner termination of this Lease.
3.4 LATE CHARGE, AND INTEREST ON RENT IN DEFAULT. Tenant acknowledges that the
late payment by Tenant of any monthly installment of Base Monthly Rent or any
Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix. Such costs and expenses will include without
limitation, administration and collection costs and processing and accounting
expenses. Therefor, if any installment of Base Monthly Rent is not received by
Landlord from Tenant when the same becomes due, Tenant shall immediately pay to
Landlord a late charge in an amount equal to the amount set forth in ARTICLE 1
as the "Late Charge Amount," and if any Additional Rent is not received by
Landlord when the same becomes due, Tenant shall immediately pay to Landlord a
late charge in an amount equal to 5% of the Additional Rent not so paid;
provided, however, that once but only once in any twelve (12) month period
during the Lease Term, Tenant shall be entitled to written notice of non-receipt
of Base Monthly Rent or Additional Rent from Landlord, and Tenant shall not be
liable for any Late Charge Amount or other late charge hereunder if such
installment of Base Monthly Rent or Additional Rent is received by Landlord
within ten (10) days after Tenant's receipt of such notice from Landlord.
Landlord and Tenant agree that this late charge represents a reasonable estimate
of such costs and expenses and is fair compensation to Landlord for the
anticipated loss Landlord would suffer by reason of Tenant's failure to make
timely payment. In no event shall this provision for a late charge be deemed to
grant to Tenant a grace period or extension of time within which to pay any
rental installment or prevent Landlord from exercising any right or remedy
available to Landlord upon Tenant's failure to pay each rental installment due
under this Lease when due, including the right to terminate this Lease. If any
rent remains delinquent for a period in excess of 10 calendar days, then, in
addition to such late charge, Tenant shall pay to Landlord interest on any rent
that is not so paid from said tenth day at the then maximum rate of interest not
prohibited or made usurious by Law until paid.
3.5 PAYMENT OF RENT. Except as specifically provided otherwise in this Lease,
all rent shall be paid in lawful money of the United States, without any
abatement, reduction or offset for any reason whatsoever, to Landlord at such
address as Landlord may designate from time to time. Tenant's obligation to pay
Base Monthly Rent and all Additional Rent shall be appropriately prorated at the
commencement and expiration of the Lease Term. The failure by Tenant to pay any
Additional Rent as required pursuant to this Lease when due shall be treated the
same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord
shall have the same rights and remedies against Tenant as Landlord would have
had Tenant failed to pay the Base Monthly Rent when due.
3.6 PREPAID RENT. Tenant shall, within ten (10) days following execution of this
Lease, pay to Landlord the amount set forth in ARTICLE 1 as "First Month's
Prepaid Rent" as prepayment of rent for credit against the first payment of Base
Monthly Rent due hereunder.
3.7 SECURITY DEPOSIT.
(a) Tenant , within ten (10) days following execution of this Lease,
shall deposit with Landlord the amount set forth in ARTICLE 1 as the "Security
Deposit" as security for the performance by Tenant of the terms of this Lease to
be performed by Tenant, and not as prepayment of rent. Upon the commencement of
the second year of the Lease
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Term, and at the commencement of each subsequent year, provided that Tenant is
not then in default (and has never been in default beyond any applicable notice
and cure periods) in its payment of Base Monthly Rent or Additional Rent, the
amount of the Security Deposit shall be reduced by twenty percent (20%) of the
outstanding amount. In the event (i) Tenant becomes a publicly traded company
and (ii) Tenant reports net profits for three (3) consecutive quarters (as shown
on its quarterly financial statements prepared in accordance with generally
accepted accounting principles), and provided that Tenant is not then in default
(and has never been in default beyond any applicable notice and cure periods) in
its payment of Base Monthly Rent or Additional Rent, the Security Deposit shall
be returned to Tenant and thereafter no Security Deposit will be required. In
the event (1) Tenant becomes a publicly traded company and maintains a market
capitalization of Two Billion Dollars ($2,000,000,000) for two consecutive
quarters and (2) quarterly revenues exceed Twenty Five Million Dollars
($25,000,000) for two consecutive quarters (as shown on its quarterly financial
statements prepared in accordance with generally accepted accounting
principles), and provided that Tenant is not then in default (and has never been
in default beyond any applicable notice and cure periods) in its payment of Base
Monthly Rent or Additional Rent, the Security Deposit shall be reduced by an
amount equal to fifty percent (50%) of the original amount.
(b) Landlord may apply such portion or portions of the Security Deposit
as are reasonably necessary for the following purposes: (i) to remedy any
default by Tenant in the payment of Base Monthly Rent or Additional Rent or a
late charge or interest on defaulted rent, or any other monetary payment
obligation of Tenant under this Lease; (ii) to repair damage to the Leased
Premises, the Building or the Outside Areas caused or permitted to occur by
Tenant; (iii) to clean and restore and repair the Leased Premises, the Building
or the Outside Areas following their surrender to Landlord if not surrendered in
the condition required pursuant to the provisions of ARTICLE 2, and (iv) to
remedy any other default of Tenant to the extent permitted by Law including,
without limitation, paying in full on Tenant's behalf any sums claimed by
materialmen or contractors of Tenant to be owing to them by Tenant for work done
or improvements made at Tenant's request to the Leased Premises. In this regard,
Tenant hereby waives any restriction on the uses to which the Security Deposit
may be applied as contained in Section 1950.7(c) of the California Civil Code
and/or any successor statute. In the event the Security Deposit or any portion
thereof is so used, Tenant shall pay to Landlord, promptly upon demand, an
amount in cash sufficient to restore the Security Deposit to the full original
sum or shall replenish the letter of credit, if applicable. Landlord shall not
be deemed a trustee of the Security Deposit. Landlord may use the Security
Deposit in Landlord's ordinary business and shall not be required to segregate
it from Landlord's general accounts. Tenant shall not be entitled to any
interest on any cash Security Deposit held by Landlord. If Landlord transfers
the Building or the Property during the Lease Term, Landlord may pay the
Security Deposit to any subsequent owner in conformity with the provisions of
Section 1950.7 of the California Civil Code and/or any successor statute, in
which event the transferring landlord shall be released from all liability for
the return of the Security Deposit. Tenant specifically grants to Landlord (and
Tenant hereby waives the provisions of California Civil Code Section 1950.7 to
the contrary) a period of ninety days following a surrender of the Leased
Premises by Tenant to Landlord within which to inspect the Leased Premises, make
required restorations and repairs, receive and verify workmen's billings
therefor, and prepare a final accounting with respect to the Security Deposit.
In no event shall the Security Deposit or any portion thereof, be considered
prepaid rent. Notwithstanding the foregoing, in lieu of a cash Security Deposit,
Tenant may deliver to Landlord a clean, unconditional, irrevocable, transferable
letter of credit in the full amount of the Security Deposit required pursuant to
ARTICLE 1 hereof (the "Letter of Credit") in form and issued by a financial
institution ("Issuer") satisfactory to Landlord in its sole discretion,
substantially in the form attached as Exhibit E. The Letter of Credit shall
permit partial draws, and provide that draws thereunder will be honored upon
receipt by Issuer of a written statement signed by Landlord or its authorized
agent stating that Landlord is entitled to draw down on the Letter of Credit
pursuant to the terms of the Lease. The Letter of Credit shall have an
expiration period of one (1) year but shall automatically renew by its terms
unless affirmatively cancelled by either Issuer or Tenant, in which case Issuer
must provide Landlord 30 days' prior written notice of such expiration or
cancellation. Any amount drawn under the Letter of Credit shall be held or used
by Landlord in accordance with this Section 3.7. If the amount of the Letter of
Credit is reduced in accordance with the terms of this Lease, Tenant shall have
the right to replace the existing Letter of Credit with another Letter of Credit
at the reduced amount. If the Tenant fails to renew or replace the Letter of
Credit as required under this Lease at least thirty (30) days before its stated
expiration date, Landlord may draw upon the entire amount of the Letter of
Credit, provided that if Landlord so draws on the Letter of Credit, so long as
Tenant is not otherwise in default, Landlord shall deliver the amount so drawn
to Tenant upon Tenant's delivery to Landlord of a new Letter of Credit in the
amount then required, provided that Tenant makes such delivery within ten (10)
days of Landlord's draw.
(c) In the event Mathilda Associates LLC transfers or sells its interest
in the Property to person any entity other than an institutional buyer (a
"Non-Institutional Buyer"), Tenant shall have the right to require that the
Security Deposit be held by the lender, if any, providing the financing for such
Non-Institutional Buyer to acquire the Property, or be held in an escrow account
controlled by such Non-Institutional Buyer, which account shall be subject to
escrow instructions specifying that (1) Landlord shall only have the right to
draw on the Letter of Credit to the extent the Landlord is entitled to pursuant
to this Section 3.7, (2) Landlord shall deliver a statement to the escrow holder
prior to any draw down, certifying that Landlord is entitled to draw on the
Letter of Credit pursuant to this Section 3.7, and (3) that within ninety (90)
days after expiration of this Lease, the escrow holder shall release the Letter
to Credit to Tenant consistent with the terms of this Lease. For purposes
hereof, the term "institutional buyer" shall include, without limitation, life
insurance companies, banks, pension funds, pension fund advisors, opportunity
funds, hedge funds, private owners who directly or indirectly own more than
$200,000,000 of real estate, or real estate investment trusts.
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ARTICLE 4
USE OF LEASED PREMISES AND OUTSIDE AREA
4.1 PERMITTED USE. Tenant shall be entitled to use the Leased Premises solely
for the "Permitted Use" as set forth in ARTICLE 1 and for no other purpose
whatsoever. Tenant shall have the right to vacate the Leased Premises at any
time during the Term of this Lease, provided Tenant maintains the Leased
Premises in the same condition as if fully occupied and as otherwise required by
the terms of this Lease. Tenant shall have the right to use the Outside Areas in
conjunction with its Permitted Use of the Leased Premises solely for the
purposes for which they were designed and intended and for no other purposes
whatsoever.
4.2 GENERAL LIMITATIONS ON USE. Tenant shall not do or permit anything to be
done in or about the Leased Premises, the Building, the Outside Areas or the
Property which does or could (i) jeopardize the structural integrity of the
Building or (ii) cause damage to any part of the Leased Premises, the Building,
the Outside Areas or the Property. Tenant shall not operate any equipment within
the Leased Premises which does or could (i) injure, vibrate or shake the Leased
Premises or the Building, (ii) damage, overload or impair the efficient
operation of any electrical, plumbing, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building, or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building. Tenant shall not (i) install any
equipment or antennas on or make any penetrations of the exterior walls or roof
of the Building or (ii) affix any equipment or make any penetrations or cuts in
the floors, ceiling or walls of the Leased Premises, without Landlord's prior
written consent, which consent shall not be unreasonably withheld; provided,
however, that it shall be reasonable for Landlord to withhold its consent if
Tenant's proposed installations or penetrations impact the structural integrity
of the Building. Any installations, penetrations or cuts in the interior or
exterior walls, roof, floor or ceiling of the Building will be subject to
Tenant's restoration obligations set forth in Section 2.6. Tenant shall not
place any loads upon the floors, walls, ceiling or roof systems which could
endanger the structural integrity of the Building or damage its floors,
foundations or supporting structural components. Tenant shall not place any
explosive, flammable or harmful fluids or other waste materials in the drainage
systems of the Leased Premises, the Building, the Outside Areas or the Property.
Tenant shall not drain or discharge any fluids in the landscaped areas or across
the paved areas of the Property. Tenant shall not use any of the Outside Areas
for the storage of its materials, supplies, inventory or equipment and all such
materials, supplies, inventory or equipment shall at all times be stored within
the Leased Premises. Tenant shall not commit nor permit to be committed any
waste in or about the Leased Premises, the Building, the Outside Areas or the
Property.
4.3 NOISE AND EMISSIONS. All noise generated by Tenant in its use of the Leased
Premises shall be confined or muffled so that it does not interfere with the
businesses of or annoy the occupants and/or users of adjacent properties. All
dust, fumes, odors and other emissions generated by Tenant's use of the Leased
Premises shall be sufficiently dissipated in accordance with sound environmental
practice and exhausted from the Leased Premises in such a manner so as not to
interfere with the businesses of or annoy the occupants and/or users of adjacent
properties, or cause any damage to the Leased Premises, the Building, the
Outside Areas or the Property or any component part thereof or the property of
adjacent property owners.
4.4 TRASH DISPOSAL. Tenant shall provide trash bins or other adequate garbage
disposal facilities within the trash enclosure areas provided or permitted by
Landlord outside the Leased Premises sufficient for the interim disposal of all
of its trash, garbage and waste. All such trash, garbage and waste temporarily
stored in such areas shall be stored in such a manner so that it is not visible
from outside of such areas, and Tenant shall cause such trash, garbage and waste
to be regularly removed from the Property. Tenant shall keep the Leased Premises
in a clean, safe and neat condition and keep the Outside Areas (except the trash
enclosure areas) free and clear of all of Tenant's trash, garbage, waste and/or
boxes, pallets and containers containing same at all times.
4.5 PARKING. Tenant shall have the non-exclusive use of its proportionate share
(calculated using the same method as Tenant's Expense Share) of parking spaces
located in the Outside Areas (which, subject to any transportation management
requirements of the City of Sunnyvale, shall be no less than 3.6 spaces per
1,000 rentable square feet in the Leased Premises). During construction of the
1184 Building (as defined in ARTICLE 16), Tenant shall have the non-exclusive
use of all parking areas located on the Property, subject to Landlord's use
thereof for construction activities. Notwithstanding the foregoing, Tenant shall
have exclusive use of the thirty (30) parking spaces directly in front of the
front door to the Leased Premises. Tenant shall not, at any time, park or permit
to be parked any recreational vehicles, inoperative vehicles or equipment in the
Outside Areas or on any portion of the Property. Tenant agrees to assume
responsibility for compliance by its employees and invitees with the parking
provisions contained herein. If Tenant or its employees park any vehicle within
the Property in violation of these provisions, then Landlord may, upon prior
written notice to Tenant giving Tenant one (1) day (or any applicable statutory
notice period, if longer than one (1) day) to remove such vehicle(s). Landlord
reserves the right to grant easements and access rights to others for use of the
parking areas on the Property, provided that such grants do not materially
interfere with Tenant's use of the parking areas.
4.6 SIGNS. Other than business identification signs allowed pursuant to this
Section 4.6, Tenant shall not place or install on or within any portion of the
Leased Premises, the exterior of the Building, the Outside Areas or the Property
any sign, advertisement, banner, placard, or picture which is visible from the
exterior of the Leased Premises. Subject to Landlord's prior written consent,
which shall not be unreasonably withheld, and subject to approval by the City of
Sunnyvale, Tenant shall have the right to install an illuminated business
identification sign on the Building. Landlord shall cooperate with Tenant's
efforts to obtain approval from the City of Sunnyvale for an illuminated sign.
Any such sign shall be installed at Tenant's sole cost and expense and only in
strict compliance with Landlord's approval (which shall not be unreasonably
withheld), and all Laws and all requirements of the City of Sunnyvale, using a
person approved by Landlord to install same. Subject to Landlord's prior written
consent,
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which shall not be unreasonably withheld, and subject to approval by the City of
Sunnyvale of the installation of no less than two (2) monument signs for the
Property, Tenant shall have the right to its own business identification
monument sign on the Property, in a location which indicates that such sign
belongs to the Building (or, if Tenant occupies all buildings on the Property,
Tenant shall have the exclusive right to all such monument signs), to be
installed by Landlord at its sole cost and expense. In the event the City of
Sunnyvale only approves the installation of one (1) monument sign for the
Property, Tenant shall have the right to place its business identification
signage on the top of said monument sign, which monument sign shall be installed
by Landlord, at its sole cost and expense. Such monument sign shall comply with
all requirements imposed by the City of Sunnyvale. Landlord may remove any signs
(which have not been approved in writing by Landlord), advertisements, banners,
placards or pictures so placed by Tenant on or within the Leased Premises, the
exterior of the Building, the Outside Areas or the Property and charge to Tenant
the cost of such removal, together with any costs incurred by Landlord to repair
any damage caused thereby, including any cost incurred to restore the surface
(upon which such sign was so affixed) to its original condition. Notwithstanding
anything to the contrary contained herein, Tenant shall remove all of Tenant's
signs, repair any damage caused thereby, and restore the surface upon which the
sign was affixed to its original condition, all to Landlord's reasonable
satisfaction, upon the termination of this Lease.
4.7 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS. Tenant shall abide by and
shall promptly observe and comply with, at its sole cost and expense, all Laws
and Private Restrictions respecting the use and occupancy of the Leased
Premises, the Building, the Outside Areas or the Property including, without
limitation, all Laws governing the use and/or disposal of Hazardous Materials
(except that Tenant shall not be responsible for any Hazardous Materials at the
Leased Premises, the Building, the Outside Areas or the Property prior to the
Delivery Date), and shall defend with competent counsel, indemnify and hold
Landlord harmless from any claims, damages or liability resulting from Tenant's
failure to so abide, observe, or comply. Tenant's obligations hereunder shall
survive the expiration or sooner termination of this Lease.
4.8 COMPLIANCE WITH INSURANCE REQUIREMENTS. With respect to any insurance
policies required or permitted to be carried by Landlord in accordance with the
provision of this Lease, copies of which have been or will, upon Tenant's
written request therefor, be provided to Tenant, Tenant shall not conduct nor
permit any other person to conduct any activities nor keep, store or use (or
allow any other person to keep, store or use) any item or thing within the
Leased Premises, the Building, the Outside Areas or the Property which (i) is
prohibited under the terms of any such policies, (ii) could result in the
termination of the coverage afforded under any of such policies, (iii) could
give to the insurance carrier the right to cancel any of such policies, or (iv)
could cause an increase in the rates (over standard rates) charged for the
coverage afforded under any of such policies. Tenant shall comply with all
requirements of any insurance company, insurance underwriter, or Board of Fire
Underwriters which are necessary to maintain, at standard rates, the insurance
coverages carried by either Landlord or Tenant pursuant to this Lease.
4.9 LANDLORD'S RIGHT TO ENTER. Landlord and its agents shall have the right to
enter the Leased Premises during normal business hours after giving Tenant
reasonable notice and subject to Tenant's reasonable security measures for the
purpose of (i) inspecting the same; (ii) showing the Leased Premises to
prospective purchasers, mortgagees or tenants; (iii) making necessary
alterations, additions or repairs; and (iv) performing any of Tenant's
obligations when Tenant has failed to do so. Landlord shall have the right to
enter the Leased Premises during normal business hours (or as otherwise agreed),
subject to Tenant's reasonable security measures, for purposes of supplying any
maintenance or services agreed to be supplied by Landlord. Landlord shall have
the right to enter the Outside Areas during normal business hours for purposes
of (i) inspecting the exterior of the Building and the Outside Areas; (ii)
posting notices of nonresponsibility (and for such purposes Tenant shall provide
Landlord at least thirty days' prior written notice of any work to be performed
on the Leased Premises); and (iii) supplying any services to be provided by
Landlord. Any entry into the Leased Premises or the Outside Areas obtained by
Landlord in accordance with this paragraph shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Leased Premises, or an eviction, actual or constructive of Tenant from the
Leased Premises or any portion thereof. In exercising its rights under this
Section 4.9, Landlord shall use commercially reasonable efforts to minimize
interference with Tenant's use of the Leased Premises and the Outside Areas.
4.10 USE OF OUTSIDE AREAS. Tenant, in its use of the Outside Areas, shall at all
times keep the Outside Areas in a safe condition free and clear of all
materials, equipment, debris, trash (except within existing enclosed trash
areas), inoperable vehicles, and other items which are not specifically
permitted by Landlord to be stored or located thereon by Tenant. If, in the
opinion of Landlord, unauthorized persons are using any of the Outside Areas by
reason of, or under claim of, the express or implied authority or consent of
Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest
extent then allowed by Law, such unauthorized use, and shall initiate such
appropriate proceedings as may be required to so restrain such use. Landlord
reserves the right to grant easements and access rights to others for use of the
Outside Areas and shall not be liable to Tenant for any diminution in Tenant's
right to use the Outside Areas as a result; provided, however, that other than
for construction of the 1184 Building and other requirements under the Use
Permit, of which the Tenant has knowledge and which the Tenant recognizes will
be taking place during the Lease Term, Landlord shall not exercise its rights
pursuant to this Section 4.10 in a manner which materially and adversely affects
Tenant's ability to use the Leased Premises and the Outside Areas for the
Permitted Use or materially and adversely affects Tenant's parking rights.
4.11 ENVIRONMENTAL PROTECTION. Tenant's obligations under this Section 4.11
shall survive the expiration or termination of this Lease.
(a) As used herein, the term "Hazardous Materials" shall mean any toxic
or hazardous substance, material or waste or any pollutant or infectious or
radioactive material, including but not limited to those substances, materials
or wastes regulated now or in the future under any of the following statutes or
regulations and any and all of those substances included within the definitions
of "hazardous substances," "hazardous materials," "hazardous waste," "hazardous
chemical substance or mixture," "imminently hazardous chemical substance or
mixture," "toxic
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substances," "hazardous air pollutant," "toxic pollutant," or "solid waste" in
the (a) Comprehensive Environmental Response, Compensation and Liability Act of
1990 ("CERCLA" or "Superfund"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section 9601 et seq., (b)
Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901
et seq., (c) Federal Water Pollution Control Act ("FSPCA"), 33 U.S.C. Section
1251 et seq., (d) Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq., (e)
Toxic Substances Control Act ("TSCA"), 14 U.S.C. Section 2601 et seq., (f)
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act ("California
Superfund"), Cal. Health & Safety Code Section 25300 et seq., (h) California
Hazardous Waste Control Act, Cal. Health & Safety code Section 25100 et seq.,
(i) Porter-Cologne Water Quality Control Act ("Porter-Cologne Act"), Cal. Water
Code Section 13000 et seq., (j) Hazardous Waste Disposal Land Use Law, Cal.
Health & Safety codes Section 25220 et seq., (k) Safe Drinking Water and Toxic
Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety code Section
25249.5 et seq., (l) Hazardous Substances Underground Storage Tank Law, Cal.
Health & Safety code Section 25280 et seq., (m) Air Resources Law, Cal. Health &
Safety Code Section 39000 et seq., and (n) regulations promulgated pursuant to
said laws or any replacement thereof, or as similar terms are defined in the
federal, state and local laws, statutes, regulations, orders or rules. Hazardous
Materials shall also mean any and all other biohazardous wastes and substances,
materials and wastes which are, or in the future become, regulated under
applicable Laws for the protection of health or the environment, or which are
classified as hazardous or toxic substances, materials or wastes, pollutants or
contaminants, as defined, listed or regulated by any federal, state or local
law, regulation or order or by common law decision, including, without
limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and
other chlorinated solvents, (ii) any petroleum products or fractions thereof,
(iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable explosives, (vi)
urea formaldehyde, (vii) radioactive materials and waste, and (viii) materials
and wastes that are harmful to or may threaten human health, ecology or the
environment.
(b) Notwithstanding anything to the contrary in this Lease, Tenant, at
its sole cost, shall comply with all Laws relating to the storage, use and
disposal of Hazardous Materials by Tenant, its subtenants, their respective
agents, employees, contractors or invitees (collectively, the "Tenant Parties").
Tenant shall not store, use or dispose of any Hazardous Materials except for
those Hazardous Materials listed in a Hazardous Materials management plan
("HMMP") which Tenant shall deliver to Landlord upon execution of this Lease and
update at least annually with Landlord ("Permitted Materials") which may be
used, stored and disposed of provided (i) such Permitted Materials are used,
stored, transported, and disposed of in strict compliance with applicable laws,
(ii) such Permitted Materials shall be limited to the materials listed on and
may be used only in the quantities specified in the HMMP, and (iii) Tenant shall
provide Landlord with copies of all material safety data sheets and other
documentation required under applicable Laws in connection with Tenant's use of
Permitted Materials as and when such documentation is provided to any regulatory
authority having jurisdiction, in no event shall Tenant cause or permit to be
discharged into the plumbing or sewage system of the Building or onto the land
underlying or adjacent to the Building any Hazardous Materials. Tenant shall be
solely responsible for and shall defend, indemnify, and hold Landlord and its
agents harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with Tenant's
storage, use and/or disposal of Hazardous Materials. If the presence of
Hazardous Materials on the Leased Premises caused or permitted by Tenant results
in contamination or deterioration of water or soil, then Tenant shall promptly
take any and all action necessary to clean up such contamination as required by
Law, but the foregoing shall in no event be deemed to constitute permission by
Landlord to allow the presence of such Hazardous Materials. At any time prior to
the expiration of the Lease Term if Tenant has a reasonable basis to suspect
that there has been any release or the presence of Hazardous Materials in the
ground or ground water on the Leased Premises which did not exist upon
commencement of the Lease Term, Tenant shall have the right to conduct
appropriate tests of water and soil and to deliver to Landlord the results of
such tests to demonstrate that no contamination in excess of permitted levels
has occurred as a result of Tenant's use of the Leased Premises. Tenant shall
further be solely responsible for, and shall defend, indemnify, and hold
Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with any removal, cleanup and restoration work and materials required
hereunder to return the Leased Premises and any other property of whatever
nature to their condition existing prior to the appearance of the Hazardous
Materials, to the extent such removal, cleanup and restoration work is required
by Law.
(c) Upon termination or expiration of the Lease, Tenant at its sole
expense shall cause all Hazardous Materials placed in or about the Leased
Premises, the Building and/or the Property by any Tenant Parties, and all
installations (whether interior or exterior) made by or on behalf of Tenant
relating to the storage, use, disposal or transportation of Hazardous Materials
to be removed from the property and transported for use, storage or disposal in
accordance and compliance with all Laws and other requirements respecting
Hazardous Materials used or permitted to be used by Tenant. Tenant shall apply
for and shall obtain from all appropriate regulatory authorities (including any
applicable fire department or regional water quality control board) all permits,
approvals and clearances necessary for the closure of the Property and shall
take all other actions as may be required to complete the closure of the
Building and the Property. In addition, prior to vacating the Leased Premises,
Tenant shall undertake and submit to Landlord an environmental site assessment
from an environmental consulting company reasonably acceptable to Landlord which
site assessment shall evidence Tenant's compliance with this Paragraph 4.11.
(d) At any time prior to expiration of the Lease term, subject to
reasonable prior notice (not less than forty-eight (48) hours) and Tenant's
reasonable security requirements and provided such activities do not
unreasonably interfere with the conduct of Tenant's business at the Leased
Premises, Landlord shall have the right to enter in and upon the Property,
Building and Leased Premises in order to conduct appropriate tests of water and
soil to determine whether levels of any Hazardous Materials in excess of legally
permissible levels has occurred as a result of any Tenant Parties' use thereof .
Landlord shall furnish copies of all such test results and reports to Tenant
and, at Tenant's option and cost, shall permit split sampling for testing and
analysis by Tenant. Such testing shall be at Tenant's expense if Landlord has a
reasonable basis for suspecting and confirms the presence of Hazardous
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Materials in the soil or surface or ground water in, on, under, or about the
Property, the Building or the Leased Premises, which has been caused by or
resulted from the activities of any Tenant Parties.
(e) Landlord may voluntarily cooperate in a reasonable manner with the
efforts of all governmental agencies in reducing actual or potential
environmental damage. Tenant shall not be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with the requirements
and recommendations of governmental agencies regulating, or otherwise involved
in, the protection of the environment.
4.12 RULES AND REGULATIONS. In the event Juniper Networks, Inc. is no longer the
sole tenant of the Building, Landlord shall have the right from time to time to
establish reasonable rules and regulations and/or amendments or additions
thereto respecting the use of the Leased Premises and the Outside Areas for the
care and orderly management of the Property. Upon delivery to Tenant of a copy
of such rules and regulations or any amendments or additions thereto, Tenant
shall comply with such rules and regulations. A violation by Tenant of any of
such rules and regulations shall constitute a default by Tenant under this
Lease. If there is a conflict between the rules and regulations and any of the
provisions of this Lease, the provisions of this Lease shall prevail. Landlord
shall not be responsible or liable to Tenant for the violation of such rules and
regulations by any other tenant of the Property.
4.13 RESERVATIONS. Landlord reserves the right from time to time to grant,
without the consent or joinder of Tenant, such easements, rights of way and
dedications that Landlord deems necessary, and to cause the recordation of
parcel maps and covenants, conditions and restrictions, so long as such
easements, rights of way, dedications and covenants, conditions and restrictions
do not materially and adversely affect the use of the Leased Premises by Tenant,
materially and adversely affect Tenant's parking rights, and do not prohibit any
Permitted Use. Tenant agrees to execute any documents reasonably request by
Landlord to effectuate any such easement rights, dedications, maps or covenants,
conditions and restrictions.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 REPAIR AND MAINTENANCE. Except in the case of damage to or destruction of
the Leased Premises, the Building, the Outside Areas or the Property caused by
an act of God or other peril, in which case the provisions of ARTICLE 10 shall
control, the parties shall have the following obligations and responsibilities
with respect to the repair and maintenance of the Leased Premises, the Building,
the Outside Areas, and the Property.
(a) TENANT'S OBLIGATIONS. Tenant shall, at all times during the Lease
Term and at its sole cost and expense, regularly clean and continuously keep and
maintain in good order, condition and repair the Leased Premises and every part
thereof including, without limiting the generality of the foregoing, (i) all
interior walls, floors and ceilings, (ii) all windows, doors and skylights,
(iii) all electrical wiring, conduits, connectors and fixtures, (iv) all
plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting fixtures,
bulbs and lamps and all heating, ventilating and air conditioning equipment, and
(vi) all entranceways to the Leased Premises. Tenant shall hire, at Tenant's
sole cost and expense, a licensed heating, ventilating and air conditioning
contractor to regularly and periodically (not less frequently than every three
months) inspect and perform required maintenance on the heating, ventilating and
air conditioning equipment and systems serving the Leased Premises. Tenant shall
hire, at Tenant's sole cost and expense, a licensed roofing contractor to
regularly and periodically (not less frequently than semi-annually) inspect and
perform required maintenance on the roof of the Building. If Tenant shall be in
default of its obligations to maintain the heating, ventilating and air
conditioning equipment and systems or roof, Landlord may, at its election,
contract in its own name for such regular and periodic inspections and
maintenance of the heating, ventilating and air conditioning equipment and
systems and/or roof, and charge to Tenant, as Additional Rent, the cost thereof.
Tenant shall, at its sole cost and expense, repair all damage to the Leased
Premises, the Building, the Outside Areas or the Property caused by the
activities of Tenant, its employees, invitees or contractors promptly following
written notice from Landlord to so repair such damages (subject to Section 9.3
of this Lease). If Tenant shall fail to perform the required maintenance or fail
to make repairs required of it pursuant to this paragraph within a reasonable
period of time following notice from Landlord to do so, then Landlord may, at
its election and without waiving any other remedy it may otherwise have under
this Lease or at law, perform such maintenance or make such repairs and charge
to Tenant, as Additional Rent, the costs so incurred by Landlord for same. All
glass within or a part of the Leased Premises, both interior and exterior, is at
the sole risk of Tenant and any broken glass shall promptly be replaced by
Tenant at Tenant's expense with glass of the same kind, size and quality.
Notwithstanding the foregoing, in the event that, due to normal wear and tear
(and not due to other factors, including, without limitation, Tenant's misuse,
overuse or Tenant's alterations, improvements or modifications to the Leased
Premises, the Outside Areas or the Building), Tenant would be required by this
Section 5.1(a) to make a repair or replacement that would be considered a
"capital improvement" as determined in accordance with generally accepted
accounting principles, Landlord shall make such repair or replacement and charge
to Tenant, as Additional Rent, the cost thereof (provided that the cost of such
repair or replacement shall be amortized over its useful life and only the
amortizing portion of such cost shall be included in Additional Rent on a
monthly basis).
(b) LANDLORD'S OBLIGATION. Landlord shall at its sole cost and expense,
at all times during the Lease Term, maintain in good condition and repair the
foundation, the footings, the roof screen, the roof screen penetrations, the
roof structure, load-bearing and exterior walls of the Building. Landlord shall,
at all times during the Lease Term, regularly and continuously keep and maintain
in good order and repair and in a clean and safe condition the Outside Areas,
and charge to Tenant, as Additional Rent, the cost thereof. Landlord shall
regularly and periodically sweep and clean the driveways and parking areas, and
charge to Tenant, as Additional Rent, the cost thereof.
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5.2 UTILITIES. Tenant shall arrange at its sole cost and expense and in its own
name, for the supply of gas and electricity to the Leased Premises. In the event
that such services are not separately metered, Tenant shall, at its sole
expense, cause such meters to be installed. Landlord shall maintain the water
meter(s) in its own name; provided, however, that if at any time during the
Lease Term Landlord shall require Tenant to put the water service in Tenant's
name, Tenant shall do so at Tenant's sole cost. Tenant shall be responsible for
determining if the local supplier of water, gas and electricity can supply the
needs of Tenant and whether or not the existing water, gas and electrical
distribution systems within the Building and the Leased Premises are adequate
for Tenant's needs. Tenant shall be responsible for determining if the existing
sanitary and storm sewer systems now servicing the Leased Premises and the
Property are adequate for Tenant's needs. Tenant shall pay all charges for
water, gas, electricity and storm and sanitary sewer services as so supplied to
the Leased Premises, irrespective of whether or not the services are maintained
in Landlord's or Tenant's name.
5.3 SECURITY. Tenant acknowledges that Landlord has not undertaken any duty
whatsoever to provide security for the Leased Premises, the Building, the
Outside Areas or the Property and, accordingly, Landlord is not responsible for
the security of same or the protection of Tenant's property or Tenant's
employees, invitees or contractors. To the extent Tenant determines that such
security or protection services are advisable or necessary, Tenant shall arrange
for and pay the costs of providing same.
5.4 ENERGY AND RESOURCE CONSUMPTION. Landlord may voluntarily cooperate in a
reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the Property.
Tenant shall not be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of such compliance or cooperation. Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of the
electrical, heating, ventilating and air conditioning systems and all other
energy or other resource consumption systems with the Property and/or (ii) in
order to comply with the requirements and recommendations of utility suppliers
and governmental agencies regulating the consumption of energy and/or other
resources.
5.5 LIMITATION OF LANDLORD'S LIABILITY. Landlord shall not be liable to Tenant
for injury to Tenant, its employees, agents, invitees or contractors, damage to
Tenant's property or loss of Tenant's business or profits, nor shall Tenant be
entitled to terminate this Lease or to any reduction in or abatement of rent by
reason of (i) Landlord's failure to provide security services or systems within
the Property for the protection of the Leased Premises, the Building or the
Outside Areas, or the protection of Tenant's property or Tenant's employees,
invitees, agents or contractors, or (ii) Landlord's failure to perform any
maintenance or repairs to the Leased Premises, the Building, the Outside Areas
or the Property until Tenant shall have first notified Landlord, in writing, of
the need for such maintenance or repairs, and then only after Landlord shall
have had a reasonable period of time following its receipt of such notice within
which to perform such maintenance or repairs, or (iii) any failure,
interruption, rationing or other curtailment in the supply of water, electric
current, gas or other utility service to the Leased Premises, the Building, the
Outside Areas or the Property from whatever cause (other than to the extent
caused by Landlord's active negligence or willful misconduct), or (iv) the
unauthorized intrusion or entry into the Leased Premises by third parties (other
than Landlord).
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
6.1 BY TENANT. Tenant shall not make any alterations to or modifications of the
Leased Premises or construct any improvements within the Leased Premises until
Landlord shall have first approved, in writing, the plans and specifications
therefor, which approval shall not be unreasonably withheld or delayed.
Landlord's approval shall be deemed given if not denied by Landlord in a written
notice to Tenant delivered within fifteen (15) days following receipt of
Tenant's written request. Tenant's written request shall also contain a request
for Landlord to elect whether or not it will require Tenant to remove the
subject alterations, modifications or improvements at the expiration or earlier
termination of this Lease. If such additional request is not included, Landlord
may make such election at the expiration or earlier termination of this Lease
(and for purposes of Tenant's removal obligations set forth in Section 2.6
above, Landlord shall be deemed to have made the election at the time the
alterations, modifications or improvements were completed). Notwithstanding the
foregoing, Tenant shall have the right, at its sole cost and expense, subject to
the prior written approval of Landlord (which approval shall not be unreasonably
withheld or delayed) to construct a covered open walkway between the Building
and the 1194 Building and Tenant shall not be required to remove such walkway
upon the termination of this Lease. All modifications, alterations or
improvements, once approved by Landlord, shall be made, constructed or installed
by Tenant at Tenant's expense (including all permit fees and governmental
charges related thereto), using a licensed contractor first approved by
Landlord, in substantial compliance with the Landlord-approved plans and
specifications therefor. All work undertaken by Tenant shall be done in
accordance with all Laws and in a good and workmanlike manner using new
materials of good quality. Tenant shall not commence the making of any such
modifications or alterations or the construction of any such improvements until
(i) all required governmental approvals and permits shall have been obtained,
(ii) all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant shall have given Landlord at least five business days
prior written notice of its intention to commence such work so that Landlord may
post and file notices of non-responsibility, and (iv) if requested by Landlord,
Tenant shall have obtained contingent liability and broad form builder's risk
insurance in an amount satisfactory to Landlord in its reasonable discretion to
cover any perils relating to the proposed work not covered by insurance carried
by Tenant pursuant to ARTICLE 9. In no event shall Tenant make any modification,
alterations or improvements whatsoever to the Outside Areas or the exterior or
structural components of the Building including, without limitation, any cuts or
penetrations in the floor, roof or exterior walls of the Leased Premises (except
to the extent Tenant has obtained Landlord's approval pursuant to Section 4.2).
As used in this ARTICLE, the term "modifications, alterations and/or
improvements" shall include, without limitation, the installation of additional
electrical outlets, overhead lighting
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fixtures, drains, sinks, partitions, doorways, or the like. Notwithstanding the
foregoing, Tenant, without Landlord's prior written consent, shall be permitted
to make non-structural alterations to the Building, provided that: (a) such
alterations do not exceed $20,000 individually, (b) Tenant shall timely provide
Landlord the notice required pursuant to Paragraph 4.9 above, (c) Tenant shall
notify Landlord in writing within thirty (30) days of completion of the
alteration and deliver to Landlord a set of the plans and specifications
therefor, either "as built" or marked to show construction changes made, and (d)
Tenant shall, upon Landlord's request, remove the alteration at the termination
of the Lease and restore the Leased Premises to their condition prior to such
alteration.
6.2 OWNERSHIP OF IMPROVEMENTS. All modifications, alterations and improvements
made or added to the Leased Premises by Tenant (other than Tenant's inventory,
equipment, movable furniture, wall decorations and trade fixtures) shall be
deemed real property and a part of the Leased Premises, but shall remain the
property of Tenant during the Lease. Any such modifications, alterations or
improvements, once completed, shall not be altered or removed from the Leased
Premises during the Lease Term without Landlord's written approval first
obtained in accordance with the provisions of Paragraph 6.1 above. At the
expiration or sooner termination of this Lease, all such modifications,
alterations and improvements other than Tenant's inventory, equipment, movable
furniture, wall decorations and trade fixtures, shall automatically become the
property of Landlord and shall be surrendered to Landlord as part of the Leased
Premises as required pursuant to ARTICLE 2, unless Landlord shall require Tenant
to remove any of such modifications, alterations or improvements in accordance
with the provisions of ARTICLE 2, in which case Tenant shall so remove same.
Landlord shall have no obligations to reimburse Tenant for all or any portion of
the cost or value of any such modifications, alterations or improvements so
surrendered to Landlord. All modifications, alterations or improvements which
are installed or constructed on or attached to the Leased Premises by Landlord
and/or at Landlord's expense shall be deemed real property and a part of the
Leased Premises and shall be property of Landlord. All lighting, plumbing,
electrical, heating, ventilating and air conditioning fixtures, partitioning,
window coverings, wall coverings and floor coverings installed by Tenant shall
be deemed improvements to the Leased Premises and not trade fixtures of Tenant.
Landlord shall have no lien or interest whatsoever in any of Tenant's property
or equipment located in the Leased Premises or elsewhere, and Landlord waives
any such liens and interests and Landlord hereby agrees to execute a Landlord
Waiver with respect thereto in favor of any lender or equipment lessor of Tenant
strictly in the form attached as Exhibit F.
6.3 ALTERATIONS REQUIRED BY LAW. Tenant shall make all modifications,
alterations and improvements to the Leased Premises, at its sole cost, that are
required by any Law because of (i) Tenant's use or occupancy of the Leased
Premises, the Building, the Outside Areas or the Property, (ii) Tenant's
application for any permit or governmental approval, or (iii) Tenant's making of
any modifications, alterations or improvements to or within the Leased Premises.
If Landlord shall, at any time during the Lease Term, be required by any
governmental authority to make any modifications, alterations or improvements to
the Building or the Property, the cost incurred by Landlord in making such
modifications, alterations or improvements, including interest at a rate equal
to the greater of (a) 12%, or (b) the sum of that rate quoted by Wells Fargo
Bank, N.T. & S.A. from time to time as its prime rate, plus two percent (2%)
("Wells Prime Plus Two") (but in no event more than the maximum interest rate
permitted by law), shall be amortized by Landlord over the useful life of such
modifications, alterations or improvements, as determined in accordance with
generally accepted accounting principles, and the monthly amortized cost of such
modifications, alterations and improvements as so amortized shall be considered
a Property Maintenance Cost.
6.4 LIENS. Tenant shall keep the Property and every part thereof free from any
lien, and shall pay when due all bills arising out of any work performed,
materials furnished, or obligations incurred by Tenant, its agents, employees or
contractors relating to the Property. If any such claim of lien is recorded
against Tenant's interest in this Lease, the Property or any part thereof,
Tenant shall bond against, discharge or otherwise cause such lien to be entirely
released within ten days after the same has been recorded. Tenant's failure to
do so shall be conclusively deemed a material default under the terms of this
Lease.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 BY TENANT. Tenant shall not sublet the Leased Premises or any portion
thereof or assign its interest in this Lease, whether voluntarily or by
operation of Law, without Landlord's prior written consent which shall not be
unreasonably withheld. Any attempted subletting or assignment without Landlord's
prior written consent, at Landlord's election, shall constitute a default by
Tenant under the terms of this Lease. The acceptance of rent by Landlord from
any person or entity other than Tenant, or the acceptance of rent by Landlord
from Tenant with knowledge of a violation of the provisions of this paragraph,
shall not be deemed to be a waiver by Landlord of any provision of this ARTICLE
or this Lease or to be a consent to any subletting by Tenant or any assignment
of Tenant's interest in this Lease. Without limiting the circumstances in which
it may be reasonable for Landlord to withhold its consent to an assignment or
subletting, Landlord and Tenant acknowledge that it shall be reasonable for
Landlord to withhold its consent in the following instances:
(a) the proposed assignee or sublessee is a governmental agency;
(b) in Landlord's reasonable judgment, the use of the Leased Premises by
the proposed assignee or sublessee would involve occupancy by other than a
Permitted Use as set forth in ARTICLE 1, would entail any alterations which
would lessen the value of the leasehold improvements in the Leased Premises, or
would require increased services by Landlord;
(c) in Landlord's reasonable judgment, the financial worth of the
proposed assignee is less than that of Tenant or does not meet the credit
standards applied by Landlord at the time of the proposed assignment;
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(d) the proposed assignee or sublessee (or any of its affiliates) has
been in material default under a lease, has been in litigation with a previous
landlord due to a default under a lease, or in the ten years prior to the
assignment or sublease has filed for bankruptcy protection, has been the subject
of an involuntary bankruptcy, or has been adjudged insolvent;
(e) Landlord has experienced a previous default by or is in litigation
with the proposed assignee or sublessee;
(f) in Landlord's reasonable judgment, the Leased Premises, or the
relevant part thereof, will be used in a manner that will violate any negative
covenant as to use contained in this Lease;
(g) the use of the Leased Premises by the proposed assignee or sublessee
will violate any applicable law, ordinance or regulation;
(h) the proposed assignment or sublease fails to include all of the terms
and provisions required to be included therein pursuant to this ARTICLE 7;
(i) Tenant is in default of any obligation of Tenant under this Lease, or
Tenant has defaulted on any of its payment obligations under this Lease on three
or more occasions during the 12 months preceding the date that Tenant shall
request consent; or
(j) in the case of a subletting of less than the entire Leased Premises,
if the subletting would result in the division of any floor of the Building into
more than two subleased parcels or would require improvements to be made outside
of the Leased Premises.
7.2 MERGER, REORGANIZATION, OR SALE OF ASSETS. Each of the following shall be
deemed a voluntary assignment of Tenant's interest in this Lease: (a)
dissolution, merger, consolidation or other reorganization of Tenant; or (b) at
any time that the capital stock of Tenant is not publicly traded on a recognized
exchange, the sale or transfer in one or more transactions to one or more
related parties of a controlling percentage of the capital stock of Tenant; or
(c) or the sale or transfer of all or substantially all of the assets of Tenant.
The phrase "controlling percentage" means the ownership of and the right to vote
stock possessing more than fifty percent of the total combined voting power of
all classes of Tenant's capital stock issued, outstanding and entitled to vote
for the election of directors. If Tenant is a partnership, a withdrawal or
change, voluntary, involuntary or by operation of Law, of any general partner,
or the dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease. Notwithstanding the foregoing, Tenant (or any
Permitted Assignee, as defined herein) may, without Landlord's prior written
consent and without being subject to any of the provisions of this ARTICLE 7,
including without limitation, Landlord's right to recapture any portion of the
Leased Premises, sublet the Leased Premises or assign this Lease to
(individually, a "Permitted Assignee," collectively, "Permitted Assignees"): (i)
a subsidiary, affiliate, division, corporation or joint venture controlling,
controlled by or under common control with Tenant; or (ii) a successor
corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; or (iii) a purchaser of all or
substantially all of the assets of Tenant; provided that either (1) Tenant shall
remain primarily liable under the Lease (except in the event it is not the
surviving entity in the merger) or (2) that any Permitted Assignee under (i),
(ii) or (iii) above has a net worth equal to or greater than Tenant and does not
have any contingent or off-balance sheet liabilities that make it less credit
worthy than Tenant. In the event any proposed assignee or subtenant under (i),
(ii) or (iii) above has a net worth less than Tenant or has contingent or
off-balance sheet liabilities that make it less credit worthy than Tenant,
Landlord's consent (pursuant to Section 7.1 above) shall be required and all of
the terms and conditions of this ARTICLE 7 shall apply, except that Landlord
shall not be entitled to terminate this Lease pursuant to Section 7.3, and
Landlord shall not be entitled to any assignment consideration or excess rentals
pursuant to Section 7.5 of this Lease. If any proposed assignee or subtenant
under (i), (ii) or (iii) above does not qualify as a Permitted Assignee because
it has a net worth which is less than Tenant or has contingent or off-balance
sheet liabilities that make it less creditworthy than Tenant, then in the event
Landlord nevertheless consents (pursuant to the provisions of Section 7.1 above)
to such proposed assignee or subtenant, such proposed assignee or subtenant
shall constitute a Permitted Assignee under this Lease.
7.3 LANDLORD'S ELECTION. If Tenant shall desire to assign its interest under the
Lease or to sublet the Leased Premises, Tenant must first notify Landlord, in
writing, of its intent to so assign or sublet, at least thirty (30) days in
advance of the date it intends to so assign its interest in this Lease or sublet
the Leased Premises but not sooner than one hundred eighty days in advance of
such date, specifying in detail the terms of such proposed assignment or
subletting, including the name of the proposed assignee or sublessee, the
property assignee's or sublessee's intended use of the Leased Premises, current
financial statements (including a balance sheet, income statement and statement
of cash flow, all prepared in accordance with generally accepted accounting
principles) of such proposed assignee or sublessee, the form of documents to be
used in effectuating such assignment or subletting and such other information as
Landlord may reasonably request. Landlord shall have a period of ten (10)
business days following receipt of such notice and the required information
within which to do one of the following: (i) consent to such requested
assignment or subletting subject to Tenant's compliance with the conditions set
forth in Paragraph 7.4 below, or (ii) refuse to so consent to such requested
assignment or subletting, provided that such consent shall not be unreasonably
refused, or (iii) in the case of an assignment of this Lease or sublet of 100%
of the Leased Premises, terminate this Lease. During such ten (10) business day
period, Tenant covenants and agrees to supply to Landlord, upon request, all
necessary or relevant information which Landlord may reasonably request
respecting such proposed assignment or subletting and/or the proposed assignee
or sublessee. Notwithstanding the foregoing, if Landlord elects to terminate the
Lease as provided herein, Landlord shall notify Tenant thereof during such ten
(10) business day period and Tenant shall have ten (10) business days thereafter
to either (i) accept Landlord's termination or (ii) rescind its request for
consent to the assignment or subletting, in which case the Lease shall continue
in full force and effect between Tenant and Landlord.
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7.4 CONDITIONS TO LANDLORD'S CONSENT. If Landlord elects to consent, or shall
have been ordered to so consent by a court of competent jurisdiction, to such
requested assignment or subletting, such consent shall be expressly conditioned
upon the occurrence of each of the conditions below set forth, and any purported
assignment or subletting made or ordered prior to the full and complete
satisfaction of each of the following conditions shall be void and, at the
election of Landlord, which election may be exercised at any time following such
a purported assignment or subletting but prior to the satisfaction of each of
the stated conditions, shall constitute a material default by Tenant under this
Lease until cured by satisfying in full each such condition by the assignee or
sublessee. The conditions are as follows:
(a) Landlord having approved in form and substance the assignment or
sublease agreement and any ancillary documents, which approval shall not be
unreasonably withheld by Landlord if the requirements of this ARTICLE 7 are
otherwise complied with.
(b) Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Tenant which relate to space being subleased.
(c) Tenant having fully and completely performed all of its obligations
under the terms of this Lease through and including the date of such assignment
or subletting.
(d) Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys' fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting or assignment.
(e) Tenant having delivered to Landlord a complete and fully-executed
duplicate original of such sublease agreement or assignment agreement (as
applicable) and all related agreements.
(f) Tenant having paid, or having agreed in writing to pay as to future
payments, to Landlord fifty percent (50%) of all assignment consideration or
excess rentals to be paid to Tenant or to any other on Tenant's behalf or for
Tenant's benefit for such assignment or subletting as follows:
(i) If Tenant assigns its interest under this Lease and if all
or a portion of the consideration for such assignment is to be paid by the
assignee at the time of the assignment, that Tenant shall have paid to Landlord
and Landlord shall have received an amount equal to fifty percent (50%) of the
assignment consideration so paid or to be paid (whichever is the greater) at the
time of the assignment by the assignee; or
(ii) If Tenant assigns its interest under this Lease and if
Tenant is to receive all or a portion of the consideration for such assignment
in future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree to
pay to Landlord an amount equal to fifty percent (50%) of all such future
assignment consideration installments to be paid by such assignee as and when
such assignment consideration is so paid.
(iii) If Tenant subleases the Leased Premises, that Tenant and
Tenant's sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord fifty percent (50%) of all
excess rentals to be paid by such sublessee as and when such excess rentals are
so paid.
7.5 ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED. For purposes of this
ARTICLE, including any amendment to this ARTICLE by way of addendum or other
writing, the term "assignment consideration" shall mean all consideration to be
paid by the assignee to Tenant or to any other party on Tenant's behalf or for
Tenant's benefit as consideration for such assignment, after deduction for
reasonable leasing commissions and reasonable legal fees incurred by Tenant in
connection with such assignment and, during the first six (6) years of the Lease
Term, the cost of tenant improvements made by Tenant at Tenant's sole cost and
expense to prepare the Leased Premises for the assignee, but without deduction
for any other costs or expenses, and the term "excess rentals" shall mean all
consideration to be paid by the sublessee to Tenant or to any other party on
Tenant's behalf or for Tenant's benefit for the sublease of the Leased Premises
in excess of the rent due to Landlord under the terms of this Lease for the same
period, after deduction for reasonable leasing commissions and reasonable legal
fees incurred by Tenant in connection with such sublease and, during the first
six (6) years of the Lease Term, the cost of tenant improvements made by Tenant
at Tenant's sole cost and expense to prepare the Leased Premises for the
subtenant, but without deduction for any other costs or expenses. Tenant agrees
that the portion of any assignment consideration and/or excess rentals arising
from any assignment or subletting by Tenant which is to be paid to Landlord
pursuant to this ARTICLE now is and shall then be the property of Landlord and
not the property of Tenant.
7.6 PAYMENTS. All payments required by this ARTICLE to be made to Landlord shall
be made in cash in full as and when they become due. At the time Tenant,
Tenant's assignee or sublessee makes each such payment to Landlord, Tenant or
Tenant's assignee or sublessee, as the case may be, shall deliver to Landlord an
itemized statement in reasonable detail showing the method by which the amount
due Landlord was calculated and certified by the party making such payment as
true and correct.
7.7 GOOD FAITH. The rights granted to Tenant by this ARTICLE are granted in
consideration of Tenant's express covenant that all pertinent allocations which
are made by Tenant between the rental value of the Leased Premises and the value
of any of Tenant's personal property which may be conveyed or leased generally
concurrently with and which may reasonably be considered a part of the same
transaction as the permitted assignment or subletting
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shall be made fairly, honestly and in good faith. If Tenant shall breach this
covenant, Landlord may immediately declare Tenant to be in default under the
terms of this Lease and terminate this Lease and/or exercise any other rights
and remedies Landlord would have under the terms of this Lease in the case of a
material default by Tenant under this Lease.
7.8 EFFECT OF LANDLORD'S CONSENT. No subletting or assignment, even with the
consent of Landlord, shall relieve Tenant of its personal and primary obligation
to pay rent and to perform all of the other obligations to be performed by
Tenant hereunder. Consent by Landlord to one or more assignments of Tenant's
interest in this Lease or to one or more sublettings of the Leased Premises
shall not be deemed to be a consent to any subsequent assignment or subletting.
If Landlord shall have been ordered by a court of competent jurisdiction to
consent to a requested assignment or subletting, or such an assignment or
subletting shall have been ordered by a court of competent jurisdiction over the
objection of Landlord, such assignment or subletting shall not be binding
between the assignee (or sublessee) and Landlord until such time as all
conditions set forth in Paragraph 7.4 above have been fully satisfied (to the
extent not then satisfied) by the assignee or sublessee, including, without
limitation, the payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.
ARTICLE 8
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 LIMITATION ON LANDLORD'S LIABILITY AND RELEASE. Landlord shall not be liable
to Tenant for, and Tenant hereby releases Landlord and its partners, principals,
members, officers, agents, employees, lenders, attorneys, and consultants from,
any and all liability, whether in contract, tort or on any other basis, for any
injury to or any damage sustained by Tenant, Tenant's agents, employees,
contractors or invitees, any damage to Tenant's property, or any loss to
Tenant's business, loss of Tenant's profits or other financial loss of Tenant
resulting from or attributable to the condition of, the management of, the
repair or maintenance of, the protection of, the supply of services or utilities
to, the damage in or destruction of the Leased Premises, the Building, the
Property or the Outside Areas, including without limitation (i) the failure,
interruption, rationing or other curtailment or cessation in the supply of
electricity, water, gas or other utility service to the Property, the Building
or the Leased Premises; (ii) the vandalism or forcible entry into the Building
or the Leased Premises; (iii) the penetration of water into or onto any portion
of the Leased Premises; (iv) the failure to provide security and/or adequate
lighting in or about the Property, the Building or the Leased Premises, (v) the
existence of any design or construction defects within the Property, the
Building or the Leased Premises; (vi) the failure of any mechanical systems to
function properly (such as the HVAC systems); (vii) the blockage of access to
any portion of the Property, the Building or the Leased Premises, except that
Tenant does not so release Landlord from such liability to the extent such
damage was proximately caused by Landlord's active negligence, willful
misconduct, or Landlord's failure to perform an obligation expressly undertaken
pursuant to this Lease after a reasonable period of time shall have lapsed
following receipt of written notice from Tenant to so perform such obligation.
In this regard, Tenant acknowledges that it is fully apprised of the provisions
of Law relating to releases, and particularly to those provisions contained in
Section 1542 of the California Civil Code which reads as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
Notwithstanding such statutory provision, and for the purpose of implementing a
full and complete release and discharge, Tenant hereby (i) waives the benefit of
such statutory provision and (ii) acknowledges that, subject to the exceptions
specifically set forth herein, the release and discharge set forth in this
paragraph is a full and complete settlement and release and discharge of all
claims and is intended to include in its effect, without limitation, all claims
which Tenant, as of the date hereof, does not know of or suspect to exist in its
favor.
8.2 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall defend with competent
counsel satisfactory to Landlord any claims made or legal actions filed or
threatened against Landlord with respect to the violation of any Law, or the
death, bodily injury, personal injury, property damage, or interference with
contractual or property rights suffered by any third party, occurring within the
Leased Premises or resulting from Tenant's use or occupancy of the Leased
Premises, the Building or the Outside Areas, or resulting from Tenant's
activities in or about the Leased Premises, the Building, the Outside Areas or
the Property, and Tenant shall indemnify and hold Landlord, Landlord's partners,
principals, members, employees, agents and contractors harmless from any loss
liability, penalties, or expense whatsoever (including any loss attributable to
vacant space which otherwise would have been leased, but for such activities)
resulting therefrom, except to the extent proximately caused by the active
negligence or willful misconduct of Landlord or Landlord's failure to perform an
obligation expressly undertaken pursuant to this Lease after a reasonable period
of time shall have lapsed following receipt of written notice from Tenant to so
perform such obligation. This indemnity agreement shall survive the expiration
or sooner termination of this Lease.
ARTICLE 9
INSURANCE
9.1 TENANT'S INSURANCE. Tenant shall maintain insurance complying with all of
the following:
(a) Tenant shall procure, pay for and keep in full force and effect, at
all times during the Lease Term, the following:
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(i) Comprehensive general liability insurance insuring Tenant
against liability for personal injury, bodily injury, death and damage to
property occurring within the Leased Premises, or resulting from Tenant's use or
occupancy of the Leased Premises, the Building, the Outside Areas or the
Property, or resulting from Tenant's activities in or about the Leased Premises
or the Property, with coverage in an amount equal to Tenant's Required Liability
Coverage (as set forth in ARTICLE 1), which insurance shall contain a "broad
form liability" endorsement insuring Tenant's performance of Tenant's
obligations to indemnify Landlord as contained in this Lease.
(ii) Fire and property damage insurance in so-called "fire and
extended coverage" form insuring Tenant against loss from physical damage to
Tenant's personal property, inventory, trade fixtures and improvements within
the Leased Premises with coverage for the full actual replacement cost thereof;
(iii) Plate glass insurance, at actual
replacement cost;
(iv) Pressure vessel insurance, if applicable;
(v) Workers' compensation insurance and any other employee
benefit insurance sufficient to comply with all laws; and
(vi) With respect to making of alterations or the construction
of improvements or the like undertaken by Tenant, contingent liability and
builder's risk insurance, in an amount and with coverage reasonably satisfactory
to Landlord.
(b) Each policy of liability insurance required to be carried by Tenant
pursuant to this paragraph or actually carried by Tenant with respect to the
Leased Premises or the Property: (i) shall, except with respect to insurance
required by subparagraph (a)(vi) above, name Landlord, and such others as are
designated by Landlord, as additional insureds; (ii) shall be primary insurance
providing that the insurer shall be liable for the full amount of the loss, up
to and including the total amount of liability set forth in the declaration of
coverage, without the right of contribution from or prior payment by any other
insurance coverage of Landlord; (iii) shall be in a form satisfactory to
Landlord; (iv) shall be carried with companies reasonably acceptable to Landlord
with Best's ratings of at least A and XI; (v) shall provide that such policy
shall not be subject to cancellation, lapse or change except after at least
thirty days prior written notice to Landlord, and (vi) shall contain a so-called
"severability" or "cross liability" endorsement. Each policy of property
insurance maintained by Tenant with respect to the Leased Premises or the
Property or any property therein (i) shall provide that such policy shall not be
subject to cancellation, lapse or change except after at least thirty days prior
written notice to Landlord and (ii) shall contain a waiver and/or a permission
to waive by the insurer of any right of subrogation against Landlord, its
partners, principals, members, officers, employees, agents and contractors,
which might arise by reason of any payment under such policy or by reason of any
act or omission of Landlord, its partners, principals, members, officers,
employees, agents and contractors.
(c) Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to Landlord, with respect to each policy
of insurance required to be carried by Tenant pursuant to this ARTICLE, a copy
of such policy (appropriately authenticated by the insurer as having been
issued, premium paid) or a certificate of the insurer certifying in form
satisfactory to Landlord that a policy has been issued, premium paid, providing
the coverage required by this Paragraph and containing the provisions specified
herein. With respect to each renewal or replacement of any such insurance, the
requirements of this Paragraph must be complied with not less than thirty days
prior to the expiration or cancellation of the policies being renewed or
replaced. Landlord may, at any time and from time to time, inspect and/or copy
any and all insurance policies required to be carried by Tenant pursuant to this
ARTICLE. If Landlord's Lender, insurance broker, advisor or counsel reasonably
determines at any time that the amount of coverage set forth in Paragraph 9.1(a)
for any policy of insurance Tenant is required to carry pursuant to this ARTICLE
is not adequate, then Tenant shall increase the amount of coverage for such
insurance to such greater amount as Landlord's Lender, insurance broker, advisor
or counsel reasonably deems adequate.
9.2 LANDLORD'S INSURANCE. With respect to insurance maintained by Landlord:
(a) Landlord shall maintain, as the minimum coverage required of it by
this Lease, fire and property damage insurance in so-called "fire and extended
coverage" form insuring Landlord (and such others as Landlord may designate)
against loss from physical damage to the Building with coverage of not less than
one hundred percent (100%) of the full actual replacement cost thereof and
against loss of rents for a period of not less than six months. Such fire and
property damage insurance, at Landlord's election but without any requirements
on Landlord's behalf to do so, (i) may be written in so-called "all risk" form,
excluding only those perils commonly excluded from such coverage by Landlord's
then property damage insurer; (ii) may provide coverage for physical damage to
the improvements so insured for up to the entire full actual replacement cost
thereof; (iii) may be endorsed to cover loss or damage caused by any additional
perils against which Landlord may elect to insure, including earthquake and/or
flood; and/or (iv) may provide coverage for loss of rents for a period of up to
twelve months. Landlord shall not be required to cause such insurance to cover
any of Tenant's personal property, inventory, and trade fixtures, or any
modifications, alterations or improvements made or constructed by Tenant to or
within the Leased Premises. Landlord shall use commercially reasonable efforts
to obtain such insurance at competitive rates.
(b) Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Property, or any portion thereof, with combined single limit coverage of at
least Three Million Dollars ($3,000,000). Landlord may carry such greater
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coverage as Landlord or Landlord's Lender, insurance broker, advisor or counsel
may from time to time determine is reasonably necessary for the adequate
protection of Landlord and the Property.
(c) Landlord may maintain any other insurance which in the opinion of
its insurance broker, advisor or legal counsel is prudent in carry under the
given circumstances, provided such insurance is commonly carried by owners of
property similarly situated and operating under similar circumstances.
9.3 MUTUAL WAIVER OF SUBROGATION. Landlord hereby releases Tenant, and Tenant
hereby releases Landlord and its respective partners, principals, members,
officers, agents, employees and servants, from any and all liability for loss,
damage or injury to the property of the other in or about the Leased Premises or
the Property which is caused by or results from a peril or event or happening
which is covered by insurance actually carried and in force at the time of the
loss by the party sustaining such loss; provided, however, that such waiver
shall be effective only to the extent permitted by the insurance covering such
loss and to the extent such insurance is not prejudiced thereby.
ARTICLE 10
DAMAGE TO LEASED PREMISES
10.1 LANDLORD'S DUTY TO RESTORE. If the Leased Premises, the Building or the
Outside Area are damaged by any peril after the Effective Date of this Lease,
Landlord shall restore the same, as and when required by this paragraph, unless
this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by Tenant
pursuant to Paragraph 10.4. If this Lease is not so terminated, then upon the
issuance of all necessary governmental permits, Landlord shall commence and
diligently prosecute to completion the restoration of the Leased Premises, the
Building or the Outside Area, as the case may be, to the extent then allowed by
law, to substantially the same condition in which it existed as of the Lease
Commencement Date. Landlord's obligation to restore shall be limited to the
improvements constructed by Landlord. Landlord shall have no obligation to
restore any Improvements made by Tenant to the Leased Premises or any of
Tenant's personal property, inventory or trade fixtures. Upon completion of the
restoration by Landlord, Tenant shall forthwith replace or fully repair all of
Tenant's personal property, inventory, trade fixtures and other improvements
constructed by Tenant to like or similar conditions as existed at the time
immediately prior to such damage or destruction.
10.2 INSURANCE PROCEEDS. All insurance proceeds available from the fire and
property damage insurance carried by Landlord shall be paid to and become the
property of Landlord. If this Lease is terminated pursuant to either Paragraph
10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant
which cover loss of property that is Landlord's property or would become
Landlord's property on termination of this Lease shall be paid to and become the
property of Landlord, and the remainder of such proceeds shall be paid to and
become the property of Tenant. If this Lease is not terminated pursuant to
either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance
carried by Tenant which cover loss to property that is Landlord's property shall
be paid to and become the property of Landlord, and all proceeds available from
such insurance which cover loss to property which would only become the property
of Landlord upon the termination of this Lease shall be paid to and remain the
property of Tenant. The determination of Landlord's property and Tenant's
property shall be made pursuant to Paragraph 6.2.
10.3 LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
(a) The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time of
such damage or destruction or by any peril which would have been covered by the
insurance Landlord is required to maintain pursuant to Section 9.2 (an "Insured
Peril") to such an extent that the estimated cost to restore the Building
exceeds the lesser of (i) the insurance proceeds available from insurance
actually carried by Landlord (or which Landlord was required to carry pursuant
to Section 9.2(a) hereof) plus the amount of any deductible (up to a maximum
amount of five percent (5%) of the replacement cost of the Building), plus any
amount that the Tenant agrees in writing to contribute towards restoration, or
(ii) fifty percent of the then actual replacement cost of the Building;
(b) The Building is damaged by an uninsured peril, which peril Landlord
was not required to insure against pursuant to the provisions of ARTICLE 9 of
this Lease, provided, however, that, subject to the requirements of the holder
of any deed of trust encumbering the Property, Landlord shall not have the right
to terminate this Lease if Tenant notifies Landlord, within thirty (30) days
after Tenant receives Landlord's written notice of termination pursuant to this
Section 10.3, that Tenant will pay for the cost of restoration of the Leased
Premises, in excess of any insurance proceeds to be received by Landlord.
(c) The Building is damaged by any peril and, because of the laws then
in force, the Building (i) cannot be restored at reasonable cost or (ii) if
restored, cannot be used for the same use being made thereof before such damage.
10.4 TENANT'S RIGHT TO TERMINATE. If the Leased Premises, the Building or the
Outside Area are damaged by any peril and Landlord does not elect to terminate
this Lease or is not entitled to terminate this Lease pursuant to this ARTICLE,
then as soon as reasonably practicable, Landlord shall furnish Tenant with the
written opinion of Landlord's architect or construction consultant as to when
the restoration work required of Landlord may be complete. Tenant shall have the
option to terminate this Lease in the event any of the following occurs, which
option may be exercised only by delivery to Landlord of a written notice of
election to terminate within seven days after Tenant receives from Landlord the
estimate of the time needed to complete such restoration:
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(a) If the time estimated to substantially complete the restoration
exceeds nine (9) months from and after the date the architect's or construction
consultant's written opinion is delivered; or
(b) If the damage occurred within twelve months of the last day of the
Lease Term and the time estimated to substantially complete the restoration
exceeds one hundred eighty days from and after the date such restoration is
commenced.
10.5 TENANT'S WAIVER. Landlord and Tenant agree that the provisions of Paragraph
10.4 above, captioned "Tenant's Right To Terminate", are intended to supersede
and replace the provisions contained in California Civil Code, Section 1932,
Subdivision 2, and California Civil Code, Section 1934, and accordingly, Tenant
hereby waives the provisions of such Civil Code Sections and the provisions of
any successor Civil Code Sections or similar laws hereinafter enacted.
10.6 ABATEMENT OF RENT. In the event of damage to the Leased Premises which does
not result in the termination of this Lease, the Base Monthly Rent (and any
Additional Rent) shall be temporarily abated during the period of restoration in
proportion in the degree to which Tenant's use of the Leased Premises is
impaired by such damage.
ARTICLE 11
CONDEMNATION
11.1 TENANT'S RIGHT TO TERMINATE. Except as otherwise provided in Paragraph 11.4
below regarding temporary takings, Tenant shall have the option to terminate
this Lease if, as a result of any taking, (i) all of the Leased Premises is
taken, or (ii) twenty-five percent (25%) or more of the Leased Premises is taken
and the part of the Leased Premises that remains cannot, within a reasonable
period of time, be made reasonably suitable for the continued operation of
Tenant's business, or (iii) or a portion of the Outside Area is taken such that
the parking available to Tenant is reduced by more than twenty percent (20%),
and the Landlord does not, within a reasonable period of time, provide
alternative parking arrangements within a reasonable walking distance of the
Leased Premises. Tenant must exercise such option within a reasonable period of
time, to be effective on the later to occur of (i) the date that possession of
that portion of the Leased Premises that is condemned is taken by the condemnor
or (ii) the date Tenant vacated the Leased Premises.
11.2 LANDLORD'S RIGHT TO TERMINATE. Except as otherwise provided in Paragraph
11.4 below regarding temporary takings, Landlord shall have the option to
terminate this Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, (ii) twenty-five percent (25%) or more of the Leased Premises
is taken and the part of the Leased Premises that remains cannot, within a
reasonable period of time, be made reasonably suitable for the continued
operation of Tenant's business, or (iii) because of the laws then in force, the
Leased Premises may not be used for the same use being made before such taking,
whether or not restored as required by Paragraph 11.3 below. Any such option to
terminate by Landlord must be exercised within a reasonable period of time, to
be effective as of the date possession is taken by the condemnor.
11.3 RESTORATION. If any part of the Leased Premises or the Building is taken
and this Lease is not terminated, then Landlord shall, to the extent not
prohibited by laws then in force, repair any damage occasioned thereby to the
remainder thereof to a condition reasonably suitable for Tenant's continued
operations and otherwise, to the extent practicable, in the manner and to the
extent provided in Paragraph 10.1.
11.4 TEMPORARY TAKING. If a portion of the Leased Premises is temporarily taken
for a period of one year or less and such period does not extend beyond the
Lease Expiration Date, this Lease shall remain in effect. If any portion of the
Leased Premises is temporarily taken for a period which exceeds one year or
which extends beyond the Lease Expiration Date, then the rights of Landlord and
Tenant shall be determined in accordance with Paragraphs 11.1 and 11.2 above.
11.5 DIVISION OF CONDEMNATION AWARD. Any award made for any taking of the
Property, the Building, or the Leased Premises, or any portion thereof, shall
belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of
its right, title and interest in any such award; provided, however, that Tenant
shall be entitled to receive any portion of the award that is made specifically
(i) for the taking of personal property, inventory or trade fixtures belonging
to Tenant, (ii) for the interruption of Tenant's business or its moving costs,
or (iii) for the value of any leasehold improvements installed and paid for by
Tenant. The rights of Landlord and Tenant regarding any condemnation shall be
determined as provided in this ARTICLE, and each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure, and
the provisions of any similar law hereinafter enacted, allowing either party to
petition the Supreme Court to terminate this Lease and/or otherwise allocate
condemnation awards between Landlord and Tenant in the event of a taking of the
Leased Premises.
11.6 ABATEMENT OF RENT. In the event of a taking of the Leased Premises which
does not result in a termination of this Lease (other than a temporary taking),
then, as of the date possession is taken by the condemning authority, the Base
Monthly Rent shall be reduced in the same proportion that the area of that part
of the Leased Premises so taken (less any addition to the area of the Leased
Premises by reason of any reconstruction) bears to the area of the Leased
Premises immediately prior to such taking.
11.7 TAKING DEFINED. The term "taking" or "taken" as used in this ARTICLE 11
shall mean any transfer or conveyance of all or any portion of the Property to a
public or quasi-public agency or other entity having the power of eminent domain
pursuant to or as a result of the exercise of such power by such an agency,
including any inverse
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condemnation and/or any sale or transfer by Landlord of all or any portion of
the Property to such an agency under threat of condemnation or the exercise of
such power.
ARTICLE 12
DEFAULT AND REMEDIES
12.1 EVENTS OF TENANT'S DEFAULT. Tenant shall be in default of its obligations
under this Lease if any of the following events occur:
(a) Tenant shall have failed to pay Base Monthly Rent or any Additional
Rent within three (3) days after notice from Landlord that such rent is past due
provided, however, that such notice shall be concurrent with, and not in
addition to, any notice required by applicable Laws; or
(b) Tenant shall have done or permitted to be done any act, use or
thing in its use, occupancy or possession of the Leased Premises or the Building
or the Outside Areas which is prohibited by the terms of this Lease or Tenant
shall have failed to perform any term, covenant or condition of this Lease
(except those requiring the payment of Base Monthly Rent or Additional Rent,
which failures shall be governed by subparagraph (a) above) within thirty (30)
days after written notice from Landlord to Tenant specifying the nature of such
failure and requesting Tenant to perform same or within such longer period as is
reasonably required in the event such default is curable but not within such
thirty (30) day period, provided such cure is promptly commenced within such
thirty (30) day period and is thereafter diligently prosecuted to completion; or
(c) Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions contained
in ARTICLE 7, whether voluntarily or by operation of law; or
(d) Tenant shall have abandoned the Leased Premises; or
(e) Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the appointment
of a custodian or receiver with respect to, all or any substantial part of the
property or assets of Tenant (or such Guarantor) or any property or asset
essential to the conduct of Tenant's (or such Guarantor's) business, and Tenant
(or such Guarantor) shall have failed to obtain a return or release of the same
within thirty days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier; or
(f) Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or
(g) Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or condemnation or a
reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar statute
of the United States or any state thereof; or (iii) otherwise directs the
winding up or liquidation of Tenant; provided, however, if any decree or order
was entered without Tenant's consent or over Tenant's objection, Landlord may
not terminate this Lease pursuant to this Subparagraph if such decree or order
is rescinded or reversed within thirty days after its original entry; or
(h) Tenant or any Guarantor of this Lease shall have availed itself of
the protection of any debtor's relief law, moratorium law or other similar law
which does not require the prior entry of a decree or order.
(i) Tenant shall be in default of its obligations under any other Lease
between Landlord and Tenant.
12.2 LANDLORD'S REMEDIES. In the event of any default by Tenant, and without
limiting Landlord's right to indemnification as provided in ARTICLE 8.2,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by law or otherwise provided in this Lease, to which Landlord
may resort cumulatively, or in the alternative:
(a) Landlord may, at Landlord's election, keep this Lease in effect and
enforce, by an action at law or in equity, all of its rights and remedies under
this Lease including, without limitation, (i) the right to recover the rent and
other sums as they become due by appropriate legal action, (ii) the right to
make payments required by Tenant, or perform Tenant's obligations and be
reimbursed by Tenant for the cost thereof with interest at the then maximum rate
of interest not prohibited by law from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive
relief and specific performance to prevent Tenant from violating the terms of
this Lease and/or to compel Tenant to perform its obligations under this Lease,
as the case may be.
(b) Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice, in which event
Tenant shall immediately surrender the Leased Premises to Landlord, and if
Tenant fails to do so, Landlord may, without prejudice to any other remedy which
it may have for possession or arrearages in rent, enter upon and take possession
of the Leased Premises and expel or remove Tenant and any other person who may
be occupying the Leased Premises or any part thereof, without being liable for
prosecution or any claim or damages therefor. Any termination under this
subparagraph shall not relieve Tenant from its obligation to pay to Landlord all
Base Monthly Rent and Additional Rent then or thereafter due, or any other sums
due or thereafter accruing to Landlord, or from
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any claim against Tenant for damages previously accrued or then or thereafter
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease constitute a termination of this Lease:
(i) Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
(ii) Consent to any subletting of the Leased Premises or
assignment of this Lease by Tenant, whether pursuant to the provisions hereof or
otherwise; or
(iii) Any action taken by Landlord or its partners,
principals, members, officers, agents, employees, or servants, which is intended
to mitigate the adverse effects of any breach of this Lease by Tenant,
including, without limitation, any action taken to maintain and preserve the
Leased Premises on any action taken to relet the Leased Premises or any portion
thereof for the account at Tenant and in the name of Tenant.
(c) In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not terminate
unless Landlord gives Tenant written notice of termination. If Landlord does not
terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right and
remedies provided by California Civil Code Section 1951.4 ("lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign, subject only to reasonable
limitations"), as in effect on the Effective Date of this Lease.
(d) In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to the rights and remedies provided in
California Civil Code Section 1951.2, as in effect on the Effective Date of this
Lease. For purposes of computing damages pursuant to Section 1951.2, an interest
rate equal to the maximum rate of interest then not prohibited by law shall be
used where permitted. Such damages shall include, without limitation:
(i) The worth at the time of the award of the unpaid rent
which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco, at the time of award plus one percent; and
(iii) Any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would be
likely to result therefrom, including without limitation, the following: (i)
expenses for cleaning, repairing or restoring the Leased Premises, (ii) expenses
for altering, remodeling or otherwise improving the Leased Premises for the
purpose of reletting, including removal of existing leasehold improvements
and/or installation of additional leasehold improvements (regardless of how the
same is funded, including reduction of rent, a direct payment or allowance to a
new tenant, or otherwise), (iii) broker's fees allocable to the remainder of the
term of this Lease, advertising costs and other expenses of reletting the Leased
Premises; (iv) costs of carrying and maintaining the Leased Premises, such as
taxes, insurance premiums, utility charges and security precautions, (v)
expenses incurred in removing, disposing of and/or storing any of Tenant's
personal property, inventory or trade fixtures remaining therein; (vi)
reasonable attorney's fees, expert witness fees, court costs and other
reasonable expenses incurred by Landlord (but not limited to taxable costs) in
retaking possession of the Leased Premises, establishing damages hereunder, and
releasing the Leased Premises; and (vii) any other expenses, costs or damages
otherwise incurred or suffered as a result of Tenant's default.
12.3 LANDLORD'S DEFAULT AND TENANT'S REMEDIES. In the event Landlord fails to
perform its obligations under this Lease, Landlord shall nevertheless not be in
default under the terms of this Lease until such time as Tenant shall have first
given Landlord written notice specifying the nature of such failure to perform
its obligations, and then only after Landlord shall have had thirty (30) days
following its receipt of such notice within which to perform such obligations;
provided that, if longer than thirty (30) days is reasonably required in order
to perform such obligations, Landlord shall have such longer period. In the
event of Landlord's default as above set forth, then, and only then, Tenant may
then proceed in equity or at law to compel Landlord to perform its obligations
and/or to recover damages proximately caused by such failure to perform (except
as and to the extent Tenant has waived its right to damages as provided in this
Lease).
12.4 LIMITATION OF TENANT'S RECOURSE. If Landlord is a corporation, trust,
partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity, Tenant agrees that (i) the
obligations of Landlord under this Lease shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals of such business entity, and
(ii) Tenant shall have recourse only to the property of such corporation, trust,
partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity for the satisfaction of such
obligations and not against the assets of such officers, directors, trustees,
partners, joint venturers, members, owners, stockholders or principals.
Additionally, if Landlord is a partnership or limited liability company, then
Tenant covenants and agrees:
(a) No partner or member of Landlord shall be sued or named as a party
in any suit or action brought by Tenant with respect to any alleged breach of
this Lease (except to the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);
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(b) No service of process shall be made against any partner or member
of Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
(c) No writ of execution will ever be levied against the assets of any
partner or member of Landlord other than to the extent of his or her interest in
the assets of the partnership or limited liability company constituting
Landlord.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner or member of Landlord and shall be
applicable to any actual or alleged misrepresentation or nondisclosure made
regarding this Lease or the Leased Premises or any actual or alleged failure,
default or breach of any covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common law.
12.5 TENANT'S WAIVER. Landlord and Tenant agree that the provisions of Paragraph
12.3 above are intended to supersede and replace the provisions of California
Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby
waives the provisions of California Civil Code Sections 1932(1), 1941 and 1942
and/or any similar or successor law regarding Tenant's right to terminate this
Lease or to make repairs and deduct the expenses of such repairs from the rent
due under this Lease.
ARTICLE 13
GENERAL PROVISIONS
13.1 TAXES ON TENANT'S PROPERTY. Tenant shall pay before delinquency any and all
taxes, assessments, license fees, use fees, permit fees and public charges of
whatever nature or description levied, assessed or imposed against Tenant or
Landlord by a governmental agency arising out of, caused by reason of or based
upon Tenant's estate in this Lease, Tenant's ownership of property, improvements
made by Tenant to the Leased Premises or the Outside Areas, improvements made by
Landlord for Tenant's use within the Leased Premises or the Outside Areas,
Tenant's use (or estimated use) of public facilities or services or Tenant's
consumption (or estimated consumption) of public utilities, energy, water or
other resources (collectively, "Tenant's Interest"). Upon demand by Landlord,
Tenant shall furnish Landlord with satisfactory evidence of these payments. If
any such taxes, assessments, fees or public charges are levied against Landlord,
Landlord's property, the Building or the Property, or if the assessed value of
the Building or the Property is increased by the inclusion therein of a value
placed upon Tenant's Interest, regardless of the validity thereof, Landlord
shall have the right to require Tenant to pay such taxes, and if not paid and
satisfactory evidence of payment delivered to Landlord at least ten days prior
to delinquency, then Landlord shall have the right to pay such taxes on Tenant's
behalf and to invoice Tenant for the same. Tenant shall, within the earlier to
occur of (a) thirty (30) days of the date it receives an invoice from Landlord
setting forth the amount of such taxes, assessments, fees, or public charge so
levied, or (b) the due date of such invoice, pay to Landlord, as Additional
Rent, the amount set forth in such invoice. Failure by Tenant to pay the amount
so invoiced within such time period shall be conclusively deemed a default by
Tenant under this Lease. Tenant shall have the right to bring suit in any court
of competent jurisdiction to recover from the taxing authority the amount of any
such taxes, assessments, fees or public charges so paid.
13.2 HOLDING OVER. This Lease shall terminate without further notice on the
Lease Expiration Date (as set forth in ARTICLE 1). Any holding over by Tenant
after expiration of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to the Leased Premises
except as expressly provided in this Paragraph. Any such holding over to which
Landlord has consented shall be construed to be a tenancy from month to month,
on the same terms and conditions herein specified insofar as applicable, except
that the Base Monthly Rent shall be increased to an amount equal to one hundred
fifty percent (150%) of the Base Monthly Rent payable during the last full month
immediately preceding such holding over. Tenant acknowledges that if Tenant
holds over without Landlord's consent, such holding over may compromise or
otherwise affect Landlord's ability to enter into new leases with prospective
tenants regarding the Leased Premises. Therefore, if Tenant fails to surrender
the Leased Premises upon the expiration or termination of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
protect, defend, indemnify and hold Landlord harmless from and against all
claims resulting from such failure, including, without limiting the foregoing,
any claims made by any succeeding tenant founded upon such failure to surrender,
and any losses suffered by Landlord, including lost profits, resulting from such
failure to surrender.
13.3 SUBORDINATION TO MORTGAGES. This Lease is subject to and subordinate to all
ground leases, mortgages and deeds of trust which affect the Building or the
Property and which are of public record as of the Effective Date of this Lease,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. However, if the lessor under any such ground lease or any lender
holding any such mortgage or deed of trust shall advise Landlord that it desires
or requires this Lease to be made prior and superior thereto, then, upon written
request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and
deliver any and all customary or reasonable documents or instruments which
Landlord and such lessor or lender deems necessary or desirable to make this
Lease prior thereto. Tenant hereby consents to Landlord's ground leasing the
land underlying the Building or the Property and/or encumbering the Building or
the Property as security for future loans on such terms as Landlord shall
desire, all of which future ground leases, mortgages or deeds of trust shall be
subject to and subordinate to this Lease. However, if any lessor under any such
future ground lease or any lender holding such future mortgage or deed of trust
shall desire or require that this Lease be made subject to and subordinate to
such future ground lease, mortgage or deed of trust, then Tenant agrees, within
ten (10) days after Landlord's written request therefor, to execute, acknowledge
and deliver to Landlord any and all documents or instruments reasonably
requested by Landlord or by such lessor or lender as may be necessary or proper
to assure the subordination of this Lease to such future ground lease, mortgage
or deed of trust, but only if such lessor or lender agrees to recognize Tenant's
rights under this Lease and agrees not
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to disturb Tenant's quiet possession of the Leased Premises so long as Tenant is
not in default under this Lease. If Landlord assigns the Lease as security for a
loan, Tenant agrees to execute such documents as are reasonably requested by the
lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust provided that such documents do
not materially increase Tenant's obligations under this Lease.
13.4 TENANT'S ATTORNMENT UPON FORECLOSURE. Tenant shall, upon request, attorn
(i) to any purchaser of the Building or the Property at any foreclosure sale or
private sale conducted pursuant to any security instruments encumbering the
Building or the Property, (ii) to any grantee or transferee designated in any
deed given in lieu of foreclosure of any security interest encumbering the
Building or the Property, or (iii) to the lessor under an underlying ground
lease of the land underlying the Building or the Property, should such ground
lease be terminated; provided that such purchaser, grantee or lessor recognizes
Tenant's rights under this Lease.
13.5 MORTGAGEE PROTECTION. In the event of any default on the part of Landlord,
Tenant will give notice by registered mail to any Lender or lessor under any
underlying ground lease who shall have requested, in writing, to Tenant that it
be provided with such notice, and Tenant shall offer such Lender or lessor a
reasonable opportunity to cure the default, including time to obtain possession
of the Leased Premises by power of sale or judicial foreclosure or other
appropriate legal proceedings if reasonably necessary to effect a cure.
13.6 ESTOPPEL CERTIFICATE. Tenant will, following any request by Landlord,
promptly execute and deliver to Landlord an estoppel certificate substantially
in form attached as Exhibit B, (i) certifying that this Lease is unmodified and
in full force and effect, or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect, (ii) stating the date to which the rent and other charges are paid
in advance, if any, (iii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed, and (iv) certifying such other information
about this Lease as may be reasonably requested by Landlord, its Lender or
prospective lenders, investors or purchasers of the Building or the Property.
Tenant's failure to execute and deliver such estoppel certificate within ten
days after Landlord's request therefor shall be a material default by Tenant
under this Lease, and Landlord shall have all of the rights and remedies
available to Landlord as Landlord would otherwise have in the case of any other
material default by Tenant, including the right to terminate this Lease and sue
for damages proximately caused thereby, it being agreed and understood by Tenant
that Tenant's failure to so deliver such estoppel certificate in a timely manner
could result in Landlord being unable to perform committed obligations to other
third parties which were made by Landlord in reliance upon this covenant of
Tenant. Landlord and Tenant intend that any statement delivered pursuant to this
paragraph may be relied upon by any Lender or purchaser or prospective Lender or
purchaser of the Building, the Property, or any interest in them.
13.7 TENANT'S FINANCIAL INFORMATION. Tenant shall, within ten business days
after Landlord's request therefor, deliver to Landlord a copy of Tenant's (and
any guarantor's) current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles) and any such other information reasonably
requested by Landlord regarding Tenant's financial condition. Landlord shall be
entitled to disclose such financial statements or other information to its
Lender, to any present or prospective principal of or investor in Landlord, or
to any prospective Lender or purchaser of the Building, the Property, or any
portion thereof or interest therein. Any such financial statement or other
information which is marked "confidential" or "company secrets" (or is otherwise
similarly marked by Tenant) shall be confidential and shall not be disclosed by
Landlord to any third party except as specifically provided in this paragraph
and then only if the person to whom disclosure is made first agrees to be bound
by the requirements of this Section 13.7, unless the same becomes a part of the
public domain without the fault of Landlord.
13.8 TRANSFER BY LANDLORD. Landlord and its successors in interest shall have
the right to transfer their interest in the Building, the Property, or any
portion thereof at any time and to any person or entity. In the event of any
such transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer so long as the Security Deposit
(or the remaining amount of such Security Deposit after deductions made in
accordance with Section 3.7 of this Lease) is transferred to the transferee (or
returned to the Tenant) and the transferee has agreed to assume and perform all
such obligations which may accrue after the date of such transfer and (ii) shall
be relieved of all liability for the performance of the obligations of the
Landlord hereunder which have accrued before the date of transfer if its
transferee agrees to assume and perform all such prior obligations of the
Landlord hereunder. Tenant shall attorn to any such transferee. After the date
of any such transfer, the term "Landlord" as used herein shall mean the
transferee of such interest in the Building or the Property.
13.9 FORCE MAJEURE. The obligations of each of the parties under this Lease
(other than the obligations to pay money) shall be temporarily excused if such
party is prevented or delayed in performing such obligations by reason of any
strikes, lockouts or labor disputes; government restrictions, regulations,
controls, action or inaction; civil commotion; or extraordinary weather, fire or
other acts of God.
13.10 NOTICES. Any notice required or permitted to be given under this Lease
shall be in writing and (i) personally delivered, (ii) sent by United States
mail, registered or certified mail, postage prepaid, return receipt requested,
(iii) sent by Federal Express or similar nationally recognized overnight courier
service, or (iv) transmitted by facsimile with a hard copy sent within one (1)
business day by any of the foregoing means, and in all cases addressed as
follows, and such notice shall be deemed to have been given upon the date of
actual receipt or delivery (or refusal to accept delivery) at the address
specified below (or such other addresses as may be specified by notice in the
foregoing manner) as indicated on the return receipt or air bill:
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IF TO LANDLORD: Mathilda Associates LLC
c/o Menlo Equities LLC
525 University Avenue
Suite 100
Palo Alto, California 94301
Attention: Henry Bullock/Richard Holmstrom
with a copy to Beacon Capital Partners Inc.
One Federal Street, 26th Floor
Boston, Massachusetts 02110
Attention: General Counsel
and to: Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, California 94111
Attention: Paul Churchill
IF TO TENANT: Prior to May 1, 2000:
--------------------
Juniper Networks, Inc.
385 Ravendale Drive
Mountain View, California 94043
After May 1, 2000:
1194 Mathilda Avenue
Sunnyvale, California 94089
Attention: General Counsel
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Bradford C. O'Brien
Any notice given in accordance with the foregoing shall be deemed received upon
actual receipt or refusal to accept delivery.
13.11 ATTORNEYS' FEES. In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision of
this Lease, to recover rent, to terminate this Lease, or to enforce, protect,
determine or establish any term or covenant of this Lease or rights or duties
hereunder of either party, the prevailing party shall be entitled to recover
from the non-prevailing party as a part of such action or proceeding, or in a
separate action for that purpose brought within one year from the determination
of such proceeding, reasonable attorneys' fees, expert witness fees, court costs
and other reasonable expenses incurred by the prevailing party.
13.12 DEFINITIONS. Any term that is given a special meaning by any provision in
this Lease shall, unless otherwise specifically stated, have such meaning
wherever used in this Lease or in any Addenda or amendment hereto. In addition
to the terms defined in ARTICLE 1, the following terms shall have the following
meanings:
(a) REAL PROPERTY TAXES. The term "Real Property Tax" or "Real Property
Taxes" shall each mean the sum of Tenant's Property Share (as to the land
component of the Property) and Tenant's Expense Share (as to the Building and
other improvements in the Outside Areas) of (i) all taxes, assessments, levies
and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all instruments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership or
new construction), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed for whatever
reason against the Property or any portion thereof, or Landlord's interest
herein, or the fixtures, equipment and other property of Landlord that is an
integral part of the Property and located thereon, or Landlord's business of
owning, leasing or managing the Property or the gross receipts, income or
rentals from the Property, (ii) all charges, levies or fees imposed by any
governmental authority against Landlord by reason of or based upon the use of or
number of parking spaces within the Property, the amount of public services or
public utilities used or consumed (e.g. water, gas, electricity, sewage or waste
water disposal) at the Property, the number of person employed by tenants of the
Property, the size (whether measured in area, volume, number of tenants or
whatever) or the value of the Property, or the type of use or uses conducted
within the Property, and all costs and fees (including attorneys' fees)
reasonably incurred by Landlord in contesting any Real Property Tax and in
negotiating with public authorities as to any Real Property Tax. If, at any time
during the Lease Term, the taxation or assessment of the Property prevailing as
of the Effective Date of this Lease shall be altered so that in lieu of or in
addition to any the Real Property Tax described above there shall be levied,
awarded or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate,
substitute, or additional use or charge (i) on the value, size, use or occupancy
of the Property or Landlord's interest therein or (ii) on or measured by the
gross receipts, income or rentals from the Property, or on Landlord's business
of owning, leasing or managing the Property or (iii) computed in any manner with
respect to the operation of the Property, then any such tax or charge, however
designated, shall be included within the meaning of the terms "Real Property
Tax" or "Real Property Taxes" for purposes of this Lease. If any
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Real Property Tax is partly based upon property or rents unrelated to the
Property, then only that part of such Real Property Tax that is fairly allocable
to the Property shall be included within the meaning of the terms "Real Property
Tax" or "Real Property Taxes." Notwithstanding the foregoing, the terms "Real
Property Tax" or "Real Property Taxes" shall not include estate, inheritance,
transfer, gift or franchise taxes of Landlord or the federal or state income tax
imposed on Landlord's income from all sources.
(b) LANDLORD'S INSURANCE COSTS. The term "Landlord's Insurance Costs"
shall mean Tenant's Expense Share of the costs to Landlord to carry and maintain
the policies of fire and property damage insurance for the Building and Tenant's
Property Share of the costs to Landlord to carry and maintain the policies of
fire and property damage insurance on the Property and general liability and any
other insurance required or permitted to be carried by Landlord pursuant to
ARTICLE 9, together with any deductible amounts paid by Landlord upon the
occurrence of any insured casualty or loss. Any deductible amount in excess of
twenty five (25%) of the total casualty shall be amortized over the useful life
of the repair or replacement required to restore the Property after such
casualty, and the amortized portion shall be included on a monthly basis in
Landlord's Insurance Costs. Notwithstanding the foregoing, Landlord's Insurance
Costs shall not include the cost of any course of construction insurance carried
by Landlord for the construction of the 1184 Building. Notwithstanding the
foregoing, if Tenant terminates this Lease pursuant to Section 10.4 hereof,
Tenant shall not be required to pay for any insurance deductibles as part of
Landlord's Insurance Costs or otherwise.
(c) PROPERTY MAINTENANCE COSTS. The term "Property Maintenance Costs"
shall mean Tenant's Property Share of all costs and expenses (except Landlord's
Insurance Costs and Real Property Taxes) paid or incurred by Landlord in
protecting, operating, maintaining, repairing and preserving the Property and
all parts thereof, including without limitation, (i) market rate professional
management fees of no more than two percent (2%) of Base Monthly Rent, (ii) the
amortizing portion of any costs incurred by Landlord in the making of any
modifications, alterations or improvements required by any governmental
authority as set forth in ARTICLE 6, which are so amortized during the Lease
Term, (iii) any and all on-going operation or maintenance costs imposed on the
Property by or through any development agreement, use permit, site development
agreement, traffic mitigation plan, entitlement, or Private Restrictions
(including but not limited to shuttle and emergency transportation), and (iv)
such other costs as may be paid or incurred with respect to operating,
maintaining, and preserving the Property, repairing and resurfacing paved areas,
and repairing and replacing, when necessary, electrical, plumbing, heating,
ventilating and air conditioning systems serving the Building, provided that the
cost of any capital improvement shall be amortized over the useful life of such
improvement and the amortizing portion of the cost shall be included in Property
Maintenance Costs. If any costs and expenses are partly based upon property or
rents unrelated to the Property, then only that part of such Property
Maintenance Costs that is fairly allocable to the Property shall be included
within the meaning of the terms "Property Maintenance Costs." Notwithstanding
the foregoing provisions of this Section 13.12(c), the following are
specifically excluded from the definition of Property Maintenance Costs and
Tenant shall have no obligation to pay directly or reimburse Landlord for all or
any portion of the following except to the extent any of the foregoing are
caused by the actions or inactions of Tenant, or result from the failure of
Tenant to comply with the terms of the Lease: (a) costs of development or
construction on the Property (other than on-going operation or maintenance costs
as set forth in (iii) above); (b) the costs to repair or replace the structural
portions of the Building or other buildings on the Property, including, without
limitation, the foundation, footings, roof structure, roof screens, roof screen
penetrations, and load bearing and exterior walls of the Building or any other
building located on the Property; (c) depreciation, amortization or other
expense reserves; (d) interest, charges and fees incurred on debt, payments on
mortgages and rent under ground leases; (e) costs and expenses for which Tenant
reimburses Landlord directly or which Tenant pays directly to a third person or
costs for which Landlord has a right of reimbursement from others; (f) costs
occasioned by the active negligence or willful misconduct of Landlord or any
other occupant of the Property or violations of Law by Landlord or any other
occupant of the Property, (g) or costs to correct any construction defect in the
Leased Premises, the Building or the Property; or (h) capital costs incurred to
bring the Building or the Property into compliance with the Use Permit, any
CC&R's, underwriter's requirements, or Laws applicable to the Leased Premises,
the Building or the Property at the time the building permit for the Base
Building (as defined in the Work Letter) is issued.
(d) PROPERTY OPERATING EXPENSES. The term "Property Operating Expenses"
shall mean and include all Real Property Taxes, plus all Landlord's Insurance
Costs, plus all Property Maintenance Costs.
(e) LAW. The term "Law" shall mean any judicial decisions and any
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirements of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Property, or any of them, in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g. a board of fire examiners or a public
utility or special district).
(f) LENDER. The term "Lender" shall mean the holder of any promissory
note or other evidence of indebtedness secured by the Property or any portion
thereof.
(g) PRIVATE RESTRICTIONS. The term "Private Restrictions" shall mean
(as they may exist from time to time) any and all covenants, conditions and
restrictions, private agreements, easements, and any other recorded documents or
instruments affecting the use of the Property, the Building, the Leased
Premises, or the Outside Areas.
(h) RENT. The term "Rent" shall mean collectively Base Monthly Rent and
all Additional Rent.
13.13 GENERAL WAIVERS. One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. No waiver of any provision hereof, or
any waiver of any breach of any provision hereof, shall be effective unless in
writing and signed by the waiving party. The receipt by Landlord of any rent or
payment with or without knowledge of the
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breach of any other provision hereof shall not be deemed a waiver of any such
breach. No waiver of any provision of this Lease shall be deemed a continuing
waiver unless such waiver specifically states so in writing and is signed by
both Landlord and Tenant. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or any other provisions herein contained.
13.14 MISCELLANEOUS. Should any provisions of this Lease prove to be invalid or
illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provisions hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. Any copy of this Lease which is executed by the parties shall be deemed
an original for all purposes. This Lease shall, subject to the provisions
regarding assignment, apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and Tenant. The term "party"
shall mean Landlord or Tenant as the context implies. If Tenant consists of more
than one person or entity, then all members of Tenant shall be jointly and
severally liable hereunder. This Lease shall be construed and enforced in
accordance with the Laws of the State in which the Leased Premises are located.
The captions in this Lease are for convenience only and shall not be construed
in the construction or interpretation of any provision hereof. When the context
of this Lease requires, the neuter gender includes the masculine, the feminine,
a partnership, corporation, limited liability company, joint venture, or other
form of business entity, and the singular includes the plural. The terms "must,"
"shall," "will," and "agree" are mandatory. The term "may" is permissive. When a
party is required to do something by this Lease, it shall do so at its sole cost
and expense without right of reimbursement from the other party unless specific
provision is made therefor. Where Landlord's consent is required hereunder, the
consent of any Lender shall also be required. Landlord and Tenant shall both be
deemed to have drafted this Lease, and the rule of construction that a document
is to be construed against the drafting party shall not be employed in the
construction or interpretation of this Lease. Where Tenant is obligated not to
perform any act or is not permitted to perform any act, Tenant is also obligated
to restrain any others reasonably within its control, including agents,
invitees, contractors, subcontractors and employees, from performing such act.
Landlord shall not become or be deemed a partner or a joint venturer with Tenant
by reason of any of the provisions of this Lease.
13.15 COOPERATION. Notwithstanding anything to the contrary contained herein,
Tenant consents to and agrees to fully cooperate with Landlord and Landlord's
agents, employees and contractors in Landlord's efforts, if any, to improve the
Property with an additional building and divide the Property into separate legal
parcels, which efforts may include, without limitation, the elimination of
landscaping, the restriping or reconfiguration of the parking areas, application
for building permits and other development approvals, parcelization of the
Property and construction of buildings. Tenant agrees to execute such documents
and take such actions as reasonably necessary to assist Landlord with such
efforts and actions. Tenant agrees that such efforts and actions of Landlord
shall not constitute constructive eviction of Tenant from the Property or Leased
Premises. Following any parcelization of the Property, Landlord and Tenant agree
to amend this Lease to conform the descriptions of the Property, Site Plan, and
Outside Areas, and, subject to Section 4.5, the parking areas contained herein
to the parcelization and reconfiguration. Landlord agrees to minimize the
disruption of Tenant's use of the Leased Premises, the Building, the Outside
Areas and the Property to the extent reasonable, given Landlord's efforts and
actions described herein. Specifically, during construction of the 1184
Building, Landlord shall cause all construction trucks to enter the Property
from the drive furthest from the Building on 5th Avenue and all grading on the
Property for construction of the Building and the 1184 Building (other than
grading for landscaping) shall be done at the same time.
ARTICLE 14
CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT
14.1 CORPORATE AUTHORITY. If Tenant is a corporation, each individual executing
this Lease on behalf of such corporation represents and warrants that Tenant is
validly formed and duly authorized and existing, that Tenant is qualified to do
business in the State in which the Leased Premises are located, that Tenant has
the full right and legal authority to enter into this Lease, and that he or she
is duly authorized to execute and deliver this Lease on behalf of Tenant in
accordance with its terms. Tenant shall, within thirty days after execution of
this Lease, deliver to Landlord a certified copy of the resolution of its board
of directors authorizing or ratifying the execution of this Lease and if Tenant
fails to do so, Landlord at its sole election may elect to terminate this Lease.
14.2 BROKERAGE COMMISSIONS. Tenant represents, warrants and agrees that it has
not had any dealings with any real estate broker(s), leasing agent(s), finder(s)
or salesmen, other than the Brokers (as named in ARTICLE 1) with respect to the
lease by it of the Leased Premises pursuant to this Lease, and that it will
assume all obligations and responsibility with respect to the payment of such
Brokers, and that it will indemnify, defend with competent counsel, and hold
Landlord harmless from any liability for the payment of any real estate
brokerage commissions, leasing commissions or finder's fees claimed by any other
real estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or
due and payable by reason of Tenant's agreement or promise (implied or
otherwise) to pay (or to have Landlord pay) such a commission or finder's fee by
reason of its leasing the Leased Premises pursuant to this Lease.
14.3 ENTIRE AGREEMENT. This Lease and the Exhibits (as described in ARTICLE 1),
which Exhibits are by this reference incorporated herein, constitute the entire
agreement between the parties, and there are no other agreements, understandings
or representations between the parties relating to the lease by Landlord of the
Leased
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Premises to Tenant, except as expressed herein. No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.
14.4 LANDLORD'S REPRESENTATIONS. Tenant acknowledges that neither Landlord nor
any of its agents made any representations or warranties respecting the
Property, the Building or the Leased Premises, upon which Tenant relied in
entering into the Lease, which are not expressly set forth in this Lease. Tenant
further acknowledges that neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may be used for Tenant's
intended use under existing Law, or (ii) the suitability of the Leased Premises
for the conduct of Tenant's business, or (iii) the exact square footage of the
Leased Premises, and that Tenant relies solely upon its own investigations with
respect to such matters. Tenant expressly waives any and all claims for damage
by reason of any statement, representation, warranty, promise or other agreement
of Landlord or Landlord's agent(s), if any, not contained in this Lease or in
any Exhibit attached hereto.
ARTICLE 15
OPTIONS TO EXTEND
15.1 So long as Juniper Networks, Inc. (or a Permitted Assignee) is the Tenant
hereunder, and subject to the condition set forth in clause (b) below, Tenant
shall have two options to extend the term of this Lease with respect to the
entirety of the Leased Premises, the first for a period of five (5) years from
the expiration of the last year of the Lease Term (the "First Extension
Period"), and the second (the "Second Extension Period") for a period of five
(5) years from the expiration of the First Extension Period, subject to the
following conditions:
(a) Each option to extend shall be exercised, if at all, by notice of
exercise given to Landlord by Tenant not more than twelve (12) months nor less
than nine (9) months prior to the expiration of the last year of the Lease Term
or the expiration of the First Extension Period, as applicable;
(b) Anything herein to the contrary notwithstanding, if Tenant is in
default under any of the material terms, covenants or conditions of this Lease,
either at the time Tenant exercises either extension option or on the
commencement date of the First Extension Period or the Second Extension Period,
as applicable, Landlord shall have, in addition to all of Landlord's other
rights and remedies provided in this Lease, the right to terminate such
option(s) to extend upon notice to Tenant.
15.2 In the event the applicable option is exercised in a timely fashion, the
Lease shall be extended for the term of the applicable extension period upon all
of the terms and conditions of this Lease, provided that the Base Monthly Rent
for each extension period shall be the "Fair Market Rent" for the Leased
Premises, determined as set forth below, with annual increases as determined as
part of the process set forth below.
15.3 Within 30 days after receipt of Tenant's notice of exercise, Landlord shall
notify Tenant in writing of Landlord's estimate of the Base Monthly Rent for the
first year of the applicable extension period, and Landlord's estimate of annual
increases. For purposes hereof, "Fair Market Rent" shall mean collectively, (1)
Base Monthly Rent for the first year of the applicable extension period and (2)
the annual increases determined at the time Base Monthly Rent for the first year
is determined. Within 30 days after receipt of such notice from Landlord, Tenant
shall have the right either to (i) accept Landlord's estimate of Fair Market
Rent or (ii) elect to arbitrate Landlord's estimate of Fair Market Rent, such
arbitration to be conducted pursuant to the provisions hereof. Failure on the
part of Tenant to require arbitration of Fair Market Rent within such 30-day
period shall constitute acceptance of the Fair Market Rent for the applicable
extension period as calculated by Landlord. If Tenant elects arbitration, the
arbitration shall be concluded within 90 days after the date of Tenant's
election, subject to extension for an additional 30-day period if a third
arbitrator is required and does not act in a timely manner. To the extent that
arbitration has not been completed prior to the expiration of any preceding
period for which Base Monthly Rent has been determined, Tenant shall pay Base
Monthly Rent at the rate calculated by Landlord, with the potential for an
adjustment to be made once Fair Market Rent is ultimately determined by
arbitration.
15.4 In the event of arbitration, the judgment or the award rendered in any such
arbitration may be entered in any court having jurisdiction and shall be final
and binding between the parties. The arbitration shall be conducted and
determined in the City and County of San Francisco in accordance with the then
prevailing rules of the American Arbitration Association or its successor for
arbitration of commercial disputes except to the extent that the procedures
mandated by such rules shall be modified as follows:
(a) Tenant shall make demand for arbitration in writing within 30 days
after service of Landlord's determination of Fair Market Rent given under
Paragraph 15.3 above, specifying therein the name and address of the person to
act as the arbitrator on its behalf. The arbitrator shall be qualified as a real
estate appraiser familiar with the Fair Market Rent of similar industrial,
research and development, or office space in the Silicon Valley area who would
qualify as an expert witness over objection to give opinion testimony addressed
to the issue in a court of competent jurisdiction. Failure on the part of Tenant
to make a proper demand in a timely manner for such arbitration shall constitute
a waiver of the right thereto. Within 15 days after the service of the demand
for arbitration, Landlord shall give notice to Tenant, specifying the name and
address of the person designated by Landlord to act as arbitrator on its behalf
who shall be similarly qualified. If Landlord fails to notify Tenant of the
appointment of its arbitrator, within or by the time above specified, then the
arbitrator appointed by Tenant shall be the arbitrator to determine the issue.
(b) In the event that two arbitrators are chosen pursuant to Paragraph
15.4(a) above, the arbitrators so chosen shall, within 15 days after the second
arbitrator is appointed determine the Fair Market Rent. If the two arbitrators
shall be unable to agree upon a determination of Fair Market Rent within such
15-day period, they,
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themselves, shall appoint a third arbitrator, who shall be a competent and
impartial person with qualifications similar to those required of the first two
arbitrators pursuant to Paragraph 15.4(a). In the event they are unable to agree
upon such appointment within seven days after expiration of such 15-day period,
the third arbitrator shall be selected by the parties themselves, if they can
agree thereon, within a further period of 15 days. If the parties do not so
agree, then either party, on behalf of both, may request appointment of such a
qualified person by the then Chief Judge of the United States District Court
having jurisdiction over the County of Santa Clara, acting in his private and
not in his official capacity, and the other party shall not raise any question
as to such Judge's full power and jurisdiction to entertain the application for
and make the appointment. The three arbitrators shall decide the dispute if it
has not previously been resolved by following the procedure set forth below.
(c) Where an issue cannot be resolved by agreement between the two
arbitrators selected by Landlord and Tenant or settlement between the parties
during the course of arbitration, the issue shall be resolved by the three
arbitrators within 15 days of the appointment of the third arbitrator in
accordance with the following procedure. The arbitrator selected by each of the
parties shall state in writing his determination of the Fair Market Rent
supported by the reasons therefor with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous exchange of such proposed
resolutions. The role of the third arbitrator shall be to select which of the
two proposed resolutions most closely approximates his determination of Fair
Market Rent. The third arbitrator shall have no right to propose a middle ground
or any modification of either of the two proposed resolutions. The resolution he
chooses as most closely approximating his determination shall constitute the
decision of the arbitrators and be final and binding upon the parties.
(d) In the event of a failure, refusal or inability of any arbitrator
to act, his successor shall be appointed by him, but in the case of the third
arbitrator, his successor shall be appointed in the same manner as provided for
appointment of the third arbitrator. The arbitrators shall decide the issue
within 15 days after the appointment of the third arbitrator. Any decision in
which the arbitrator appointed by Landlord and the arbitrator appointed by
Tenant concur shall be binding and conclusive upon the parties. Each party shall
pay the fee and expenses of its respective arbitrator and both shall share the
fee and expenses of the third arbitrator, if any, and the attorneys' fees and
expenses of counsel for the respective parties and of witnesses shall be paid by
the respective party engaging such counsel or calling such witnesses.
(e) The arbitrators shall have the right to consult experts and
competent authorities to obtain factual information or evidence pertaining to a
determination of Fair Market Rent, but any such consultation shall be made in
the presence of both parties with full right on their part to cross-examine. The
arbitrators shall render their decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease.
ARTICLE 16
TELEPHONE SERVICE
Notwithstanding any other provision of this Lease to the contrary:
(a) So long as the entirety of the Building is leased to Tenant:
(i) Landlord shall have no responsibility for providing to
Tenant any telephone equipment, including wiring, within the Leased Premises or
for providing telephone service or connections from the utility to the Leased
Premises; and
(ii) Landlord makes no warranty as to the quality, continuity
or availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential damages
(including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly negligent or willful act
or omission by Landlord, its agents or employees. Tenant accepts the telephone
equipment (including, without limitation, the INC, as defined below) in its
"AS-IS" condition, and Tenant shall be solely responsible for contracting with a
reliable third party vendor to assume responsibility for the maintenance and
repair thereof (which contract shall contain provisions requiring such vendor to
inspect the INC periodically (the frequency of such inspections to be determined
by such vendor based on its experience and professional judgment), and requiring
such vendor to meet local and federal requirements for telecommunications
material and workmanship). Landlord shall not be liable to Tenant and Tenant
waives all claims against Landlord whatsoever, whether for personal injury,
property damage, loss of use of the Leased Premises, or otherwise, due to the
interruption or failure of telephone services to the Leased Premises. Tenant
hereby holds Landlord harmless and agrees to indemnify, protect and defend
Landlord from and against any liability for any damage, loss or expense due to
any failure or interruption of telephone service to the Leased Premises for any
reason. Tenant agrees to obtain loss of rental insurance adequate to cover any
damage, loss or expense occasioned by the interruption of telephone service.
(b) At such time as the entirety of the Building is no longer leased to
Tenant, Landlord shall in its sole discretion have the right, by written notice
to Tenant, to elect to assume limited responsibility for INC, as provided below,
and upon such assumption of responsibility by Landlord, this subparagraph (b)
shall apply prospectively.
(i) Landlord shall provide Tenant access to such quantity of
pairs in the Building intra-building network cable ("INC") as is determined to
be available by Landlord in its reasonable discretion. Tenant's access to the
INC shall be solely by arrangements made by Tenant, as Tenant may elect,
directly with Pacific Bell or Landlord (or such vendor as Landlord may
designate), and Tenant shall pay all reasonable charges as may be imposed in
connection therewith. Pacific Bell's charges shall be deemed to be reasonable.
Subject to the foregoing,
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Landlord shall have no responsibility for providing to Tenant any telephone
equipment, including wiring, within the Leased Premises or for providing
telephone service or connections from the utility to the Leased Premises, except
as required by law.
(ii) Tenant shall not alter, modify, add to or disturb any
telephone wiring in the Leased Premises or elsewhere in the Building without the
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Tenant shall be liable to Landlord for any damage to the telephone
wiring in the Building due to the act, negligent or otherwise, of Tenant or any
employee, contractor or other agent of Tenant. Tenant shall have no access to
the telephone closets within the Building, except in the manner and under
procedures established by Landlord. Tenant shall promptly notify Landlord of any
actual or suspected failure of telephone service to the Leased Premises.
(iii) All costs incurred by Landlord for the installation,
maintenance, repair and replacement of telephone wiring in the Building shall be
a Property Maintenance Cost.
(iv) Landlord makes no warranty as to the quality, continuity
or availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential damages
(including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly negligent or willful act
or omission by Landlord, its agents or employees. Tenant acknowledges that
Landlord meets its duty of care to Tenant with respect to the Building INC by
contracting with a reliable third party vendor to assume responsibility for the
maintenance and repair thereof (which contract shall contain provisions
requiring such vendor to inspect the INC periodically (the frequency of such
inspections to be determined by such vendor based on its experience and
professional judgment), and requiring such vendor to meet local and federal
requirements for telecommunications material and workmanship). Subject to the
foregoing, Landlord shall not be liable to Tenant and Tenant waives all claims
against Landlord whatsoever, whether for personal injury, property damage, loss
of use of the Leased Premises, or otherwise, due to the interruption or failure
of telephone services to the Leased Premises. Tenant hereby holds Landlord
harmless and agrees to indemnify, protect and defend Landlord from and against
any liability for any damage, loss or expense due to any failure or interruption
of telephone service to the Leased Premises for any reason. Tenant agrees to
obtain loss of rental insurance adequate to cover any damage, loss or expense
occasioned by the interruption of telephone service.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the respective dates below set forth with the intent to be legally bound thereby
as of the Effective Date of this Lease first above set forth.
LANDLORD:
MATHILDA ASSOCIATES LLC, a California limited
liability company
By: Menlo Equities LLC, a California
limited liability company, Manager
Dated: 2-28-00 By: Diamant Investments LLC, a Delaware
-------------------- limited liability company, Member
By: /s/ RICHARD J. HOLMSTROM
--------------------------------------
Richard J. Holmstrom, Manager
TENANT:
JUNIPER NETWORKS, INC., a Delaware corporation
Dated: February 23, 2000 By: /s/ Signature Illegible
-------------------- -------------------------------------------
Title: Chief Financial Officer
----------------------------------------
Dated: February 23, 2000 By: /s/ LISA C. BERRY
-------------------- -------------------------------------------
Title: General Counsel Secretary
----------------------------------------
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EXHIBIT A
SITE PLAN
(To be attached)
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EXHIBIT B
WORK LETTER
THIS WORK LETTER, dated February ___, 2000, is entered into by and
between MATHILDA ASSOCIATES LLC ("Landlord"), and JUNIPER NETWORKS, INC., a
Delaware corporation ("Tenant"). On or about the date hereof, Landlord and
Tenant entered into that certain Lease (the "Lease") for certain premises (the
"Leased Premises") commonly known as 1184 Mathilda Avenue, Sunnyvale,
California. This Work Letter sets forth the agreement of Landlord and Tenant
with respect to the improvements to be constructed in the Leased Premises. All
defined terms used herein shall have the meaning set forth in the Lease, unless
otherwise defined in this Work Letter.
1. CONSTRUCTION OF TENANT IMPROVEMENTS. Landlord shall, through a general
contractor to be selected pursuant to Paragraph 4 of this Work Letter, furnish
and install within the Building, substantially in accordance with the Work
Letter, certain items of general construction as described herein (the "Tenant
Improvements"). The quantities, character and manner of installation of all of
the Tenant Improvements shall be subject to the limitations imposed by any
applicable governmental regulations relating to conservation of energy and by
applicable building codes and regulations. In addition, Tenant agrees that the
Tenant Improvements shall not require Landlord to perform work which would (i)
require changes to structural components of the Building or the exterior design
of the Building; (ii) be incompatible with the Base Building Plans (defined
below) or the use permit to be issued by the City of Sunnyvale (the "Use
Permit"); or (iii) delay the completion of the Tenant Improvements beyond the
Intended Delivery Date.
2. BASE BUILDING PLANS. Robinson Mills + Williams (the "Architect") has prepared
building plans and specifications on behalf of Landlord described as Mathilda
Research Centre "Reissues for Building Permit" plans dated September 23, 1999
("Base Building Plans") which have been approved by Tenant prior to the date
hereof. Landlord hereby agrees to construct the Base Building in accordance with
the Base Building Plans and the cost thereof shall not be deducted from the
Tenant Improvement Allowance.
3. PREPARATION AND APPROVAL OF SPACE PLAN. Commencing on full execution of the
Lease, Tenant shall make its representatives available to meet with the
Architect in order to begin the programming process. The Tenant shall work with
the Architect to complete the programming and preliminary design for Architect's
preparation of space plans (the "Space Plans"). Such Space Plans shall be
approved by Tenant and submitted for Landlord's review no later than June 1,
2000. Within five (5) business days after Landlord receives the Space Plans,
Landlord shall either approve or disapprove the Space Plans. In such event, the
Architect shall make the minimum changes necessary in order to correct any
design problems identified by the Landlord and shall submit to Landlord and
Tenant revised Space Plans, which Landlord and Tenant shall approve or
disapprove within two (2) business days after receipt of the revised Space
Plans. This procedure shall be repeated until the Space Plans are finally
approved by Landlord and Tenant.
4. SELECTION OF CONTRACTOR. Landlord's contractor shall be the contractor
selected pursuant to a procedure whereby the Space Plans are submitted to three
(3) contractors (one of which shall be LE Wentz), selected by Landlord and
approved by Tenant, who are requested to each submit a proposal containing the
contractor's fee and general conditions for construction of the improvements
designated on the Space Plans. Landlord and Tenant shall jointly open and review
the fees and general conditions and the qualifications of each contractor, and
shall select the contractor reasonably acceptable to both Landlord and Tenant
("Contractor"). Landlord and Contractor shall enter into a construction contract
(the "Construction Contract") consistent with the terms of the bid to construct
the Tenant Improvements. The Construction Contract shall require that all
subtrades be competitively bid with at least three (3) subcontractors. Tenant
shall have the right to propose subcontractors to be used by the Contractor.
Subcontracts shall be awarded to the lowest qualified bidder, unless otherwise
agreed by Landlord and Tenant.
5. DESIGN DEVELOPMENT. As soon as possible after Landlord's approval of the
Space Plans, Tenant shall commence working with the Architect to determine
Tenant's design specifications and requirements, such that the Architect can
incorporate such specifications and requirements into plans (the "Design
Development Plans") no later than August 1, 2000. The Design Development Plans
shall include all specifications necessary for the design-build mechanical/HVAC,
electrical, plumbing, and telecom/cabling subcontractors to complete working
drawings.. Within five (5) business days Landlord receives the Design
Development Plans, Landlord shall either approve or disapprove the Design
Development Plans. In such event, the Architect shall make the minimum changes
necessary in order to correct any design problems identified by the Landlord and
shall submit to Landlord and Tenant revised Design Development Plans, which
Landlord and Tenant shall approve or disapprove within two (2) business days
after receipt of the revised Design Development Plans. This procedure shall be
repeated until the Design Development Plans are finally approved by Landlord and
Tenant.
6. APPROVAL OF WORKING DRAWINGS.
(a) After approval of the Design Development Plans and selection of the
Contractor, the Architect shall prepare complete and coordinated architectural
plans and specifications required for the construction of the Tenant
Improvements in conformance with such Space Plans (the "Working Drawings"), and
to prepare drawings and specifications for Changes (as defined below), if any,
requested or required pursuant to Paragraph 8 below.
(b) Landlord shall submit the completed and coordinated Working
Drawings to Tenant for Tenant's approval. Tenant will provide written approval
of the Working Drawings within five (5) business days after such submission. If
Tenant disapproves any part of the submission, the disapproval shall include
written instructions
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adequate for the Architect to revise the Working Drawings. Such revisions shall
be subject to Landlord's approval, which shall not be unreasonably withheld.
Tenant will finally approve the revised Working Drawings within five (5)
business days after submission thereof to Tenant. If Tenant's instructions
necessitate (i) revisions to the Working Drawings (as originally submitted)
which do not conform with the Design Development Plans, or (ii) a change of
scope relative to the Space Plans, the costs incurred by Landlord as a result of
such instructions (including, without limitation, the cost of revising the
Working Drawings) shall be promptly borne and paid by Tenant upon demand by
Landlord.
(c) If Tenant fails to approve the Working Drawings within the
applicable periods set forth in subparagraph 5(b) above, then (a) Landlord shall
not be obligated to commence construction of the Tenant Improvements, (b) Tenant
shall be responsible for any resulting delay, and the cost of such delay, in
Landlord's completion of the Tenant Improvements and delivery of the Leased
Premises, and (c) any such delay shall be deemed a Tenant Delay (as defined
below).
7. COST OF TENANT IMPROVEMENTS. Unless specified otherwise herein, Landlord
shall bear and pay the cost of the Tenant Improvements (which cost shall
include, without limitation, the costs of construction, the cost of permits and
permit expediting, and all architectural and engineering services obtained by
Landlord in connection with the Tenant Improvements, the Contractor's fees,
Landlord's fee for construction administration in an amount equal to the amount
charged by any construction manager retained by Landlord (the "Construction
Manager") up to a maximum of $6,121,750 (the "Tenant Improvement Allowance").
The Tenant Improvement Allowance shall be utilized only for building
improvements to the Building (and Tenant's architect fees), and not for signage,
furniture costs, any third party consulting or contracting fees, any
telecom/cabling costs, or any other purpose. Tenant shall bear and pay the cost
of the Tenant Improvements (including but not limited to all of the foregoing
fees and costs) in excess of the Tenant Improvement Allowance, if any. The cost
of the Tenant Improvements shall exclude the cost of furniture, fixtures and
inventory and other items of Tenant's Work (as defined below). Notwithstanding
the foregoing, the Tenant Improvement Allowance shall not be used for (and
Tenant shall have no responsibility for) the following costs except to the
extent any of the foregoing are caused by Tenant, are due to Tenant Delays or
result from the failure of Tenant to comply with the terms of the Lease or this
Work Letter: (1) Property Maintenance Costs prior to the Delivery Date; (2)
charges for overtime, except to the extent approved by Tenant; (3) costs to
correct construction defects; (4) costs incurred to enforce contracts or cure
contractor or subcontractor defaults (including legal fees); or (5) principal or
interest on construction loan obtained by Landlord for construction of the
Tenant Improvements.
8. CHANGES.
(a) Any request by Tenant for a change in the Tenant Improvements after
approval of the Final Plans (a "Change") shall be accompanied by all information
necessary to clearly identify and explain the proposed Change. As soon as
practicable after receipt of such an Estimate Request form, Landlord shall
notify Tenant of the estimated cost of such Change as well as the estimated
increase in construction time caused by the Change, if any. Tenant shall approve
in writing such estimates within two (2) business days after receipt of
Landlord's notice. Upon receipt of such written request, Landlord shall be
authorized to cause the Contractor to proceed with the implementation of the
requested Change.
(b) The increased cost and time, as determined by Landlord, of all
Changes, including the cost of architectural and engineering services required
to revise the Working Drawings to reflect such Changes, the Contractor's
overhead and fee, and Landlord's fee for construction administration services,
shall be treated as costs of the Tenant Improvements, and shall be as determined
by Landlord upon completion of the Tenant Improvements, subject only to
Landlord's furnishing to Tenant appropriate back-up information from the
Contractor concerning the increased costs and increased construction time.
9. TENANT'S WORK. Landlord and Tenant acknowledge and agree that certain work
required for Tenant's occupancy of the Leased Premises, including but not
limited to the procurement and installation of furniture, fixtures, equipment,
artwork and interior signage are beyond the scope of the Tenant Improvements and
shall be performed by Tenant or its contractors at Tenant's sole cost and
expense. All such work ("Tenant's Work") shall be subject to Landlord's prior
written approval. Tenant shall adopt a construction schedule for Tenant's Work
in conformance with the Contractor's schedule, and shall perform Tenant's Work
in such a way as not to hinder or delay the operations of Landlord or the
Contractor in the Building. Any costs incurred by Landlord as a result of any
interference with Landlord's operations by Tenant or its contractors shall be
promptly paid by Tenant to Landlord upon demand. Landlord shall make all
reasonable efforts to notify Tenant of any such interference of which Landlord
has actual knowledge, but failure to provide such notice shall in no way limit
Landlord's right to demand payment for such costs. Tenant's contractors shall be
subject to Landlord's prior written approval, and to the administrative
supervision of the Contractor. Tenant's Work shall comply with all of the
following requirements:
(a) Tenant's Work shall not proceed until Landlord has approved in
writing: (i) Tenant's contractors, (ii) proof of the amount and coverage of
public liability and property damage insurance carried by Tenant's contractors
in the form of an endorsed insurance certificate naming Landlord, the
Contractor, and the agents of Landlord and the Contractor as additional
insureds, in an amount not less than two million dollars, and (iii) complete and
detailed plans and specifications for Tenant's Work.
(b) Tenant's Work shall be performed in conformity with a valid permit
when required, a copy of which shall be furnished to Landlord before such work
is commenced. In any event, all Tenant's Work shall comply with all applicable
laws, codes and ordinances of any governmental entity having jurisdiction over
the Building.
2
<PAGE> 37
Landlord shall have no responsibility for Tenant's failure to comply with such
applicable laws. Any and all delay in obtaining a certificate of occupancy due
to Tenant's vendors is the responsibility of Tenant and shall be a Tenant Delay.
(c) In connection with Tenant's Work (e.g., delivering or installing
furniture or equipment to the second floor of the Leased Premises), Tenant or
its contractors shall arrange for any necessary hoisting or elevator service
with Landlord and shall pay such reasonable costs for such services as may be
charged by Landlord.
(d) Tenant shall promptly pay Landlord upon demand for any extra
expense incurred by Landlord by reason of faulty work done by Tenant or its
contractors, by reason of damage to existing work caused by Tenant or its
contractors, or by reason of inadequate cleanup by Tenant or its contractors.
10. COMPLETION; TENANT DELAY.
(a) As used herein, the term "Substantial Completion of the Tenant
Improvements" shall be deemed to mean the date when all of the following shall
have occurred: (i) Landlord shall have delivered to Tenant a certificate of
occupancy issued by the City of Sunnyvale for the Leased Premises, or Tenant may
legally occupy the Leased Premises for the operation of its business without
violating any law or regulation or voiding or adversely affecting its insurance
coverage, whether pursuant to a temporary certificate of occupancy or otherwise;
and (ii) Landlord shall have substantially completed construction of the Base
Building substantially in accordance with the Base Building Plans and all Tenant
Improvements substantially in accordance with the Final Plans, subject only to
the completion of reasonable punch list items, which, in the absence of manifest
error, shall be established by a certificate executed by Landlord's architect
certifying that such state of completion has been achieved. Without limiting the
generality of the foregoing, "Substantial Completion of the Tenant Improvements"
shall not be deemed to have been achieved unless and until (i) the building
systems, including roof, plumbing, HVAC, sprinkler, electrical (including panels
and outlets), doors (both personnel and shipping), lighting, ceiling tiles, and
window coverings are in good working order, (ii) the interior and exterior of
the Building are in compliance with all applicable Laws, (iii) all debris and
clutter has been removed from the Leased Premises and final cleanup completed,
(iv) exterior windows are washed inside and out, and (v) parking lot and
landscaping are in good condition and free of debris, clutter and all
construction equipment. After substantial completion of the Tenant Improvements
and delivery of the Leased Premises to Tenant, Landlord and Tenant shall execute
a Lease Commencement Date Certificate in the form attached as Exhibit "C" to the
Lease.
(b) If Landlord shall be delayed in substantially completing the Tenant
Improvements as a result of:
(i) Tenant's failure to furnish the information, instructions
and plans required in paragraph 3 or approve the Working Drawings, within the
applicable time periods specified in paragraph 5; or
(ii) Any changes in the scope of the Tenant Improvements from
that set forth in the Space Plans, or any Changes to the Final Plans requested
by Tenant after approval thereof pursuant to paragraph 7; or
(iii) Any interruption or interference in Landlord's
construction of the Tenant Improvements caused by Tenant, its contractors or its
vendors; or
(iv) Tenant's failure to timely pay any amounts which Tenant
is obligated to pay under this Work Letter; or
(v) Any other act, neglect, failure or omission of Tenant, its
agents, employees or contractors (items (i) through (v) above being collectively
referred to as "Tenant Delays");
then the date upon which the payment of rental under the Lease, shall commence
shall be advanced by the cumulative duration of such Tenant Delays.
11. CONSTRUCTION WARRANTY. Landlord shall construct the Tenant Improvements
substantially in accordance with this Work Letter and the Final Plans, all Laws
and Private Restrictions, and in a good and workmanlike manner, and all
materials and equipment furnished will substantially conform to said plans and
shall be new and otherwise of good quality. Landlord's Contractor and
subcontractors shall be responsible for the correction of defects in design,
workmanship, materials and equipment supplied, and the cost of correction shall
not be charged against the Tenant Improvement Allowance or be a Property
Maintenance Expense.
12. OWNERSHIP OF TENANT IMPROVEMENTS. All of the Tenant Improvements which are
constructed with the Tenant Improvement Allowance shall become the property of
Landlord upon installation and shall not be removed or altered by Tenant, except
to the extent permitted by the Lease. Any part of the Tenant Improvements which
are constructed by Landlord with funds of Tenant shall become the property of
Tenant upon installation and Tenant shall have the right to depreciate and claim
and collect investment tax credits in such improvements; provided, however, that
(i) Tenant shall not remove or alter such improvements except in accordance with
the terms of the Lease; (ii) such improvements shall be surrendered to Landlord,
and title to such improvements shall vest in Landlord, at the expiration or
earlier termination of the Lease Term; and (iii) in no event shall Landlord have
any obligation to pay Tenant for the cost or value of such improvements. As soon
as reasonably practicable, Landlord and Tenant shall agree in writing which of
such improvements are to be constructed using the Tenant Improvement Allowance
(and therefore are Landlord's property) and which of them are to be installed
with Tenant's funds (and therefore are Tenant's property) during the Lease Term.
3
<PAGE> 38
13. DESIGNATION OF AGENT. Tenant hereby designates and appoints Nova Partners
("Agent") as its agent to act on its behalf with respect to its duties and
obligations under this Work Letter. For the purposes of this appointment,
Agent's authority shall specifically include, but in no way be limited to, the
following: (i) the approval of the Design Development Plans, (ii) the submission
of any Changes, (iii) the delivery of any Estimate Requests, (iv) the approval
of any Landlord responses to Estimate Requests, (v) the approval of all costs
and time, including architectural and engineering services, required to revise
the Working Drawings to reflect any Changes, (v) the authorization of any
overtime, and (vi) the authority to execute and deliver to Landlord any written
authorizations requested by Landlord in connection with the construction of the
Tenant Improvements. Tenant expressly acknowledges that this Appointment is made
with the knowledge that Landlord and it affiliates will rely on the authority
granted to Agent herein. Accordingly, Landlord shall be deemed a third party
beneficiary of this Appointment. Tenant further acknowledges that the authority
hereby conferred will continue in full force and effect until Landlord shall
receive notice in writing, signed by the Tenant, of the revocation of the
authority herein granted. Such revocation shall be effective only as to actions
taken by the Agent subsequent to receipt by Landlord of such notice. Tenant
agrees to indemnify, defend and hold Landlord harmless from any and all claims,
liabilities, losses, damages, costs and expenses, including without limitation,
all reasonable attorneys' fees, asserted against or suffered by Landlord
resulting from Landlord's reliance on this appointment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
as of the respective dates set forth below.
LANDLORD:
MATHILDA ASSOCIATES LLC, a California limited
liability company
By: Menlo Equities LLC, a California
limited liability company, Manager
Dated: 2-28-00 By: Diamant Investments LLC, a Delaware
-------------------- limited liability company, Member
By: /s/ RICHARD J. HOLMSTROM
--------------------------------------
Richard J. Holmstrom, Manager
TENANT:
JUNIPER NETWORKS, INC., a Delaware corporation
Dated: February 25, 2000 By: /s/ Signature Illegible
-------------------- -------------------------------------------
Title: Chief Financial Officer
----------------------------------------
Dated: February 25, 2000 By: /s/ LISA C. BERRY
-------------------- -------------------------------------------
Title: General Counsel Secretary
----------------------------------------
4
<PAGE> 39
EXHIBIT C
LEASE COMMENCEMENT DATE CERTIFICATE
This Lease Commencement Date Certificate is entered into by Landlord and Tenant
pursuant to the Work Letter attached as Exhibit B to the Lease.
1. (a) Landlord: Mathilda Associates LLC, a California limited
liability company
(b) Tenant: Juniper Networks, Inc., a Delaware corporation
(c) Lease: Lease dated February ___, 2000 between
Landlord and Tenant.
(d) Leased Premises: 1184 Mathilda Avenue, Sunnyvale, California
2. CONFIRMATION OF LEASE COMMENCEMENT.
Landlord and Tenant confirm that the Lease Commencement Date is
____________ and the Expiration Date is ______________ and that ARTICLE 1 of the
Lease is amended accordingly.
Landlord and Tenant have executed this Lease Commencement Date
Certificate as of the dates set forth below.
LANDLORD:
MATHILDA ASSOCIATES LLC, a California limited
liability company
By: Menlo Equities LLC, a California
limited liability company, Manager
Dated: By: Member
-------------------- ----------------------------
TENANT:
JUNIPER NETWORKS, INC., a Delaware corporation
Dated: By:
-------------------- -------------------------------------------
Title:
----------------------------------------
Dated: By:
-------------------- -------------------------------------------
Title:
----------------------------------------
1
<PAGE> 40
EXHIBIT D
FORM OF ESTOPPEL CERTIFICATE
- ------------------, -----
- -----------------------------
- -----------------------------
- -----------------------------
- -----------------------------
Re 1184 Mathilda Avenue
Sunnyvale, California
Ladies and Gentlemen:
Reference is made to that certain Lease, dated as of February ___, 2000, between
MATHILDA ASSOCIATES LLC, a California limited liability company ("Landlord"),
and the undersigned (herein referred to as the "Lease"). A copy of the Lease
[and all amendment thereto] is[are] attached hereto as EXHIBIT A. At the request
of Landlord in connection with [ State reasons for request for estoppel
certificate ], the undersigned hereby certifies to Landlord and to [ State names
of other parties requiring certification ] and each of your respective
successors and assigns as follows:
1. The undersigned is the tenant under the Lease.
2. The Lease is in full force and effect and has not been amended,
modified, supplemented or superseded except as indicated in Exhibit A.
3. There is no defense, offset, claim or counterclaim by or in favor of
the undersigned against Landlord under the Lease or against the obligations of
the undersigned under the Lease. The undersigned has no renewal, extension or
expansion option, no right of first offer or right of first refusal and no other
similar right to renew or extend the term of the Lease or expand the property
demised thereunder except as may be expressly set forth in the Lease.
4. The undersigned is not aware of any default now existing of the
undersigned or of Landlord under the Lease, nor of any event which with notice
or the passage of time or both would constitute a default of the undersigned or
of Landlord under the Lease except_____________________________________________.
5. The undersigned has not received notice of a prior transfer,
assignment, hypothecation or pledge by Landlord of any of Landlord's interest in
the Lease.
6. The monthly rent due under the Lease is $____________ and has been
paid through __________________, and all additional rent due and payable under
the Lease has been paid through _________________.
7. The term of the Lease commenced on __________________, and expires
on ___________________, unless sooner terminated pursuant to the provisions of
the Lease. Landlord has performed all work required by the Lease for the
undersigned's initial occupancy of the demised property.
8. The undersigned has deposited the sum of $____________ with Landlord
as security for the performance of its obligations as tenant under the Lease,
and no portion of such deposit has been applied by Landlord to any obligation
under the Lease.
9. Except as set forth in the Lease, there is no free rent period
pending, nor is Tenant entitled to any Landlord's contribution.
The above certifications are made to Landlord and Lender knowing that Landlord
and Lender will rely thereon in accepting an assignment of the Lease.
Very truly yours,
JUNIPER NETWORKS, INC., a Delaware corporation
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
1
<PAGE> 41
EXHIBIT E
FORM OF LETTER OF CREDIT
Date: ____________________, 2000
Irrevocable Standby Letter of Credit Number: ____________
Beneficiary: Applicant:
Mathilda Associates LLC Juniper Networks, Inc.
525 University Avenue, Suite 100
Palo Alto, California 94301 -----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Amount:
USD $ 1,000,000
(FOUR MILLION THREE HUNDRED TWENTY-NINE
THOUSAND FOUR HUNDRED FIFTY AND 00/100
U.S. DOLLARS)
Expiration:
----------------------------
We hereby establish our Irrevocable Standby Letter of Credit No. _______________
in your favor for the account of_______________________________________________,
____________________________, on behalf of_____________________________________
______________________________________________________, available for drawings
for up to an aggregate amount of U.S. $ 4,329,450.00 (FOUR MILLION THREE HUNDRED
TWENTY-NINE THOUSAND FOUR HUNDRED FIFTY AND 00/100 U.S. DOLLARS). This Letter of
Credit is available by payment upon your draft drawn at sight on us, submitted
at the office of ____________________________________________________________,
Attention: Letter of Credit Services, and expires at our close of business on
the expiration date or any automatically extended expiration date as hereinafter
set forth.
This Letter of Credit shall expire on ________________________, but such
expiration date shall be automatically extended for a period of one (1) year on
______________________ and on each successive expiration date, unless at least
sixty (60) days before the current expiration date we notify you by overnight
courier that this Letter of Credit is not extended beyond the current expiration
date. In the event you are so notified, any unused portion of the Letter of
Credit shall be available upon presentation of a sight draft by Mathilda
Associates LLC, within the current expiration date.
We give our undertaking to the Beneficiary that sums drawn under and in
compliance with the terms of this Letter of Credit will be duly honored by our
bank on presentation of drawings in accordance with the terms of this credit.
This Letter of Credit is transferable by the Beneficiary. Transfer of this
Letter of Credit is subject to our consent and receipt of Beneficiary's
instructions in the form attached hereto as Exhibit A accompanied by the
original Letter of Credit and amendment(s) if any. Cost or expenses of such
transfer shall be for the account of the Beneficiary.
This Letter of Credit is subject to the Uniform Customs and Practices for
Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500 and engages us to the terms herein.
Yours very truly,
Authorized Signature
Letter of Credit Services
(_____)______________
1.
<PAGE> 42
EXHIBIT A
- -------------------------------------
- -------------------------------------
- -------------------------------------
Attention: Letter of Credit Services
Re: Irrevocable Letter of Credit No. ______________
Dear Sirs:
The undersigned acknowledges receipt of your advice No.
____________________ of a credit issued in our favor, the terms of which are
satisfactory. We now return the original advice of the said credit with all
amendments and extensions, if any, and hereby irrevocably transfer the said
credit and all amendments and extensions thereof, if any, to:
------------------------------------------
[Name of Transferee]
------------------------------------------
[Address]
You are to inform the transferee of this transfer and such transferee
shall have sole rights as beneficiary under the credit, including any
amendments, extension or increases thereof, without notice to or further assent
from us.
Yours very truly,
By:
---------------------------
(The above signature with
title as stated with that on
file with us and is
authorized for execution of
this instrument.)
-------------------------------
(Bank)
2.
<PAGE> 43
EXHIBIT F
FORM OF LANDLORD WAIVER
THIS LANDLORD WAIVER (this "Waiver") dated _______________, 2____ is
entered into by and between MATHILDA ASSOCIATES LLC, a California limited
liability company ("Landlord") and ___________________ ("Secured Party").
RECITALS
WHEREAS, Landlord is the owner and landlord of the premises described as
1184 Mathilda Avenue, Sunnyvale, California (the "Property"); and
WHEREAS, Landlord and Juniper Networks, Inc. ("Tenant") have entered
into that certain lease dated February ___, 2000 (as previously and/or hereafter
amended, the "Real Property Lease") pursuant to which Tenant has leased
approximately 144,315 square feet of space at the Property (the "Premises"); and
WHEREAS, Tenant has entered into an equipment lease and/or financing
agreement pursuant to which Tenant has granted a security interest in the
personal property described on Schedule 1 attached hereto (the "Personal
Property") to Secured Party under that certain [Equipment Lease and/or Financing
Agreement] between Tenant and Secured Party dated __________ (the "Financing
Agreement"); and
WHEREAS, Secured Party and Landlord desire to establish their respective
rights regarding the Personal Property and Secured Party's access to the
Premises;
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. During the term of the Real Property Lease, and subject to Landlord's
interest in the Personal Property, if any, at the expiration or earlier
termination of the Real Property Lease, the Personal Property shall remain
personal property and severable from the Premises and shall not become part of
the Premises or construed as a fixture at the Premises to the extent that the
Tenant Improvement Allowance (as defined in the Real Property Lease) has not
been utilized to pay for the Personal Property or the financing thereof.
2. So long as Tenant occupies the Premises and is not in default under
the Real Property Lease, Secured Party may enter the Premises at any time or
from time to time upon reasonable written notice to Landlord and in compliance
with the terms of the Financing Agreement for purposes of inspecting and/or
removing any and all of the Personal Property in the exercise of its rights and
remedies arising from the Financing Agreement. In the event of a default by
Tenant under the Real Property Lease, Secured Party shall obtain Landlord's
prior written consent prior to entering the Premises.
3. Landlord shall notify Secured Party in the event the Personal
Property remains at the Premises after either (i) Tenant is evicted from the
Premises or (ii) Tenant abandons (as opposed to vacates) the Premises prior to
the expiration of the Real Property Lease. Secured Party shall have 15 days to
remove the Personal Property from the Premises after notification of such action
from Landlord. If Secured Party has not removed the Personal Property within
such 15 day period, Landlord shall have all rights regarding the Personal
Property accorded to it by law and/or pursuant to the Real Property Lease and
Secured Party shall have no further rights regarding such Personal Property.
After Tenant has abandoned or been evicted from the Premises, Secured Party
shall be liable for holdover rent for the total amount of time the Personal
Property remains at the Premises after such eviction or abandonment. For
purposes hereof, "holdover rent" shall mean 200% of the rent in effect under the
Real Property Lease for the period immediately prior to such vacation or
eviction.
4. If Secured Party exercises its right to remove the Personal Property
from the Premises as provided herein, Secured Party shall repair any damage to
the Premises caused by such removal. Landlord shall have the right to require
Secured Party to post a bond acceptable to Landlord to cover the potential cost
of such repair prior to removing any such Personal Property.
5. No auction or sale of the Personal Property shall be conducted by
Secured Party from the Premises without Landlord's prior written consent, which
consent Landlord may withhold in Landlord's sole and absolute discretion.
6. This waiver shall be binding upon the heirs, administrators,
executors, successors and assigns of the Landlord, and shall inure to the
benefit of the successors and assigns of the Secured Party.
1.
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed, sealed and
delivered this Waiver this __________ day of ________________, 2____.
MATHILDA ASSOCIATES LLC, a California limited
liability company
By: Menlo Equities LLC, a California
limited liability company
By: Member
------------------------------
SECURED PARTY:
By:
-------------------------------------------
Title:
----------------------------------------
By:
-------------------------------------------
Title:
----------------------------------------
2.
<PAGE> 45
SCHEDULE 1
PERSONAL PROPERTY
3.
<PAGE> 1
EXHIBIT 13.1
JUNIPER NETWORKS, INC.
1999 Consolidated Financial Statements
and
Financial Review
<PAGE> 2
JUNIPER NETWORKS, INC.
<TABLE>
<S> <C> <C>
Item 6 Selected Financial Data........................................................... 3
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................... 4
Item 8 Consolidated Balance Sheets....................................................... 11
Consolidated Statements of Operations............................................. 12
Consolidated Statement of Stockholders' Equity.................................... 13
Consolidated Statements of Cash Flows............................................. 14
Notes to Consolidated Financial Statements........................................ 15
Report of Independent Auditors.................................................... 28
Supplementary Data - Quarterly Summary............................................ 29
</TABLE>
2
<PAGE> 3
JUNIPER NETWORKS, INC.
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 2,
YEAR ENDED DECEMBER 31, 1996) TO
------------------------------------- DECEMBER 31,
1999 1998 1997 1996
--------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues ...................................................... $ 102,606 $ 3,807 $ -- $ --
Operating loss .................................................... (14,620) (32,270) (11,598) (1,939)
Net loss .......................................................... $ (9,034) $ (30,971) $ (10,363) $ (1,799)
========= ========= ========= =========
Basic and diluted net loss per share(1) ........................... $ (0.10) $ (0.80) $ (0.40) $ (0.15)
========= ========= ========= =========
Shares used in computing basic and diluted net loss per share(1) .. 94,661 38,871 25,773 11,874
========= ========= ========= =========
Pro forma basic and diluted net loss per share (unaudited)(1) ..... $ (0.07) $ (0.28)
========= =========
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)(1) ................................... 131,480 111,210
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments .. $345,958 $ 20,098 $ 46,227 $ 9,468
Working capital ..................................... 322,170 14,432 44,691 9,315
Total assets ........................................ 513,378 36,671 50,210 10,388
Total long-term debt ................................ -- 5,204 2,083 408
Stockholders' equity ................................ 457,715 17,065 46,048 9,728
</TABLE>
- ------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the shares used to compute net loss per share. All
share and per share amounts have been adjusted to reflect the three-for-one
split of our common stock to stockholders of record on December 31, 1999.
3
<PAGE> 4
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the related notes thereto included elsewhere herein. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors including the risks
discussed in "Risk Factors" and elsewhere herein.
OVERVIEW
We are a leading provider of Internet infrastructure solutions that enable
Internet service providers and other telecommunications service providers,
collectively described in this discussion as service providers, to meet the
demands resulting from the rapid growth of the Internet. Our Internet backbone
routers are specifically designed and purpose-built for service provider
networks and offer our customers increased reliability, performance,
scalability, interoperability and flexibility, and reduced complexity and cost
compared to current alternatives.
In September 1998 we began shipping our first product, the M40 Internet
backbone router, with volume shipments beginning in October 1998. We began
shipping the M20, a derivative of the M40, in December 1999. We currently sell
our products to major service providers in North America through our direct
sales force and sell to international customers primarily through value added
resellers.
From our inception in February 1996 through September 1998, our operating
activities were primarily devoted to expanding our research and development
capabilities, designing our ASICs, developing our software, developing and
testing the M40 and developing other products. We also expanded our
administrative, marketing and sales organizations and implemented strategic
relationships. Since our inception, we have incurred significant losses, and as
of December 31, 1999, we had an accumulated deficit of $52.2 million. We
achieved our first quarter of profitability in the quarter ended December 31,
1999. In order to maintain profitability, we will need to generate significantly
higher revenues because we expect to continue to incur significant research and
development, sales and marketing and general and administrative expenses as the
business and operations continue to grow.
RESULTS OF OPERATIONS
NET REVENUES
We began generating net revenues in the fourth quarter of 1998. Our total
net revenue increased to $102.6 million for the year ended December 31, 1999
from $3.8 million for the year ended December 31, 1998. The increase in net
revenues was primarily due to the following three factors: 1999 being the first
full year of product sales; an increase in market acceptance of our products;
and overall growth in the marketplace due to the growth of the Internet and an
increase in emerging customers and networks.
4
<PAGE> 5
Our revenues for the year ended December 31, 1999 were derived from sales
of one product, the M40. While we have introduced new products, such as the M20,
and plan to continue to introduce new products, there can be no assurance that
we will be successful in these efforts or that such products will be
well-received by our existing and potential customer base. A limited number of
customers have historically accounted for a substantial portion of our revenues.
Two customers accounted for 58% of our total net revenues for the year ended
December 31, 1999 and two customers accounted for 100% of our revenues for the
year ended December 31, 1998. We expect that a significant portion of our future
revenues will continue to come from sales of our products to a relatively small
number of customers because our direct sales and marketing efforts are focused
primarily on the world's leading service providers. For the year ended December
31, 1999, export sales accounted for approximately 22% of our total net revenue.
We are seeking to diversify our customer base, but we cannot be certain that our
efforts in this regard will be successful.
Because the market for Internet backbone routers is new and evolving, the
volume and timing of orders are difficult to predict. A customer's decision to
purchase our products typically involves a significant commitment of their
resources and a lengthy evaluation and product qualification process which
involves technical evaluation, integration, testing, network planning and
implementation and typically takes several months. Even after making the
decision to purchase our products, our customers tend to deploy the products
slowly and deliberately. Timing of deployment can vary widely. Customers with
large networks usually expand their networks in large increments on a periodic
basis. Accordingly, we expect to receive purchase orders for significant dollar
amounts on an irregular basis. Because of our limited operating history, we
cannot predict these sales and development cycles. Long sales and implementation
cycles for our products, as well as the expectation that customers will tend to
sporadically place large orders with short lead times, may cause revenues and
operating results to vary significantly and unexpectedly from quarter to
quarter. Historically, selling prices in the Internet infrastructure equipment
market have been relatively stable. However, as competitors launch new products,
this pricing trend may change.
We generally recognize product revenue at the time of shipment, assuming
that collectibility is probable, unless we have future obligations for network
interoperability or have to obtain customer acceptance, in which case revenue is
deferred until these obligations are met. Revenue from service obligations is
deferred and recognized on a straight-line basis over the contractual period.
Amounts billed in excess of revenue recognized are included as deferred revenue
and accounts receivable in the accompanying consolidated balance sheets.
At December 31, 1999, a total of $19.3 million of revenue was deferred,
which we currently expect to recognize in 2000. Our products generally carry a
one year warranty that includes factory repair services as needed for
replacement parts. Estimated expenses for warranty obligations are accrued as
revenue is recognized.
COST OF REVENUES
Cost of revenues for the year ended December 31, 1999, were $45.3 million
resulting in a gross margin of 55.9% for the year. Cost of revenues for the year
ended December 31, 1998 were $4.4 million. The increase in cost of revenues is
primarily related to the increase in net revenues, as well as increases in our
customer service and support organizations. We expect cost of revenues to
5
<PAGE> 6
continue to increase as net revenues increase. Our gross margins are highly
variable and dependent on many factors, some of which are outside of our
control. Some of the primary factors affecting gross margins include:
- demand for our products and services;
- changes in our pricing policies and those of our competitors;
- new product introductions both by us and by our competitors;
- the mix of interfaces sold;
- the volume manufacturing pricing we are able to attain from our partner
for outsourced manufacturing; and o the mix of products and services
sold.
Cost of revenues includes the cost of our manufacturing overhead and
customer service and support organizations. We have outsourced our
manufacturing, our repair operations and the majority of our supply chain
management operations. Accordingly, a significant portion of our cost of
revenues consists of payments to Solectron, our primary contract manufacturer.
Solectron manufactures our products using quality assurance programs and
standards which we established. Manufacturing engineering and documentation
control are conducted at our facility in Mountain View, California.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $41.5 million in 1999 from
$24.0 million in 1998 and $9.4 million in 1997. Research and development
expenses consist primarily of salaries and related personnel costs,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our ASICs. Salary and related personnel
costs accounted for 40% of the increase from 1998 to 1999 and 30% of the
increase from 1997 to 1998. Non-recurring engineering and prototype costs
accounted for approximately 20% of the increase from 1998 to 1999 and 50% of the
increase from 1997 to 1998.
We expense our research and development costs as they are incurred. Several
components of our research and development effort require significant
expenditures, the timing of which can cause significant quarterly variability in
our expenses. For example, a large number of prototypes are required to build
and test our products and the building and testing process occurs over a short
period of time. Our ASIC development requires a payment for non-recurring
engineering charges at the beginning of the process to design and develop the
ASIC, regardless of whether the integrated circuit works. In addition, a per
unit cost is payable as we purchase ASICs. With several large ASICs in our
architecture, we will incur large non-recurring engineering and prototype
expenses with every enhancement of the existing products and for any new product
development. We expect to continue to devote substantial resources to the
development of new products and the enhancement of existing products. We believe
that research and development is critical to our strategic product development
objectives and that to leverage our leading technology and meet the changing
requirements of our customers, we will need to fund investments in several
development projects in parallel. As a result, we expect our research and
development expenses to increase in absolute dollars in the future.
6
<PAGE> 7
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $20.9 million in 1999 from $4.2
million in 1998, and $1.1 million in 1997. The increases from period to period
in sales and marketing expenses were primarily attributable to salaries,
commissions (resulting from increased sales) and related expenses for personnel
engaged in sales, marketing and customer engineering support functions,
including international expansion, as well as costs associated with promotional
and other marketing expenses.
We intend to expand our direct and indirect sales operations substantially,
both domestically and internationally, in order to increase market awareness of
our products and to better support our existing customers worldwide. We believe
that continued investment in sales and marketing is critical to our success and
expect these expenses to increase in absolute dollars in the future as we hire
additional sales and marketing personnel, initiate additional marketing programs
to support our products and establish sales offices in new domestic and
international locations.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $5.2 million in 1999 from
$2.2 million in 1998 and $1.0 million in 1997. General and administrative
expenses consist primarily of salaries and related expenses for executive,
finance, accounting, facilities, and human resources personnel, as well as
recruiting expenses, professional fees and other corporate expenses. The
increases from period to period in general and administrative expenses were
primarily attributable to the costs associated with additional headcount to
support increased levels of business activity. In addition, the increase from
1998 to 1999 was also due to costs associated with being a publicly traded
company. We expect general and administrative expenses to increase in absolute
dollars as we add personnel and incur additional costs related to the growth of
our business and our operation as a public company.
AMORTIZATION OF GOODWILL AND PURCHASED INTANGIBLES AND DEFERRED STOCK
COMPENSATION
In connection with the grant of certain stock options to employees during
1998 and the three months ended March 31, 1999, we recorded deferred
compensation of $6.4 million in 1998 and $1.1 million in 1999 representing the
difference between the deemed value of the common stock for accounting purposes
and the exercise price of these options at the date of grant. Deferred
compensation is presented as a reduction of stockholders' equity and is
amortized over the vesting period of the applicable options using the graded
vesting method. This compensation expense relates to stock options granted to
individuals in all operating expense categories. In November 1999, we acquired
certain intellectual property and intangible assets resulting in our recording
of $18.4 million of goodwill and other intangibles. The goodwill and other
intangibles will be amortized over a three-year period. We expensed $4.3 million
of goodwill and purchased intangibles and deferred compensation during 1999, and
$1.2 million of deferred compensation during 1998.
INTEREST INCOME, NET
Net interest income includes income earned on cash and investments
partially offset by expenses related to financing obligations. Net interest
income was $8.0 million in 1999, $1.3 million in 1998 and
7
<PAGE> 8
$1.2 million in 1997. The increase from 1998 to 1999 is directly due to interest
earned on large cash and investment balances as a result of our initial public
offering in June 1999 and our secondary offering in October 1999.
PROVISION FOR INCOME TAXES
We recorded a tax provision of $2.4 million for the year ended December 31,
1999. The provision for income taxes consists primarily of federal alternative
minimum taxes, state taxes and foreign taxes. As of December 31, 1999 we had
approximately $37.0 million of federal net operating loss carryforwards and
$32.0 million of state net operating loss carryforwards for tax reporting
purposes available to offset future taxable income. Such net operating loss
carryforwards expire at various dates beginning in 2004 to the extent that they
are not utilized. We have not recognized any benefit from the future use of loss
carryforwards for these periods, or for any other periods, since inception.
Management's evaluation of all the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
the tax benefits currently.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering, we financed operations primarily
through the private placement of convertible preferred stock and capital leases.
In June 1999, we completed the initial public offering of our common stock and
realized net proceeds from the offering of approximately $65.2 million. In
October 1999, we completed a secondary public offering of our common stock and
realized net proceeds from the offering of $324.3 million. At December 31, 1999,
we had cash and cash equivalents of $158.0 million, short-term investments of
$187.9 million and long-term investments of $97.2 million. Subsequent to
December 31, 1999, we completed a $1.15 billion 4.75% convertible subordinated
note offering. We regularly invest our excess funds in money market funds,
commercial paper and government and non-government debt securities.
Net cash provided by operating activities was $20.5 million for the year
ended December 31, 1999. Net cash used in operating activities was $24.8 million
for the year ended December 31, 1998 and $8.6 million for the year ended
December 31, 1997. Net cash flows used in operating activities primarily consist
of the net loss for all periods, as well as increases in accounts receivable for
the years ending December 31, 1999 and 1998. Net cash provided by operating
activities in each period are primarily attributed to non-cash charges such as
depreciation and amortization, as well as increases in accounts payable and
other liabilities and deferred revenue for the years ended December 31, 1999 and
1998.
Net cash used in investing activities was $305.4 million for the year ended
December 31, 1999 and $13.0 million for the year ended December 31, 1997. Net
cash provided by investing activities was $9.3 million for the year ended
December 31, 1998. Net cash used in investing activities for all periods
primarily consisted of purchases of available for sale investments, as well as
purchases of property and equipment. Net cash provided by investing activities
for all periods consisted entirely of maturities of available-for-sale
investments.
Net cash provided by financing activities was $422.9 million for the year
ended December 31, 1999, primarily from the net proceeds of our initial and
secondary public offerings, as well as our convertible preferred stock offering,
partially offset by payments on lease obligations. Net cash
8
<PAGE> 9
provided by financing activities was $5.2 million for the year ended December
31, 1998, primarily from proceeds from sale-leaseback liabilities, partially
offset by payments on lease obligations. Net cash provided by financing
activities was $48.5 million for the year ended December 31, 1997, primarily
from the net proceeds from private sales of convertible preferred stock, as well
as proceeds from sale-leaseback liabilities.
Our capital requirements depend on numerous factors, including:
- market acceptance of our products;
- the resources we devote to developing, marketing, selling and supporting
our products; and
- the timing and extent of establishing international operations.
We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing and
product development organizations, to expand marketing programs, to establish
additional facilities worldwide and for other general corporate activities.
Although we believe that our current cash balances will be sufficient to fund
our operations for at least the next 12 months, there can be no assurance that
we will not require additional financing within this time frame or that such
additional funding, if needed, will be available on terms acceptable to us or at
all.
YEAR 2000
We have not experienced any problems with our computer systems relating to
such systems being unable to recognize appropriate dates related to the year
2000. We are also not aware of any material problems with our clients or
vendors. Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
issues.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities. We
are required to adopt FAS No. 133 effective January 1, 2001. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, we do not currently believe that the adoption of FAS No. 133, as
amended, will have a significant impact on our financial position, results of
operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of
9
<PAGE> 10
the securities that we have invested in may be subject to market risk. This
means that a change in prevailing interest rates may cause the principal amount
of the investment to fluctuate. For example, if we hold a security that was
issued with a fixed interest rate at the then-prevailing rate and the prevailing
interest rate later rises, the principal amount of our investment will probably
decline. To minimize this risk, we maintain our portfolio of cash equivalents
and short-term and long-term investments in a variety of securities, including
commercial paper, money market funds and government and non-government debt
securities. In general, money market funds are not subject to market risk
because the interest paid on such funds fluctuates with the prevailing interest
rate. See Note 2 to the Consolidated Financial Statements.
The following table presents the amounts of cash equivalents and
investments that are subject to market risk and the weighted-average interest
rates, by year of expected maturity for our investment portfolios as of December
31, 1999 and December 31, 1998. This table does not include money market funds
because those funds are not subject to market risk.
<TABLE>
<CAPTION>
MATURING MATURING MATURING
DURING 2000 DURING 2001 DURING 2002
----------- ----------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1999:
Cash equivalents .................. $ 89,151 $ -- $ --
Weighted-average interest rate .. 5.68% -- --
Investments ....................... 187,915 93,963 3,238
Weighted-average interest rate .. 5.96% 6.23% 7.01%
-------- ------- ------
Total ............................. $277,066 $93,963 $3,238
======== ======= ======
Weighted-average interest rate .. 5.87% 6.23% 7.01%
</TABLE>
<TABLE>
<CAPTION>
MATURING MATURING MATURING
DURING 1999 DURING 2000 DURING 2001
----------- ----------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998:
Cash equivalents......................... $ 16,520 $ -- $ --
Weighted-average interest rate......... 5.33% -- --
</TABLE>
EXCHANGE RATE SENSITIVITY
We operate primarily in the United States, and all sales to date have been
made in US dollars. Accordingly, we have had no material exposure to foreign
currency rate fluctuations.
10
<PAGE> 11
JUNIPER NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 158,043 $ 20,098
Short-term investments ....................................................... 187,915 --
Accounts receivable, net of allowance for doubtful accounts of $632 in 1999
(none in 1998)(1) ......................................................... 23,950 8,056
Prepaid expenses and other current assets .................................... 7,925 680
--------- ---------
Total current assets ........................................................... 377,833 28,834
Property and equipment, net .................................................... 12,416 7,702
Long-term investments .......................................................... 97,201 --
Intangibles and other long-term assets ......................................... 25,928 135
--------- ---------
Total assets ................................................................... $ 513,378 $ 36,671
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 15,368 $ 4,245
Accrued warranty ............................................................. 9,641 684
Accrued compensation and related liabilities ................................. 5,371 1,114
Other accrued liabilities .................................................... 6,013 500
Deferred revenue ............................................................. 19,270 5,639
Current obligations under capital leases ..................................... -- 2,220
--------- ---------
Total current liabilities ...................................................... 55,663 14,402
Long-term liabilities .......................................................... -- 5,204
Commitments
Stockholders' equity:
Convertible preferred stock, $0.00001 par value, issuable in series: 10,000
and 10,859 shares authorized at December 31, 1999 and 1998; none and
10,717 shares issued and outstanding at December 31, 1999 and 1998 ........ -- --
Common stock, $0.00001 par value, 200,000 shares
authorized; 155,939 and 61,732 shares issued and
outstanding at December 31, 1999 and 1998 ................................. 2 1
Additional paid-in capital ................................................... 513,696 65,350
Deferred stock compensation .................................................. (3,001) (5,153)
Accumulated other comprehensive loss ......................................... (815) --
Accumulated deficit .......................................................... (52,167) (43,133)
--------- ---------
Stockholders' equity ........................................................... 457,715 17,065
--------- ---------
Total liabilities and stockholders' equity ..................................... $ 513,378 $ 36,671
========= =========
</TABLE>
- ------------
(1) Includes $632 due from Ericsson Business Networks AB, a related party, as
of December 31, 1999.
See accompanying notes.
11
<PAGE> 12
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues(1) .................................................... $ 102,606 $ 3,807 $ --
Cost of revenues ................................................... 45,272 4,416 --
--------- --------- ---------
Gross profit (loss) ................................................ 57,334 (609) --
Operating expenses:
Research and development ......................................... 41,502 23,987 9,406
Sales and marketing .............................................. 20,931 4,216 1,149
General and administrative ....................................... 5,235 2,223 1,043
Amortization of goodwill and purchased intangibles and deferred
stock compensation ............................................ 4,286 1,235 --
--------- --------- ---------
Total operating expenses ...................................... 71,954 31,661 11,598
--------- --------- ---------
Operating loss ..................................................... (14,620) (32,270) (11,598)
Interest income, net ............................................... 8,011 1,301 1,235
--------- --------- ---------
Loss before income taxes ........................................... (6,609) (30,969) (10,363)
Provision for income taxes ......................................... 2,425 2 --
--------- --------- ---------
Net loss ........................................................... $ (9,034) $ (30,971) $ (10,363)
========= ========= =========
Basic and diluted net loss per share ............................... $ (0.10) $ (0.80) $ (0.40)
========= ========= =========
Shares used in computing basic and diluted net loss per share ...... 94,661 38,871 25,773
========= ========= =========
Pro forma basic and diluted net loss per share (unaudited) ......... $ (0.07) $ (0.28)
========= =========
Shares used in computing pro forma basic and diluted net loss per
share (unaudited) .............................................. 131,480 111,210
========= =========
</TABLE>
- -------------
(1) Includes $5.5 million in revenue from Ericsson Business Networks AB, a
related party, for the year ended December 31, 1999.
See accompanying notes.
12
<PAGE> 13
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER TOTAL
--------------- --------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION LOSS DEFICIT EQUITY
------ ------ ------- ------ ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 ...................... 5,566 $-- 47,683 $-- $ 11,527 $ -- $ -- $ (1,799) $ 9,728
Issuance of warrants
to purchase Series B
preferred stock ........... -- -- -- -- 1 -- -- -- 1
Issuance of Series C
preferred stock to
investors ................. 5,151 -- -- -- 45,953 -- -- -- 45,953
Issuance of warrants
to purchase Series C
preferred stock ........... -- -- -- -- 3 -- -- -- 3
Issuance of common
stock, net of
repurchases ............... -- -- 9,681 -- 375 -- -- -- 375
Compensation expense
related to stock options .. -- -- -- -- 351 -- -- -- 351
Net loss .................... -- -- -- -- -- -- -- (10,363) (10,363)
------ --- ------- -- -------- ------- ----- -------- --------
Balance at December 31,
1997 ...................... 10,717 -- 57,364 -- 58,210 -- -- (12,162) 46,048
Exercise of stock
options by employees,
net of repurchases ........ -- -- 4,368 1 752 -- -- -- 753
Deferred stock
compensation .............. -- -- -- -- 6,388 (6,388) -- -- --
Amortization of deferred
stock compensation ........ -- -- -- -- -- 1,235 -- -- 1,235
Net loss .................... -- -- -- -- -- -- -- (30,971) (30,971)
------ --- ------- -- -------- ------- ----- -------- --------
Balance at December 31,
1998 ...................... 10,717 -- 61,732 1 65,350 (5,153) -- (43,133) 17,065
Issuance of Series D
and D-1 preferred stock
to investors .............. 3,080 -- -- -- 33,948 -- -- -- 33,948
Conversion of preferred
stock to common stock ..... (13,797) -- 76,794 -- -- -- -- -- --
Issuance of common
stock, net of issuance
costs of $1,885 ........... -- -- 11,613 1 389,454 -- -- -- 389,455
Exercise of common
stock warrants ............ -- -- 779 -- -- -- -- -- --
Exercise of stock
options by employees,
net of repurchases ........ -- -- 4,888 -- 6,870 -- -- -- 6,870
Issuance of common
stock and options in
connection with the
acquisition of
intellectual property
and other intangibles ..... -- -- 133 -- 16,960 -- -- -- 16,960
Deferred stock
compensation .............. -- -- -- -- 1,114 (1,114) -- -- --
Amortization of deferred
stock compensation ........ -- -- -- -- -- 3,266 -- -- 3,266
Other comprehensive loss:
Change in unrealized
loss on available-for-
sale securities ........ -- -- -- -- -- -- (815) -- (815)
Net loss ................. -- -- -- -- -- -- -- (9,034) (9,034)
--------
Comprehensive loss .......... -- -- -- -- -- -- -- -- (9,849)
------ --- ------- -- -------- ------- ----- -------- --------
Balance at December 31,
1999 ...................... -- $-- 155,939 $2 $513,696 $(3,001) $(815) $(52,167) $457,715
====== === ======= == ======== ======= ===== ======== ========
</TABLE>
See accompanying notes.
13
<PAGE> 14
JUNIPER NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................................. $ (9,034) $ (30,971) $ (10,363)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization ...................................................... 5,306 2,171 712
Amortization of goodwill and purchased intangibles, prepaid maintenance contracts
And deferred stock compensation ................................................. 4,933 1,602 589
Loss on disposal of property and equipment ......................................... -- -- 59
Issuance of stock for consulting services .......................................... -- 30 21
Issuance of warrants in connection with certain leasing arrangements ............... -- -- 14
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (15,894) (8,056) --
Prepaid expenses and other current assets ........................................ (7,892) (504) (699)
Other long-term assets ........................................................... (398) (10) (104)
Accounts payable and other current liabilities ................................... 16,593 4,084 489
Accrued warranty ................................................................. 8,957 684 --
Accrued milestone payment ........................................................ -- (423) 423
Accrued compensation and related liabilities ..................................... 4,257 869 245
Deferred revenue ................................................................. 13,631 5,639 --
Other long-term liabilities ...................................................... -- 43 --
--------- --------- ---------
Net cash provided by (used in) operating activities .................................. 20,459 (24,842) (8,614)
INVESTING ACTIVITIES:
Purchases of property and equipment, net ............................................. (10,020) (6,531) (3,110)
Purchases of available-for-sale investments .......................................... (324,437) (3,501) (20,715)
Maturities of available-for-sale investments ......................................... 38,506 19,286 10,800
Minority equity investments .......................................................... (8,000) -- --
Acquisition of intellectual property and other intangibles ........................... (1,456) -- --
--------- --------- ---------
Net cash provided by (used in) investing activities .................................. (305,407) 9,254 (13,025)
FINANCING ACTIVITIES:
Proceeds from sale-leaseback liabilities ............................................. -- 5,705 2,603
Payments on lease obligations ........................................................ (7,381) (1,157) (439)
Proceeds from issuance of preferred stock ............................................ 33,948 -- 45,953
Proceeds from issuance of common stock ............................................... 396,326 696 366
--------- --------- ---------
Net cash provided by financing activities ............................................ 422,893 5,244 48,483
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................................. 137,945 (10,344) 26,844
Cash and cash equivalents at beginning of period ..................................... 20,098 30,442 3,598
--------- --------- ---------
Cash and cash equivalents at end of period ........................................... $ 158,043 $ 20,098 $ 30,442
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ............................................................... $ 477 $ 592 $ 210
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment under capital lease ............................ $ -- $ 5,692 $ 2,243
========= ========= =========
Deferred stock compensation .......................................................... $ 1,114 $ 6,388 $ --
========= ========= =========
Common stock issued in connection with the acquisition of intellectual property and
other intangibles ................................................................. $ 16,960 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes.
14
<PAGE> 15
JUNIPER NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Juniper Networks, Inc. ("Juniper Networks") was incorporated in the state
of California on February 2, 1996. Juniper Networks was reincorporated in the
state of Delaware effective as of March 15, 1998. Juniper Networks was
established for the purpose of providing Internet infrastructure solutions to
Internet service providers and other telecommunication service providers.
Juniper Networks develops next generation Internet backbone routers.
From inception, in February 1996, through September 1998, Juniper Networks'
operating activities were primarily devoted to increasing research and
development capabilities, designing ASICs, developing software, developing and
testing the M40 and other products, staffing the administrative, marketing and
sales organizations and establishing strategic relationships. Accordingly,
Juniper Networks was classified as a development stage company through that
date. Juniper Networks commenced product shipments in October 1998 and therefore
emerged from the development stage.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Juniper
Networks and its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
RECLASSIFICATIONS
Certain reclassifications, none of which affected operating or net loss,
have been made to prior year amounts to conform to the current year
presentation.
15
<PAGE> 16
CASH, CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Juniper Networks considers all highly liquid investment securities with
maturities from date of purchase of 90 days or less to be cash equivalents.
Short-term and long-term investments consist of debt securities with original
maturities between three months and three years.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and evaluates such designation as of each
balance sheet date. To date, all marketable debt securities have been classified
as available-for-sale and are carried at fair value with unrealized gains and
losses, if any, included in stockholders' equity. Realized gains and losses and
declines in value of securities judged to be other than temporary are included
in interest income and have not been significant to date. Interest and dividends
on all securities are included in interest income.
CONCENTRATIONS
Financial instruments that potentially subject Juniper Networks to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. Management believes the financial risks
associated with these financial instruments are minimal. Juniper Networks
maintains its cash, cash equivalents and investments with high quality financial
institutions. Juniper Networks performs ongoing credit evaluations of its
customers and generally does not require collateral on accounts receivable.
Juniper Networks' revenues to date have been derived for the sale of one
product, the M40. For the year ended December 31, 1999, two customers, A and C,
accounted for 32% and 26% of Juniper Networks' net revenues. For the year ended
December 31, 1998, two customers, A and B, accounted for 78% and 22% of Juniper
Networks' net revenues. For the year ended December 31, 1999, export sales to
Europe and Asia accounted for a total of 21.9% of net revenues.
Juniper Networks purchases certain custom semiconductor chips from a sole
supplier. Additionally, Juniper Networks relies on one hardware manufacturer for
the production of its product. The inability of the supplier or manufacturer to
fulfill supply requirements of Juniper Networks could negatively impact future
results.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of Juniper Networks' short-term and long-term investments is
based on quoted market prices.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to Juniper Networks for debt
instruments with similar terms, degrees of risk, and remaining maturities. The
16
<PAGE> 17
carrying values of these obligations approximate their respective fair values as
of December 31, 1998.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment leased under capital leases,
are recorded at cost less accumulated depreciation. Depreciation is calculated
using the straight-line method over the lesser of the estimated useful life,
generally three to five years, or the lease term of the respective assets.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include equity investments made in privately
held companies in which Juniper Networks has less than a 20% equity ownership
interest and over which Juniper Networks has no ability to exercise significant
influence. Such investments are accounted for on the cost basis and are reviewed
for impairment indicators. Through December 31, 1999, no impairment indicators
have been identified and no write-downs of the cost basis of these investments
has been made. Also included in intangibles and other assets is goodwill and
other intangibles as a result of the November 1999 acquisition of intellectual
property and other intangible assets. The goodwill and other intangibles are
being amortized over a three-year period.
REVENUE RECOGNITION
Juniper Networks generally recognizes product revenue at the time of
shipment, assuming that collectibility is probable, unless Juniper Networks has
future obligations for network interoperability or has to obtain customer
acceptance, in which case revenue is deferred until these obligations are met.
Revenue from service obligations is deferred and recognized on a straight-line
basis over the contractual period. Amounts billed in excess of revenue
recognized are included as deferred revenue and accounts receivable in the
accompanying consolidated balance sheets.
WARRANTY RESERVES
Juniper Networks' product generally carries a one-year warranty that
includes factory repair services as needed for replacement of parts. Estimated
expenses for warranty obligations are accrued as revenue is recognized.
RESEARCH AND DEVELOPMENT
Costs to develop Juniper Networks' products are expensed as incurred in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 2, "Accounting for Research and
17
<PAGE> 18
Development Costs," which establishes accounting and reporting standards for
research and development.
Juniper Networks adopted SOP 98-1 "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" during 1999, which requires
that all costs related to the development of internal use software be expensed
as incurred, other than those incurred during the application development stage.
Costs incurred during the application development stage were insignificant for
all periods presented.
STOCK-BASED COMPENSATION
Juniper Networks accounts for its stock options and equity awards in
accordance with the provisions of the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and has elected to follow the
"disclosure only" alternative prescribed by Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123).
STOCK SPLITS
Juniper Networks effected a three-for-two stock split of its common stock
on June 27, 1997 and October 2, 1998 and a three-for-one stock split in the form
of a 200% common stock dividend paid on January 14, 2000. All share and per
share amounts have been adjusted to reflect the splits.
NET LOSS PER SHARE
Basic net loss per share and diluted net loss per share are presented in
conformity with Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128), for all periods
presented. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued or granted
for nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if they had been outstanding for all periods presented.
To date, Juniper Networks has not had any issuances or grants for nominal
consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less the weighted-average number of shares of common stock
issued to founders, investors and employees that are subject to repurchase (see
Note 5). Basic and diluted pro forma net loss per share, as presented in the
consolidated statements of operations, has been computed as described above and
also gives effect, under Securities and Exchange
18
<PAGE> 19
Commission guidance, to the conversion of the convertible preferred stock (using
the if-converted method) from the original date of issuance, using the initial
public offering price of $11.33 per share to calculate the conversion ratio for
Series D-1 convertible preferred stock.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss ................................................. $ (9,034) $ (30,971) $ (10,363)
========= ========= =========
BASIC AND DILUTED:
Weighted-average shares of common stock outstanding .... 109,652 59,073 55,869
Less: weighted-average shares subject to repurchase .... (14,991) (20,202) (30,096)
--------- --------- ---------
Weighted-average shares used in computing basic and
diluted net loss per share .......................... 94,661 38,871 25,773
========= ========= =========
Basic and diluted net loss per share ................... $ (0.10) $ (0.80) $ (0.40)
========= ========= =========
PRO FORMA:
Net loss ............................................... $ (9,034) $ (30,971)
========= =========
Shares used above ...................................... 94,661 38,871
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock ... 36,819 72,339
--------- ---------
Shares used in computing pro forma basic and diluted
net loss per common share (unaudited) ............... 131,480 111,210
========= =========
Pro forma basic and diluted net loss per common share
(unaudited) ......................................... $ (0.07) $ (0.28)
========= =========
</TABLE>
Juniper Networks has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted loss per share because all such
securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share were
68,288,000, 101,769,000 and 86,811,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
SEGMENT INFORMATION
Juniper Networks has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosure About Segments
of an Enterprise and Related Information" (FAS 131). Juniper Networks operates
solely in one segment, the development and marketing of Internet infrastructure
equipment, and therefore there is no impact to Juniper Networks' consolidated
financial statements due to the adoption of FAS 131.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133, as amended, establishes methods for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. Juniper Networks is required to adopt FAS 133 effective January 1,
2001. Because Juniper Networks currently does not hold any derivative
instruments and does not engage in hedging activities, Juniper Networks does
19
<PAGE> 20
not currently believe that the adoption of FAS 133, as amended, will have a
significant impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Juniper Networks believes that its current
revenue recognition principles comply with SAB 101.
2. CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS
Cash equivalents, short-term and long-term investments consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Money market funds ..................... $ 56,034 $ -- $ -- $ 56,034
Commercial paper ....................... 79,862 -- -- 79,862
Certificates of deposit ................ 66 -- -- 66
Government securities .................. 135,325 5 (181) 135,149
Corporate debt securities .............. 151,829 12 (651) 151,190
Asset-backed securities ................ 8,000 -- -- 8,000
--------- --------- --------- ---------
$ 431,116 $ 17 $ (832) $ 430,301
========= ========= ========= =========
Included in cash and cash equivalents .. $ 145,179 $ 6 $ -- $ 145,185
Included in short-term investments ..... 188,170 11 (266) 187,915
Included in long-term investments ...... 97,767 -- (566) 97,201
--------- --------- --------- ---------
$ 431,116 $ 17 $ (832) $ 430,301
========= ========= ========= =========
Due within one year .................... $ 333,349 $ 17 $ (266) $ 333,100
Due between one year and two years ..... 94,500 -- (537) 93,963
Due between two years and three years .. 3,267 -- (29) 3,238
--------- --------- --------- ---------
$ 431,116 $ 17 $ (832) $ 430,301
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Money market funds ..................... $ 3,037 $ -- $ -- $ 3,037
Commercial paper ....................... 16,520 -- -- 16,520
------- ------ ------ -------
$19,557 $ -- $ -- $19,557
======= ====== ====== =======
Included in cash and cash equivalents .. $19,557 $ -- $ -- $19,557
======= ====== ====== =======
</TABLE>
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Computers and equipment ............................... $ 14,953 $ 7,435
Purchased software .................................... 4,252 2,540
Furniture and fixtures ................................ 1,383 594
-------- --------
Total ................................................. 20,588 10,569
Less accumulated depreciation and lease amortization
(8,172) (2,867)
-------- --------
Property and equipment , net .......................... $ 12,416 $ 7,702
======== ========
</TABLE>
20
<PAGE> 21
4. CAPITAL LEASE OBLIGATIONS
Juniper Networks enters into various capital leases, including sale and
leaseback transactions, to finance purchases of property and equipment. As of
December 31, 1998, under various lease lines of credit, Juniper Networks had
$1,891,000 available for future purchases of property and equipment that expired
on June 30, 1999. Under the terms of certain lease agreements, warrants to
purchase the Company's preferred stock were granted as described in Note 5.
Capitalized costs of $8,470,000, and accumulated amortization of $905,000 are
included in property and equipment at December 31, 1998. During the year ending
December 31, 1999, Juniper Networks paid off all of the then outstanding capital
lease balances.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
SHARES ISSUED
AND OUTSTANDING AT
SHARES DECEMBER 31,
INITIALLY --------------------
AUTHORIZED 1999 1998
---------- ---- ----------
<S> <C> <C> <C>
Series A............................ 1,743,751 -- 1,743,751
Series B............................ 3,915,308 -- 3,821,975
Series C............................ 5,200,000 -- 5,151,178
Series D............................ 600,000 -- --
Series D-1.......................... 2,580,000 -- --
---------- -- ----------
Total preferred stock............... 14,039,059 -- 10,716,904
========== == ==========
</TABLE>
All outstanding shares of Juniper Networks' convertible preferred stock
automatically converted into 76,794,000 shares of Common Stock upon completion
of Juniper Networks' initial public offering. As of December 31, 1999,
10,000,000 shares of convertible preferred stock remain authorized and available
for issuance.
WARRANTS
Juniper Networks periodically grants warrants in connection with certain
lease arrangements. Juniper Networks had the following warrants to purchase
shares of preferred stock outstanding at December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE
PRICE EXPIRATION OF NUMBER OF SHARES
PREFERRED STOCK SERIES PER SHARE DATE ISSUED WARRANTS (PREFERRED STOCK)
- ---------------------- --------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Series B........................ $2.40 December 1996 December 2003 83,333
Series B........................ 2.40 June 1997 December 2003 10,000
Series C........................ 8.93 June 1997 December 2003 23,516
-------
Total........................... 116,849
=======
</TABLE>
During the year ended December 31, 1999, all warrants were exercised for a
total of approximately 779,000 shares of Common Stock. All of the warrants were
exercisable immediately. The fair value of the warrants was amortized as
interest expense in accordance with the lease payments.
21
<PAGE> 22
COMMON STOCK
Juniper Networks is authorized to issue up to 200,000,000 shares of its
common stock. At December 31, 1999 and 1998, 155,938,599 and 61,731,984 shares
were issued and outstanding. Prior to the adoption of the 1996 Stock Option
Plan, Juniper Networks issued shares of common stock to founders, investors, and
employees. The shares issued to investors were fully vested upon purchase.
Generally, shares issued to founders and employees were sold pursuant to
restricted stock purchase agreements containing provisions established by the
Board of Directors. These provisions give Juniper Networks the right to
repurchase the shares at the original sales price. This right expires at the
rate of 25% after one year and 2.0833% per month thereafter. At December 31,
1999 and 1998, 840,001 and 4,148,439 of these shares, issued outside of the 1996
Stock Option Plan, remained subject to repurchase.
STOCK OPTION PLAN
Juniper Networks' 1996 Stock Option Plan (the Plan) provides for the
granting of incentive stock options to employees and nonstatutory stock options
to employees, directors and consultants. Incentive stock options are granted at
an exercise price of not less than the fair value per share of the common stock
on the date of grant. Nonstatutory stock options may be granted at an exercise
price of not less than 85% of the fair value per share on the date of grant;
however, no statutory stock options have been granted for less than fair market
value on the date of grant. Vesting and exercise provisions are determined by
the Board of Directors. Options granted under the Plan generally become
exercisable over a four-year period beginning on the date of grant. Options
granted under the Plan have a maximum term of ten years. Options granted to
consultants are in consideration for the fair value of services previously
rendered, are not contingent upon future events and are expensed in the period
of grant. Juniper Networks has authorized 57,562,500 shares of common stock for
issuance under the Plan. At December 31, 1999, 1,896,356 shares were available
for future option grants or stock sales under the Plan.
Option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options granted ......................... 5,393,250 $ 0.07
----------
Balance at December 31, 1997 ............ 5,393,250 0.07
Options granted ......................... 10,537,440 0.62
Options exercised ....................... (4,521,948) 0.16
Options canceled ........................ (365,028) 0.09
----------
Balance at December 31, 1998 ............ 11,043,714 0.56
Options granted ......................... 16,837,006 33.76
Options exercised ....................... (4,935,090) 1.13
Options canceled ........................ (476,465) 7.78
----------
Balance at December 31, 1999 ............ 22,469,165 25.11
==========
</TABLE>
The Plan also provides for the sale of shares of common stock to employees
and consultants at the fair value per share of the common stock. Shares issued
22
<PAGE> 23
to consultants are for the fair value of services previously rendered and are
not contingent upon future events. Shares sold to employees are made pursuant to
restricted stock purchase agreements containing provisions established by the
Board of Directors. These provisions give Juniper Networks the right to
repurchase the shares at the original sales price. This right expires at a rate
determined by the Board of Directors, generally at the rate of 25% after one
year and 2.0833% per month thereafter.
During the year ended December 31, 1997 and the period from inception
(February 2, 1996) to December 31, 1996, Juniper Networks issued 10,717,299 and
14,522,652 shares under the Plan. No shares were issued under the Plan in the
years ended December 31, 1999 and 1998. At December 31, 1999 and 1998, 9,158,052
and 14,055,312 shares were subject to repurchase rights under the Plan. At
December 31, 1999 and 1998, 1,266,509 and 1,189,275 shares, respectively, had
been repurchased under the Plan.
The following schedule summarizes information about stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.04 - $ 0.56 4,648,857 8.22 $ 0.29 1,177,599 $ 0.24
$ 0.64 - $ 4.67 5,294,415 9.01 $ 2.88 353,777 $ 1.77
$ 7.00 - $ 9.33 4,715,349 9.39 $ 7.61 4,125 $ 7.00
$21.44 - $ 60.71 6,666,345 9.76 $60.44 31,095 $21.44
$63.63 - $112.57 1,144,199 9.89 $89.60 -- $ --
---------- ---------
$ 0.04 - $112.57 22,469,165 9.19 $25.11 1,566,596 $ 1.03
========== =========
</TABLE>
As of December 31, 1998, 325,608 options are exercisable at an average
exercise price of $0.05, and as of December 31, 1997, 79,980 options are
exercisable at an average price of $0.01.
During the year ended December 31, 1998 and the three months ended March
31, 1999, in connection with the grant of certain stock options to employees,
Juniper Networks recorded deferred stock compensation of $6,388,000 and
$1,114,000 representing the difference between the exercise price and the deemed
fair value of Juniper Networks' common stock on the date such stock options were
granted. Such amount is included as a reduction of stockholders' equity and is
being amortized by charges to operations on a graded vesting method. Juniper
Networks recorded amortization of deferred stock compensation expense of
$3,266,000 and $1,235,000 for the years ended December 31, 1999 and 1998. At
December 31, 1999 and 1998, Juniper Networks had a total of $3,001,000 and
$5,153,000 remaining to be amortized over the corresponding vesting period of
each respective option, generally four years. The amortization expense relates
to options awarded to employees in all operating expense categories. This amount
has not been separately allocated to these categories.
23
<PAGE> 24
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Board of Directors approved the adoption of Juniper
Networks' 1999 Employee Stock Purchase Plan (the Purchase Plan). A total of
1,500,000 shares of common stock have been reserved for issuance under the 1999
Purchase Plan, plus, commencing on January 1, 2000, annual increases equal to
the lesser of 1,500,000 shares, or 1% of the outstanding common shares on such
date or a lesser amount determined by the Board of Directors. The 1999 Purchase
Plan permits eligible employees to acquire shares of Juniper Networks' common
stock through periodic payroll deductions of up to 10% of base compensation. No
more than 3,000 shares may be purchased by each employee in any twelve month
period, and in no event, may an employee purchase more than $25,000 worth of
stock, determined at the fair market value of the shares at the time such option
is granted, in one calendar year. The Purchase Plan will be implemented in a
series of offering periods, each six months in duration; provided, however, that
the first offering period will be approximately thirteen months in duration,
ending on the last trading day on or before July 31, 2000. The price at which
the common stock may be purchased is 85% of the lesser of the fair market value
of Juniper Networks' common stock on the first day of the applicable offering
period or on the last day of the respective offering period.
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Because the exercise
price of Juniper Networks' employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense was recognized.
Pro forma information regarding net loss has been determined as if Juniper
Networks had accounted for its employee stock options under the fair value
method prescribed by FAS 123. The resulting effect on pro forma net loss
disclosed is not likely to be representative of the effects on net income/(loss)
on a pro forma basis in future years, due to subsequent years including
additional grants and years of vesting.
The fair value of each option granted through December 31, 1999 was
estimated on the date of grant using the minimum value (before the Company went
public) or the Black-Scholes method. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. The Black-Scholes model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because Juniper Networks' stock-based awards have
characteristics significantly different from those in traded options, and
because changes in the subjective input assumptions can materially affect the
fair value
24
<PAGE> 25
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock-based awards.
The fair value of Juniper Networks' stock-based awards was estimated using the
following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.................................................. -- -- --
Volatility factor............................................... 80% -- --
Risk-free interest rate......................................... 5.49% 5.23% 6.20%
Expected life................................................... 3.0 years 4.5 years 4.5 years
Weighted-average fair value of options granted in the period.... $ 17.97 $ 0.37 $ 0.03
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to pro forma expense over the options' vesting period. Pro forma
information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported ......................... $ (9,034) $(30,971) $(10,363)
Pro forma ........................... (43,488) (31,143) (10,403)
Basic and diluted net loss per share:
As reported ......................... (0.10) (0.80) (0.40)
Pro forma ........................... (0.46) (0.80) (0.40)
</TABLE>
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved 25,865,521 shares of common stock for future
issuance under its 1996 Stock Option Plan and 1999 Employee Stock Purchase Plan.
6. 401(k) PLAN
Juniper Networks maintains a savings and retirement plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees
are eligible to participate on their first day of employment with Juniper
Networks. Under the plan, employees may contribute up to 20% of their pretax
salaries per year but not more than the statutory limits. Juniper Networks does
not contribute to the plan.
7. COMMITMENTS
Juniper Networks leases its facilities under operating leases that expire
in 2012. Rental expense for the years ended December 31, 1999, 1998 and 1997,
were approximately $1,847,000, $937,000 and $529,000, respectively.
25
<PAGE> 26
Future minimum payments under the noncancellable operating leases consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000..................................................... $ 3,892
2001..................................................... 5,401
2002..................................................... 4,660
2003..................................................... 4,762
2004..................................................... 4,898
Thereafter............................................... 42,072
-------
Total minimum lease payments........................ $65,685
=======
</TABLE>
Juniper Networks has outstanding purchase order commitments for production
materials of approximately $6,357,000 and $2,442,000 at December 31, 1999 and
1998. Juniper Networks expects the purchase orders to be fulfilled in the first
quarter of 2000.
8. INCOME TAXES
Due to operating losses and the inability to recognize the benefits
therefrom, there is no tax provision for the year ended December 31, 1997. For
the year ended December 31, 1999 the provision for income taxes consists of the
following (in thousands):
<TABLE>
<S> <C>
Current Provision:
Federal................................................ $ 700
State.................................................. 800
Foreign................................................ 925
------
Total current provision.................................. $2,425
======
</TABLE>
The difference between the provision for income taxes and the amount
computed by applying the Federal statutory income tax rate (35 percent) to loss
before taxes is explained below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax provision (benefit) at federal statutory rate .. $ (2,313) $(10,839) $ (3,627)
Federal alternative minimum tax .................... 700 -- --
State taxes ........................................ 800 2 --
Foreign taxes ...................................... 925 -- --
Unbenefitted net operating losses, reserves and
accruals ......................................... 2,313 10,839 3,627
-------- -------- --------
Total ......................................... $ 2,425 $ 2 $ --
======== ======== ========
</TABLE>
Significant components of Juniper Networks' deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ................ $ 14,000 $ 13,470
Research credit carryforwards ................... 2,830 1,490
Deferred revenue ................................ 6,200 2,700
Reserves and accruals not currently deductible .. 7,250 500
Other temporary differences ..................... 840 (110)
-------- --------
Total deferred tax assets ......................... 31,120 18,050
Valuation allowance ............................... (31,120) (18,050)
-------- --------
Net deferred tax assets ........................... $ -- $ --
======== ========
</TABLE>
26
<PAGE> 27
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes the Company's historical operating
performance and the reported cumulative net losses in all prior years, Juniper
Networks has provided a full valuation allowance against its net deferred tax
assets.
The net valuation allowance increased by $13,070,000 during the year ended
December 31, 1999 and increased by $12,850,000 during the year ended December
31, 1998, respectively. As of December 31, 1999 approximately $14,500,000 of the
valuation allowance reflected above relates to the tax benefits of stock option
deductions which will be credited to equity when realized.
As of December 31, 1999, Juniper Networks had net operating loss
carryforwards for federal and state tax purposes of approximately $37,000,000
and $32,000,000, respectively. Juniper Networks also had federal and state
research and development tax credit carryforwards of approximately $1,700,000
and $1,700,000, respectively. The federal and state net operating loss
carryforwards will expire at various dates beginning in year 2004, if not
utilized.
Utilization of the net operating losses and tax credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and tax credits
before utilization.
9. SUBSEQUENT EVENTS
The Company's registration statement on Form S-1 registering $1.15 billion
(including a $150 million over-allotment option) principal amount of 4.75%
convertible subordinated notes due 2007 (the convertible notes), was declared
effective on March 2, 2000. The Company completed the public offering of $1.0
billion and $150 million of the convertible notes on March 8, 2000 and March 13,
2000, respectively.
27
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Juniper Networks, Inc.
We have audited the accompanying consolidated balance sheets of Juniper
Networks, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Juniper
Networks, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 17, 2000
Except for Note 9,
as to which the date
is March 14, 2000
28
<PAGE> 29
ITEM 8 SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues .............................................. $ 45,442 $ 29,564 $ 17,556 $ 10,044
Cost of revenues .......................................... 18,389 12,490 8,046 6,347
-------- -------- -------- --------
Gross profit ............................................ 27,053 17,074 9,510 3,697
Operating expenses:
Research and development ................................ 15,820 11,510 7,991 6,181
Sales and marketing ..................................... 8,869 5,610 3,849 2,603
General and administrative .............................. 1,781 1,701 977 776
Amortization of goodwill and purchased intangibles and
deferred stock compensation .......................... 1,689 802 891 904
-------- -------- -------- --------
Total operating expenses ............................. 28,159 19,623 13,708 10,464
-------- -------- -------- --------
Operating loss ............................................ (1,106) (2,549) (4,198) (6,767)
Interest income and provision for income taxes, net ....... 4,186 962 346 92
-------- -------- -------- --------
Net income (loss) ......................................... $ 3,080 $ (1,587) $ (3,852) $ (6,675)
======== ======== ======== ========
Basic net income (loss) per share ......................... $ 0.02 $ (0.01) $ (0.07) $ (0.15)
======== ======== ======== ========
Diluted net income (loss) per share ....................... $ 0.02 $ (0.01) $ (0.07) $ (0.15)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
------------ ------------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues ......................................... $ 3,807 $ -- $ -- $ --
Cost of revenues ..................................... 3,815 382 180 39
-------- -------- -------- --------
Gross loss ......................................... (8) (382) (180) (39)
Operating expenses:
Research and development ........................... 6,145 8,284 6,061 3,497
Sales and marketing ................................ 1,718 1,215 764 519
General and administrative ......................... 882 562 444 335
Amortization of deferred stock Compensation ........ 648 374 192 21
-------- -------- -------- --------
Total operating expenses ........................ 9,393 10,435 7,461 4,372
-------- -------- -------- --------
Operating loss ....................................... (9,401) (10,817) (7,641) (4,411)
Interest income and provision for income taxes, net .. 117 238 438 506
-------- -------- -------- --------
Net loss ............................................. $ (9,284) $(10,579) $ (7,203) $ (3,905)
======== ======== ======== ========
Basic and diluted loss per share ..................... $ (0.22) $ (0.27) $ (0.20) $ (0.12)
======== ======== ======== ========
</TABLE>
29
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
<S> <C>
Name Jurisdiction of Incorporation
- ---- -----------------------------
Juniper Networks K.K. Japan
Juniper Networks B.V. The Netherlands
Juniper Networks International Limited Cayman
Juniper Networks FSC Inc. Barbados
Juniper Networks U.K. Ltd. United Kingdom
Juniper Networks GmbH Germany
Juniper Networks France Sarl France
Juniper Networks Australia Ltd. Australia
Juniper Networks Hong Kong Ltd. Hong Kong
Juniper Networks South Asia Ltd. Hong Kong
Juniper Networks China Ltd. Hong Kong
Juniper Networks Canada Inc. Canada
Juniper Acquisition Corporation Delaware
Juniper Networks International, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Juniper Networks, Inc. of our report dated January 17, 2000 except for Note
9, as to which the date is March 8, 2000, included in the 1999 Annual Report to
Stockholders of Juniper Networks, Inc.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-32412) pertaining to the Juniper Networks, Inc. Amended and Restated
1996 Stock Plan and the Layer 5 1999 Stock Incentive Plan of our report dated
January 17, 2000 except for Note 9, as to which the date is March 8, 2000, with
respect to the consolidated financial statements of Juniper Networks, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
Our audits also included the financial statement schedule of Juniper Networks,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Palo Alto, California
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 158,043
<SECURITIES> 285,116
<RECEIVABLES> 24,582
<ALLOWANCES> 632
<INVENTORY> 0
<CURRENT-ASSETS> 377,833
<PP&E> 20,588
<DEPRECIATION> 8,172
<TOTAL-ASSETS> 513,378
<CURRENT-LIABILITIES> 55,663
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 457,713
<TOTAL-LIABILITY-AND-EQUITY> 513,378
<SALES> 102,606
<TOTAL-REVENUES> 102,606
<CGS> 45,272
<TOTAL-COSTS> 45,272
<OTHER-EXPENSES> 41,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,609)
<INCOME-TAX> 2,425
<INCOME-CONTINUING> (9,034)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,034)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
