<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 000-26689
================================================================================
FOUNDRY NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0431154
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
680 West Maude Avenue, Suite 3
Sunnyvale, CA 94086
(Address of principal executive offices, including zip code)
(408) 530-3300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [_] No [X]/1/
As of September 30, 1999, there were 57,277,117 shares of the registrant's
common stock outstanding./2/
(1) The Registrant has been subject to the filing requirements of the
Securities Exchange Act of 1934 since the effective date of its
Registration Statement on Form S-1 (September 27, 1999) and has filed all
required reports since such effective date.
(2) This share number assumes the conversion of all outstanding shares of the
Registrant's preferred stock into common stock which was effectuated on
October 1, 1999.
1
<PAGE>
INDEX
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<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of September 30, 1999 and 3
December 31, 1998
Condensed Statements of Operations for the Three and 4
Nine Months Ended September 30, 1999 and 1998
Condensed Statements of Cash Flows for the Nine 5
Months Ended September 30, 1999 and 1998
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Factors That May Affect Future Results 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FOUNDRY NETWORKS, INC.
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 19,734 $ 4,567
Receivable from underwriters..................................... 133,688 --
Accounts receivable, net......................................... 20,558 6,607
Inventories, net................................................. 13,795 7,201
Prepaid expenses and other current assets........................ 680 367
-------- --------
Total current assets....................................... 188,455 18,742
Property and equipment, net...................................... 387 496
-------- --------
$188,842 $ 19,238
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit.............................................. $ 2,000 $ --
Current portion of capital lease obligations..................... 46 178
Accounts payable................................................. 9,414 6,059
Accrued liabilities.............................................. 9,762 1,471
Deferred revenue................................................. 2,387 371
-------- --------
Total current liabilities.................................. 23,609 8,079
-------- --------
Redeemable convertible preferred stock............................. 31,085 30,085
-------- --------
Stockholders' equity (deficit):
Common stock..................................................... 4 3
Treasury stock................................................... (4) --
Additional paid-in capital....................................... 160,383 6,120
Notes receivable from stockholders............................... (859) (713)
Deferred stock compensation...................................... (14,084) (3,964)
Accumulated deficit.............................................. (11,292) (20,372)
-------- --------
Total stockholders' equity (deficit)....................... 134,148 (18,926)
-------- --------
$188,842 $ 19,238
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
FOUNDRY NETWORKS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue, net............................................ $38,896 $ 4,030 $78,383 $ 8,233
Cost of revenue......................................... 17,274 1,918 35,265 4,000
------- ------- ------- -------
Gross profit....................................... 21,622 2,112 43,118 4,233
------- ------- ------- -------
Operating expenses:
Research and development........................... 2,199 3,705 5,824 6,955
Sales and marketing................................ 6,654 1,887 13,627 4,632
General and administrative......................... 1,025 365 2,680 934
Amortization of deferred stock
compensation....................................... 2,248 233 7,150 233
------- ------- ------- -------
Total operating expenses........................... 12,126 6,190 29,281 12,754
------- ------- ------- -------
Income (loss) from operations........................... 9,496 (4,078) 13,837 (8,521)
Interest income, net.................................... 47 135 71 348
------- ------- ------- -------
Income (loss) before provision for income
taxes.................................................. 9,543 (3,943) 13,908 (8,173)
Provision for income taxes.............................. 3,737 -- 4,828 --
------- ------- ------- -------
Net income (loss)....................................... $ 5,806 $(3,943) $ 9,080 $(8,173)
======= ======= ======= =======
Basic net income (loss) per share....................... $ 0.28 $ (0.28) $ 0.47 $ (0.64)
======= ======= ======= =======
Weighted average shares used in computing
basic net income (loss) per share...................... 20,905 14,166 19,131 12,753
======= ======= ======= =======
Diluted net income (loss) per share..................... $ 0.10 $ (0.28) $ 0.17 $ (0.64)
======= ======= ======= =======
Weighted average shares used in computing
diluted net income (loss) per share.................... 56,709 14,166 54,300 12,753
======= ======= ======= =======
Pro forma basic net income (loss) per share............. $ 0.13 $ (0.11) $ 0.22 $ (0.25)
======= ======= ======= =======
Weighted average shares used in computing
pro forma basic net income (loss) per
share (1).............................................. 43,579 36,654 41,688 32,663
======= ======= ======= =======
</TABLE>
(1) Pro forma basic net income (loss) per common share has been calculated
assuming the conversion of the redeemable convertible preferred stock using
the if-converted method into an equivalent number of common shares as if
the shares had been converted on the dates of issuance.
See accompanying notes to condensed financial statements.
4
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FOUNDRY NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $ 9,080 $(8,173)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation................................................... 333 498
Amortization of deferred stock compensation.................... 7,150 233
Provision for allowance for doubtful accounts.................. 782 176
Provision for excess and obsolete inventories.................. 1,466 384
Change in operating assets and liabilities:
Accounts receivable.......................................... (14,733) (2,232)
Inventories.................................................. (8,060) (2,775)
Prepaid expenses and other current assets.................... (313) (51)
Accounts payable............................................. 3,355 2,524
Accrued liabilities.......................................... 8,291 348
Deferred revenue............................................. 2,016 177
-------- -------
Net cash provided by (used in) operating
activities.............................................. 9,367 (8,891)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................. (224) (321)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit.................................... 2,000 --
Principal payments on capital lease obligations...................... (132) (123)
Proceeds from issuance of common stock............................... 3,160 37
Repurchase of common stock........................................... (4) (25)
Net proceeds from issuance of redeemable convertible
preferred stock..................................................... 1,000 14,966
-------- -------
Net cash provided by financing activities................. 6,024 14,855
-------- -------
INCREASE IN CASH AND CASH
EQUIVALENTS............................................................ 15,167 5,643
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................................................. 4,567 3,182
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 19,734 $ 8,825
======== =======
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Information for the three and nine months ended
September 30, 1999 and 1998 is unaudited)
1. BASIS OF PRESENTATION:
----------------------
The condensed financial statements included herein have been prepared by
Foundry Networks, Inc. ("Foundry"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The condensed balance sheet as
of December 31, 1998 has been derived from the audited financial statements as
of that date, but does not include all disclosures required by generally
accepted accounting principles. Foundry believes the disclosures included in
the unaudited condensed financial statements when read in conjunction with the
financial statements and the notes thereto included in Foundry's Prospectus
dated September 27, 1999 are adequate to make the information presented not
misleading.
The unaudited condensed financial statements included herein reflect all
adjustments, which are in the opinion of management, necessary for a fair
presentation of financial position, results of operations and cash flows for the
periods presented. These adjustments are of a normal, recurring nature. The
results of operations for the three and nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for future
quarters or the year ending December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Split
A three for two stock split of Foundry's outstanding common and preferred
stock was approved by Foundry's board of directors in July 1999 and by its
stockholders' in August 1999. All share and per share information included in
these financial statements have been retroactively adjusted to reflect this
stock split.
Inventories
Inventories are stated on a first-in, first-out basis at the lower of cost
or market, and include purchased parts, labor and manufacturing overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999 1998
------------- ------------
<S> <C> <C>
Purchased parts........................... $ 7,421 $5,302
Work-in-process........................... 3,370 1,281
Finished goods............................ 3,004 618
------- ------
$13,795 $7,201
======= ======
</TABLE>
6
<PAGE>
Revenue Recognition
Foundry generally recognizes product revenue upon shipment to customers.
Revenue from customer support services is deferred and recognized on a straight-
line basis over the contractual period. At shipment date, Foundry establishes an
accrual for estimated warranty expenses associated with sales. Foundry's
warranty period extends 12 months from the date of sale. The contracts with
distributors do not provide for rights of return and the contract with the
original equipment manufacturer also does not provide for rights of return
except in the event products do not meet specifications or there has been an
epidemic failure, as defined in the agreement.
Net Income (Loss) Per Share
Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" for all periods presented.
Pursuant to 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 income
(loss) per common share as if such stock had been outstanding for all periods
presented. To date, Foundry has not had any issuances or grants for nominal
consideration.
In accordance with SFAS No. 128, basic net income (loss) per common share
has been calculated using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. For the three
and nine months ended September 30, 1998 Foundry has excluded all convertible
preferred stock, outstanding stock options and shares subject to repurchase from
the calculation of diluted net loss per common share because all such securities
are anti-dilutive for those periods. The total number of shares excluded from
the calculations of diluted net loss per common share was 26,468,146 for the
three and nine months ended September 30, 1998. For the three and nine months
ended September 30, 1999, diluted net income per common share has been
calculated assuming the conversion of all dilutive potential common stock. Pro
forma basic net income (loss) per common share for the three and nine months
ended September 30, 1999 and 1998 has been calculated assuming the conversion of
the redeemable convertible preferred stock using the if-converted method into an
equivalent number of common shares as if the shares had been converted on the
dates of issuance.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (loss)............................................................ $ 5,806 $ (3,943) $ 9,080 $ (8,173)
------- -------- ------- --------
Basic:
Weighted average shares of common stock outstanding......................... 28,544 6,388 28,209 26,365
Less: Weighted average shares subject to repurchase......................... (7,639) (12,222) (9,078) (13,612)
------- -------- ------- --------
Weighted average shares used in computing basic net income
(loss) per common share.................................................... 20,905 14,166 19,131 12,753
======= ======== ======= ========
Basic net income (loss) per common share..................................... $ 0.28 $ (0.28) $ 0.47 $ (0.64)
======= ======== ======= ========
Diluted:
Weighted average shares of common stock outstanding......................... 28,544 28,209
Add: Weighted average dilutive potential common stock....................... 28,165 26,091
======= =======
Weighted average shares used in computing diluted net income (loss) per
common share............................................................... 56,709 14,166 54,300 12,753
======= ======== ======= ========
Diluted net income (loss) per common share................................... $ 0.10 $ (0.28) $ 0.17 $ (0.64)
======= ======== ======= ========
Pro forma basic:
Shares used above........................................................... 20,905 14,166 19,131 12,753
Add: Pro forma adjustment to reflect weighted effect of assumed conversion
of redeemable convertible preferred stock................................... 22,674 22,488 22,557 19,910
------- -------- ------- --------
Weighted average shares used in computing pro forma basic
net income (loss) per common share.......................................... 43,579 36,654 41,688 32,663
======= ======== ======= ========
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Pro forma basic net income (loss) per
common share .............................................................. $ 0.13 $ (0.11) $ 0.22 $ (0.25)
========= ======== ========= ========
</TABLE>
Business Segments
Foundry is organized and operates as one operating segment, the design,
development, manufacturing and marketing of high performance Gigabit Ethernet
switches, switching routers, server load balancing and transparent caching
switches.
For the nine months ended September 30,1999, sales to Hewlett-Packard and
America Online accounted for 15.8% and 11.9% of our revenue, respectively. To
date, a limited number of customers and resellers have accounted for a
significant portion of Foundry's revenue. Loss of any one of these customers
could have a material adverse impact on Foundry's financial condition or
results of operations.
Foundry sells to various countries in North America, Europe, Asia, South
America and Australia. For the nine months ended September 30, 1999, sales to
customers in the United States accounted for a majority of Foundry's revenue.
Sales to individual countries outside of the United States represent less than
10% of revenue.
Recent Accounting Pronouncements
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," (SOP No. 98-1). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was adopted by
Foundry in 1998. The adoption of SOP No. 98-1 did not have a material impact on
Foundry's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS No. 133 will not have a
material effect on Foundry's financial position or results of operations.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
(SOP No. 98-9). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending
the deferral of the application of certain provisions of SOP No. 97-2 amended by
SOP No. 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP No. 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Foundry has not had significant
software sales to date and management does not expect the adoption of SOP
No. 98- 9 to have a significant effect on the financial position or results of
operations.
3. INITIAL PUBLIC OFFERING:
------------------------
On September 28, 1999, Foundry commenced trading of its common stock on the
Nasdaq National Market in an initial public offering with the sale of 5,750,000
shares of common stock (including the exercise of the over-allotment option of
750,000 shares) at $25 per share. Cash proceeds from the offering, net of the
underwriters' discount, totaled approximately $133.7 million and were received
by Foundry upon the closing of the initial public offering on October 1, 1999.
Accordingly, the net proceeds have been presented as a receivable from
underwriters on the accompanying condensed balance sheet as of September 30,
1999. Concurrent with the closing of the offering, 22,674,885 shares of
redeemable convertible preferred stock were converted into equal shares of
common stock on October 1, 1999.
8
<PAGE>
4. COMMON STOCK
------------
As of September 30, 1999 there were 57,277,117 shares of common stock issued
and outstanding. This share number assumes the conversion of 22,674,885
outstanding shares of preferred stock into equal shares of common stock. The
conversion was effectuated on October 1, 1999 upon the closing of Foundry's
initial public offering. In connection with the filing of Foundry's Amended and
Restated Certificate of Incorporation on October 1, 1999, Foundry is authorized
to issue 200,000,000 shares of common stock, $0.0001 par value and 5,000,000
shares of preferred stock, $0.0001 par value.
In July 1999, Foundry's board of directors approved the following:
a) the adoption of Foundry's 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). A total of 750,000 shares of common stock have been reserved for
issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase shares of common stock through payroll deductions at
85% of the fair market value of the common stock, as defined in the Purchase
Plan.
b) the adoption of Foundry's 1999 Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the grant of common stock options
to non-employee directors. A total of 675,000 shares of common stock have
been reserved for issuance under the Directors' Plan.
c) the increase of common shares reserved under the 1996 Stock Option Plan from
18,405,000 to 21,405,000 shares.
d) a three for two stock split of Foundry's outstanding common and preferred
stock.
5. COMMITMENT
----------
On September 28, 1999 Foundry entered into a lease for approximately 71,000
square feet to serve as Foundry's new headquarters and manufacturing facility in
San Jose, CA. The lease commences on January 1, 2000 and expires on December 31,
2005. The related rent expense will be $131,000 per month.
6. SUBSEQUENT EVENT
-----------------
In October 1999, Foundry repaid all outstanding borrowings under the line of
credit totaling $2.0 million.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This discussion contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "future," "intends" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
The following information should be read in conjunction with the condensed
financial statements and the notes thereto included in Item 1 of this Quarterly
Report, the Company's Registration Statement on Form S-1 declared effective by
the Securities and Exchange Commission on September 27, 1999 and "Factors That
May Affect Future Results" in this document.
Overview
Foundry designs, develops, manufactures and markets a comprehensive suite of
high performance networking products for enterprises and Internet service
providers. From our inception in May 1996 through April 1997, we were engaged
primarily in research and development activities and did not generate any
revenue. A substantial portion of our operating expenses during this period was
related to the design and development of our custom ASICs, software development
and testing prototype designs. We commenced commercial shipments of our
FastIron workgroup Layer 2 switch in May 1997, the initial product released in
our family of stackable products. We shipped NetIron, our first generation
Layer 3 switch, in June 1997. During the second quarter of 1998, we shipped the
first products in our Layer 4-7 ServerIron family. We shipped BigIron, our
second generation of midsize and large-scale chassis-based products, in the
third quarter of 1998. Since the first quarter of 1998, our revenue has
increased every quarter, and we were profitable for the first three quarters of
1999, although we cannot assure you that these results will be indicative of
future performance.
We derive our revenue substantially from sales of our stackable and chassis-
based products, including fees for customer support services related to our
products. We market and sell our products primarily through a direct sales and
marketing organization and, to a lesser extent through resellers and through our
OEM relationship with Hewlett-Packard. We have sales representatives in the
United States, Canada, France, Germany, Taiwan, Singapore, Netherlands and the
United Kingdom. We have made significant investments to expand our international
operations and expect international revenue to increase as a percentage of total
revenue. Currently, all of our international sales, with the exception of
Canada, are denominated in U.S. dollars. We generally recognize product revenue
upon shipment to customers. Revenue from customer support services is deferred
and recognized on a straight-line basis over the contractual period.
We expect the average selling price of our products to decline due to a number
of factors, including competitive pricing pressures and rapid technological
changes. Our gross margins may be affected by price declines if we are unable to
reduce costs. Furthermore, our gross margins may be affected by fluctuations in
manufacturing volumes, component costs, the mix of product configurations sold
and the mix of distribution channels through which our products are sold. We
generally realize higher gross margins on direct sales to the end user than on
sales through resellers or our OEM. Any significant shift in revenue through
resellers or our OEM, or the loss of any large customer, reseller or our OEM,
could harm our gross margins, operating results and financial condition.
We rely on two third-party manufacturing vendors that produce different
assemblies for our products. Prior to the first quarter of 1999, we performed
final assembly, testing, quality assurance, manufacturing engineering,
documentation control and repairs of our products at our Sunnyvale facility. In
the first quarter of 1999, we began transitioning assembly and testing functions
from our Sunnyvale facility to our manufacturing partners. Any failure by these
manufacturers to obtain cost reductions or to meet their obligations could harm
our gross margins and operating results.
10
<PAGE>
In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $584,000 for the nine months ended
September 30, 1998 and $17.3 million for the nine months ended September 30,
1999, representing the difference between the exercise price and the deemed fair
market value of our common stock on the date these stock options were granted.
This amount is included as a component of stockholders' equity and is being
amortized to operations ratably over the respective vesting periods. We recorded
amortization of deferred stock compensation expense of approximately $233,000
for each of the three and nine months ended September 30, 1998 and $2.2 million
and $7.2 million for the three and nine months ended September 30, 1999,
respectively. At September 30, 1999 we had approximately $14.1 million remaining
to be amortized over the corresponding vesting period of each respective option,
generally four years. The amortization expense relates to options granted to
employees and directors.
From inception to December 31, 1998, we have incurred significant losses
and, as of September 30, 1999, we had an accumulated deficit of $11.3 million.
These losses have resulted primarily from our activities to develop our
products, establish brand recognition and to develop our sales channels.
Results of Operations
The following table sets forth selected items from our statement of operations
as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue, net......................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue...................................... 44.4 47.6 45.0 48.6
----- ------ ----- ------
Gross profit........................................ 55.6 52.4 55.0 51.4
----- ------ ----- ------
Operating expenses:
Research and development............................ 5.7 91.9 7.4 84.5
Sales and marketing................................. 17.1 46.8 17.4 56.3
General and administrative.......................... 2.6 9.1 3.4 11.3
Amortization of deferred stock compensation......... 5.8 5.8 9.1 2.8
----- ------ ----- ------
Total operating expenses........................... 31.2 153.6 37.4 154.9
----- ------ ----- ------
Income (loss) from operations........................ 24.4 (101.2) 17.7 103.5
Interest income/expense, net......................... 0.1 3.3 0.1 4.2
----- ------ ----- ------
Income (loss) before provision for income taxes...... 24.5 (97.8) 17.7 (99.3)
Provision for income taxes........................... (9.6) -- (6.2) --
----- ------ ----- ------
Net income (loss).................................... 14.9% (97.8)% 11.6% (99.3)%
===== ====== ===== ======
</TABLE>
Revenue. Revenue increased from $4.0 million for the third quarter of 1998
to $38.9 million for the third quarter of 1999 and from $8.2 million for the
nine months ended September 30, 1998 to $78.4 million for the nine months ended
September 30, 1999. The increase in revenue was primarily due to the
introduction of our BigIron products in the third quarter of 1998 and a greater
demand for our ServerIron products in 1999. Our product introductions coincided
with broad market acceptance of Gigabit Ethernet technology resulting from the
adoption of the Gigabit Ethernet standard in June 1998.
For the nine months ended September 30, 1999, sales to Hewlett-Packard and
America Online accounted for 15.8% and 11.9% of revenue, respectively. Hewlett-
Packard is both an OEM and an end user.
Cost of revenue. Cost of revenue consists primarily of material, labor,
overhead and warranty costs. Cost of revenue increased from $1.9 million for the
third quarter of 1998 to $17.3 million for the third quarter of 1999 and from
$4.0 million for the nine months ended September 30, 1998 to $35.3 million for
the nine months ended September 30, 1999, primarily due to the related increase
in revenue. As a percentage of revenue, cost of revenue decreased from 44.4% for
the third quarter of 1999 to 47.6% for the third quarter of 1998 and from 45.0%
for the nine months ended September 30, 1999 to 48.6% for the nine months ended
September 30, 1998. The decrease as a percentage of revenue is primarily due to
a change in the mix of products sold, production efficiencies and reductions in
material and component costs.
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Gross profit. Gross profit increased from $2.1 million for the third
quarter of 1998 to $21.6 million for the third quarter of 1999 and from $4.2
million for the nine months ended September 30, 1998 to $43.1 million for the
nine months ended September 30, 1999. As a percentage of revenue, gross profit
increased from 52.4% for the third quarter of 1998 to 55.6% for the third
quarter of 1999 and from 51.4% for the nine months ended September 30, 1998 to
55.0% for the nine months ended September 30, 1999. We expect gross profit, as a
percentage of revenue, to fluctuate from period to period primarily due to the
mix of products sold.
Research and development. Research and development expenses consist
primarily of salaries and related personnel expenses, prototype expenses related
to the development of our ASICs, software development and testing costs, and the
depreciation of property and equipment related to research and development
activities. Research and development expenses decreased from $3.7 million for
the third quarter of 1998 to $2.2 million for the third quarter of 1999 and from
$7.0 million for the nine months ended September 30, 1998 to $5.8 million for
the nine months ended September 30, 1999. These decreases were primarily due to
significantly higher prototype and ASIC design costs incurred during 1998
related to the development and launch of our BigIron and FastIron products.
Research and development costs are expensed as incurred. We believe continued
investment in product enhancements and new product development is critical to
attaining our strategic objectives, and as a result, we expect research and
development expenses to continue to increase in absolute dollars.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related expenses for personnel engaged in marketing,
sales and customer support functions, as well as trade shows, advertising,
promotional expenses and the cost of facilities. Sales and marketing expenses
increased from $1.9 million for the third quarter of 1998 to $6.7 million for
the third quarter of 1999 and increased from $4.6 million for the nine months
ended September 30, 1998 to $13.6 million for the nine months ended September
30, 1999. These increases were primarily due to the hiring of additional sales
and marketing personnel, increased sales commissions expense as a result of
significantly higher revenue and increased advertising and marketing efforts. We
expect these expenses to increase significantly in absolute dollars as we
continue to build our field sales and support organizations and expand sales and
marketing activities in the future.
General and administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
administrative personnel, facilities expenses and other general corporate
expenses. General and administrative expenses increased from $365,000 for the
third quarter of 1998 to $1.0 million for the third quarter of 1999 and
increased from $934,000 for the nine months ended September 30, 1998 to $2.7
million for the nine months ended September 30, 1999. These increases were
primarily due to an increase in the allowance for doubtful accounts, the
addition of personnel necessary to support the increase in revenue and other
general corporate expenses consistent with the increased scale of operations. We
expect general and administrative expenses to continue to increase in absolute
dollars as we continue to build the infrastructure necessary to support the
growth of our business and operate as a public company.
Interest income. Interest income is the net result of the interest earned
on the funds we keep on deposit in an interest bearing account less any interest
expense incurred on our revolving bank line of credit and capital lease
obligations. Interest income decreased from $135,000 for the third quarter of
1998 to $47,000 for the third quarter of 1999. For the nine months ended
September 30, 1999, interest income decreased from $348,000 for the nine months
ended September 30, 1998 to $71,000 for the nine months ended September 30,
1999. The decreases were primarily due to the offset of interest expense related
to borrowing on our revolving line of credit against interest earned from cash
balances in our money market account in 1999. During the nine months ended
September 30, 1998, we had no borrowings against our line of credit and had
larger cash balances in an interest bearing account resulting from the proceeds
generated from the sale of preferred stock in March 1998.
Income taxes. We have recorded income tax expense for the nine months ended
September 30, 1999 of $4.8 million. This reflects an effective tax rate of
34.7%, based upon the estimated annualized tax rate.
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Our operating results have varied significantly in the past and revenue and
operating results may vary significantly in the future due to a number of
factors, including: fluctuations in demand for our products and services,
particularly in Europe and Asia; the cancellation or rescheduling of significant
orders; our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions; announcements and
introductions of new products by our competitors and us; our ability to build
infrastructure to support increased growth; our ability to achieve required cost
reductions; our ability to obtain sufficient supplies of single- or limited-
sourced components 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; the mix of products sold and the mix of distribution
channels through which they are sold; and costs relating to possible
acquisitions and integration of technologies or businesses. See "Factors That
May Affect Future Results--We may not meet quarterly financial expectations,
which could cause our stock price to decline" for a discussion of the risk of
fluctuations in operating results.
Liquidity and Capital Resources
Prior to our initial public offering, Foundry financed operations primarily
through the private sales of common and preferred stock and, to a lesser extent,
from a capital equipment lease line and bank line of credit. At September 30,
1999 Foundry had cash and cash equivalents of $19.7 million, which consist of
cash deposited in checking and money market accounts with original maturities of
less than three months. On October 1, 1999, Foundry received cash proceeds, net
of the underwriters' discount, totaling approximately $133.7 million upon the
closing of its initial public offering.
Cash provided by operating activities was $9.4 million for the nine months
ended September 30, 1999. Cash utilized in operating activities was $8.9 million
for the nine months ended September 30, 1998. The cash utilized in 1998 was due
to net losses, as well as working capital required to fund our growth in
operations.
Cash utilized in investing activities was $224,000 for the nine months
ended September 30, 1999 and $321,000 for the nine months ended September 30,
1998. These amounts primarily represent purchases of property and equipment,
specifically computers and electronic test equipment.
Financing activities provided $6.0 million in cash for the nine months
ended September 30, 1999, consisting primarily of proceeds from the exercise of
stock options, the bank line of credit and proceeds from the issuance of
additional shares of redeemable convertible preferred stock, offset by principal
repayments on capital lease obligations. During the nine months ended September
30, 1998, we generated $14.9 million of cash primarily from an equity financing
and the exercise of stock options, offset by principal repayments on capital
lease obligations.
We currently have a bank line of credit that provides for up to $10.0
million in borrowings. We can borrow up to 80% of eligible accounts receivable
against this line, which is collateralized by substantially all of our assets.
This line of credit contains provisions requiring us to maintain certain minimum
financial ratios measured on a monthly basis, and expires in February 2000. As
of September 30, 1999, there have been borrowings of $2.0 million under this
line of credit. In October 1999, we repaid these borrowings in full.
Additionally, the bank has issued a standby letter of credit in the amount of
$1.0 million to one of our contract manufacturers against the line of credit.
As of September 30, 1999, we did not have any material commitments for
capital expenditures. However, we expect to incur capital expenditures as we
expand our operations. Although we do not have any current plans or commitments
to do so, from time to time, we may also consider the acquisition of, or
evaluate investments in, products and businesses complementary to our business.
Any acquisition or investment may require additional capital.
On September 28, 1999, we entered into a lease for approximately 71,000
square feet to serve as our new headquarters and manufacturing facility in San
Jose, CA. Our lease commences on January 1, 2000 and expires on December 31,
2005. The related rent expense will be $131,000 per month.
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We believe that our cash balances and cash proceeds from our initial public
offering will enable us to meet our working capital requirements for at least
the next 12 months. However, 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 acceptable terms.
Year 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. As a result, the networks which incorporate our products and our own
internal networks could fail leading to disruptions in operations and business
activities.
To date, we have not experienced any year 2000 issues with any of our
internal systems or our products, and we do not expect to experience any.
State of Readiness. Our business may be affected by year 2000 issues
arising from our products or related to non-compliant internal systems developed
by us or by third party vendors. Our Chief Financial Officer is responsible for
coordinating and monitoring the status of our year 2000 evaluation and
remediation efforts and reporting the status of our efforts to our board of
directors. To date, we have not discovered any year 2000 problems with our
internal systems. We continue to assess the year 2000 compliance and the
potential effect of remediating the year 2000 problem for any new components of
our internal systems. To date, we have not obtained verification or validation
from any independent third parties of our processes to assess and correct any of
our year 2000 problems.
Our internal Quality Assurance Department has tested our current products
and intends to test any new products or modified versions of our current
products for year 2000 problems. To date, we have not discovered any year 2000
problems with our products. We believe that our products and our architecture
are year 2000 compliant. However, our products are generally integrated into
larger networks involving sophisticated hardware and software products supplied
by other vendors. If the software products of these vendors have year 2000
problems, the performance of our products may be negatively affected. For
example, the software components included in some of our products rely upon
dates generated by other network components which are supplied by other vendors.
Each network in which our products are installed involves different combinations
of third party products. We cannot evaluate whether every product which may
interact with our products is year 2000 compliant. Therefore, we may face claims
based on year 2000 problems in other companies' products or based on year 2000
issues arising from the integration of multiple products within the overall
network. Regardless of the merits of such claims, we may be required to incur
substantial expense and to devote substantial resources to legal proceedings
resulting from such claims. We have represented to our customers, resellers and
our OEM that our products are year 2000 compliant. If this is not true, these
parties may make claims against us for breach of our representations. At this
time, no such claims have been made by companies who have installed our products
in their networks.
We have identified and evaluated approximately 230 personal computers and
servers and 36 software applications, including our enterprise resource planning
system, used in connection with our internal operations that will need to be
evaluated to determine if they must be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. We are
continuing the process of modifying and upgrading systems that have been
assessed as adversely affected, and expect to complete this process before the
occurrence of any material disruption of our business. Of all of our systems,
our most important system to our continuing operations is our enterprise
resource planning software. We have installed the necessary modifications to our
enterprise resource planning software which has been certified by the vendor to
be year 2000 compliant; however, we have not conducted, nor do we plan to
conduct any independent tests to confirm year 2000 compliance of this software.
In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, telephone switches, security systems
and other common devices used in our headquarters and the offices of our
approximately 35 sales representatives, may be affected by the year 2000
problem. To date, we have been able to correct any problems with these systems
relating to year 2000. We currently do not expect any significant problems to
arise with these systems relating to year 2000.
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If our suppliers, customers, resellers, contract manufacturers, service
providers or other third parties fail to correct year 2000 problems in their
products or internal systems, these failures could result in an interruption in,
or failure of, our normal business activities or operations. To date, we believe
all critical components that we obtain from third party suppliers are year 2000
compliant based on letters from our significant suppliers representing that they
are or will be year 2000 compliant. In addition, we are in the process of
evaluating the year 2000 readiness of other parties, including our customers,
resellers, contract manufacturers and service providers. We are checking the web
sites of these parties to determine if they are certifying that they are year
2000 compliant. However, we have not contacted any of these parties. We expect
that we will be able to resolve any significant year 2000 problems with these
parties; however, these parties may not resolve any or all year 2000 problems
before the occurrence of a material disruption to the operation of our business.
Costs. We have funded our year 2000 efforts from operating cash flows and
have not separately accounted for these costs in the past. To date, these costs
have not been material. We will incur additional costs related to our year 2000
efforts for administrative personnel to manage our efforts, engineering
personnel to test and remediate our products and internal systems, sales and
marketing personnel to address customer concerns and outside contractors to
assist in our efforts. Since we have already reviewed the material systems in
our operations which could be affected by the year 2000 problem, we do not
anticipate that these expenses will be material; however, if these expenses are
higher than anticipated, our results of operations and financial condition could
be harmed.
Risks. We believe that it is not possible to determine with complete
certainty that all year 2000 problems affecting us have been identified or
corrected. In addition, no one can accurately predict how many year 2000
problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences are possible:
. a significant number of operational inconveniences and inefficiencies
for us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;
. business disputes and claims for pricing adjustments or penalties due to
year 2000 problems by our customers, resellers and our OEM; and
. a number of serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards of performance, some
of which could result in litigation or contract termination.
Contingency Plans. In the event that year 2000 problems do affect our
business, we have developed contingency plans. These plans include:
. maintaining safety inventory of critical components for our products; and
. providing a twenty-four hour emergency support program for our customers
between December 27, 1999 and January 7, 2000.
Our implementation of our contingency plans could harm our business,
operating results and financial condition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We have a history of losses and may not be profitable in the future.
We have incurred net losses of $2.0 million from inception through December
31, 1996, $9.0 million in 1997 and $9.4 million in 1998. We had net income of
$9.1 million for the nine months ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of $11.3 million. We expect to incur
increased costs and expenses related to:
. sales and marketing, including expansion of our direct sales operation
and distribution channels;
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. product development;
. customer support;
. expansion of our corporate infrastructure; and
. facilities expansion.
Our ability to remain profitable depends on our ability to generate and
sustain substantially higher revenue while maintaining reasonable cost and
expense levels. We may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.
We may not meet quarterly financial expectations, which could cause our stock
price to decline.
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Delays in generating or
recognizing forecasted revenue could cause our quarterly operating results to be
below the expectations of public market analysts or investors, which could cause
the price of our common stock to fall.
We may experience a delay in generating or recognizing revenue for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenue for that quarter and are generally cancelable at any time.
Therefore, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. In addition, the failure to ship
products by the end of a quarter may negatively affect our operating results.
Our reseller agreements typically provide that the reseller may delay scheduled
delivery dates without penalty. Further, our customer purchase orders and
reseller agreements sometimes provide that the customer or reseller may cancel
orders within specified time frames without significant penalty.
We also plan to significantly increase our operating expenses to expand our
sales and marketing efforts, expand our customer support capabilities, finance
increased levels of research and development, build our operational and
administrative infrastructure and obtain a larger facility. We base our
operating expenses on anticipated revenue trends and a high percentage of our
expenses are fixed in the short term. As a result, any shortfall in revenue
relative to our expectations could cause a significant decline in our quarterly
operating results.
Intense competition in the market for network solutions could prevent us from
increasing revenue and sustaining profitability.
The market for network solutions is intensely competitive. In particular,
Cisco maintains a dominant position in this market and several of its products
compete directly with our products.
We also compete with other large public companies, such as 3Com and Nortel
Networks, as well as other smaller public and private companies. Many of our
current and potential competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and larger installed customer
bases than we do. Additionally, we may face competition from unknown companies
and emerging technologies that may offer new LAN, MAN and LAN/WAN solutions to
enterprises and Internet service providers.
In order to remain competitive, we must, among other things, invest
significant resources in developing new products with superior performance at
lower prices than our competitors. We must also enhance our current products and
maintain customer satisfaction. If we fail to do so, our products may not
compete favorably with those of our competitors and our revenue and
profitability could suffer.
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Our ability to increase our revenue depends on expanding our North American
direct sales operation and reseller distribution channels and continuing to
provide excellent customer support.
Our inability to effectively expand, train and retain our domestic sales
and support staff or establish our indirect distribution channels could harm our
ability to grow and increase revenue. Our expansion of our direct sales
operation may not be successfully completed and the cost of our expansion may
exceed the revenue generated. In addition, we have recently increased our sales
force in advance of sales, and if this increase does not result in an increase
in sales, our business may suffer.
If we fail to develop relationships with significant resellers, or if these
resellers are not successful in their sales efforts, sales of our products may
decrease and our operating results would suffer.
We need to increase our customer service and support staff to support new
and existing customers and resellers. The design and installation of networking
products can be complex and our customers, particularly our Internet service
provider customers, require a high level of sophisticated support and services.
Hiring highly trained 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 our products.
If we fail to introduce new products with superior performance in a timely
manner, our ability to sustain and increase our revenue could suffer.
The current life cycle of our products is typically 18 to 24 months. To
remain competitive, we need to introduce new products in a timely manner that
offer substantially greater performance and support a greater number of users
per device, all at lower price points. We have experienced, and may in the
future experience, delays in developing and releasing new products and product
enhancements. This has led to, and may in the future lead to, delayed sales,
increased expenses and lower quarterly revenue than anticipated. During the
development of our products, we have also experienced delays in the prototyping
of our ASICs, which in turn has led to delays in product introductions. In
addition, when we announce new products or product enhancements that have the
potential to replace or shorten the life cycle of our existing products,
customers may defer purchasing our existing products. This could harm our
operating results by decreasing sales, increasing our inventory levels of older
products and exposing us to greater risk of product obsolescence.
We depend on large purchases from a few significant customers, and any loss,
cancellation or delay in purchases by these customers could cause a shortfall in
revenue.
To date, a limited number of customers and resellers have accounted for a
significant portion of our revenue. If any of these customers stop or delay
purchases, our revenue and profitability could suffer. In 1998, Mitsui & Co.
(U.S.A.) accounted for 21% of our revenue. For the nine months ended September
30,1999, sales to Hewlett-Packard and America Online accounted for 15.8% and
11.9% of our revenue, respectively.
While our financial performance depends on large orders from a few
significant customers and resellers, we do not have binding commitments from any
of them. For example:
. our reseller agreements generally do not require minimum purchases;
. our customers can stop purchasing and our resellers can stop marketing
our products at any time;
. our reseller agreements generally are not exclusive and are for one year
terms, with no obligation of the resellers to renew the agreements; and
. our reseller agreements provide for discounts based on expected or
actual volumes of products purchased or resold by the reseller in a
given period.
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Because our expenses are based on our revenue forecasts, a substantial
reduction or delay in sales of our products to, or unexpected returns from
customers and resellers, or the loss of any significant customer or reseller
could harm our business. Although our largest customers may vary from period-to-
period, we anticipate that our operating results for any given period will
continue to depend to a significant extent on large orders from a small number
of customers.
Our success depends upon sales to Internet service providers, whose
unpredictable demands, requirements and business models subject us to potential
adverse revenue fluctuations.
We have recently introduced products specifically targeted at the Internet
service provider market and currently have under development other products to
address their requirements. As a result, our success depends on increased sales
to Internet service providers. Although we expect these sales to increase, we
believe that there are a number of risks arising from doing business with
Internet service providers which may not arise in our relationships with our
other customers, including:
. Internet service providers demonstrate a low level of brand loyalty and
may switch to another supplier which provides superior performance;
. any failure of an Internet service provider's service to its customers,
particularly in the case of our largest Internet service provider
customer, America Online, that is correctly or incorrectly attributed to
our products could lead to substantial negative publicity and undermine
our efforts to increase our sales in both this market and other markets;
. we may lose Internet service provider customers if they fail due to the
highly competitive nature of their business or if they do not survive as
a result of mergers and acquisitions in the Internet service provider
industry; and
. 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.
Due to these factors, we may not successfully increase our penetration of
the Internet service provider market or maintain our current level of sales in
this market.
Hewlett-Packard is a major customer and our sole OEM, and the termination of our
relationship with Hewlett-Packard could harm our business.
For the nine months ended September 30, 1999, Hewlett-Packard, currently
our sole OEM, accounted for 15.8% of our revenue, and we anticipate that it will
continue to account for a significant percentage of our revenue. In addition to
providing revenue through sales of our products to Hewlett-Packard, we believe
that this relationship is important to facilitate broad market acceptance of our
products and enhance our sales, marketing and distribution capabilities.
Therefore, in addition to directly affecting our revenue, the cancellation of
our agreement with Hewlett-Packard could harm our ability to market and sell our
products to potential customers.
In addition, if we were to default under conditions specified in the
agreement, Hewlett-Packard could use our source code to develop and manufacture
competing products. This could harm our performance and ability to compete.
This agreement creates the potential that we and Hewlett-Packard may
compete for sales to the same customer. If this situation occurs, it could harm
our relationship with Hewlett-Packard and also harm our business.
We expect the average selling prices of our products to decrease which may
reduce gross margins or revenue.
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Our industry has experienced rapid erosion of average product selling
prices due to a number of factors, particularly competitive pressures and rapid
technological change. We may experience substantial period-to-period
fluctuations in future operating results due to the erosion of our average
selling prices. We also anticipate that the average selling prices of our
products will decrease in response to competitive pressures, increased sales
discounts, new product introductions by our competitors or other factors.
If we are unable to hire additional qualified personnel as necessary or if we
lose key personnel, we may not be able to successfully manage our business or
achieve our objectives.
We believe our future success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for these personnel
is intense, especially in the San Francisco Bay Area, and we have had difficulty
hiring employees in the timeframe we desire, particularly engineers. We may not
succeed in identifying, attracting and retaining personnel. The loss of the
services of any of our key personnel, the inability to identify, attract or
retain qualified personnel in the future or delays in hiring required personnel,
particularly engineers and sales personnel, could make it difficult for us to
manage our business and meet key objectives, such as timely product
introductions. In addition, companies in the networking industry whose employees
accept positions with competitors frequently claim that competitors have engaged
in unfair hiring practices. We have received one claim like this from another
company and we may receive additional claims in the future. We could incur
substantial costs in defending ourselves against any such claims, regardless of
the merits of such claims.
Our success also depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, finance
and manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success depends on Bobby R. Johnson, Jr.,
President, Chief Executive Officer and Chairman of the Board, and H. Earl
Ferguson, Vice President, Hardware Engineering. We do not have employment
contracts or key person life insurance covering any of our personnel.
Our ability to increase our international sales is subject to a number of risks
we do not control.
Our success will depend, in part, on increasing international sales and
expanding our international operations. Our international sales primarily depend
on our resellers, including Boreal and Mitech in Europe, Mitsui in Japan and
Samsung in Korea. Although we expect international revenue to increase as a
percentage of our total revenue, the failure of our resellers to sell our
products internationally would limit our ability to sustain and grow our
revenue. In particular, our revenue from international sales depends on Mitsui's
ability to sell our products and on the strength of the Japanese economy which
has been weak in recent years.
There are a number of risks arising from our international business,
including:
. potential recessions in economies outside the United States, such as
Japan;
. longer accounts receivable collection cycles;
. difficulties in managing operations across disparate geographic areas;
. difficulties associated with enforcing agreements through foreign legal
systems;
. import or export licensing requirements;
. potential adverse tax consequences; and
. unexpected changes in regulatory requirements.
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Our international sales currently are denominated in U.S. dollars. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive on a price basis in
international markets. In the future, we may elect to invoice some of our
international customers in local currency, which could subject us to
fluctuations in exchange rates between the U.S. dollar and the local currency.
In January 1999, the new "Euro" currency was introduced in European
countries that are part of the European Monetary Union ("EMU"). During 2002, all
EMU countries are expected to completely replace their national currencies with
the Euro. Because a significant amount of uncertainty exists as to the effect
the Euro will have on the marketplace and because all of the final rules and
regulations have not yet been defined and finalized by the European Commission
regarding the Euro currency, we cannot determine the effect this will have on
our business.
Our reliance on single or limited sources for key components may inhibit our
ability to meet customer demand.
We currently purchase several key components used in our products from
single or limited sources and depend on supply from these sources to meet our
needs. Our principal suppliers of key components include Celestica-Asia, Texas
Instruments, Toshiba, Hewlett-Packard, Molex and Intel. We acquire these
components through purchase orders and have no long-term commitments regarding
supply or price from these suppliers. We may encounter shortages and delays in
obtaining components in the future which could impede our ability to meet
customer orders. Our principal limited-sourced components include:
. dynamic and static random access memories, commonly known as DRAMs and
SRAMs;
. printed circuit boards; and
. microprocessors.
We depend on anticipated product orders to determine our material
requirements. Lead times for single- or limited-sourced materials and components
can be as long as six months, vary significantly and depend on factors such as
the specific supplier, contract terms and demand for a component at a given
time. If orders do not match forecasts, we may have either excess or inadequate
inventory of materials and components, which could negatively affect our
operating results and financial condition. From time to time, we have
experienced shortages in allocations of components, resulting in delays in
filling orders.
Our reliance on third-party manufacturing vendors to manufacture our products
may cause a delay in our ability to fill orders.
We currently subcontract substantially all of our manufacturing to two
companies, Celestica-Asia, located in San Jose, California, which assembles and
tests our printed circuit boards, and Hadco Corporation, located in Santa Clara,
California, which assembles and tests our backplane products. We do not have
long-term contracts with either of these manufacturers. We have experienced
delays in product shipments from our contract manufacturers, which in turn
delayed product shipments to our customers. We may in the future experience
similar delays or other problems, such as inferior quality and insufficient
quantity of product, any of which could harm our business and operating results.
We intend to regularly introduce new products and product enhancements, which
will require us to rapidly achieve volume production by coordinating our efforts
with those of our suppliers and contract manufacturers. We attempt to increase
our material purchases, contract manufacturing capacity and internal test and
quality functions to meet anticipated demand. The inability of our contract
manufacturers to provide us with adequate supplies of high-quality products or
the loss of either of our contract manufacturers, or the ability to obtain raw
materials, could cause a delay in our ability to fulfill orders.
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Due to the lengthy sales cycles of some of our products, the timing of our
revenue is difficult to predict and may cause us to miss our revenue
expectations.
Some of our products have a relatively high sales price, and often
represent a significant and strategic decision by an enterprise or Internet
service provider. As a result, the length of our sales cycle in these situations
can be as long as 12 months and may vary substantially from customer to
customer. While our customers are evaluating our products and before they may
place an order with us, we may incur substantial sales and marketing expenses
and expend significant management effort. Consequently, if sales forecasted from
a specific customer for a particular quarter are not realized in that quarter,
we may not meet our revenue expectations.
The timing of the adoption of industry standards may negatively impact
widespread market acceptance of our products.
Our success depends in part on both the adoption of industry standards for
new technologies in our market and our products' compliance with industry
standards. Many technological developments occur prior to the adoption of the
related industry standard. The absence of an industry standard related to a
specific technology may prevent market acceptance of products using the
technology. For example, we introduced Gigabit Ethernet products in May 1997,
over a year prior to the adoption of the industry standard for this technology.
We intend to develop products using other technological advancements, such as 10
Gigabit Ethernet, and may develop these products prior to the adoption of
industry standards related to these technologies. As a result, we may incur
significant expenses and losses due to lack of customer demand, unusable
purchased components for these products and the diversion of our engineers from
future product development efforts. Further, we may develop products that do not
comply with the eventual industry standard, which could hurt our ability to sell
these products. If the industry evolves to new standards, we may not be able to
successfully design and manufacture new products in a timely fashion that meet
these new standards. Even after industry standards are adopted, the future
success of our products depends upon widespread market acceptance of their
underlying technologies.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost sales and be subject to product
liability claims.
Our products are complex and may contain undetected defects or errors,
particularly when first introduced or as new enhancements and versions are
released. Despite our testing procedures, these defects and errors may be found
after commencement of commercial shipments. Any defects or errors in our
products discovered in the future or failures of our customers' networks,
whether caused by our products or another vendors' products could result in :
. negative customer reactions;
. product liability claims;
. negative publicity regarding us and our products;
. delays in or loss of market acceptance of our products;
. product returns;
. lost sales; and
. unexpected expenses to remedy errors.
Continued rapid growth will strain our operations and will require us to incur
costs to upgrade our infrastructure.
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We have experienced rapid growth which has placed, and continues to place,
a significant strain on our resources. Our management team has limited
experience managing rapidly growing companies on a public or private basis. As a
result, we may make mistakes in operating our business, such as inaccurately
forecasting our sales, which may result in unanticipated fluctuations in our
operating results. To accommodate anticipated growth, we must:
. improve existing and implement new operational and financial systems,
procedures and controls;
. hire, train and manage additional qualified personnel, including in the
near future, a significant number of new sales personnel; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
Our current or planned personnel systems, procedures and controls may not
be adequate to support our future operations. Any delay in the implementation of
or disruption in the transition to new or enhanced systems, procedures or
controls, could harm our ability to accurately forecast sales demand, manage our
supply chain and record and report financial and management information on a
timely and accurate basis.
Relocation of our operations to our new facility could disrupt operations.
We have entered into a lease for approximately 71,000 square feet to serve
as our new headquarters and manufacturing facility in San Jose, CA. We expect to
relocate operations to this new facility during the first quarter of 2000. If
not handled appropriately, the transition to the new facility could disrupt our
operations.
Failure to comply with domestic, foreign or international regulations could
prevent us from selling our products.
In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International Telecommunication
Union. If we do not comply with existing or evolving standards and regulations
or if we fail to obtain timely domestic or foreign regulatory approvals or
certificates, we would not be able to sell our products where these standards or
regulations apply, which may prevent us from sustaining our revenue or
maintaining profitability.
We may engage in future acquisitions that could result in the dilution of our
stockholders, cause us to incur substantial expenses and harm our business if we
cannot successfully integrate the acquired business, products, technologies or
personnel.
As part of our business strategy, we may review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in large and immediate
write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
negatively affect our results of operations. Furthermore, acquisitions involve
numerous risks and uncertainties, including:
. difficulties in the assimilation of products, operations, personnel and
technologies of the acquired companies;
. diversion of management's attention from other business concerns;
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. risks of entering geographic and business markets in which we have no or
limited prior experience; and
. potential loss of key employees of acquired organizations.
Although we do not currently have any agreements or plans with respect to
any material acquisitions, we may make acquisitions of complementary businesses,
products or technologies in the future. We may not be able to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future, and our failure to do so could harm our business.
We may need additional capital to fund our future operations which may not be
available to us on favorable terms when required or at all.
We believe that our existing working capital together with the proceeds
from our initial public offering and cash available from credit facilities and
future operations will enable us to meet our working capital requirements for at
least the next 12 months. However, if cash from future operations is
insufficient, or if cash is used for acquisitions or other currently
unanticipated uses, we could be required to raise substantial additional
capital. Additional capital, if required, may not be available on acceptable
terms, or at all. If we are unable to obtain additional capital, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition and operating
results. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, the issuance of such securities could
result in dilution to our existing stockholders. If additional funds are raised
through the issuance of debt securities, these securities would have rights,
preferences and privileges senior to holders of common stock and the terms of
debt securities could impose restrictions on our operations.
Problems arising from use of our products together with other vendors' products
could disrupt our business and harm our financial condition.
Our customers generally use our products together with products from other
vendors. As a result, when problems occur in the network, 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
relation problems.
If we fail to protect our intellectual property, our business and ability to
compete could suffer.
Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We do not own any patents nor do
we have any patent applications pending. We may not have taken actions that
adequately protect our intellectual property rights.
We provide software to customers under license agreements included in the
packaged software. These agreements are not negotiated with or signed by the
licensee, and thus may not be enforceable in some jurisdictions. Despite our
efforts to protect our proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and use
our products or technology. These precautions may not prevent misappropriation
or infringement of our intellectual property. Monitoring unauthorized use of our
products is difficult and the steps we have taken may not prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
We may be subject to intellectual property infringement claims that are costly
to defend and could limit our ability to use certain technologies in the future.
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the networking
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markets have extensive patent portfolios with respect to networking technology,
while we do not currently own any patents or have any patent applications
pending.
We have received a letter from Resonate, Inc. alleging that our ServerIron
products infringe one of its patents. Although we intend to contest this claim
vigorously, these kinds of disputes are subject to inherent uncertainties and,
therefore, we cannot assure you that we will prevail in our objection to this
claim, nor can we assure you that this dispute will not result in litigation or
that an adverse result or judgment will not adversely affect our financial
condition.
From time to time, other third parties, including leading companies, have
asserted against others and may assert against us exclusive patent, copyright,
trademark and other intellectual property rights to technologies and related
standards that are important to us. Third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products. Any of these claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management personnel,
or require us to develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all. If there is a successful claim of
infringement or if we fail to develop non-infringing technology or license the
proprietary rights on a timely basis, our business could be harmed.
Our stock price may be extremely volatile.
Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may cause the market price of our common stock to decline.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market price
of their securities. This litigation could result in substantial costs and a
diversion of management's attention and resources.
Our year 2000 compliance efforts may involve significant time and expense, and
our business could suffer if we, our customers, resellers, suppliers, contract
manufacturers, service providers or other third parties do not adequately
address year 2000 risks.
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks which incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:
. disruption in our customer relationships or in our sales efforts because
of failures of our customers' networks which are correctly or
incorrectly attributed to the non-compliance of our products;
. claims from our customers based on alleged breach of warranties
concerning the year 2000 compliance of our products;
. disruption of our business resulting from failure of systems we use to
run our business;
. disruption of our business resulting from failure of systems used by our
suppliers, customers and potential customers; and
. the potential reduced spending by companies on networking solutions as a
result of significant information systems spending on year 2000
remediation.
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See "Management Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" for more detailed information regarding our year 2000
compliance efforts.
Our executive officers and directors have substantial control over Foundry which
could delay or prevent a merger or other change in control of Foundry.
Our executive officers, directors and entities affiliated with them
beneficially own approximately 48% of our outstanding common stock as of
September 30, 1999. These stockholders, if acting together, would be able to
significantly influence the election of directors and all other matters
requiring approval by our stockholders. This concentration of voting control
could have the effect of delaying or preventing a merger or other change in
control, even if it would benefit our other stockholders.
Some provisions of our charter documents may have anti-takeover effects that
could discourage a change in control, even if an acquisition would be beneficial
to our stockholders.
Some provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire us even if a change of control
would be beneficial to our stockholders.
Future sales of our common stock may depress our stock price.
All of the 5,750,000 shares sold in the initial public offering in October
1999 are freely tradeable. The remaining shares of common stock outstanding are
subject to lock-up agreements that prohibit the sale of shares for 180 days
after September 27, 1999. Immediately after the 180 day lock-up period, the
remaining outstanding shares of our common stock will become available for sale,
subject, in some cases, to the expiration of one-year holding periods and/or the
lapse of our repurchase option. Sales of a substantial number of shares of
common stock in the public market after the expiration of the lock-up and
holding periods could cause the market price of our common stock to decline.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We place our investments with high credit quality
issuers and, by policy, limit the amount of credit exposure to any one issuer or
fund. The portfolio includes only marketable securities with original maturities
of less than 3 months and with active secondary or resale markets to ensure
portfolio liquidity. We have no investments denominated in foreign country
currencies and therefore are not subject to foreign currency risk on such
investments.
Currently, all of our sales and expenses are denominated in U.S. dollars,
with the exception of Canada, and, as a result, we have not experienced
significant foreign exchange gains and losses to date. While we do expect to
effect some transactions in foreign currencies in the next 12 months, we do not
anticipate that foreign exchange gains and losses will be significant. We have
not engaged in foreign currency hedging activities to date.
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PART II
Item 1. Legal Proceedings.
See "Factors that May Affect Future Results - We may be subject to
intellectual property infringement claims that are costly to defend and could
limit our ability to use certain technologies in the future."
Item 2. Changes in Securities and Use of Proceeds.
On September 27, 1999, in connection with our initial public offering,
a Registration Statement on Form S-1 (No. 333-82577) was declared effective by
the Securities and Exchange Commission, pursuant to which 5,750,000 shares of
our common stock were offered and sold for our account at a price of $25.00 per
share, generating gross offering proceeds of $143,750,000. The managing
underwriters were Deutsche Banc Alex. Brown, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, and J.P. Morgan Securities Inc. After deducting
approximately $10,062,500 in underwriting discounts and $1,273,000 in other
related expenses, the net proceeds of the offering were approximately
$132,414,500.
We have not yet used any of the funds from the initial public offering. We
expect to use the net proceeds of the offering for working capital and general
corporate purposes, including increased spending on sales and marketing,
customer support, research and development, expansion of our operational and
administrative infrastructure, and the leasing of additional facilities.
Specific amounts for these purposes have not been determined. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, product lines or products. However, we have no current
plans, agreements or commitments with respect to any such acquisition, and we
are not currently engaged in any negotiations with respect to any such
transaction. Pending these uses, we intend to invest the net proceeds in short-
term, interest-bearing, investment grade securities.
For the three months ended September 30, 1999, we issued 891,188 shares of
common stock pursuant to the exercise of stock options at exercise prices
ranging from $0.0667 to $23.00. All of these stock options were granted under
our 1996 Stock Plan prior to our initial public offering. Our issuance of shares
of our common stock upon the exercise of these options was exempt from
registration pursuant to rule 701 promulgated under the Securities Act of 1933,
as amended.
Upon the closing of our initial public offering on October 1, 1999, all
outstanding shares of our Series A preferred stock (consisting of 8,625,000
shares), Series B preferred stock (consisting of 6,130,425 shares) and Series C
preferred stock (consisting of 7,919,460 shares) were converted on a share-for-
share basis into shares of our common stock in accordance with the terms of each
such series of preferred stock.
Item 3. Defaults Upon Senior Securities. - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Pursuant to a written consent of our stockholders dated August 27, 1999,
our stockholders approved the following matters, all of which were reflected in
our Registration Statement on Form S-1 or documents filed as exhibits thereto:
(a) a three for two forward stock split of our common and preferred stock;
(b) the adoption of the form of Amended and Restated Certificate of
Incorporation to be filed upon completion of our initial public
offering which form, among other things, eliminated the Series A,
Series B and Series C preferred stock, increased the authorized shares
of common stock to a total of 200,000,000 shares, authorized
undesignated preferred stock consisting of 5,000,000 shares,
eliminated the ability of our stockholders
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to take action by written consent, and provided for certain notice
provisions as to the nomination of members to our board of directors
and to provide for certain other matters;
(c) effective upon the effective date of the initial public offering, the
adoption of our 1999 Employee Stock Purchase Plan, the reservation of
750,000 shares of our common stock for issuance under the plan, and an
annual increase to the number of shares reserved for issuance under
the plan in an amount equal to the lesser of: (i) 2% of the shares of
the number of shares of our common stock outstanding on the last day
of the immediately preceding fiscal year, (ii) 750,000 shares, or
(iii) such lesser number of shares as our board of directors may
determine;
(d) effective upon the effective date of the initial public offering, the
adoption of our 1999 Directors' Stock Option Plan and the reservation
of 675,000 shares of common stock for issuance under the plan;
(e) amendments to our 1996 Stock Plan which, among other things, reserved
an additional 3,000,000 shares of common stock for issuance under the
plan and provided for an annual increase to the number of shares
reserved for issuance under the plan in an amount equal to the lesser
of: (i) 3% of the shares of common stock outstanding on the last day
of the immediately preceding fiscal year, (ii) 2,250,000 shares, or
(iii) such lessor number of shares as our board of directors may
determine; and
(f) the selection of Arthur Anderson LLP as our independent auditors.
Holders of 99.3% of our common stock and 100% of our preferred stock
consented to each of the foregoing actions.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.11 - Lease agreement dated September 28, 1999, between
Foundry Networks, Inc. and Legacy Partners Commercial
Inc., for offices located at 2100 Gold Street, San
Jose, CA 95002
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
Immediately following the end of the quarter ended September 30, 1999, we
filed a report on Form 8-K on October 7, 1999 pertaining to our announcement of
preliminary estimates of revenues for the quarter ended September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUNDRY NETWORKS, INC.
(Registrant)
By: /s/ TIMOTHY D. HEFFNER
------------------------------------
Timothy D. Heffner
Vice President, Finance and
Administration, Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: November 12, 1999
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EXHIBIT INDEX
-------------
10.11 Lease agreement dated September 28, 1999, between Foundry Networks,
Inc., and Legacy Partners Commercial Inc., for offices located at 2100
Gold Street, San Jose, CA 95002
27.1 Financial Data Schedule
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EXHIBIT 10.11
Lease Agreement
Basic Lease Information
Lease Date: September 28, 1999
Landlord: WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
Landlord's Address: c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404-1167
Tenant: Foundry Networks, Inc.,
a California corporation
Tenant's Address: 2100 Gold Street
San Jose, California 95002
Premises: 70,755 rentable square feet as shown on Exhibit A
Premises Address: 2100 Gold Street
San Jose, California 95002
Building : Building A, consisting of 70,755 rentable square
feet
(Park's tax parcels): APN 015-34-27, 015-34-28, 015-34-77, 015-34-78
Park: Legacy Tech Park@237: Approximately 302,186 rentable square feet
Term((P)2): January 1, 2000 ("Commencement Date"), through
December 31, 2005 ("Expiration Date")
Base Rent ((P)3): No Dollars ($0.00) per month commencing January 1,
2000 through March 31, 2000.
Advance Rent ((P)3): Seventy One Thousand and 00/100 Dollars
($71,000.00).
Adjustments to Base Rent: Effective April 1, 2000, the Base Rent shall
increase to $71,000.00 per month ($1.003 per
rentable sf) Effective July 1, 2000, the Base Rent
shall increase to $127,359.00 per month ($1.80 per
rentable sf) Effective January 1, 2001, the Base
Rent shall increase to $131,816.57 per month
($1.863 per rentable sf) Effective January 1, 2002,
the Base Rent shall increase to $136,430.14 per
month ($1.928 per rentable sf) Effective January 1,
2003, the Base Rent shall increase to $141,205.20
per month ($1.996 per rentable sf) Effective
January 1, 2004, the Base Rent shall increase to
$146,147.38 per month ($2.065 per rentable sf)
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Effective January 1, 2005, the Base Rent shall
increase to $151,274.19 per month ($2.138 per
rentable sf)
Notwithstanding the foregoing Annual Adjustment
Dates, the actual Annual Adjustments to Base Rent
shall occur on the annual anniversary of the
Commencement Date.
Security Deposit ((P)4): One Hundred Sixty Nine Thousand One Hundred Four
and 00/100 Dollars ($169,104.00) subject to Section
4 herein.
*Tenant's Share of Operating Expenses ((P)6.1): 23.41% of the Park
*Tenant's Share of Tax Expenses ((P)6.2): 23.41% of the Park
*Tenant's Share of Common Area Utility Costs ((P)7): 23.41% of the Park
*Tenant's Share of Utility Expenses ((P)7): 100% of the Building
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
Permitted Uses ((P)9): The Premises shall be used solely for sales, marketing,
design, research and development, light manufacturing,
office and administration of networking equipment
products and for no other purposes without Landlord's
prior written consent, but only to the extent permitted
by the City of San Jose and all agencies and
governmental authorities having jurisdiction thereof.
Unreserved
Parking Spaces: Two hundred forty (240) non-exclusive and non-designated
spaces
Broker ((P)38): Cornish & Carey Commercial for Tenant
BT Commercial for Landlord
Exhibits: Exhibit A - Premises, Building and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Covenants, Conditions and
Restrictions (Intentionally omitted)
Exhibit E - Hazardous Materials Disclosure
Certificate - Example
Exhibit F - Change of Commencement Date - Example
Exhibit G - Tenant's Initial Hazardous Materials
Disclosure Certificate
Exhibit H - Sign Criteria
Exhibit I - Subordination, Non-Disturbance and
Attornment Agreement
Addenda: Addendum 1: Option to Extend the Lease
Addendum 2: Right of First Refusal
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Table of Contents
Section Page
1. Premises......................................................... 1
2. Occupancy; Adjustment of Commencement Date....................... 1
3. Rent............................................................. 3
4. Security Deposit................................................. 3
5. Condition of Premises; Improvements.............................. 4
6. Additional Rent.................................................. 4
7. Utilities and Services........................................... 8
8. Late Charges..................................................... 9
9. Use of Premises.................................................. 10
10. Alterations; Surrender of Premises............................... 11
11. Repairs and Maintenance.......................................... 13
12. Insurance........................................................ 14
13. Waiver of Subrogation............................................ 16
14. Limitation of Liability and Indemnity............................ 16
15. Assignment and Subleasing........................................ 17
16. Ad Valorem Taxes................................................. 19
17. Subordination.................................................... 19
18. Right of Entry................................................... 20
19. Estoppel Certificate............................................. 20
20. Tenant's Default................................................. 21
21. Remedies for Tenant's Default.................................... 22
22. Holding Over..................................................... 23
23. Landlord's Default............................................... 24
24. Parking.......................................................... 24
25. Sale of Premises................................................. 24
26. Waiver........................................................... 24
27. Casualty Damage.................................................. 25
28. Condemnation..................................................... 26
29. Environmental Matters/Hazardous Materials........................ 26
30. Financial Statements............................................. 29
31. General Provisions............................................... 30
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32. Signs............................................................ 31
33. Mortgagee Protection............................................. 32
34. Quitclaim........................................................ 32
35. Modifications for Lender (Intentionally omitted)................. 32
36. Warranties of Tenant............................................. 32
37. Compliance with Americans with Disabilities Act.................. 33
38. Brokerage Commission............................................. 33
39. Confidentiality.................................................. 34
40. Quiet Enjoyment.................................................. 34
41. Landlord's Ability to Perform Tenant's Unperformed Obligations... 34
42. Collateral for Performance of Lease Obligations.................. 34
43. Satellite Dish................................................... 36
44. Tenant's Ability to Perform Landlord's Unperformed Obligations... 37
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NNN R&D Development Landlord TI
Lease Agreement
Date: The Basic Lease Information set forth on Page 1 and this Lease are
and shall be construed as a single instrument.
1. Premises
Landlord hereby leases the Premises to Tenant upon the terms and conditions
contained herein. Tenant shall have the right to use, on a non-exclusive basis,
parking areas and ancillary facilities located within the Common Areas of the
Park, subject to the terms of this Lease. Tenant further agrees that the
number of rentable square feet of the Building and the Park may subsequently
change during the Term of this Lease commensurate with any physical
modifications by Landlord, and Tenant's Share shall accordingly change. In
addition, Tenant shall have the exclusive use of the loading dock area located
between the Building and Building B, as outlined on Exhibit A attached hereto.
2. Occupancy; Adjustment of Commencement Date
2.1 If on the Commencement Date, Landlord has not delivered possession
of the Premises with the Tenant Improvements Substantially Completed (as defined
in Exhibit B hereto), Landlord shall not be subject to any liability nor shall
the validity of the Lease be affected; provided, however, the Lease Term and the
obligation to pay Rent, except as set forth in the Basic Lease Information,
shall commence on the date on which Landlord has Substantially Completed the
Tenant Improvements in accordance with the provisions of Exhibit B hereto and
the annual Adjustments to Base Rent shall be adjusted accordingly.
Notwithstanding the foregoing, in the event Landlord cannot deliver to Tenant
possession of the Premises with all Tenant Improvements Substantially Complete
(as defined in Exhibit B) by February 1, 2000 ("Outside Date") (subject to Force
Majeure Delays and Tenant Delays, as such terms are defined in Exhibit B, in
which event the Outside Date shall be extended commensurately by the period of
time attributable to such delays), Tenant shall receive a credit against Base
Rent equal to one (1) day's Base Rent for each day beyond the Outside Date that
possession of the Premises is delivered to Tenant with the Tenant Improvements
Substantially Complete, but Landlord shall neither be subject to any other
liability nor shall the validity of the Lease be affected. In the event Landlord
is unable to obtain a building permit ("Permit") for the Tenant Improvements on
or before December 31, 1999, then, following such date,
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Landlord may terminate this Lease upon written notice delivered to Tenant by
January 10, 2000. Tenant acknowledges and agrees that Tenant's sole and
exclusive remedy for Landlord's failure to deliver possession of the Premises to
Tenant with the Tenant Improvements Substantially Complete on or before the
Outside Date (whether due to the failure of Landlord to Substantially Complete
the Tenant Improvements, to obtain the Permit or otherwise) shall be to accept a
credit to Base Rent equal to one (1) day of Base Rent for each day beyond the
Outside Date that possession of the Premises is delivered to Tenant with the
Tenant Improvements Substantially Complete, provided however, the maximum credit
to Tenant for any delay due to not receiving the initial building permit from
the City of San Jose as scheduled, shall be thirty (30) days. Upon Landlord's
delivery to Tenant of possession of the Premises with the Tenant Improvements
Substantially Complete, Tenant shall promptly deliver written notice to Landlord
confirming same (however, any failure by Tenant to deliver to Landlord such
written notice shall not affect the effectiveness of this Lease). If the
commencement date and/or the expiration date of this Lease is other than the
Commencement Date and/or Expiration Date specified herein, Landlord and Tenant
shall execute a written amendment to this Lease, substantially in the form of
Exhibit F hereto, wherein the parties shall specify the actual commencement
date, expiration date and the date on which Tenant is to commence paying Rent.
The word "Term" whenever used herein refers to the initial term of this Lease
and any extension thereof.
2.2 Within three (3) business days after the Substantial Completion of
the Tenant Improvements, representatives of Landlord and Tenant shall make a
joint inspection of the Tenant Improvements and the results of such inspection
shall be set forth in a written list specifying the incomplete items as well as
those items for which corrections need to be made (the "Punchlist Items").
Landlord and Tenant shall promptly (by no later than three (3) business days
thereafter) and in good faith approve the written list of Punchlist Items.
Landlord shall use commercially reasonable efforts to cause the Punchlist Items
to be promptly completed and/or corrected, as applicable. The performance of
the work associated with the Punchlist Items shall be performed in such a manner
so as not to preclude or substantially prevent Tenant's ability to conduct its
operations in the Premises. Upon the completion of the Punchlist Items, to
Tenant's reasonable satisfaction, Tenant shall immediately notify Landlord in
writing that such items have been completed to Tenant's reasonable satisfaction.
In addition to the Punchlist Items, Landlord shall also use commercially
reasonable efforts to cause the general contractor to correct any other
deficiencies or defects in the Tenant Improvements during the thirty (30) day
period following Substantial Completion of the Tenant Improvements. Except as
set forth below, if Tenant fails to timely deliver to Landlord any such written
notice of the aforementioned deficiencies or defects within said 30-day period,
Landlord shall have no obligation to perform any such work thereafter. Landlord
and the General Contractor (as defined in Exhibit B) shall provide Tenant with a
customary warranty for the Tenant Improvements for a period of one (1) year
following Substantial Completion; provided, however, any claim by Tenant under
said warranty against General Contractor must be made by Tenant in writing
within said one (1) year period and must include the specific nature of the
problem. Tenant shall have the right , together with Landlord, to concurrently
enforce any warranties made by the General Contractor or material suppliers in
favor of Landlord with respect to the construction of the Tenant Improvements.
In addition, Tenant shall be subrogated to the
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rights of Landlord against the General Contractor to the extend Tenant has paid
amounts to Landlord to correct defects or deficiencies in the construction of
the Tenant Improvements.
2.3 If, at any time, Tenant is in material default of any term,
condition or provision of this Lease beyond any applicable cure period, any such
waiver by Landlord of Tenant's requirement to pay Rent shall be null and void
and Tenant shall immediately pay to Landlord all Rent so waived by Landlord.
3. Rent
On the date that Tenant executes this Lease, Tenant shall deliver to
Landlord the original executed Lease, the Advance Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Rent),
the Security Deposit, and all insurance certificates evidencing the insurance
required to be obtained by Tenant under Section 12 of this Lease. Tenant agrees
to pay Landlord the Base Rent, without prior notice or demand, abatement,
offset, deduction or claim, in advance at Landlord's Address on the Commencement
Date and thereafter on the first (1st) day of each month throughout the balance
of the Term of the Lease. In addition to the Base Rent, Tenant shall pay
Landlord in advance on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease, as
Additional Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, and Utility Expenses. The term "Rent" whenever used herein
refers to the aggregate of all these amounts. The Rent for any fractional part
of a calendar month at the commencement or termination of the Lease Term shall
be a prorated amount of the Rent for a full calendar month based upon the
actual number of days in such month. The prorated Rent shall be paid on the
Commencement Date and the first day of the calendar month in which the date of
expiration or termination occurs, as the case may be.
4. Security Deposit
Simultaneously with Tenant's execution and delivery of this Lease, Tenant
shall deliver to Landlord, as a Security Deposit for the performance by Tenant
of its obligations under this Lease, the amount specified in the Basic Lease
Information. If Tenant is in material default, Landlord may, but without
obligation to do so, use the Security Deposit, or any portion thereof, to cure
the material default or to compensate Landlord for all damages sustained by
Landlord resulting from Tenant's default. Tenant shall, immediately on demand,
pay to Landlord a sum equal to the portion of the Security Deposit so applied or
used so as to replenish the amount of the Security Deposit held to increase such
deposit to the amount initially deposited with Landlord. In the event Tenant
has materially defaulted more than three (3) times during the Term, Landlord
may require an increase in the amount of the Security Deposit required hereunder
for the then balance of the Lease Term to an amount equal to two (2) times the
amount of the Security Deposit set forth in the Basic Lease Information and
Tenant shall, immediately on demand, pay to Landlord additional sums in the
amount of such increase. Within thirty (30) days after the expiration or
earlier termination of this Lease, Landlord shall return the Security Deposit to
Tenant, less such amounts as are reasonably necessary to remedy Tenant's
material default(s) hereunder or to otherwise restore and repair the Premises to
a clean and safe condition, reasonable wear and tear excepted. If the cost to
restore and repair the Premises exceeds the amount of the Security Deposit,
Tenant shall promptly deliver to Landlord any and all of such excess sums as
reasonably determined by Landlord. Landlord shall not be required to keep the
Security Deposit separate from other funds, and, unless otherwise required by
law, Tenant shall not be entitled to interest on the Security Deposit. In no
event or circumstance shall Tenant have the right to any use of the Security
Deposit and, specifically, Tenant may not use the Security Deposit as a credit
or to otherwise offset any payments required hereunder, including, but not
limited to, Rent or any portion thereof. In the event Landlord draws down the
Letter of Credit in an amount which exceeds the amounts required to cure
Tenant's material defaults under this Lease, such excess amounts shall be
treated at
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Landlord's option, either (i) as part of the Security Deposit for purposes of
this Lease or (ii) be returned to the Issuer of the Letter of Credit. The Letter
of Credit shall be amended to reflect the addition of such amounts to the Letter
of Credit and Tenant shall, as required by Section 42 of this Lease, provide
Landlord with a new or additional Letter of Credit such that Landlord shall hold
an original Letter of Credit in an amount equal to the Letter of Credit
originally delivered to Landlord.
5. Condition of Premises; Improvements
Tenant hereby agrees to accept the Premises upon Landlord's Substantial
Completion of the Tenant Improvements as suitable for Tenant's intended use and
as then being in good operating order, condition and repair in its then "AS IS"
condition, except for the (i) correction of any Punchlist Items in accordance
with the provisions of Section 2.2 hereof, (ii) the thirty (30) day period
referenced in 2.2 above with respect to defects or deficiencies, and (iii) and
Landlord shall deliver the electrical, plumbing and HVAC systems in good working
conditions for a period of ninety (90) days. The Tenant Improvements (as such
term is defined in Exhibit B hereto) shall be installed by Landlord in
accordance with the terms, conditions, criteria and provisions set forth in
Exhibit B. Except as otherwise expressly set forth in this Lease, by taking
possession of the Premises with the Tenant Improvements Substantially Completed,
Tenant shall be deemed to have then accepted the Premises in good, clean and
completed condition and state of repair. Landlord and Tenant hereby agree to
and shall be bound by the terms, conditions and provisions of Exhibit B. Tenant
acknowledges and agrees that neither Landlord nor any of Landlord's agents,
representatives or employees has made any representations as to the suitability,
fitness or condition of the Premises for the conduct of Tenant's business or for
any other purpose, including without limitation, any storage incidental thereto.
Any exception to the foregoing provisions must be made by express written
agreement by both parties. In addition, Landlord shall provide one roll up door
at Landlord's sole cost and expense in the location shown on Exhibit A.
6. Additional Rent
It is intended by Landlord and Tenant that this Lease be a "triple net
lease." The costs and expenses described in this Section 6 and all other sums,
charges, costs and expenses specified in this Lease other than Base Rent are to
be paid by Tenant to Landlord as additional rent (collectively, "Additional
Rent").
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6.1 Operating Expenses: In addition to the Base Rent set forth in
Section 3, Tenant shall pay Tenant's Share of all Operating Expenses as
Additional Rent. The term "Operating Expenses" as used herein shall mean the
amounts paid or payable by Landlord in connection with the management,
maintenance, repair and operation of the Premises and the Building , and where
applicable, of the Park. These Operating Expenses may include, but are not
limited to, Landlord's cost of:
6.1.1 repairs to, and maintenance of, the non-structural portions of the
roof, the roof membrane and the non-structural elements of the perimeter
exterior walls of the Building;
6.1.2 maintaining the outside paved area, landscaping and other common
areas of the Park. The term "Common Areas" shall mean all areas and facilities
within the Park exclusive of the Premises and the other portions of the Park
leasable exclusively to other tenants. The Common Areas include, but are not
limited to, interior lobbies, mezzanines, parking areas, access and perimeter
roads, sidewalks, rail spurs, landscaped areas and similar areas and facilities;
6.1.3 annual insurance premium(s) for insuring against fire and extended
coverage (including, if Landlord elects, "all risk" or "special purpose"
coverage) and all other insurance, including, but not limited to, earthquake,
flood and/or surface water endorsements for the Building and the Park (including
the Common Areas), rental value insurance against loss of Rent in an amount
equal to the amount of Rent for a period of at least nine (9) months commencing
on the date of loss, and subject to the provisions of Section 27 below, any
deductible;
6.1.4 Landlord's cost of: (i) modifications and/or new improvements to the
Building, the Common Areas and/or the Park occasioned by any rules, laws or
regulations effective subsequent to the Lease Date; (ii) reasonably necessary
replacement improvements to the Building, the Common Areas and the Park after
the Lease Date; and (iii) new improvements to the Building, the Common Areas
and/or the Park to the extent that they reduce operating costs or improve
life/safety conditions, all as reasonably determined by Landlord, in its sole
discretion; provided, however, if any of the foregoing are in the nature of
capital improvements, then the cost of such capital improvements shall be
amortized on a straight-line basis over a reasonable period, which shall be the
period of time specified under generally accepted accounting principles as the
estimated useful life of such modifications, new improvements or replacement
improvements in question (at an interest rate as reasonably determined by
Landlord), and Tenant shall pay Tenant's Share of the monthly amortized portion
of such costs (including interest charges) as part of the Operating Expenses
herein;
6.1.5 preventative maintenance and repair contracts including, but not
limited to, contracts for elevator systems and heating, ventilation and air
conditioning systems, lifts for disabled persons, and trash or refuse
collection, if Landlord elects to so procure;
6.1.6 security and fire protection services for the Building and/or the
Park, as the case may be, if in Landlord's sole but reasonable discretion such
services are provided;
6.1.7 supplies, equipment, rental equipment and other similar items used
in the operation and/or maintenance of the Park;
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6.1.8 the repairs and maintenance items set forth in Section 11.2 below;
6.1.9 any and all levies, charges, fees and/or assessments payable to any
applicable owner's association or similar body; and
6.1.10 the management and administration of all or any portion of the
Premises, the Building, and/or the Park, including without limitation, a
property management fee (based upon a percentage of all Rent, including Tax
Expenses), accounting, auditing, billing, postage, salaries and benefits for
clerical and supervisory employees, whether located on the Park or off-site,
payroll taxes and legal and accounting costs, and all fees, licenses and permits
related to the operation and management of the Park.
Notwithstanding anything to the contrary contained hereon, for purposes of
this Lease, the term "Operating Expenses" shall not include the following:
(a) Costs (including permit, license, and inspection fees) incurred in
renovating improving decorating, painting, or redecorating vacant space or space
for other tenants within the Park;
(b) Costs incurred because Landlord or another tenant actually violated the
terms of any lease for premises within the Building and/or Park;
(c) Legal and auditing fees (other than those fees reasonably incurred in
connection with the maintenance and operation of the Building and/or Park),
leasing commissions, advertising expenses, and other costs incurred in
connection with the original development or original leasing of the Building
and/or Park or future re-leasing of the Building and/or Park;
(e) Any items for which Landlord is actually reimbursed or by direct
reimbursement by any other tenant of the Building or Park;
(f) Costs of repair or other work necessitated by fire, windstorm or other
casualty (excluding any commercially reasonable deductibles) and/or costs of
repair or other work necessitated by the exercise of the right of eminent domain
to the extent insurance proceeds or a condemnation award, as applicable, is
actually received by Landlord for such purposes; provided such costs of repairs
or other work shall be paid by the parties in accordance with the provisions of
Sections 27 and 28 below;
(g) Other than any interest charges for capital improvements referred to in
Section 6.1.4 hereinabove, any interest or payments on any financing for the
Building or the Park, interest and penalties incurred as a result of Landlord's
late payment of any invoice (provided that Tenant pays Tenant's Share of
Operating Expenses and Tax Expenses to Landlord when due as set forth herein),
and any bad debt loss, rent loss or reserves for same;
(h) Costs associated with the investigation and/or remediation of Hazardous
Materials (hereafter defined) present in, on or about the Premises, the Building
or the Park, unless such costs and expenses are the responsibility of Tenant as
provided in Section 29 of this Lease, in which event such costs and expenses
shall be paid solely by Tenant in accordance with the provisions of Section 29
of this Lease;
(i) Costs of correcting defects in the initial design or construction of
the Shell Improvements or the repair or replacement of any original materials
and equipment as a result of such defects
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(collectively, "Defect Costs"), as long as such defects are covered by
warranties from the contractors performing such work and Landlord has actually
received compensation therefor; provided, in the event such Defect Costs and
such Defect Costs constitute capital improvements, are not covered by warranties
and/or Landlord has not received compensation therefor, such Defect Costs shall
be included in Operating Expenses and amortized on the basis set forth in
Section 6.1 of the Lease.
(j) Landlord's cost for the repairs and maintenance items set forth in
Section 11.3 below;
(k) Overhead, fee and profit paid to subsidiaries or affiliates of Landlord
for management services or materials to the extent that the cost of those items
would not have been paid had the services and materials been provided by
unaffiliated parties on a competitive basis; and
(l) Depreciation of the Building or any improvements situated in the Park.
6.2 Tax Expenses: In addition to the Base Rent set forth in Section 3,
Tenant shall pay Tenant's Share of all real property taxes applicable to the
Park and one hundred percent (100%) of all personal property taxes now or
hereafter assessed or levied against the Premises or Tenant's Property (defined
below). Tenant shall also reimburse and pay Landlord, as Additional Rent, within
ten (10) days after demand therefor, one hundred percent (100%) of (i) any
increase in real property taxes attributable to any and all Alterations (defined
below), Tenant Improvements, fixtures, equipment or other improvements of any
kind whatsoever placed in, on or about the Premises for the benefit of, at the
request of, or by Tenant, and (ii) taxes assessed upon or with respect to the
possession, leasing, operation, management, maintenance, repair, use or
occupancy by Tenant of the Premises or any portion of the Building. The term
"Tax Expenses" shall mean and include, without limitation, any form of tax and
assessment (general, special, supplemental, ordinary or extraordinary),
entitlement fees, allocation fees, sewer use fees and/or similar fees or
charges, commercial rental tax, payments under any improvement bond or bonds,
license fees, license tax, business license fee, rental tax, transaction tax or
levy imposed by any authority having the direct or indirect power of tax
(including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement district thereof) as
against any legal or equitable interest of Landlord in the Premises, the
Building or the Park or any other tax, fee, or excise, however described,
including, but not limited to, any value added tax, or any tax imposed in
substitution (partially or totally) of any tax previously included within the
definition of real property taxes, or any additional tax the nature of which was
previously included within the definition of real property taxes. The term "Tax
Expenses" shall not include any (i) franchise, estate, inheritance, net income,
or excess profits tax imposed upon Landlord, (ii) a penalty or fee imposed as a
result of Landlord's failure to pay Tax Expenses when due or (iii) any item
included in Operating Expenses.
6.3 Payment of Expenses: Landlord shall estimate Tenant's Share of the
Operating Expenses and Tax Expenses for the calendar year in which the Lease
commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this
estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and
thereafter on the first (1st) day of each month throughout the remaining months
of such calendar year. Thereafter, Landlord may estimate such expenses as of the
beginning of each calendar year during the Term of this Lease and Tenant shall
pay one-twelfth (1/12th) of such estimated amount as Additional Rent hereunder
on the first (1st) day of each month during such calendar year and for each
ensuing calendar year throughout the Term of this Lease. Tenant's obligation to
pay Tenant's Share of Operating Expenses and Tax Expenses shall survive the
expiration or earlier termination of this Lease.
6.4 Annual Reconciliation: By May 1st of each calendar year, or as soon
thereafter as reasonably possible, Landlord shall furnish Tenant with an
accounting of actual and accrued Operating Expenses and Tax Expenses. Within
thirty (30) days of Landlord's delivery of such
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accounting, Tenant shall pay to Landlord the amount of any underpayment.
Notwithstanding the foregoing, failure by Landlord to give such accounting by
such date shall not constitute a waiver by Landlord of its right to collect any
of Tenant's underpayment at any time. Landlord shall credit the amount of any
overpayment by Tenant toward the next estimated monthly installment(s) falling
due, or where the Term of the Lease has expired, refund the amount of
overpayment to Tenant. If the Term of the Lease expires prior to the annual
reconciliation of expenses Landlord shall have the right to reasonably estimate
Tenant's Share of such expenses, and if Landlord determines that an underpayment
is due, Tenant hereby agrees that Landlord shall be entitled to deduct such
underpayment from Tenant's Security Deposit. If Landlord reasonably determines
that an overpayment has been made by Tenant, Landlord shall refund said
overpayment to Tenant as soon as practicable thereafter. Notwithstanding the
foregoing, failure of Landlord to accurately estimate Tenant's Share of such
expenses or to otherwise perform such reconciliation of expenses, including
without limitation, Landlord's failure to deduct any portion of any underpayment
from Tenant's Security Deposit, shall not constitute a waiver of Landlord's
right to collect any of Tenant's underpayment at any time during the Term of the
Lease or at any time after the expiration or earlier termination of this Lease.
6.5 Audit: After delivery to Landlord of at least thirty (30) days prior
written notice, Tenant, at its sole cost and expense through any accountant
designated by it, shall have the right to examine and/or audit the books and
records evidencing such costs and expenses for the previous one (1) calendar
year, during Landlord's reasonable business hours and not more frequently than
once during any calendar year. Any such accounting firm designated by Tenant may
not be compensated on a contingency fee basis. The results of any such audit
(and any negotiations between the parties related thereto) shall be maintained
strictly confidential by Tenant and its accounting firm and shall not be
disclosed, published or otherwise disseminated to any other party other than to
Landlord and its authorized agents. Landlord and Tenant shall use their best
efforts to cooperate and promptly resolve any discrepancies between Landlord and
Tenant in the accounting of such costs and expenses. If through such audit it is
determined that there is a discrepancy of more than six percent (6%), then
Landlord shall reimburse Tenant for the reasonable accounting costs and expenses
incurred by Tenant in performing such audit including Tenant's in-house or
outside auditors or accountants. However, if through such audit it is determined
that there is a discrepancy of six percent (6%) or less, then Tenant shall
reimburse Landlord for the reasonable accounting costs and expenses associated
with Landlord's in-house auditors or accounting personnel as well as those
reasonable costs and expenses incurred by Landlord for any outside accounting
firms or auditors in connection with such audit within ten (10) days after
receipt of written demand therefor. In the event that any other tenant audits or
reviews Operating Expenses and an adjustment is made such same adjustment shall
be made with respect to Tenant.
7. Utilities and Services
In addition to the Base Rent set forth in Section 3 hereof, Tenant shall
pay the cost of all (i) water, sewer use, sewer discharge fees and sewer
connection fees, gas, electricity, telephone, telecommunications, cabling and
other utilities billed or metered separately to the Premises; and (ii) refuse
pickup and janitorial service to the Premises. Utility Expenses, Common Area
Utility Costs and all other sums or charges set forth in this Section 7 are
considered part of Additional Rent.
7.1 Utility Expenses: For any utility fees, use charges or similar
services that are not billed or metered separately to Tenant, including without
limitation, water charges ("Utility Expenses"), (i) Tenant shall pay to Landlord
Tenant's Share of Utility Expenses, as Additional Rent and (ii) if Landlord
reasonably determines that Tenant's Share is not commensurate with Tenant's use
of such services, Tenant shall pay to Landlord the amount which is attributable
to Tenant's use of the utilities or similar services, as reasonably estimated
and determined by Landlord based upon factors such as size of the Premises and
intensity of use of such utilities by Tenant such that Tenant shall pay the
portion of such charges reasonably consistent with Tenant's use of such
utilities and similar services. If Tenant disputes
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any such estimate or determination, then Tenant shall either pay the estimated
amount or cause the Premises to be separately metered at Tenant's sole expense.
7.2 Common Area Utility Costs: Tenant shall pay to Landlord Tenant's
Share of any Common Area utility costs, fees, charges or expenses ("Common Area
Utility Costs"). Tenant shall pay to Landlord one-twelfth (1/12th) of the
estimated amount of Tenant's Share of the Common Area Utility Costs on the
Commencement Date and thereafter on the first (1st) day of each month throughout
the balance of the Term of this Lease. Any reconciliation thereof shall be
substantially in the same manner as set forth in Section 6.4 above.
7.3 Miscellaneous: Tenant acknowledges that the Premises may become
subject to the rationing of utility services or restrictions on utility use as
required by a public utility company, governmental agency or other similar
entity having jurisdiction thereof. Notwithstanding any such rationing or
restrictions on use of any such utility services, Tenant acknowledges and agrees
that its tenancy and occupancy hereunder shall be subject to such rationing
restrictions as may be imposed upon Landlord, Tenant, the Premises, the
Building, or the Park, and Tenant shall in no event be excused or relieved from
any covenant or obligation to be kept or performed by Tenant by reason of any
such rationing or restrictions. Tenant further agrees to timely and faithfully
pay, prior to delinquency, any amount, tax, charge, surcharge, assessment or
imposition levied, assessed or imposed upon the Premises, or Tenant's use and
occupancy thereof. Notwithstanding anything to the contrary contained herein,
if permitted by applicable Laws, Landlord shall have the right at any time and
from time to time during the Term of this Lease to either contract for service
from a different company or companies (each such company shall be referred to
herein as an "Alternate Service Provider") other than the company or companies
presently providing electricity service for the Building or the Park (the
"Electric Service Provider") or continue to contract for service from the
Electric Service Provider, at Landlord's reasonable discretion. Tenant hereby
agrees to cooperate with Landlord, the Electric Service Provider, and any
Alternate Service Provider at all times and, as reasonably necessary, shall
allow Landlord, the Electric Service Provider, and any Alternate Service
Provider reasonable access to the Building's electric lines, feeders, risers,
wiring, and any other machinery within the Premises. Landlord shall use
Landlord's commercially reasonable efforts to minimize any interruption to
Tenant's business operations in connection with the discontinuation of any
Electric Service Provider and the commencement of service by an Alternative
Service Provider and Landlord shall give Tenant at least ten (10) days prior
written notice of the date of any such discontinuation and commencement.
8. Late Charges
Any and all sums or charges set forth in this Section 8 are considered part
of Additional Rent. Tenant acknowledges that late payment (the fourth (4th)
day of each month or any time thereafter) by Tenant to Landlord of Base Rent,
Tenant's Share of Operating Expenses, Tax Expenses, Common Area Utility Costs,
and Utility Expenses or other sums due hereunder, will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any note secured by any encumbrance against
the Premises, and late charges and penalties due to the late payment of taxes
and expenses with respect to the Premises. Therefore, if any installment of
Rent or any other sum due from Tenant is not received by Landlord within three
(3) days of the date when due, Tenant shall promptly pay to Landlord an
additional sum equal to seven percent (7%) of such delinquent amount plus
interest on such delinquent amount at the rate equal to the prime rate plus
three percent (3%) for the time period such payments are delinquent as a late
charge for every month or portion thereof that such sums remain unpaid. If
Tenant
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delivers to Landlord a check for which there are not sufficient funds, Landlord
may, at its sole option, require Tenant to replace such check with a cashier's
check for the amount of such check and all other charges payable hereunder. The
parties agree that this late charge and the other charges referenced above
represent a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. Acceptance of any late charge or other
charges shall not constitute a waiver by Landlord of Tenant's default with
respect to the delinquent amount, nor prevent Landlord from exercising any of
the other rights and remedies available to Landlord for any other breach of
Tenant under this Lease. If a late charge or other charge becomes payable for
any three (3) installments of Rent within any twelve (12) month period, then
Landlord, at Landlord's sole option, can either require the Rent be paid
quarterly in advance, or be paid monthly in advance by cashier's check or by
electronic funds transfer. Notwithstanding anything to the contrary contained
herein, if Tenant is late in making any of the payments described in this
Section 8 to Landlord hereunder in any two (2) instances during the Term of this
Lease, then Landlord hereby waives the requirement that Tenant pay to Landlord a
late charge for such late payments.
9. Use of Premises
9.1 Compliance with Laws, Recorded Matters, and Rules and Regulations:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed so long as the proposed use (i) does not involve the use of Hazardous
Materials other than as expressly permitted under the provisions of Section 29
below, (ii) does not require any additional parking in excess of the parking
spaces already allotted to Tenant pursuant to the provisions of Section 24 of
this Lease, and (iii) is compatible and consistent with the other uses then
being made in the Park and in other similar types of buildings in the vicinity
of the Park, as reasonably determined by Landlord. The use of the Premises by
Tenant and its employees, representatives, agents, invitees, licensees,
subtenants, customers or contractors (collectively, "Tenant's Representatives")
shall be subject to, and at all times in compliance with, (a) any and all
applicable laws, ordinances, statutes, orders and regulations as same exist from
time to time (collectively, the "Laws"), (b) any and all documents, easements,
covenants, conditions and restrictions, and similar instruments, each of which
has been or hereafter is recorded in any official or public records with respect
to the Premises, the Building and/or the Park, or any portion thereof
(collectively, the "Recorded Matters"), and (c) any and all rules and
regulations set forth in Exhibit C, attached to and made a part of this Lease,
any other reasonable rules and regulations promulgated by Landlord now or
hereafter enacted relating to parking and the operation of the Premises, the
Building, and the Park, and any and all rules, restrictions and/or regulations
imposed by any applicable owners association or similar entity or body
(collectively, the "Rules and Regulations"); provided, none of the Recorded
Matters which are subsequently recorded after the Lease Date shall materially
and adversely affect Tenant's use and/or business operations at the Premises
(excluding any liens related to any mortgage, deed of trust or similar type of
security interest (but still subject to the terms of Section 17). Tenant agrees
to comply with the provisions of the Rules and Regulations adopted by the
Landlord; provided, however, that such Rules and Regulations shall be enforced
equally as to all tenants located in the Building. Additionally, Landlord
agrees not to adopt any Rule or Regulation which adversely and materially
affects the use and/or business operations of the Tenant on the Premises.
Landlord shall use reasonable efforts to ensure other tenants comply with the
Rules and Regulations (provided, Landlord shall not be required to institute or
prosecute litigation or expend more than nominal amounts in connection with such
efforts. Tenant agrees to, and
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does hereby, assume full and complete responsibility to ensure that the
Premises, including without limitation, the Tenant Improvements, are adequate to
fully meet the needs and requirements of Tenant's intended operations of its
business within the Premises, and Tenant's use of the Premises is in compliance
with all applicable Laws throughout the Term of this Lease. Additionally, Tenant
shall be solely responsible for the payment of all costs, fees and expenses
associated with any modifications, improvements or alterations to the Premises,
Building, the Common Areas and/or the Park required by the enactment of, or
changes to, any Laws after the Lease Date and arising from Tenant's particular
use of the Premises or alterations, improvements or additions made to the
Premises regardless of when such Laws became effective. Tenant shall not
initiate, submit an application for, or otherwise request, any land use
approvals or entitlements with respect to any portion of the Park, including
without limitation, any variance, conditional use permit or rezoning, without
first obtaining Landlord's prior written consent thereto, which consent may be
given or withheld in Landlord's sole discretion.
9.2 Prohibition on Use: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way increase the existing rate of or affect any policy of
fire or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy. No auctions may be held or otherwise
conducted in, on or about the Premises, the Building, or the Park without
Landlord's written consent thereto, which consent may be given or withheld in
Landlord's sole discretion. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way obstruct or interfere with the
rights of Landlord, other tenants or occupants of the Building and/or other
buildings in the Park. The Premises shall not be used for any unlawful
purpose; nor shall Tenant cause, maintain or permit any private or public
nuisance in, on or about the Premises, Building, Park and/or the Common Areas,
including, but not limited to, any offensive odors, noises, fumes or vibrations.
Tenant shall neither damage or deface or otherwise commit or suffer to be
committed any waste in, upon or about the Premises. Tenant shall not place or
store, nor permit any other person or entity to place or store, any property,
equipment, materials, supplies, personal property or any other items or goods
outside of the Premises nor park any motor vehicles for any period of time
greater than forty eight (48) hours, provided the parking of such motor vehicles
and/or the storage of such property, equipment, materials, supplies and personal
property shall neither violate any Laws, interfere with any other tenants'
operations, not disturb any neighboring properties, tenants or residents nor
interfere with ingress or egress to any portion of the Park. Tenant shall not
permit any animals, including, but not limited to, any household pets, to be
brought or kept in or about the Premises. Tenant shall not install any radio or
television antenna, satellite dish, microwave, loudspeaker or other device on
the roof or exterior walls of the Building. Tenant shall not interfere with
radio, telecommunication, or television broadcasting or reception from or in the
Building or elsewhere. Tenant shall place no loads upon the floors, walls, or
ceilings in excess of the maximum designed load permitted by the applicable
Uniform Building Code or which may damage the Building or outside areas; nor
place any harmful liquids in the drainage systems; nor dump or store waste
materials, refuse or other such materials, or allow such materials to remain
outside the Building area, except for any non-hazardous or non-harmful materials
which may be stored in refuse dumpsters. If Tenant fails to comply with such
Laws, Recorded Matters, Rules and Regulations or the provisions of this Lease,
Landlord shall have the right to collect from Tenant a reasonable sum as a
penalty, in addition to all rights and remedies of Landlord hereunder, including
without limitation, Landlord's costs and expenses, if any, to cure any of such
failures of Tenant, if Landlord, at its sole option, elects to undertake such
cure and such costs and expenses shall be due and owing from Tenant to Landlord
within ten (10) days after Tenant's receipt of written demand therefor.
10. Alterations; Surrender of Premises
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10.1 Alterations: Tenant shall not install any signs, fixtures,
improvements, nor make or permit any other alterations or additions
(individually, an "Alteration", and collectively, the "Alterations") to the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed. However, Tenant shall be permitted to hang
pictures and shelving and perform other similar minor decorating activities and
to perform non-structural alterations not exceeding an aggregate of $25,000
during any calendar year without securing Landlord's prior consent ("Permitted
Improvements"), provided that Tenant (i) complies with all pertinent building
codes and fire, safety and other such governmental regulations, (ii) does not
take any action which could in any way impact the structural, mechanical,
electrical, maintenance, HVAC or plumbing systems of the Premises and/or
exterior appearance of the Building and (iii) submits its plans for such
Alterations to Landlord at least fifteen (15) business days prior to
commencement of such Alterations (except as to minor decorative items and
installations of furniture for which plans are not required). Within ten (10)
business days following Landlord's receipt of Tenant's written notice with
respect to Tenant's performance of any Permitted Improvements and at such time
as Landlord may approve other Alterations, Landlord shall notify Tenant, in
writing, whether or not Landlord will require Tenant to remove such Permitted
Improvements and Alterations from the Premises upon the expiration or earlier
termination of this Lease. If any such Alteration is expressly permitted by
Landlord, Tenant shall deliver at least ten (10) days prior notice to Landlord,
from the date Tenant intends to commence construction, sufficient to enable
Landlord to post a Notice of Non-Responsibility. In all events, Tenant shall
obtain all permits or other governmental approvals prior to commencing any of
such work and deliver a copy of same to Landlord. All Alterations shall be at
Tenant's sole cost and expense, and shall be installed by a licensed contractor
(approved by Landlord) in compliance with all applicable Laws (including, but
not limited to, the ADA as defined herein), Recorded Matters, and Rules and
Regulations. Tenant shall keep the Premises and the property on which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by or on behalf of Tenant. Tenant
shall, prior to construction of any and all Alterations, provide additional
insurance as required, and also such assurances to Landlord, including without
limitation, waivers of lien, surety company performance bonds as Landlord shall
require to assure payment of the costs thereof to protect Landlord, the Building
and the Park from and against any loss from any mechanic's, materialmen's or
other liens.
10.2 Surrender of Premises: At the end of the Term or earlier termination
of this Lease, Tenant shall surrender the Premises to Landlord (a) in good
condition and repair (damage by acts of God, casualty, and normal wear and tear
excepted), but with all interior walls cleaned, any carpets cleaned, all floors
cleaned and waxed, all non-working light bulbs and ballasts replaced and all
roll-up doors and plumbing fixtures in good condition and working order, and (b)
otherwise in accordance with the provisions of Section 29 hereof. Normal wear
and tear shall not include any damage or deterioration to the floors of the
Premises arising from the use of forklifts in, on or about the Premises
(including, without limitation, any marks or stains on any portion of the
floors), and any damage or deterioration that would not have reasonably been
prevented by proper maintenance by Tenant, or Tenant otherwise performing all of
its obligations under this Lease. On or before the expiration or earlier
termination of this Lease, (i) Tenant shall remove all of Tenant's Property (as
hereinafter defined) and Tenant's signage from the Premises, the Building and
the Park and repair any damage caused by such removal, and (ii) Landlord may, by
notice to Tenant given not later than ninety (90) days prior to the Expiration
Date (except in the event of a termination of this Lease prior to the scheduled
Expiration Date, in which event no advance notice shall be required), require
Tenant, at Tenant's expense, to remove any or all Alterations (except those
Permitted Improvements and Alterations of which Landlord has notified Tenant in
writing, at the time set forth in Section 10.1, that Landlord will not require
such removal) and to repair any damage caused by such removal. For purposes
hereof, the term "Tenant's Property" shall mean and refer to all equipment,
trade fixtures, furnishings, goods and personal property of Tenant. Any of
Tenant's Property not so removed by Tenant as required herein shall be deemed
abandoned and may be stored, removed, and disposed of by Landlord at Tenant's
expense, and Tenant waives all claims against Landlord for any damages resulting
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from Landlord's retention and disposition of such property; provided, however,
that Tenant shall remain liable to Landlord for all costs incurred in storing
and disposing of such abandoned property of Tenant. All Tenant Improvements and
Alterations, except those which Tenant is required to remove, shall remain in
the Premises as the property of Landlord. If the Premises are not surrendered at
the end of the Term or earlier termination of this Lease, and in accordance with
the provisions of this Section 10 and Section 29 below, Tenant shall continue to
be responsible for the payment of Rent (as the same may be increased pursuant to
Section 22 below) until the Premises are so surrendered in accordance with said
provisions, and Tenant shall indemnify, defend and hold the Indemnitees
(hereafter defined) harmless from and against any and all damages, expenses,
costs, losses or liabilities arising from any delay by Tenant in so surrendering
the Premises including, without limitation, any damages, expenses, costs, losses
or liabilities arising from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
and damages suffered by Landlord due to lost opportunities to lease any portion
of the Premises to any such succeeding tenant or prospective tenant, together
with, in each case, actual attorneys' fees and costs.
11. Repairs and Maintenance
11.1 Tenant's Repairs and Maintenance Obligations: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at its sole cost and expense, keep and
maintain all parts of the Premises and such portions of the Building and
improvements as are within the exclusive control of Tenant in good, clean and
safe condition and repair, promptly making all necessary repairs and
replacements, whether ordinary or extraordinary, with materials and workmanship
of the same character, kind and quality as the original thereof, all of the
foregoing to the reasonable satisfaction of Landlord including, but not limited
to, repairing any damage caused by Tenant or any of Tenant's Representatives and
replacing any property so damaged by Tenant or any of Tenant's Representatives.
Without limiting the generality of the foregoing, Tenant shall be solely
responsible for promptly maintaining, repairing and replacing (a) all plumbing
work and fixtures exclusively serving the Premises, (b) electrical wiring
systems, fixtures and equipment exclusively serving the Premises, (c) all
interior lighting (including, without limitation, light bulbs and/or ballasts)
and exterior lighting exclusively serving the Premises or adjacent to the
Premises, (d) all glass, windows, window frames, window casements, skylights,
interior and exterior doors, door frames and door closers, (e) all roll-up
doors, ramps and dock equipment, including without limitation, dock bumpers,
dock plates, dock seals, dock levelers and dock lights, (f) all tenant signage,
(g) lifts for disabled persons serving the Premises, (h) security systems,
except to the extent maintained by Landlord, and (i) all partitions, fixtures,
equipment, interior painting, interior walls and floors, and floor coverings of
the Premises and every part thereof (including, without limitation, any demising
walls contiguous to any portion of the Premises). Additionally, Tenant shall be
solely responsible for performance of the regular removal of trash and debris.
11.2 Maintenance by Landlord: Subject to the provisions of Section 11.1,
and further subject to Tenant's obligation under Section 6 to reimburse
Landlord, in the form of Additional Rent, for Tenant's Share of the cost and
expense of the following described items, Landlord agrees to (i) repair,
maintain and replace the fire protection and sprinkler systems serving the
Premises and all mechanical and heating, ventilation and air conditioning
systems serving the Premises and (ii) repair and maintain the following items:
fire protection services; the roof and roof coverings (provided that Tenant
installs no additional air conditioning or other equipment on the roof that
damages the roof coverings, in which event Tenant shall pay all costs resulting
from the presence of such additional equipment); the plumbing and mechanical
systems serving the Building, excluding the plumbing, mechanical and electrical
systems exclusively serving the Premises; any rail spur and rail crossing;
exterior painting of the Building; and the parking areas, pavement, landscaping,
sprinkler systems, sidewalks, driveways, curbs, and lighting
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systems in the Common Areas. Notwithstanding anything in this Section 11 to the
contrary, Landlord shall have the right to either repair or to require Tenant to
repair any damage to any portion of the Premises, the Building, the Common Areas
and/or the Park caused by or created due to any act, omission, negligence or
willful misconduct of Tenant or any of Tenant Representatives and to restore the
Premises, the Building, the Common Areas and/or the Park, as applicable, to the
condition existing prior to the occurrence of such damage; provided, however,
that in the event Landlord elects to perform such repair and restoration work,
Tenant shall reimburse Landlord within ten (10) days after written demand
therefor for all costs and expenses incurred by Landlord in connection
therewith. Tenant shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair, and failure to so
report such defects shall make Tenant responsible to Landlord for any liability
proximately caused by Tenant's failure to report such condition.
11.3 Landlord's Repairs and Maintenance Obligations: Subject to the
provisions of Sections 11.1, 27 and 28, and except for repairs rendered
necessary by the intentional or negligent acts or omissions of Tenant or any of
Tenant's Representatives, Landlord agrees, at Landlord's sole cost and expense,
to (a) keep in good repair the structural portions of the floors, foundations
and exterior perimeter walls of the Building (exclusive of glass and exterior
doors), and (b) replace the structural portions of the roof of the Building
(excluding the roof membrane). Tenant shall promptly report in writing to
Landlord any defective condition known to it which Landlord is required to
repair, and failure to so report such defects shall make Tenant responsible to
Landlord for any liability proximately caused by Tenant's failure to report such
condition.
11.4 Tenant's Failure to Perform Repairs and Maintenance Obligations:
Tenant shall have no right of access to or right to install any device on the
roof of the Building nor make any penetrations of the roof of the Building
without the express prior written consent of Landlord. If Tenant refuses or
neglects to repair and maintain the Premises and the other areas properly as
required herein , Landlord may, but without obligation to do so, at any time
make such repairs and/or maintenance without Landlord having any liability to
Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures
or other property, or to Tenant's business by reason thereof, except to the
extent any damage is caused by the willful misconduct or gross negligence of
Landlord or its authorized agents and representatives. In the event Landlord
makes such repairs and/or maintenance, upon completion thereof Tenant shall pay
to Landlord, as Additional Rent, within ten (10) days after receipt of written
demand therefor, Landlord's actual costs for making such repairs and/or
maintenance. The obligations of Tenant hereunder shall survive the expiration
of the Term of this Lease or the earlier termination thereof. Tenant hereby
waives any right to repair at the expense of Landlord under any applicable Laws
now or hereafter in effect respecting the Premises.
12. Insurance
12.1 Types of Insurance: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance issued by a carrier or carriers reasonably acceptable to
Landlord and its lender(s) which afford the following coverages: (i) worker's
compensation: statutory limits; (ii) employer's liability, as required by law,
with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii)
commercial general liability insurance (occurrence form) providing coverage
against any and all claims for bodily injury and property damage occurring in,
on or about the Premises arising out of Tenant's and Tenant's Representatives'
use and/or occupancy of the Premises. Such insurance shall include coverage for
blanket contractual liability, fire damage, premises, personal injury, completed
operations, products liability, personal and advertising.
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Such insurance shall have a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000)
aggregate limit and excess/umbrella insurance in the amount of Two Million
Dollars ($2,000,000). If Tenant has other locations which it owns or leases, the
policy shall include an aggregate limit per location endorsement. If necessary,
as reasonably determined by Landlord, Tenant shall provide for restoration of
the aggregate limit; (iv) comprehensive automobile liability insurance: a
combined single limit of not less than $2,000,000 per occurrence and insuring
Tenant against liability for claims arising out of the ownership, maintenance,
or use of any owned, hired or non-owned automobiles; (v) "all risk" or "special
purpose" property insurance, including without limitation, sprinkler leakage,
boiler and machinery comprehensive form, if applicable, covering damage to or
loss of any of Tenant's personal property, trade fixtures, inventory, fixtures
and equipment located in, on or about the Premises, and in addition, coverage
for flood, earthquake, and business interruption of Tenant, together with, if
the property of Tenant's invitees is to be kept in the Premises, warehouser's
legal liability or bailee customers insurance for the full replacement cost of
the property belonging to invitees and located in the Premises. Such insurance
shall be written on a replacement cost basis (without deduction for
depreciation) in an amount equal to one hundred percent (100%) of the full
replacement value of the aggregate of the items referred to in this subparagraph
(v); and (vi) such other insurance or higher limits of liability as is then
customarily required for similar types of buildings within the general vicinity
of the Park or as may be reasonably required by any of Landlord's lenders,
members or partners.
12.2 Insurance Policies: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed Five Thousand
Dollars ($5,000). Tenant shall deliver to Landlord certificates of insurance
and true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hereunder at the time of execution
of this Lease by Tenant. Tenant shall, at least thirty (30) days prior to
expiration of each policy, furnish Landlord with certificates of renewal or
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to modification of the amounts of
coverage except after thirty (30) days prior written notice to the parties named
as additional insureds as required in this Lease (except for cancellation for
nonpayment of premium, in which event cancellation shall not take effect until
at least ten (10) days' notice has been given to Landlord). Landlord and Tenant
shall have the right to provide insurance coverage which it is obligated to
carry pursuant to the terms of this Lease under a blanket insurance policy,
provided such blanket policy expressly affords coverage for the Premises and for
Landlord as required by this Lease.
12.3 Additional Insureds and Coverage: Landlord, Landlord's property
management company or agent, and any of Landlord's lender(s) having a lien
against the Premises, the Building or the Park shall be named as additional
insureds under all of the policies required in Section 12.1(iii) above.
Additionally, such policies shall provide for severability of interest. All
insurance to be maintained by Tenant shall, except for workers' compensation and
employer's liability insurance, be primary, without right of contribution from
insurance maintained by Landlord. Any umbrella/excess liability policy (which
shall be in "following form") shall provide that if the underlying aggregate is
exhausted, the excess coverage will drop down as primary insurance. The limits
of insurance maintained by Tenant shall not limit Tenant's liability under this
Lease. It is contemplated by the parties that the
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risks of loss described in Section 12.1 shall be borne by Tenant's insurance
carriers and not by Landlord's insurance carriers. Notwithstanding anything to
the contrary contained herein, to the extent Landlord's cost of maintaining
insurance with respect to the Building and/or any other buildings within the
Park is increased as a result of Tenant's acts, omissions, alterations,
improvements, use or occupancy of the Premises, Tenant shall pay one hundred
percent (100%) of, and for, such increase(s) as Additional Rent.
12.4 Failure of Tenant to Purchase and Maintain Insurance: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the Term of this Lease, Landlord may, but
without obligation to do so, purchase the necessary insurance and pay the
premiums therefor. If Landlord so elects to purchase such insurance, Tenant
shall promptly pay to Landlord as Additional Rent, the amount so paid by
Landlord, upon Landlord's demand therefor. In addition, Landlord may recover
from Tenant and Tenant agrees to pay, as Additional Rent, any and all losses,
damages and costs which Landlord may sustain by reason of Tenant's failure to
obtain and maintain such insurance.
12.5 Landlord's Insurance: Landlord shall, during the Term of this Lease,
procure and keep in force the following insurance, the cost of which shall be
deemed an Operating Expense under Section 6.1 of this Lease: property insurance
insuring the Building (and Tenant Improvements) and improvements within the Park
and rental value insurance for perils covered by the causes of loss - special
form (all risk) and in addition coverage for flood, earthquake and boiler and
machinery (if applicable). Such coverage (except for flood and earthquake) shall
be written on a replacement cost basis equal to at least eighty percent (80%) of
the full insurable replacement value of the foregoing (excluding costs for
footings and excavation) and shall not cover any Alterations, Tenant's
equipment, trade fixtures, inventory, fixtures or personal property located on
or in the Premises. Additionally, Landlord shall, during the Term of this Lease,
procure and keep in force the following insurance, the cost of which shall be
deemed an Operating Expense under Section 6.1 of this Lease: commercial general
liability insurance (occurrence form) providing coverage against claims for
bodily injury, personal injury and property damage occurring in, on or about the
Common Areas, having a combined single limit of not less than Two Million
Dollars ($2,000,000) per occurrence and in the aggregate.
13. Waiver of Subrogation
Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss of, or damage to, either parties'
property to the extent that such loss or damage is insured by an insurance
policy required to be in effect at the time of such loss or damage. Each party
shall obtain any special endorsements, if required by its insurer whereby the
insurer waives its rights of subrogation against the other party. This
provision is intended to waive fully, and for the benefit of the parties hereto,
any rights and/or claims which might give rise to a right of subrogation in
favor of any insurance carrier. The coverage obtained by Tenant and Landlord
pursuant to Section 12 of this Lease shall include, without limitation, a waiver
of subrogation endorsement attached to the certificate of insurance. The
provisions of this Section 13 shall not apply in those instances in which such
waiver of subrogation would invalidate such insurance coverage or would cause
either party's insurance coverage to be voided or otherwise uncollectible.
14. Limitation of Liability and Indemnity
Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives, Tenant agrees
to protect, defend (with counsel acceptable to Landlord) and hold Landlord and
Landlord's lenders, partners, members, property management company (if other
than Landlord), agents, directors, officers, employees, representatives,
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contractors, shareholders, successors and assigns and each of their respective
partners, members, directors, employees, representatives, agents, contractors,
shareholders, successors and assigns (collectively, the "Indemnitees") harmless
and indemnify the Indemnitees from and against all liabilities, damages, claims,
losses, judgments, charges and expenses (including reasonable attorneys' fees,
costs of court and expenses necessary in the prosecution or defense of any
litigation including the enforcement of this provision) arising from or in any
way related to, directly or indirectly, (i) Tenant's or Tenant's
Representatives' use of the Premises, Building, and/or the Park, (ii) the
conduct of Tenant's business, (iii) from any activity, work or thing done,
permitted or suffered by Tenant in or about the Premises, (iv) in any way
connected with the Premises, the Alterations or with the Tenant's Property
therein, including, but not limited to, any liability for injury to person or
property of Tenant, Tenant's Representatives or third party persons, and/or (v)
Tenant's failure to perform any covenant or obligation of Tenant under this
Lease. Tenant agrees that the obligations of Tenant herein shall survive the
expiration or earlier termination of this Lease.
Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives, to the fullest
extent permitted by law, Tenant agrees that neither Landlord nor any of
Landlord's lender(s), partners, members, employees, representatives, legal
representatives, successors or assigns shall at any time or to any extent
whatsoever be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at any time may
be suffered or sustained by Tenant or by any person(s) whomsoever who may at any
time be using, occupying or visiting the Premises, the Building, or the Park,
including, but not limited to, any acts, errors or omissions by or on behalf of
any other tenants or occupants of the Building and/or the Park. Tenant shall
not, in any event or circumstance, be permitted to offset or otherwise credit
against any payments of Rent required herein for matters for which Landlord may
be liable hereunder. Landlord and its authorized representatives shall not be
liable for any interference with light or air, or for any latent defect (except
for the thirty (30) day period described in Section 2.2 of this Lease) in the
Premises or the Building.
15. Assignment and Subleasing
15.1 Prohibition: Tenant shall not assign, mortgage, hypothecate,
encumber, grant any license or concession, pledge or otherwise transfer this
Lease (collectively, "assignment"), in whole or in part, whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Tenant of all or any portion of the Premises without first
obtaining the prior written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant hereby agrees that Landlord may withhold its
consent to any proposed sublease or assignment if the proposed sublessee or
assignee or its business is subject to compliance with additional requirements
of the ADA (defined below) and/or Environmental Laws (defined below) beyond
those requirements which are applicable to Tenant, unless the proposed sublessee
or assignee shall (a) first deliver plans and specifications for complying with
such additional requirements and obtain Landlord's written consent thereto, and
(b) comply with all Landlord's conditions for or contained in such consent,
including without limitation, requirements for security to assure the lien-free
completion of such improvements. If Tenant seeks to sublet or assign all or any
portion of the Premises, Tenant shall deliver to Landlord at least fifteen (15)
days prior to the proposed commencement of the sublease or assignment (the
"Proposed Effective Date") the following: (i) the name of the proposed assignee
or sublessee; (ii) such information as to such assignee's or sublessee's
financial responsibility and standing as Landlord may reasonably require; and
(iii) the aforementioned plans and specifications, if any. Within ten (10) days
after Landlord's receipt of a written request from Tenant that Tenant seeks to
sublet or assign all or any portion of the Premises, Landlord shall deliver to
Tenant a copy of Landlord's standard form of consent to sublease or assignment
agreement (as applicable), which instrument shall be utilized for each proposed
sublease or assignment (as applicable). Any assignment or sublet agreement shall
include a provision whereby the assignee or sublessee assumes all of Tenant's
obligations hereunder and agrees to be bound by the terms hereof. As Additional
Rent hereunder, Tenant shall pay to Landlord a fee in the amount of
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five hundred dollars ($500) plus Tenant shall reimburse Landlord for actual
legal and other expenses incurred by Landlord in connection with any actual or
proposed assignment or subletting. In the event the sublease or assignment (I)
by itself or taken together with prior sublease(s) or partial assignment(s)
covers or totals, as the case may be, more than twenty-five percent (25%) of the
rentable square feet of the Premises or (2) is for a term which by itself or
taken together with prior or other subleases or partial assignments is greater
than fifty percent (50%) of the period remaining in the Term of this Lease as of
the time of the Proposed Effective Date, then Landlord shall have the right, to
be exercised by giving written notice to Tenant ("Recapture Notice"), to
recapture the space described in the sublease or assignment. If within fifteen
(15) days of Landlord's delivery to Tenant of the Recapture Notice, Tenant does
not deliver to Landlord written notice (the "Tenant's Recapture Rescission
Notice") that Tenant has elected (I) not to consummate such proposed assignment
or sublease, and (II) to rescind the request to enter into such proposed
assignment or sublease, such Recapture Notice shall serve to terminate this
Lease with respect to the proposed sublease or assignment space, or, if the
proposed sublease or assignment space covers all the Premises, it shall serve to
terminate the entire balance of the term of this Lease, in either case, as of
the Proposed Effective Date. However, no termination of this Lease with respect
to part or all of the Premises shall become effective without the prior written
consent, where necessary, of the holder of each deed of trust encumbering the
Premises or any part thereof. If this Lease is terminated pursuant to the
foregoing with respect to less than the entire Premises, the Rent shall be
adjusted on the basis of the proportion of square feet retained by Tenant to the
square feet originally demised and this Lease as so amended shall continue
thereafter in full force and effect. Each permitted assignee or sublessee shall
assume and be deemed to assume this Lease and shall be and remain liable jointly
and severally with Tenant for payment of Rent and for the due performance of,
and compliance with all the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed or complied with, for the term of
this Lease. No assignment or subletting shall affect the continuing primary
liability of Tenant (which, following assignment, shall be joint and several
with the assignee), and Tenant shall not be released from performing any of the
terms, covenants and conditions of this Lease. Tenant hereby acknowledges and
agrees that it understands that Landlord's accounting department may process and
accept Rent payments without verifying that such payments are being made by
Tenant, a permitted sublessee or a permitted assignee in accordance with the
provisions of this Lease. Although such payments may be processed and accepted
by such accounting department personnel, any and all actions or omissions by the
personnel of Landlord's accounting department shall not be considered as
acceptance by Landlord of any proposed assignee or sublessee nor shall such
actions or omissions be deemed to be a substitute for the requirement that
Tenant obtain Landlord's prior written consent to any such subletting or
assignment, and any such actions or omissions by the personnel of Landlord's
accounting department shall not be considered as a voluntary relinquishment by
Landlord of any of its rights hereunder nor shall any voluntary relinquishment
of such rights be inferred therefrom. Except with respect to a Related Entity,
for purposes hereof, in the event Tenant is a corporation, partnership, joint
venture, trust or other entity other than a natural person, any change in the
direct or indirect ownership of Tenant (whether pursuant to one or more
transfers other than the initial public offering of Tenant's common stock or the
subsequent trading of tenant's publicly traded common stock which does not
confer upon any party or parties control over Tenant) which results in a change
of more than fifty percent (50%) in the direct or indirect ownership of Tenant
shall be deemed to be an assignment within the meaning of this Section 15 and
shall be subject to all the provisions hereof. Any and all options, first rights
of refusal, tenant improvement allowances and other similar rights granted to
Tenant in this Lease, if any, shall not be assignable by Tenant unless expressly
authorized in writing by Landlord.
15.2 Excess Sublease Rental or Assignment Consideration: In the event of
any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds the Rent or pro
rata portion of the Rent, as the case may be, for such space reserved in the
Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same
time as the monthly installments of Rent are payable hereunder, fifty percent
(50%) of the excess of each such payment of rent or other consideration in
excess of the Rent called for hereunder.
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15.3 Waiver: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant agrees that Landlord may, at its option, proceed against
Tenant without having taken action against or joined such assignee or sublessee,
except that Tenant shall have the benefit of any indulgences, waivers and
extensions of time granted to any such assignee or sublessee.
15.4 Related Entities: Notwithstanding anything to the contrary contained
in this Section 15, so long as Tenant delivers to Landlord (1) at least fifteen
(15) business days prior written notice of its intention to assign or sublease
the Premises to any Related Entity, which notice shall set forth the name of the
Related Entity, (2) a copy of the proposed agreement pursuant to which such
assignment or sublease shall be effectuated, and (3) such other information
concerning the Related Entity as Landlord may reasonably require, including
without limitation, information regarding any change in the proposed use of any
portion of the Premises and any financial information with respect to such
Related Entity, and so long as (i) any change in the proposed use of the subject
portion of the Premises is in conformance with the uses permitted to be made
under this Lease and do not involve the use or storage of any Hazardous
Materials (other than normal amounts of ordinary household cleaners, office
supplies and janitorial supplies which are not regulated by any Environmental
Laws), and (ii) at the time of the proposed assignment or sublease, the net
profits and financial condition of the Related Entity is reasonably adequate and
sufficient in relation to the then remaining obligations of Tenant under this
Lease, then Tenant may assign this Lease or sublease any portion of the Premises
(X) to any Related Entity, or (Y) in connection with any merger, consolidation
or sale of substantially all of the assets of Tenant, without having to obtain
the prior written consent of Landlord thereto. For purposes of this Lease, the
term "Related Entity" shall mean and refer to any corporation or entity which
controls, is controlled by or is under common control with Tenant, as all of
such terms are customarily used in the industry.
16. Ad Valorem Taxes
Prior to delinquency, Tenant shall pay all taxes and assessments levied
upon trade fixtures, alterations, additions, improvements, inventories and
personal property located and/or installed on or in the Premises by, or on
behalf of, Tenant; and if requested by Landlord, Tenant shall promptly deliver
to Landlord copies of receipts for payment of all such taxes and assessments.
To the extent any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced by Landlord.
17. Subordination
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of Landlord or
any bona fide mortgagee or deed of trust beneficiary with a lien on all or any
portion of the Premises or any ground lessor with respect to the land of which
the Premises are a part, the rights of Tenant under this Lease and this Lease
shall be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or both, and (ii) the
lien of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which the Building, ground leases or underlying
leases, or Landlord's interest or estate in any of said items is specified as
security. Notwithstanding the foregoing, Landlord or any such ground lessor,
mortgagee, or any beneficiary shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. If any ground lease or underlying lease terminates for any reason
or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor to Landlord, attorn to and
become the Tenant of the successor in interest to Landlord, provided such
successor in interest will not disturb Tenant's use, occupancy or quiet
enjoyment of the Premises so long as Tenant is not in default of the terms and
provisions of this Lease. The successor in interest to Landlord following
foreclosure, sale or deed in lieu thereof shall not be (a) liable for any act or
omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (b) subject to any offsets
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or defenses which Tenant might have against any prior lessor; (c) bound by
prepayment of more than one (1) month's Rent, except in those instances when
Tenant pays Rent quarterly in advance pursuant to Section 8 hereof, then not
more than three months' Rent; or (d) liable to Tenant for any Security Deposit
not actually received by such successor in interest to the extent any portion or
all of such Security Deposit has not already been forfeited by, or refunded to,
Tenant. Landlord shall be liable to Tenant for all or any portion of the
Security Deposit not forfeited by, or refunded to Tenant, until and unless
Landlord transfers such Security Deposit to the successor in interest. Tenant
covenants and agrees to execute (and acknowledge if required by Landlord, any
lender or ground lessor) and deliver, within five (5) days of a demand or
request by Landlord and in the form requested by Landlord, ground lessor,
mortgagee or beneficiary, any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust. Tenant's failure to
timely execute and deliver such additional documents shall, at Landlord's
option, constitute a material default hereunder. Tenant hereby acknowledges that
as of the date on which Landlord and Tenant execute this Lease there is a deed
of trust encumbering, and in force against the Premises, the Building and the
Park in favor of Nationsbank, N.A. (the "Current Lender"). Simultaneously with
Tenant's execution of this Lease, Tenant shall sign, notarize and deliver a
subordination, non-disturbance and attornment agreement substantially in the
form of Exhibit I attached hereto, entitled "Subordination, Non-Disturbance and
Attornment Agreement." Landlord shall (i) execute and notarize such agreement
simultaneously with Landlord's execution of this Lease and (ii) cause Current
Lender to execute and notarize such agreement promptly after Landlord's and
Tenant's execution and notarization of such non-disturbance agreement. If
Landlord at any time during the Term of the Lease causes the Premises, the
Building and the Park to be encumbered by a new deed of trust or mortgage
pursuant to which the beneficiary of such deed of trust or mortgage is a party
or entity other than the Current Lender, the parties acknowledge and agree that
the form of any non-disturbance and attornment agreement that may be requested
to be executed and delivered by Tenant in connection therewith will not be the
"Subordination, Non-Disturbance and Attornment Agreement" attached to the Lease
as Exhibit I. Tenant's agreement to subordinate this Lease to any future ground
or underlying lease or any future deed of trust or mortgage pursuant to the
foregoing provisions o this Section 17 is conditioned upon Landlord delivering
to Tenant form the lessor under such future ground or underlying lease or the
holder of any such deed of trust, a non-disturbance agreement agreeing, among
other things, that Tenant's right to possession of the Premises pursuant to the
terms and conditions of this Lease shall not be disturbed provided Tenant is not
in default under this Lease beyond the applicable notice and cure periods
hereunder.
18. Right of Entry
Landlord and its agents shall have the right to enter the Premises at all
reasonable times upon reasonable notice, except in the event of emergency (in
which event no notice shall be required), for purposes of inspection,
exhibition, posting of notices, repair, maintenance and alteration. At
Landlord's option, Landlord shall at all times have and retain a key with which
to unlock all the doors in, upon and about the Premises, excluding Tenant's
vaults and safes. It is further agreed that Landlord shall have the right to
use any and all means Landlord deems necessary to enter the Premises in an
emergency. During the final nine (9) months of the Term, Landlord shall have
the right to place "for rent" or "for lease" signs on the outside of the
Premises, the Building and in the Common Areas. Landlord shall also have the
right to place "for sale" signs on the outside of the Building and in the Common
Areas. Tenant hereby waives any claim from damages or for any injury or
inconvenience to or interference with Tenant's business, or any other loss
occasioned thereby except for any claim for any of the foregoing arising out of
the gross negligence or willful misconduct of Landlord or its authorized
representatives.
19. Estoppel Certificate
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waiver of such default, other than a waiver of timely payment for the particular
Rent payment involved, and shall not prevent Landlord from maintaining an
unlawful detainer or other action based on such breach. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly Rent and other sums due
hereunder shall be deemed to be other than on account of the earliest Rent or
other sums due, nor shall any endorsement or statement on any check or
accompanying any check or payment be deemed an accord and satisfaction; and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or other sum or pursue any other remedy
provided in this Lease. No failure, partial exercise or delay on the part of
the Landlord in exercising any right, power or privilege hereunder shall operate
as a waiver thereof.
27. Casualty Damage
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged by fire or other casualty such that the
Premises and/or the Building cannot, in Landlord's reasonable opinion, be fully
repaired within one hundred eighty (180) days following the date of such damage
(subject to extension for Force Majeure Delays and Tenant Delays), Landlord or
Tenant may terminate this Lease by notifying the other in writing of such
termination within thirty (30) days after the date of Landlord's determination
of the extent of such damage (which determination shall be made within ninety
(90) days after the date of such damage) in which event the Rent shall be abated
as of the date of such damage. If neither party elects to terminate this Lease,
and provided insurance proceeds and any contributions from Tenant, if necessary,
are available to fully repair the damage, Landlord shall within one hundred
twenty (120) days after the date of such damage commence to repair and restore
the Building and shall proceed with reasonable diligence to restore the Building
(except that Landlord shall not be responsible for delays outside its control)
to substantially the same condition in which it was immediately prior to the
happening of the casualty; provided, Landlord shall not be required to rebuild,
repair, or replace any part of the Tenant Improvements (in excess of any
insurance proceeds actually received by Landlord) of Tenant's Property, any
Alterations . Landlord shall not in any event be required to spend for such work
an amount in excess of the insurance proceeds (excluding any deductible) and any
contributions from Tenant, if necessary, actually received by Landlord as a
result of the fire or other casualty. Landlord shall not be liable for any
inconvenience or annoyance to Tenant, injury to the business of Tenant, loss of
use of any part of the Premises by Tenant or loss of Tenant's Property resulting
in any way from such damage or the repair thereof, except that, subject to the
provisions of the next sentence, Landlord shall allow Tenant a fair diminution
of Rent during the time and to the extent the Premises are unfit for occupancy.
Notwithstanding anything to the contrary contained herein, if the Premises or
any other portion of the Building be damaged by fire or other casualty resulting
from the intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, (i) the Rent shall not be diminished during the repair of such
damage to the extent any portion of the Rent is not actually reimbursed to
Landlord from the proceeds of any rental loss insurance procured by Landlord
hereunder, (ii) Tenant shall not have any right to terminate this Lease due to
the occurrence of such casualty or damage, and (iii) Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of all or any
portion of the Building caused thereby (including, without limitation, any
deductible) to the extent such cost and expense is not covered by insurance
proceeds. If the holder of any indebtedness secured by the Premises requires
that the insurance proceeds be applied to such indebtedness, then Landlord shall
have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to Tenant
of any such event, whereupon all rights and obligations shall cease and
terminate hereunder except for those obligations expressly intended to survive
any such termination of this Lease. Except as otherwise provided in this Section
27, Tenant hereby waives the provisions of Sections 1932(2.), 1933(4.), 1941 and
1942 of the California Civil Code.
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28. Condemnation
If twenty-five percent (25%) or more of the Premises is condemned by
eminent domain, inversely condemned or sold in lieu of condemnation for any
public or quasi-public use or purpose ("Condemned"), then Tenant or Landlord may
terminate this Lease as of the date when physical possession of the Premises is
taken and title vests in such condemning authority, and Rent shall be adjusted
to the date of termination. Tenant shall not because of such condemnation
assert any claim against Landlord or the condemning authority for any
compensation because of such condemnation, and Landlord shall be entitled to
receive the entire amount of any award without deduction for any estate of
interest or other interest of Tenant; provided, however, the foregoing
provisions shall not preclude Tenant, at Tenant's sole cost and expense, from
obtaining any separate award to Tenant for loss of or damage to Tenant's trade
fixtures and removable personal property or for damages for cessation or
interruption of Tenant's business provided such award is separate from
Landlord's award and provided further such separate award does not diminish nor
impair the award otherwise payable to Landlord. In addition to the foregoing,
Tenant shall be entitled to seek compensation for the relocation costs
recoverable by Tenant pursuant to the provisions of California Government Code
Section 7262. If neither party elects to terminate this Lease, Landlord shall,
if necessary, promptly proceed to restore the Premises or the Building to
substantially its same condition prior to such partial condemnation, allowing
for the reasonable effects of such partial condemnation, and a proportionate
allowance shall be made to Tenant, as solely determined by Landlord, for the
Rent corresponding to the time during which, and to the part of the Premises of
which, Tenant is deprived on account of such partial condemnation and
restoration. Landlord shall not be required to spend funds for restoration in
excess of the amount received by Landlord as compensation awarded.
29. Environmental Matters/Hazardous Materials
29.1 Hazardous Materials Disclosure Certificate: Prior to executing
this Lease, Tenant has completed, executed and delivered to Landlord Tenant's
initial Hazardous Materials Disclosure Certificate (the "Initial HazMat
Certificate"), a copy of which is attached hereto as Exhibit E and incorporated
---------
herein by this reference. Tenant covenants, represents and warrants to Landlord
that the information on the Initial HazMat Certificate is true and correct and
accurately describes the use(s) of Hazardous Materials which will be made and/or
used on the Premises by Tenant. Tenant shall commencing with the date which is
one year from the Commencement Date and continuing every year thereafter,
complete, execute, and deliver to Landlord, a Hazardous Materials Disclosure
Certificate ("the "HazMat Certificate") describing Tenant's present use of
Hazardous Materials on the Premises, and any other reasonably necessary
documents as requested by Landlord. The HazMat Certificate required hereunder
shall be in substantially the form as that which is attached hereto as Exhibit
-------
E.
- -
29.2 Definition of Hazardous Materials: As used in this Lease, the
term Hazardous Materials shall mean and include (a) any hazardous or toxic
wastes, materials or substances, and other pollutants or contaminants, which are
or become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (f) lead and lead-
containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the Building,
the Park or any surrounding property; or poses or threatens to pose a hazard to
the health and safety of persons on the Premises or any surrounding property.
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29.3 Prohibition; Environmental Laws: Tenant shall not be entitled to
use nor store any Hazardous Materials on, in, or about the Premises, the
Building and the Park, or any portion of the foregoing, without, in each
instance, obtaining Landlord's prior written consent thereto. If Landlord
consents to any such usage or storage, then Tenant shall be permitted to use
and/or store only those Hazardous Materials that are necessary for Tenant's
business and to the extent disclosed in the HazMat Certificate and as expressly
approved by Landlord in writing, provided that such usage and storage is only to
the extent of the quantities of Hazardous Materials as specified in the then
applicable HazMat Certificate as expressly approved by Landlord and provided
further that such usage and storage is in full compliance with any and all
local, state and federal environmental, health and/or safety-related laws,
statutes, orders, standards, courts' decisions, ordinances, rules and
regulations (as interpreted by judicial and administrative decisions), decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which are or become applicable
to Tenant or all or any portion of the Premises (collectively, the
"Environmental Laws"). Tenant agrees that any changes to the type and/or
quantities of Hazardous Materials specified in the most recent HazMat
Certificate may be implemented only with the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion. Tenant
shall not be entitled nor permitted to install any tanks under, on or about the
Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. Landlord shall have the right at all times during the Term of this
Lease to (i) inspect the Premises, (ii) conduct tests and investigations to
determine whether Tenant is in compliance with the provisions of this Section
29, and (iii) request lists of all Hazardous Materials used, stored or otherwise
located on, under or about any portion of the Premises and/or the Common Areas.
The cost of all such inspections, tests and investigations shall be borne solely
by Tenant, if Landlord reasonably determines that Tenant or any of Tenant's
Representatives are directly or indirectly responsible in any manner for any
contamination revealed by such inspections, tests and investigations. The
aforementioned rights granted herein to Landlord and its representatives shall
not create (a) a duty on Landlord's part to inspect, test, investigate, monitor
or otherwise observe the Premises or the activities of Tenant and Tenant's
Representatives with respect to Hazardous Materials, including without
limitation, Tenant's operation, use and any remediation related thereto, or (b)
liability on the part of Landlord and its representatives for Tenant's use,
storage, disposal or remediation of Hazardous Materials, it being understood
that Tenant shall be solely responsible for all liability in connection
therewith.
29.4 Tenant's Environmental Obligations: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the
Premises, the Building or the Park. Notwithstanding the foregoing, Tenant shall
be entitled to respond immediately to an emergency without first obtaining
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
conduct and perform, or cause to be conducted and performed, all closures as
required by any Environmental Laws or any agencies or other governmental
authorities having jurisdiction thereof with respect to any Hazardous Materials
used, stored, spilled, discharged, emitted, released, disposed of, removed
and/or transported by Tenant or Tenant's Representatives. If Tenant fails to so
promptly investigate, clean up, remove, restore, provide closure or otherwise so
remediate, Landlord may, but
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without obligation to do so, take any and all steps necessary to rectify the
same and Tenant shall promptly reimburse Landlord, within ten (10) days after
receipt of written demand therefor, for all costs and expenses to Landlord of
performing investigation, clean up, removal, restoration, closure and
remediation work. All such work undertaken by Tenant, as required herein, shall
be performed in such a manner so as to enable Landlord to make full economic use
of the Premises, the Building and the Park after the satisfactory completion of
such work.
29.5 Tenant's Environmental Indemnity: In addition to Tenant's
obligations as set forth hereinabove, Tenant agrees to, and shall, protect,
indemnify, defend (with counsel acceptable to Landlord) and hold Landlord and
the other Indemnitees harmless from and against any and all claims, judgments,
damages, penalties, fines, liabilities, losses (including, without limitation,
diminution in value of any portion of the Premises, the Building or the Park,
damages for the loss of or restriction on the use of rentable or usable space,
and from any adverse impact of Landlord's marketing of any space within the
Building and/or Park), suits, administrative proceedings and costs (including,
but not limited to, attorneys' and consultant fees and court costs) arising at
any time during or after the Term of this Lease in connection with or related
to, directly or indirectly, the use, presence, transportation, storage,
disposal, migration, removal, spill, release or discharge of Hazardous Materials
on, in or about any portion of the Premises, the Common Areas, the Building or
the Park as a result of the intentional or negligent acts or omissions of
Tenant or any of Tenant's Representatives. Neither the written consent of
Landlord to the presence, use or storage of Hazardous Materials in, on, under or
about any portion of the Premises, the Building and/or the Park, nor the strict
compliance by Tenant with all Environmental Laws shall excuse Tenant from its
obligations of indemnification pursuant hereto. Tenant shall not be relieved of
its indemnification obligations under the provisions of this Section 29.5 due to
Landlord's status as either an "owner" or "operator" under any Environmental
Laws.
29.6 Survival: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition of
all or any portion of the Premises, the Building, and/or the Park is not in
compliance with the provisions of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at the expiration
or earlier termination of this Lease, then in Landlord's sole discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the appearance of such
Hazardous Materials except for reasonable wear and tear, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "reasonable wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building and/or the Park in any manner whatsoever related to
directly, or indirectly, Hazardous Materials. Any such holdover by Tenant will
be with Landlord's consent, will not be terminable by Tenant in any event or
circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease.
29.7 Exculpation of Tenant: Tenant shall not be liable to Landlord for
nor otherwise obligated to Landlord under any provision of the Lease with
respect to the following: (i) any claim, remediation, obligation, investigation,
obligation, liability, cause of action, attorney's fees, consultants' cost,
expense or damage resulting from any Hazardous Materials present in, on or about
the Premises , the Building or Park to the extent not caused or otherwise
permitted, directly or indirectly, by Tenant or Tenant's Representatives; or
(ii) the removal, investigation, monitoring or remediation of any Hazardous
Material present in, on or about the Premises , the Building or Park caused by
any source, including third parties, other than Tenant or Tenant's
Representatives, including but not limited to the conditions described in the
Environmental Report; provided, however, Tenant shall be fully liable for and
otherwise obligated to Landlord under the provisions of this Lease for all
liabilities, costs, damages, penalties,
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claims, judgments, expenses (including without limitation, attorneys' and
experts' fees and costs) and losses to the extent (a) Tenant or any of Tenant's
Representatives contributes to the presence of such Hazardous Materials, or
Tenant and/or any of Tenant's Representatives exacerbates the conditions caused
by such Hazardous Materials, or (b) Tenant and/or Tenant's Representatives
allows or permits persons over which Tenant or any of Tenant's Representatives
has control, and/or for which Tenant or any of Tenant's Representatives are
legally responsible for, to cause such Hazardous Materials to be present in, on,
under, through or about any portion of the Premises, the Common Areas, the
Building or the Park, or (c) Tenant and/or any of Tenant's Representatives does
not take all reasonably appropriate actions to prevent such persons over which
Tenant or any of Tenant's Representatives has control and/or for which Tenant or
any of Tenant's Representatives are legally responsible from causing the
presence of Hazardous Materials in, on, under, through or about any portion of
the Premises, the Common Areas, the Building or the Park.
29.8 Disclosure: Pursuant to the provisions of California Health & Safety
Code Section 25359.7, Landlord hereby discloses to Tenant that as of the Lease
Date certain portions of the Park contain certain Hazardous Materials as such
Hazardous Materials are more particularly described and set forth in that
certain report prepared by CET Environmental Services, entitled Soil Management
Plan for Development and Ongoing Activities Route 237 Assemblage, dated August
27, 1997 (the "Environmental Report"). Landlord acknowledges and agrees that
none of the environmental conditions or presence of Hazardous Materials on, in
or under the Park as described in the Environmental Report have been in any way
caused by Tenant or any of Tenant's Representatives. Tenant hereby acknowledges
and agrees that Landlord has delivered to Tenant a copy of the Environmental
Report prior to Tenant entering into this Lease.
29.9 Landlord's Environmental Indemnity: Landlord agrees to, and shall
protect, indemnify, defend and hold Tenant harmless from and against any and all
claims, judgments, damages, penalties, fines, liabilities, losses, suits,
administrative proceedings, and costs arising at any time during or after the
Term of this Lease in connection with or related to the presence of the
Hazardous Materials disclosed in Section 29.8 above.
30. Financial Statements
Tenant, for the reliance of Landlord, any lender holding or anticipated to
acquire a lien upon any portion of the Premises, the Building, or the Park, or
any prospective purchaser of any portion of the Building, or the Park, within
ten (10) days after Landlord's request therefor, but not more often than once
annually so long as Tenant is not in material default of this Lease, shall
deliver to Landlord the then current audited financial statements of Tenant
(including interim periods following the end of the last fiscal year for which
annual statements are available) which statements shall be prepared or compiled
by a certified public accountant and shall present fairly the financial
condition of Tenant at such dates and the result of its operations and changes
in its financial positions for the periods ended on such dates. If an audited
financial statement has not been prepared, Tenant shall provide Landlord with an
unaudited financial statement and/or such other information, the type and form
of which are acceptable to Landlord in Landlord's reasonable discretion, which
reflects the financial condition of Tenant. If Landlord so requests, Tenant
shall deliver to Landlord an opinion of a certified public accountant, including
a balance sheet and profit and loss statement for the most recent prior year,
all prepared in accordance with generally accepted accounting principles
consistently applied. If Landlord releases or delivers a copy of such
financial statement or any such financial information to any lender of Landlord
or any prospective purchaser of the Building, Landlord shall use commercially
reasonable efforts to advise such parties and require of such parties that they
maintain such financial statements and any such financial information strictly
confidential and not further disseminate the financial statement(s) or any
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such financial information to any other party without first obtaining Tenant's
consent thereto, which consent shall not be unreasonably withheld or delayed;
provided (a) any of Landlord's lenders or partners, (b) any prospective
purchaser of the Premises, and (c) such party(s) as may be required by any laws,
regulations, orders, decrees, court orders or subpoenas
31. General Provisions
31.1 Time. Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.
31.2 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
31.3 Recordation. Tenant shall not record this Lease or a short form
memorandum hereof.
31.4 Landlord's Personal Liability. The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the actual interest of Landlord and its present or future partners or
members in the Premises or the Building, and Tenant agrees to look solely to the
Premises for satisfaction of any liability and shall not look to other assets of
Landlord nor seek any recourse against the assets of the individual partners,
members, directors, officers, shareholders, agents or employees of Landlord
(including without limitation, any property management company of Landlord); it
being intended that Landlord and the individual partners, members, directors,
officers, shareholders, agents and employees of Landlord (including without
limitation, any property management company of Landlord) shall not be personally
liable in any manner whatsoever for any judgment or deficiency. The liability
of Landlord under this Lease is limited to its actual period of ownership of
title to the Building.
31.5 Separability. Any provisions of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provisions hereof and such other provision shall remain in full force and
effect.
31.6 Choice of Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
31.7 Attorneys' Fees. In the event any dispute between the parties
results in litigation or other proceeding, the prevailing party shall be
reimbursed by the party not prevailing for all reasonable costs and expenses,
including, without limitation, reasonable attorneys' and experts' fees and costs
incurred by the prevailing party in connection with such litigation or other
proceeding, and any appeal thereof. Such costs, expenses and fees shall be
included in and made a part of the judgment recovered by the prevailing party,
if any.
31.8 Entire Agreement. This Lease, including the Exhibits hereto,
supersedes any prior agreements, representations, negotiations or correspondence
between the parties, and contains the entire agreement of the parties on matters
covered. No other agreement, statement or promise made by any party, that is
not in writing and signed by all parties to this Lease, shall be binding.
31.9 Warranty of Authority. On the date that Tenant executes this
Lease, Tenant shall deliver to Landlord an original certificate of status for
Tenant issued by the California Secretary of State or statement of partnership
for Tenant recorded in the county in which the Premises are located, as
applicable, and such other documents as Landlord may reasonably request with
regard to the lawful existence of Tenant. Each person executing this Lease on
behalf of a party represents and warrants that (1) such person is duly and
validly authorized to do so on behalf of the entity it purports to so bind, and
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(2) if such party is a partnership, corporation or trustee, that such
partnership, corporation or trustee has full right and authority to enter into
this Lease and perform all of its obligations hereunder. Tenant hereby warrants
that this Lease is valid and binding upon Tenant and enforceable against Tenant
in accordance with its terms.
31.10 Notices. Any and all notices and demands required or permitted
to be given hereunder to Landlord shall be in writing and shall be sent: (a) by
United States mail, certified and postage prepaid; or (b) by personal delivery;
or (c) by overnight courier, addressed to Landlord at 101 Lincoln Centre Drive,
Fourth Floor, Foster City, California 94404-1167. Any and all notices and
demands required or permitted to be given hereunder to Tenant shall be in
writing and shall be sent: (i) by United States mail, certified and postage
prepaid; or (ii) by personal delivery to any employee or agent of Tenant over
the age of eighteen (18) years of age; or (iii) by overnight courier, all of
which shall be addressed to Tenant at the Premises. Notice and/or demand shall
be deemed given upon the earlier of actual receipt or the third day following
deposit in the United States mail. Any notice or requirement of service
required by any statute or law now or hereafter in effect, including, but not
limited to, California Code of Civil Procedure Sections 1161, 1161.1, and 1162
(including any amendments, supplements or substitutions thereof), is hereby
waived by Tenant.
31.11 Joint and Several. If Tenant consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
31.12 Covenants and Conditions. Each provision to be performed by
Tenant hereunder shall be deemed to be both a covenant and a condition.
31.13 Waiver of Jury Trial. The parties hereto shall and they hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other on any matters whatsoever arising
out of or in any way related to this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, the Building, or the Park,
and/or any claim of injury, loss or damage.
31.14 Merger. The voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof by Landlord and Tenant, or
a termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole option of Landlord, (i)
shall terminate all or any existing subleases or subtenancies, or (ii) may
operate as an assignment to Landlord of any or all of such subleases or
subtenancies. Landlord's election of either or both of the foregoing options
shall be exercised by delivery by Landlord of written notice thereof to Tenant
and all known subtenants under any sublease.
32. Signs
All signs and graphics of every kind visible from the exterior of the
Premises shall be subject to Landlord's prior written approval and shall be
subject to and in compliance with any applicable Laws, Development Documents,
Recorded Matters, Rules and Regulations, and Landlord's sign criteria as same
may exist from time to time or as set forth in Exhibit H hereto and made a part
hereof. Tenant shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage or defacement of the Premises; and Tenant shall repair
any damage or defacement, including without limitation, discoloration caused by
such installation or removal. Landlord shall have the right, at its option, to
deduct from the Security Deposit such sums as are reasonably necessary to remove
such signs, including, but not limited to, the costs and expenses associated
with any repairs necessitated by such removal. Notwithstanding the foregoing,
in no event shall any: (a) neon, flashing or moving sign(s) or (b) sign(s) which
shall interfere with the visibility of any sign, awning, canopy, advertising
matter, or
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decoration of any kind of any other business or occupant of the Building, or the
Park be permitted hereunder. Tenant further agrees to maintain any such sign,
awning, canopy, advertising matter, lettering, decoration or other thing as may
be approved in good condition and repair at all times.
33. Mortgagee Protection
Upon any default on the part of Landlord, Tenant will give written notice
by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Premises who has provided Tenant with
notice of their interest together with an address for receiving notice, and
shall offer such beneficiary or mortgagee a reasonable opportunity to cure the
default (which, in no event shall be more than one hundred fifty (150) days),
including time to obtain possession of the Premises by power of sale or a
judicial foreclosure, if such should prove necessary to effect a cure. If such
default cannot be cured within such time period, then such additional time as
may be necessary will be given to such beneficiary or mortgagee to effect such
cure so long as such beneficiary or mortgagee has commenced the cure within the
original time period and thereafter diligently pursues such cure to completion,
in which event this Lease shall not be terminated while such cure is being
diligently pursued. Tenant agrees that each lender to whom this Lease has been
assigned by Landlord is an express third party beneficiary hereof. Tenant shall
not make any prepayment of Rent more than one (1) month in advance without the
prior written consent of each such lender, except if Tenant is required to make
quarterly payments of Rent in advance pursuant to the provisions of Section 8
above. Tenant waives the collection of any deposit from such lender(s) or any
purchaser at a foreclosure sale of such lender(s)' deed of trust unless the
lender(s) or such purchaser shall have actually received and not refunded the
deposit. Tenant agrees to make all payments under this Lease to the lender with
the most senior encumbrance upon receiving a direction, in writing, to pay said
amounts to such lender. Tenant shall comply with such written direction to pay
without determining whether an event of default exists under such lender's loan
to Landlord and Landlord waives and releases Tenant from any liability for
Tenant's compliance with such written direction.
34. Quitclaim
Upon any termination of this Lease, Tenant shall, at Landlord's request,
execute, acknowledge and deliver to Landlord a quitclaim deed of Tenant's
interest in and to the Premises.
35. Modifications for Lender (Intentionally omitted)
36. Warranties of Tenant
Tenant hereby warrants and represents to Landlord, for the express benefit
of Landlord, that Tenant has undertaken a complete and independent evaluation of
the risks inherent in the execution of this Lease and the operation of the
Premises for the use permitted hereby, and that, based upon said independent
evaluation, Tenant has elected to enter into this Lease and hereby assumes all
risks with respect thereto. Tenant hereby further warrants and represents to
Landlord, for the express benefit of Landlord, that in entering into this Lease,
Tenant has not relied upon any statement, fact, promise or representation
(whether express or implied, written or oral) not specifically set forth herein
in writing and that any statement, fact, promise or representation (whether
express or implied, written or oral) made at any time to Tenant, which is not
expressly incorporated herein in writing, is hereby waived by Tenant.
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37. Compliance with Americans with Disabilities Act
Landlord and Tenant hereby agree and acknowledge that the Premises, the
Building and/or the Park may be subject to the requirements of the Americans
with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq,
including, but not limited to Title III thereof, all regulations and guidelines
related thereto, together with any and all laws, rules, regulations, ordinances,
codes and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter. Subject to reimbursement pursuant to
Section 6 of the Lease, if any barrier removal work or other work is required to
the Building, the Common Areas or the Park under the ADA, then such work shall
be the responsibility of Landlord; provided, if such work is required under the
ADA as a result of Tenant's use of the Premises or any work or alteration made
to the Premises by or on behalf of Tenant, then such work shall be performed by
Landlord at the sole cost and expense of Tenant. Except as otherwise expressly
provided in this provision, Tenant shall be responsible at its sole cost and
expense for fully and faithfully complying with all applicable requirements of
the ADA, including without limitation, not discriminating against any disabled
persons in the operation of Tenant's business in or about the Premises, and
offering or otherwise providing auxiliary aids and services as, and when,
required by the ADA. Within ten (10) days after receipt, Landlord and Tenant
shall advise the other party in writing, and provide the other with copies of
(as applicable), any notices alleging violation of the ADA relating to any
portion of the Premises or the Building; any claims made or threatened in
writing regarding noncompliance with the ADA and relating to any portion of the
Premises, or the Building ; or any governmental or regulatory actions or
investigations instituted or threatened regarding noncompliance with the ADA and
relating to any portion of the Premises, or the Building. Tenant shall and
hereby agrees to protect, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless and indemnify the Indemnitees from
and against all liabilities, damages, claims, losses, penalties, judgments,
charges and expenses (including reasonable attorneys' fees, costs of court and
expenses necessary in the prosecution or defense of any litigation including the
enforcement of this provision) arising from or in any way related to, directly
or indirectly, Tenant's or Tenant's Representatives' violation or alleged
violation of the ADA. Tenant agrees that the obligations of Tenant herein shall
survive the expiration or earlier termination of this Lease.
38. Brokerage Commission
Landlord and Tenant each represents and warrants for the benefit of the
other that it has had no dealings with any real estate broker, agent or finder
in connection with the Premises and/or the negotiation of this Lease, except for
the Broker(s) (as set forth on Page 1) (which Brokers shall be paid by Landlord
pursuant to a separate written agreement between Landlord and Brokers), and that
it knows of no other real estate broker, agent or finder who is or might be
entitled to a real estate brokerage commission or finder's fee in connection
with this Lease or otherwise based upon contacts between the claimant and
Tenant. Each party shall indemnify and hold harmless the other from and against
any and all liabilities or expenses arising out of claims made for a fee or
commission by any real estate broker, agent or finder in connection with the
Premises and this Lease other than Broker(s) (which Brokers shall be paid by
Landlord pursuant to a separate written agreement between Landlord and Brokers),
if any, resulting from the actions of the indemnifying party. Any real estate
brokerage commission or finder's fee payable to the Broker(s) in connection with
this Lease shall only be payable and applicable to the extent of the initial
Term of the Lease and to the extent of the Premises as same exist as of the date
on which Tenant executes this Lease. Unless expressly agreed to in writing by
Landlord and Broker(s), no real estate brokerage commission or finder's fee
shall be owed to, or otherwise payable to, the Broker(s)
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for any renewals or other extensions of the initial Term of this Lease or for
any additional space leased by Tenant other than the Premises as same exists as
of the date on which Tenant executes this Lease. Tenant further represents and
warrants to Landlord that Tenant will not receive (i) any portion of any
brokerage commission or finder's fee payable to the Broker(s) in connection with
this Lease or (ii) any other form of compensation or incentive from the
Broker(s) with respect to this Lease.
39. Confidentiality
Language to be provided.
40. Quiet Enjoyment
Landlord covenants with Tenant, upon the paying of Rent and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, and during the periods that Tenant is not otherwise in material default of
any of the terms or provisions of this Lease, and subject to the terms of
Section 17 of this Lease, (i) that Tenant shall and may peaceably and quietly
hold, occupy and enjoy the Premises and the Common Areas during the Term of this
Lease, and (ii) neither Landlord, nor any successor or assign of Landlord, shall
disturb Tenant's occupancy or enjoyment of the Premises and the Common Areas.
41. Landlord's Ability to Perform Tenant's Unperformed Obligations
Notwithstanding anything to the contrary contained in this Lease, if Tenant
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Tenant pursuant to this Lease, and/or if the
failure of Tenant relates to a matter which in Landlord's judgment reasonably
exercised is of an emergency nature and such failure shall remain uncured for a
period of time commensurate with such emergency, then Landlord may, at
Landlord's option without any obligation to do so, and in its sole discretion as
to the necessity therefor, perform any such term, provision, covenant, or
condition, or make any such payment and Landlord by reason of so doing shall not
be liable or responsible for any loss or damage thereby sustained by Tenant or
anyone holding under or through Tenant. If Landlord so performs any of Tenant's
obligations hereunder, the full amount of the cost and expense entailed or the
payment so made or the amount of the loss so sustained shall immediately be
owing by Tenant to Landlord, and Tenant shall promptly pay to Landlord upon
demand, as Additional Rent, the full amount thereof with interest thereon from
the date of payment at the greater of (i) ten percent (10%) per annum, or (ii)
the highest rate permitted by applicable law.
42. Collateral for Performance of Lease Obligations
Simultaneously with Tenant's delivery to Landlord of this Lease and the
first month's Base Rent in accordance with the provisions of Section 3 above,
Tenant shall deliver to Landlord, as collateral for the full and faithful
performance by Tenant of all of its obligations under this Lease and for all
losses and damages Landlord may suffer as a result of any default by Tenant
under this Lease, an irrevocable and unconditional negotiable letter of credit,
in the form and containing the terms required herein, payable in the City of
Foster City, California running in favor of Landlord issued by a solvent bank
under the supervision of the Superintendent of Banks of the State of California,
or a National Banking Association, in the amount of Four Hundred Thirty Five
Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00) (the "Letter of
Credit"). The Letter of Credit shall be (a) at sight and irrevocable, (b)
maintained in effect, whether through replacement, renewal or extension, for the
entire Lease Term (the "Letter of Credit Expiration Date") and Tenant shall
deliver a new Letter of Credit or certificate of renewal or extension to
Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (c) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #400, (d)
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acceptable to Landlord in its sole discretion, and (e) fully assignable by
Landlord and permit partial draws. In addition to the foregoing, the form and
terms of the Letter of Credit (and the bank issuing the same) shall be
acceptable to Landlord, in Landlord's sole discretion, and shall provide, among
other things, in effect that: (1) Landlord, or its then managing agent, shall
have the right to draw down an amount up to the face amount of the Letter of
Credit upon the presentation to the issuing bank of Landlord's (or Landlord's
then managing agent's) statement that Tenant is in material default and such
amount is due to Landlord under the terms and conditions of this Lease, it being
understood that if Landlord or its managing agent be a corporation, partnership
or other entity, then such statement shall be signed by an officer (if a
corporation), a general partner (if a partnership), or any authorized party (if
another entity); (2) the Letter of Credit will be honored by the issuing bank
without inquiry as to the accuracy thereof and regardless of whether the Tenant
disputes the content of such statement; and (3) in the event of a transfer of
Landlord's interest in the Building, Landlord shall transfer the Letter of
Credit, in whole or in part (or cause a substitute letter of credit to be
delivered, as applicable), to the transferee and thereupon the Landlord shall,
without any further agreement between the parties, be released by Tenant from
all liability therefor, and it is agreed that the provisions hereof shall apply
to every transfer or assignment of the whole or any portion of said Letter of
Credit to a new Landlord. If, as a result of any such application of all or any
part of the Letter of Credit, the amount of the Letter of Credit shall be less
than Four Hundred Thirty Five Thousand Nine Hundred Forty-Six and 00/100 Dollars
($435,946.00), Tenant shall within five (5) days thereafter provide Landlord
with additional letter(s) of credit in an amount equal to the deficiency (or a
replacement letter of credit in the total amount of Four Hundred Thirty Five
Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00) and each such
additional (or replacement) letter of credit shall comply with all of the
provisions of this Section 42, and if Tenant fails to do so, the same shall
constitute an incurable default by Tenant. Tenant further covenants and warrants
that it will neither assign nor encumber the Letter of Credit or any part
thereof and that neither Landlord nor its successors or assigns will be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Without limiting the generality of the foregoing, if the Letter of Credit
expires earlier than the Letter of Credit Expiration Date, Landlord will accept
a renewal thereof or substitute letter of credit (such renewal or substitute
letter of credit to be in effect not later than thirty (30) days prior to the
expiration thereof), which shall be irrevocable and automatically renewable as
above provided through the Letter of Credit Expiration Date upon the same terms
as the expiring letter of credit or such other terms as may be acceptable to
Landlord in its sole discretion. However, if the Letter of Credit is not timely
renewed or a substitute letter of credit is not timely received, or if Tenant
fails to maintain the Letter of Credit in the amount and terms set forth in this
Section 42, Landlord shall have the right to present such Letter of Credit to
the bank in accordance with the terms of this Section 42, and the entire sum
evidenced thereby shall be paid to and held by Landlord as collateral for
performance of all of Tenant's obligations under this Lease and for all losses
and damages Landlord may suffer as a result of any default by Tenant under this
Lease. If there shall occur a material default under this Lease as set forth in
Section 20 of this Lease, Landlord may, but without obligation to do so, draw
upon the Letter of Credit, in part or in whole, to cure any default of Tenant
and/or to compensate Landlord for any and all damages of any kind or nature
sustained or which may be sustained by Landlord resulting from Tenant's default.
Tenant agrees not to interfere in any way with payment to Landlord of the
proceeds of the Letter of Credit, either prior to or following a "draw" by
Landlord of any portion of the Letter of Credit, regardless of whether any
dispute exists between Tenant and Landlord as to Landlord's right to draw from
the Letter of Credit. No condition or term of this Lease shall be deemed to
render the Letter of Credit conditional to justify the issuer of the Letter of
Credit in failing to honor a drawing upon such Letter of Credit in a timely
manner. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor be (i) deemed to be or treated as a "security deposit" within the
meaning of California Civil Code Section 1950.7, (ii) subject to the terms of
such Section 1950.7, or (iii) intended to serve as a "security deposit" within
the meaning of such Section 1950.7. The parties hereto (x) recite that the
Letter of Credit is not intended to serve as a security deposit and such Section
1950.7 and any and all other laws, rules and regulations applicable to security
deposits in the commercial context ("Security Deposit Laws") shall have no
applicability or relevancy to the Letter
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of Credit and (y) waive any and all rights, duties and obligations either party
may now or, in the future, will have relating to or arising from the Security
Deposit Laws. Notwithstanding the above, upon Tenant completing an initial
public offering and achieving a market value of $400,000,000.00, such Letter of
Credit shall no longer be required. Tenant shall be required to provide written
documentation outlining Tenant's market valuation for Landlord's review and
acceptance prior to the release and termination of such Letter of Credit.
43. Satellite Dish
Tenant shall have the right (but only to the extent permitted by the City
of San Jose and all agencies and governmental authorities having jurisdiction
thereof), at Tenant's sole cost and expense, to install and operate a satellite
or microwave dish or dishes ("Satellite Dishes") along with any necessary cables
("Cables") on a portion of the roof of the Building to be designated by Landlord
("Roof Space") for the Term of the Lease (the Satellite Dishes and Cables are
hereinafter collectively referred to as the "Equipment"). The location and size
of the Equipment shall be subject to Landlord's approval, not to unreasonably
withheld and which best promotes the safety, aesthetics and efficiency of the
Equipment; provided, all of the Equipment and any modifications thereto or
placement thereof shall be (i) at Tenant's sole cost and expense, (ii) contained
visually within the roof screen, (iii) installed and operated to Landlord's
reasonable specifications, and (iv) installed, maintained, operated and removed
in accordance with all Recorded Matters and applicable Laws. Landlord shall
cooperate reasonably with Tenant to modify the roof screen placement (subject to
all applicable Laws and Recorded Matters) if required for signal quality,
reconfiguration due to the installation of any HVAC systems and other reasonable
considerations; provided, the cost of all such modifications shall be the
responsibility of Tenant. All modifications to the Building, including the Roof
Space, if any, shall be reasonably approved by Landlord prior to commencement of
any work with respect to the Equipment. No additional rent shall be paid by
Tenant for use of the Roof Space and operation of the Equipment. The Equipment
shall remain the property of Tenant and Tenant shall remove the Equipment upon
the expiration or earlier termination of the Lease. Tenant shall restore the
Roof Space and any other portion of the Buildings affected by the Equipment to
its original condition, excepting ordinary wear and tear and/or damage or
destruction due to fire or other casualty not caused directly or indirectly by
Tenant, its agents, employees, contractors or the Equipment or any part thereof.
Tenant may not assign, lease, rent, sublet or otherwise transfer any of its
interest in the Roof Space or the Equipment except together with the remainder
of all of the Premises as more particularly set forth in Section 15. Each of
the other provisions of this Lease shall be applicable to the Equipment and the
use of the Roof Space by Tenant, including without limitation, Sections 12 and
14 of this Lease. The Equipment shall comply with all-non-interference rules of
the Federal Communications Commission. If applicable, Tenant shall provide to
Landlord a copy of (i) the Federal Communications Commission (or other agency)
grant which has awarded frequencies to Tenant and (ii) a list of Tenant's
frequencies. Anything to the contrary contained herein notwithstanding, if,
during the Lease Term, as such Term may be extended, Landlord, in its reasonable
judgment, believes that the Equipment poses a human health or environmental
hazard that cannot be remediated or has not been remediated within ten (10) days
after Tenant has been notified thereof, then Tenant shall immediately cease all
operations of the Equipment and Tenant shall remove all of the Equipment within
thirty (30) days thereafter. To the best of Tenant's knowledge, Tenant
represents to Landlord that the Equipment shall not emit or project any electro-
magnetic fields which pose a human health or environmental hazard. In addition,
Tenant shall be responsible for insuring the Equipment and Landlord shall have
no responsibility therefor. Tenant shall indemnify, defend (by counsel
reasonably acceptable to Landlord) and hold harmless Landlord from any and all
claims, demands, liabilities, damages, judgments, costs and expenses (including
reasonable attorneys' fees) Landlord may suffer or incur arising out of or
related to the installation, use, operation, maintenance, replacement and/or
removal of the Equipment or any portion thereof.
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44. Tenant's Ability to Perform Landlord's Unperformed Obligations
Notwithstanding anything to the contrary contained in this Lease, if
Landlord shall fail to perform any of the terms, provisions, covenants or
conditions to be performed or complied with by Landlord under Section 11.2 of
this Lease with respect only to the Premises (such terms, provisions, covenants
or conditions are referred to herein, collectively as "Landlord Repair
Obligations") after expiration of all applicable notice and cure periods for
Landlord's and any mortgagee's benefit as set forth in Sections 23 and 33,
respectively, then Tenant may, at Tenant's option and risk, but without any
obligation to do so, after delivery of an additional twenty (20) day prior
written notice to Landlord, perform such Landlord Repair Obligations on
Landlord's behalf. If Tenant so performs any of such Landlord Repair
Obligations hereunder, then Tenant will perform such Landlord Repair Obligations
(1) in compliance with all applicable Laws, regulations and requirements to
which Landlord would be subject under this Lease (if Landlord were performing
such Landlord Repair Obligations), (2) in a good workmanlike manner using
materials of a quality and grade at least equal to that in place as of the date
of delivery of the Premises to Tenant, if applicable, (3) without interfering
with the rights of other tenants of the Park, and (4) in compliance with the
terms and provisions of Section 10.1 hereof, as applicable. Tenant will
promptly assign to Landlord any warranties or guaranties in respect of any
Landlord Repair Obligations. If Tenant so performs any of such Landlord Repair
Obligations hereunder, the full amount of the fair and reasonable costs and
expenses incurred by Tenant shall be owing by Landlord to Tenant, and Landlord
shall pay to Tenant the full undisputed amount thereof within sixty (60) days of
Landlord's receipt of Tenant's written demand therefor together with reasonable
evidence verifying the amount of such costs and expenses.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease
Date referenced on Page 1 of this Lease.
Tenant:
Foundry Networks, Inc.,
a California corporation
By: /s/ Timothy D. Heffner
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Its: CFO and Assistant Secretary
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Date: September 30, 1999
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By: /s/ Bobby R. Johnson
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Its: President and CEO
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Date: September 30, 1999
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Landlord:
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: LEGACY PARTNERS COMMERCIAL, INC.,
as manager and agent for WIX/NSJ Real Estate Limited Partnership
By: /s/ Barry DiRaimondo
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Senior Vice President
Date: September 30, 1999
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If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
secretary, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.
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Exhibit A
Premises
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated September 15, 1999 (the "Lease"), by and between
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and Foundry Networks, Inc., a California corporation ("Tenant") for
the leasing of certain premises located at 2100 Gold Street, San Jose,
California (the "Premises").
The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Information. The cross-hatched area depicts the
Premises within the Park:
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Exhibit B to Lease Agreement
Tenant Improvements and Shell Improvements
This exhibit, entitled "Tenant Improvements and Shell Improvements", is and
shall constitute Exhibit B to that certain Lease Agreement, dated for reference
purposes as of September 15, 1999 (the "Lease"), by and between WIX/NSJ REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and
Foundry Networks, Inc., a California corporation ("Tenant") for the leasing of
certain premises located at 2100 Gold Street, San Jose, California (the
"Premises"). The terms, conditions and provisions of this Exhibit B are hereby
incorporated into and are made a part of the Lease. Any capitalized terms used
herein and not otherwise defined herein shall have the meaning ascribed to such
terms as set forth in the Lease.
1. Tenant Improvements. Subject to the conditions set forth below, Landlord
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agrees to construct and install certain improvements ("Tenant Improvements") in
the Building of which the Premises are a part in accordance with the Approved
Final Drawings (defined below) and the terms of this Exhibit B.
2. Definition. "Tenant Improvements" as used in this Lease shall include only
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those interior improvements to be made to the Premises as specified in the
Approved Final Drawings (defined below) and agreed to by Tenant and Landlord in
accordance with the provisions hereof. "Tenant Improvements" shall specifically
not include (i) any alterations, additions or improvements installed or
constructed by Tenant, (ii) any of Tenant's trade fixtures, security equipment,
equipment, furniture, furnishings, telephone and/or data equipment, telephone
and/or data lines or other personal property, and (iii) any supplemental fire
protection improvements or equipment (collectively, "Tenant's Installations").
Landlord shall construct the Tenant Improvements in a good and workmanlike
manner in substantial accordance with the Approved Final Drawings, and in
compliance with the Americans with Disabilities Act as such Act is in effect as
of the Commencement Date.
3. Tenant's Initial Plans; the Work. Tenant desires Landlord to perform
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certain Tenant Improvements in the Premises. The Tenant Improvements shall be in
substantial accordance with the plan(s) and scope of work (collectively, the
"Initial Plans") . The parties shall meet and confer to agree upon a scope of
work immediately after execution of this Lease and, within fifteen (15) business
days from the date Landlord and Tenant meet to discuss the scope of work,
Landlord's Architect shall prepare and deliver to Tenant the Initial Plans. A
copy of the Initial Plans shall be attached hereto as Schedule 1, as soon as
practicable thereafter. Such work, as shown in the Initial Plans and as more
fully detailed in the Approved Final Drawings (as defined and described in
Section 4 below), shall be hereinafter referred to as the "Work". Not later than
five (5) days after the Initial Plans are prepared and delivered to Tenant,
Tenant or Tenant's Representatives shall furnish to Landlord such additional
plans, drawings, specifications and finish details as Landlord may reasonably
request to enable Landlord's architects and engineers, as applicable, to prepare
mechanical, electrical and plumbing plans and to prepare the Final Drawings,
including, but not limited to, a final telephone layout and special electrical
connections, if any. All plans, drawings, specifications and other details
describing the Work which have been, or are hereafter, furnished by or on behalf
of Tenant shall be subject to Landlord's approval, which approval shall not be
unreasonably withheld. Landlord shall not be deemed to have acted unreasonably
if it withholds its approval of any plans, specifications, drawings or other
details or of any Change Request (hereafter defined in Section 11 below)
because, in Landlord's reasonable opinion, the work as described in any such
item or any Change Request, as the case may be: (a) is likely to adversely
affect Building systems, the structure of the Building or the safety of the
Building or its occupants; (b) is likely to impair Landlord's ability to furnish
services to Tenant ; (c) would increase the cost of operating the Park; (d)
would violate any applicable governmental, administrative
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body's or agencies' laws, rules, regulations, ordinances, codes or similar
requirements (or interpretations thereof); (e) contains or uses Hazardous
Materials; (f) would adversely affect the appearance of the Building or the
Park; (g) is likely to adversely affect another tenant's premises or such other
tenant's use and enjoyment of such premises; (h) is prohibited by any ground
lease affecting the Building and/or the Park, any Recorded Matters or any
mortgage, trust deed or other instrument encumbering the Building and/or the
Park; (i) is likely to be substantially delayed because of unavailability or
shortage of labor or materials necessary to perform such work or the
difficulties or unusual nature of such work; (j) is not, at a minimum, in
accordance with Landlord's Building Standards (defined below); (k) would
increase the Tenant Improvement Costs (defined in Section 9 below) by more than
twenty percent (20%) from the cost originally estimated and anticipated by the
parties; or (l) would delay completion of the Final Drawings, the Approved Final
Drawings and/or the Tenant Improvements. The foregoing reasons, however, shall
not be the only reasons for which Landlord may reasonably withhold its approval,
whether or not such other reasons are similar or dissimilar to the foregoing.
Neither the approval by Landlord of the Work, the Initial Plans or any other
plans, specifications, drawings or other items associated with the Work or any
Change Request nor Landlord's performance, supervision or monitoring of the Work
shall constitute any warranty or covenant by Landlord to Tenant of the adequacy
of the design for Tenant's intended use of the Premises. Tenant agrees to, and
does hereby, assume full and complete responsibility to ensure that the design
of the Work and the Approved Final Drawings are adequate to fully meet the needs
and requirements of Tenant's use and intended operations of its business within
the Premises.
4. Final Drawings and Approved Final Drawings. If necessary for the
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performance of the Work, and to the extent not already included as part of the
Initial Plans to be attached hereto, Landlord shall prepare or cause to be
prepared final working drawings and specifications for the Work (the "Final
Drawings") based on and consistent with the Initial Plans and the other plans,
specifications, drawings, finish details or other information furnished by
Tenant or Tenant's Representatives to Landlord and approved by Landlord pursuant
to Section 3 above. Tenant shall cooperate diligently with Landlord and
Landlord's architect, engineer and other representatives and Tenant shall
furnish within five (5) days after any request therefor, all information
required by Landlord or Landlord's architect, engineer or other representatives
for completion of the Final Drawings. So long as the Final Drawings are
substantially consistent with the Initial Plans, Tenant shall approve the Final
Drawings within five (5) days after receipt of same from Landlord. Tenant's
failure to approve or disapprove such Final Drawings within the foregoing five
(5) day time period, shall be conclusively deemed to be disapproval of same by
Tenant and deemed a "Tenant Delay" (as defined herein). If Tenant reasonably
disapproves of any matters included in the Final Drawings because such items are
not substantially consistent with the Initial Plans, Tenant shall, within the
aforementioned five (5) day period, deliver to Landlord written notice of its
disapproval and Tenant shall specify in such written notice, in reasonable
detail the matters disapproved, the reasons for such disapproval, and, if
possible, the specific changes or revisions necessary to be made to the Final
Drawings to cause such drawings to substantially conform to the Initial Plans
(and failure to deliver such notice within such time period shall be a Tenant
Delay). Any additional costs associated with such requested changes or revisions
shall be included as part of the Tenant Improvement Costs (defined below). The
foregoing procedure shall be followed by the parties until the Final Drawings
are acceptable to both Landlord and Tenant. Landlord and Tenant shall indicate
their approval of the Final Drawings by initialing each sheet of the Final
Drawings and delivering to one another a true and complete copy of such
initialed Final Drawings (the "Approved Final Drawings"). A true and complete
copy of the Approved Final Drawings shall be attached to the Lease as
Exhibit B-1 and shall be made a part hereof. Any changes or revisions to the
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Approved Final Drawings requested by Tenant must first be approved by Landlord,
which approval shall not be unreasonably withheld, subject to the provisions of
Section 3 above. If Landlord approves such requested changes or revisions,
Landlord shall cause the Approved Final Drawings to be revised accordingly and
Landlord and Tenant shall initial each sheet of the Approved Final Drawings as
revised
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and replace and attach a true and complete copy thereof to the Lease as
Exhibit B-1. Landlord and Tenant hereby covenant to each other to cooperate with
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each other and to act reasonably in the preparation and approval of the Final
Drawings and the Approved Final Drawings.
5. Performance of Work. As soon as practicable after Tenant and Landlord
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initial and attach to the Lease as Exhibit B-1 a true and complete copy of the
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Approved Final Drawings, Landlord shall submit the Approved Final Drawings to
the governmental authorities having rights of approval over the Work and shall
apply for the necessary approvals and building permits. Subject to the
satisfaction of all conditions precedent and subsequent to its obligations under
this Exhibit B, and further subject to the provisions of Section 10 hereof, as
soon as practicable after Landlord or its representatives have received all
necessary approvals and building permits, Landlord will put the Approved Final
Drawings out for bid to several licensed and insured general contractors. The
Tenant Improvements shall be constructed by a general contractor selected by
Landlord and reasonably acceptable to Tenant (the "General Contractor").
Landlord shall commence construction, or cause the commencement of construction
by the General Contractor, of the Tenant Improvements, as soon as practicable
after selection of the General Contractor. Except as hereinafter expressly
provided to the contrary, Landlord shall cause the performance of the Work using
the standard of materials shown in the Approved Final Drawings ("Building
Standards"). Landlord agrees that any such contract with the General Contractor
shall identify Tenant as a third-party beneficiary thereof and contain a
warranty of the Work of at least one (1) year from such General Contractor.
Prior to Landlord's execution of any agreement with the General Contractor,
Landlord shall provide to Tenant a copy of such agreement. The terms of such
agreement shall be in Landlord's sole and absolute discretion.
6. Substantial Completion. Landlord shall cause the General Contractor to
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Substantially Complete (defined below) the Tenant Improvements in accordance
with the Approved Final Drawings by the Commencement Date of the Lease as set
forth in Section 2 of the Lease (the "Completion Date"), subject to delays due
to (a) acts or events beyond Landlord's control including, but not limited to,
acts of God, earthquakes, strikes, lockouts, boycotts, casualties,
discontinuance of any utility or other service required for performance of the
Work, moratoriums, governmental agencies, delays on the part of governmental
agencies, delays in obtaining permits or approvals from governmental agencies
(exclusive of the initial building permit for the Premises) and inclement
weather (including rain delays), (b) the lack of availability or shortage of
specialized materials used in the construction of the Tenant Improvements, (c)
any matters beyond the control of Landlord, the General Contractor or any
subcontractors, (d) any changes required, after the issuance of the initial
building permit for the Premises by the fire department, building and/or
planning department, building inspectors or any other agency having jurisdiction
over the Building, the Work and/or the Tenant Improvements (except to the extent
such changes are directly attributable to Tenant's use or Tenant's particular
tenant improvements, in which event such delays are considered Tenant Delays)
(the events and matters set forth in Subsections (a), (b), (c) and (d) are
collectively referred to as "Force Majeure Delays"), or (e) any Tenant Delays
(defined in Section 7 below). The Tenant Improvements shall be deemed
substantially complete on the date that (i) the building officials of the
applicable governmental agency(s) issues its final approval of the construction
of the Tenant Improvements whether in the form of the issuance of a final
permit, certificate of occupancy or the written approval evidencing its final
inspection on the building permit(s), (ii) on which the General Contractor
delivers to both Landlord and Tenant a certificate of substantial completion
wherein the General Contractor shall certify to both Landlord and Tenant that
the Tenant Improvements have been substantially completed in accordance with the
Approved Final Drawings, or (iii) on which Tenant first takes occupancy of the
Premises and actually commences the conduct of its operations from the Premises,
whichever occurs first ("Substantial Completion", or "Substantially Completed",
or "Substantially
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Complete"). Tenant hereby acknowledges and agrees that the term "Substantial
Completion" of the Tenant Improvements as used herein will not include the
completion of any work associated with Tenant's Installations, including without
limitation, Tenant's storage requirements, Tenant's data equipment and
telecommunication systems, and work related to any requirements of governmental
and regulatory agencies with respect to any of Tenant's Installations. If the
Work is not deemed to be Substantially Completed on or before the scheduled
Completion Date, (i) Landlord agrees to use reasonable efforts to Substantially
Complete the Work as soon as practicable thereafter, (ii) the Lease shall remain
in full force and effect, (iii) Landlord shall not be deemed to be in breach or
default of the Lease or this Exhibit B as a result thereof and Landlord shall
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have no liability to Tenant as a result of any delay in occupancy (whether for
damages, abatement of all or any portion of the Rent, or otherwise), and (iv)
except in the event of any Tenant Delays (which notwithstanding anything to the
contrary contained in the Lease will not affect the Commencement Date but will
extend the Completion Date without any penalty or liability to Landlord), the
Commencement Date and the Expiration Date of the Term of the Lease shall be
extended commensurately by the amount of time attributable to any Force Majeure
Delays. In such event, Landlord and Tenant shall execute a written amendment to
the Lease evidencing such extensions of time, substantially in the form of
Exhibit F to the Lease. Subject to the provisions of Section 10.2 of the Lease,
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the Tenant Improvements shall belong to Landlord and shall be deemed to be
incorporated into the Premises for all purposes of the Lease, unless Landlord,
in writing, indicates otherwise to Tenant.
7. Tenant Delays. There shall be no extension of the scheduled Commencement
-------------
Date or Expiration Date of the Term of the Lease (as otherwise permissibly
extended in accordance with the provisions of Section 6 above) if the Work has
not been Substantially Completed by the scheduled Commencement Date due to any
delay attributable to Tenant and/or any of Tenant's Representatives or Tenant's
acts or omissions or otherwise relating to Tenant's intended use of the Premises
(collectively, "Tenant Delays"), including, but not limited to, any of the
following described events or occurrences: (a) delays related to changes made or
requested by Tenant to the Work, the Final Drawings and/or the Approved Final
Drawings; (b) the failure of Tenant to furnish timely all or any plans,
drawings, specifications, finish details or other information required under
Sections 3 and 4 above; (c) the failure of Tenant to comply with the
requirements of Section 10 below; (d) Tenant's requirements for special work or
materials, finishes, or installations other than the Building Standards or
Tenant's requirements for special construction or phasing; (e) any changes
required by the fire department, building or planning department, building
inspectors or any other agency having jurisdiction over the Building, the Work
and/or the Tenant Improvements if such changes are directly attributable to
Tenant's particular use or Tenant's particular tenant improvements; (f) the
completion of any work associated with Tenant's Installations, including without
limitation, Tenant's storage requirements, Tenant's data equipment and
telecommunication systems, and work related to any requirements of governmental
and regulatory agencies with respect to any of Tenant's Installations; (g) the
performance of any additional work pursuant to a Change Request that is
initiated by Tenant; (h) the performance of work in or about the Premises by any
person, firm or corporation employed by or on behalf of Tenant during the period
prior to the Commencement Date, including, without limitation, any failure to
complete or any delay in the completion of such work; and/or (i) any and all
delays caused by or arising from the acts or omissions of Tenant and/or Tenant's
Representatives, in any manner whatsoever, including, but not limited to, any
and all revisions to the Approved Final Drawings and Approved Final Drawings.
Notwithstanding anything to the contrary contained in the Lease, any delays in
the construction of the Tenant Improvements due to any Tenant Delays, shall in
no way extend or affect the date on which Tenant is required to commence paying
Rent under the terms of the Lease. It is the intention of the parties that all
of such delays will be considered Tenant Delays for which Tenant shall be wholly
and completely responsible for any and all consequences related to such delays,
including, without limitation, any costs and expenses attributable to increases
in labor or materials.
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8. Tenant Improvement Allowance. Subject to the provisions of this Exhibit B,
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Landlord shall provide to Tenant an allowance for the planning and construction
of the Tenant Improvements including the Work to be performed in the Premises,
as described in the Initial Plans and the Approved Final Drawings, in the amount
of Two Million Four Hundred Seventy Six Thousand Four Hundred Twenty-Five and
00/100 Dollars ($2,476,425.00) (the "Tenant Improvement Allowance") based upon
an allowance of Thirty-Five and 00/100 Dollars ($35.00) per rentable square foot
for approximately 70,755 rentable square feet of the Premises to be improved, as
described in the Initial Plans and the Approved Final Drawings. Tenant shall not
be entitled to any credit, abatement or payment from Landlord in the event that
the amount of the Tenant Improvement Allowance specified above exceeds the
actual Tenant Improvement Costs. The Tenant Improvement Allowance shall only be
used for tenant improvements typically installed by Landlord in research and
development buildings. The Tenant Improvement Allowance shall be the maximum
contribution by Landlord for the Tenant Improvement Costs and shall be subject
to the provisions of Section 10 below.
9. Tenant Improvement Costs. The Tenant Improvements' cost (the "Tenant
------------------------
Improvement Costs") shall mean and include any and all costs and expenses of the
Work, including, without limitation, all of the following:
(a) All costs of preliminary space planning and final architectural and
engineering plans and specifications (including, without limitation, the scope
of work, all plans and specifications, the Initial Plans, the Final Drawings and
the Approved Final Drawings) for the Tenant Improvements, and architectural
fees, engineering costs and fees, and other costs associated with completion of
said plans;
(b) All engineering costs associated with completion of the State of
California energy utilization calculations under Title 24 legislation;
(c) All costs of obtaining building permits and other necessary
authorizations and approvals from all local governmental authorities and all
other applicable agencies and entities having jurisdiction thereof;
(d) All costs of interior design and finish schedule plans and
specifications including as-built drawings, if applicable;
(e) All direct and indirect costs of procuring, constructing and installing
the Tenant Improvements in the Premises, including, but not limited to, the
construction fee for overhead and profit, the cost of all on-site supervisory
and administrative staff, office, equipment and temporary services rendered by
Landlord's consultants (excluding the cost of any outside construction
management services employed by Landlord, if any, which costs shall be paid by
Landlord from Landlord's management fee described in Section 9(j) below) and the
General Contractor in connection with construction of the Tenant Improvements,
and all labor (including overtime) and materials constituting the Work;
(f) All fees payable to the General Contractor, architect and Landlord's
engineering firm if they are required by Tenant to redesign any portion of the
Tenant Improvements following Tenant's approval of the Approved Final Drawings;
(g) Utility connection fees;
(h) Inspection fees and filing fees payable to local governmental
authorities, if any;
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(i) All costs of all permanently affixed equipment and non-trade fixtures
provided for in the Approved Final Drawings, including the cost of installation;
and,
(j) A construction management fee payable to Landlord in the amount of
three percent (3%) of all direct and indirect costs of procuring, constructing
and installing the Tenant Improvements in the Premises and the Building.
10. Change Requests. No changes or revisions to the Approved Final Drawings
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shall be made by either Landlord or Tenant unless approved in writing by both
parties. Upon Tenant's request and submission by Tenant (at Tenant's sole cost
and expense) of the necessary information and/or plans and specifications for
any changes or revisions to the Approved Final Drawings and/or for any work
other than the Work described in the Approved Final Drawings ("Change Requests")
and the approval by Landlord of such Change Request(s), which approval Landlord
agrees shall not be unreasonably withheld, Landlord shall perform the additional
work associated with the approved Change Request(s), at Tenant's sole cost and
expense, subject, however, to the following provisions of this Section 11.
Prior to commencing any additional work related to the approved Change
Request(s), Landlord shall submit to Tenant a written statement of the cost of
such additional work and a proposed tenant change order therefor ("Change
Order") in the standard form then in use by Landlord. Tenant shall execute and
deliver to Landlord such Change Order and shall pay the entire cost of such
additional work in the following described manner. Any costs related to such
approved Change Request(s) and Change Order shall be added to the Tenant
Improvement Costs and shall be paid for by Tenant as and with any Excess Tenant
Improvement Costs as set forth in Section 10 above. Any delays associated with
any Change Request or Change Order shall be considered a Tenant Delay. The
billing for such additional costs to Tenant shall be accompanied by evidence of
the amounts billed as is customarily used in the business. Costs related to
approved Change Requests and Change Orders shall include without limitation, any
architectural or design fees, Landlord's construction fee for overhead and
profit, the cost of all on-site supervisory and administrative staff, office,
equipment and temporary services rendered by Landlord and/or Landlord's
consultants, and the General Contractor's price for effecting the change. If
Tenant fails to execute or deliver such Change Order, or to pay the costs
related thereto, then Landlord shall not be obligated to do any additional work
related to such approved Change Request(s) and/or Change Orders, and Landlord
may proceed to perform only the Work, as specified in the Approved Final
Drawings. Landlord shall equitably adjust the amount of the Tenant Improvement
Costs for any deletions in the scope of the Work.
11. Termination. If the Lease is terminated prior to the Completion Date, for
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any reason due to the default of Tenant hereunder, in addition to any other
remedies available to Landlord under the Lease, Tenant shall pay to Landlord as
Additional Rent under the Lease, within five (5) days of receipt of a statement
therefor, any and all costs incurred by Landlord and not reimbursed or otherwise
paid by Tenant through the date of termination in connection with the Tenant
Improvements to the extent planned, installed and/or constructed as of such date
of termination, including, but not limited to, any costs related to the
demolition and/or removal of all or any portion of the Tenant Improvements and
restoration costs related thereto. Subject to the provisions of Section 10.2 of
the Lease, upon the expiration or earlier termination of the Lease, Tenant shall
not be required to remove the Tenant Improvements it being the intention of the
parties that the Tenant Improvements are to be considered incorporated into the
Building. Notwithstanding anything to the contrary contained herein, Landlord
shall have the right to terminate the Lease, as more particularly set forth in
Section 2.1 of the Lease, if Landlord is unable to obtain a building permit for
the Tenant Improvements , by December 31, 1999.
12. Tenant Access. Landlord, in Landlord's reasonable discretion and upon
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receipt of a written request from Tenant and written confirmation from the
General Contractor that such limited entry will be in harmony with the General
Contractor's work schedule with respect to the Tenant Improvements, may
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grant Tenant a license to have access to the Premises prior to the Completion
Date to allow Tenant to do other work required by Tenant to install the Tenant
Installations and to otherwise make the Premises ready for Tenant's use and
occupancy (the "Tenant's Pre-Occupancy Work"). It shall be a condition to the
grant by Landlord and continued effectiveness of such license that:
(a) Tenant shall give to Landlord a written request to have such access not
less than ten (10) business days prior to the date on which such proposed access
will commence (the "Access Notice"). The Access Notice shall contain or be
accompanied by each of the following items, all in form and substance reasonably
acceptable to Landlord: (i) a detailed description of and schedule for Tenant's
Pre-Occupancy Work; (ii) the names and addresses of all contractors,
subcontractors and material suppliers and all other representatives of Tenant
who or which will be entering the Premises on behalf of Tenant to perform
Tenant's Pre-Occupancy Work or will be supplying materials for such work, and
the approximate number of individuals, itemized by trade, who will be present in
the Premises; (iii) copies of all contracts, subcontracts, material purchase
orders, plans and specifications pertaining to Tenant's Pre-Occupancy Work; (iv)
copies of all licenses and permits required in connection with the performance
of Tenant's Pre-Occupancy Work; and (v) certificates of insurance (in amounts
satisfactory to Landlord and with the parties identified in, or required by, the
Lease named as additional insureds).
(b) Tenant shall indemnify, defend and hold the Indemnitees harmless from
and against any and all claims, liens, actions, costs, expenses (including
without limitation, attorneys' fees and costs), penalties, fines, and damages
arising from or related to, in any manner whatsoever, the Tenant's Pre-Occupancy
Work.
(c) Such pre-term access by Tenant and Tenant's employees, agents,
contractors, consultants, workmen, mechanics, suppliers and invitees shall be
subject to scheduling by Landlord.
(d) Tenant's employees, agents, contractors, consultants, workmen,
mechanics, suppliers and invitees shall fully cooperate, work in harmony and
not, in any manner, interfere with Landlord or Landlord's agents or
representatives in performing the Work and any additional work pursuant to
approved Change Orders, Landlord's work in other areas of the Building or the
Park, or the general operation of the Park. If at any time any such person
representing Tenant shall not be cooperative or shall otherwise cause or
threaten to cause any such disharmony or interference, including without
limitation, labor disharmony, and Tenant fails to immediately institute and
maintain corrective actions as directed by Landlord, then Landlord may revoke
such license upon twenty-four (24) hours' prior written notice to Tenant.
(e) Any such entry into and limited occupancy of the Premises or any
portion thereof by Tenant or any person or entity working for or on behalf of
Tenant shall be deemed to be subject to all of the terms, covenants, conditions
and provisions of the Lease, excluding only the covenant to pay Rent. Landlord
shall not be liable for any injury, loss or damage that may occur to any of
Tenant's Pre-Occupancy Work made in or about the Premises or to any property
placed therein prior to the commencement of the Term of the Lease, the same
being at Tenant's sole risk and liability. Tenant shall be liable to Landlord
for any damage to any portion of the Premises, the Work or the additional work
related to any approved Change Orders caused by Tenant or any of Tenant's
employees, agents, contractors, consultants, workmen, mechanics, suppliers and
invitees. In the event that the performance of Tenant's Pre-Occupancy Work
causes extra costs to be incurred by Landlord or requires the use of other
Building services, after delivery to Tenant of prior notice that such extra
costs are reasonably anticipated by Landlord to be incurred Tenant shall
promptly reimburse Landlord for such extra costs within ten (10) days after
receipt of written demand therefor and/or shall pay Landlord for such other
Building services at Landlord's standard rates then in effect.
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13. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar
--------------------------
as they are applicable, in whole or in part, to this Exhibit B, are hereby
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incorporated herein by reference, and specifically including all of the
provisions of Section 31 of the Lease. In the event of any conflict between the
terms of the Lease and this Exhibit B, the terms of this Exhibit B shall
--------- ---------
prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to
be Additional Rent under the Lease and, upon any default in the payment of same,
Landlord shall have all rights and remedies available to it as provided for in
the Lease.
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Exhibit C to Lease Agreement
Rules & Regulations
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
to that certain Lease Agreement dated September 15, 1999 (the "Lease"), by and
between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and Foundry Networks, Inc., a California corporation ("Tenant") for
the leasing of certain premises located at 2100 Gold Street, San Jose,
California (the "Premises"). The terms, conditions and provisions of this
EXHIBIT C are hereby incorporated into and are made a part of the Lease. Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease:
1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent of
Landlord. Landlord shall have the right to remove any such unapproved item
without notice and at Tenant's expense.
2. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
3. All window coverings installed by Tenant and visible from the outside of
the Building require the prior written approval of Landlord.
4. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance or any flammable or combustible materials on or around the
Premises, the Building or the Park that are not in compliance with the
provisions of the Lease.
5. Tenant shall not alter any lock or install any new locks or bolts on any
door at the Premises without the prior consent of Landlord.
6. Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those periods
of loading and unloading, Tenant shall not unreasonably interfere with traffic
flow within the Park and loading and unloading areas of other Tenants.
7. Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.
8. No person shall go on the roof without Landlord's permission.
9. Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building, to
such a degree as to be objectionable
1
<PAGE>
to Landlord or other Tenants, shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration.
10. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and shall not be
left in parking or receiving areas overnight.
11. Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks under the dolly
wheels to prevent damage to the asphalt paving surfaces. No parking or storing
of such trailers will be permitted in the auto parking areas of the Park or on
streets adjacent thereto.
12. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall only use tires that do not damage the asphalt.
13. Tenant is responsible for the storage and removal of all trash and refuse.
All such trash and refuse shall be contained in suitable receptacles stored
behind screened enclosures at locations approved by Landlord.
2
<PAGE>
14. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the Premises, the
Building, the Park or any of the Common Areas of the foregoing. No displays or
sales of merchandise shall be allowed in the parking lots or other Common Areas.
15. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building,
the Park or any of the Common Areas of the foregoing.
16. Tenant shall not permit any motor vehicles to be washed on any portion of
the Premises or in the Common Areas of the Park, nor shall Tenant permit
mechanical work or maintenance of motor vehicles to be performed on any portion
of the Premises or in the Common Areas of the Park.
3
<PAGE>
Exhibit E
Hazardous Materials Disclosure Certificate
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in confidence
by Landlord subject to release and disclosure as required by (i) any lenders and
owners and their respective environmental consultants, (ii) any prospective
purchaser(s) of all or any portion of the property on which the Premises are
located, (iii) Landlord to defend itself or its lenders, partners or
representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord:
--------------------------------------------------------------------
--------------------------------------------------------------------
c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn:
------------------------------------
Phone: (650) 571-2200
Name of (Prospective) Tenant:
--------------------------------------------------
Mailing Address:
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Contact Person, Title and Telephone Number(s):
----------------------------------
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address of (Prospective) Premises:
----------------------------------------------
Length of (Prospective) Initial Term:
-------------------------------------------
- --------------------------------------------------------------------------------
1. General Information:
Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations.
---------------------------------------------------------------------------
1
<PAGE>
---------------------------------------------------------------------------
2. Use, Storage and Disposal of Hazardous Materials
2.1 Will any Hazardous Materials be used, generated, stored or
disposed of in, on or about the Premises? Existing Tenants should describe any
Hazardous Materials which continue to be used, generated, stored or disposed of
in, on or about the Premises.
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
If Yes is marked, please explain:
-----------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
2
<PAGE>
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about the
Premises, including the applicable hazard class and an estimate of the
quantities of such Hazardous Materials at any given time; estimated annual
throughput; the proposed location(s) and method of storage (excluding nominal
amounts of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated frequency, and
the proposed contractors or subcontractors. Existing Tenants should attach a
list setting forth the information requested above and such list should include
actual data from on-going operations and the identification of any variations in
such information from the prior year's certificate.
3. Storage Tanks and Sumps
3.1 Is any above or below ground storage of gasoline, diesel,
petroleum, or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises? Existing Tenants should describe any such actual or
proposed activities.
Yes [ ] No [ ]
If yes, please explain:
-------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
4. Waste Management
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing Tenants should describe any new reports
filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. Wastewater Treatment and Discharge
5.1 Will your company discharge wastewater or other wastes to:
storm drain? sewer?
---- ------
surface water? no wastewater or other wastes discharged.
---- ------
Existing Tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
------------------------------------------------------------------
------------------------------------------------------------------
5.2 Will any such wastewater or waste be treated before discharge?
3
<PAGE>
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted.
Existing Tenants should describe the actual treatment conducted.
------------------------------------------------------------------
------------------------------------------------------------------
6. Air Discharges
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will discharge into
the air; and will such air emissions be monitored? Existing Tenants should
indicate whether or not there are any such air filtration systems or stacks in
use in, on or about the Premises which discharge into the air and whether such
air emissions are being monitored.
4
<PAGE>
Yes [ ] No [ ]
If yes, please describe:
------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
6.2 Do you propose to operate any of the following types of equipment,
or any other equipment requiring an air emissions permit? Existing Tenants
should specify any such equipment being operated in, on or about the Premises.
Spray booth(s) Incinerator(s)
----- -----
Dip tank(s) Other (Please describe)
----- -----
Drying oven(s) No Equipment Requiring Air Permits
----- -----
If yes, please describe:
------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
7. Hazardous Materials Disclosures
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to Fire
Department or other governmental or regulatory agencies' requirements? Existing
Tenants should indicate whether or not a Management Plan is required and has
been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan. Existing Tenants
should attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises regulated
under Proposition 65? Existing Tenants should indicate whether or not there are
any new Hazardous Materials being so used which are regulated under Proposition
65.
Yes [ ] No [ ]
If yes, please explain:
------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
8. Enforcement Actions and Complaints
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement actions, administrative
orders, or consent decrees or has your company received requests for
information, notice or demand letters, or any other inquiries regarding its
operations? Existing Tenants should indicate whether or not any such actions,
orders or decrees have been, or are in the process of being, undertaken or if
any such requests have been received.
Yes [ ] No [ ]
3
<PAGE>
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or decrees
and also describe any requests, notices or demands, and attach a copy of all
such documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.
------------------------------------------------------------------
------------------------------------------------------------------
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and safety concerns?
Yes [ ] No [ ]
6
<PAGE>
If yes, describe any such lawsuits and attach copies of the complaint(s),
cross-complaint(s), pleadings and all other documents related thereto as
requested by Landlord. Existing Tenants should describe and attach a copy of
any new complaint(s), cross-complaint(s), pleadings and other related documents
not already delivered to Landlord pursuant to the provisions of Section 29 of
the signed Lease Agreement.
------------------------------------------------------------------
------------------------------------------------------------------
8.3 Have there been any problems or complaints from adjacent Tenants,
owners or other neighbors at your company's current facility with regard to
environmental or health and safety concerns? Existing Tenants should indicate
whether or not there have been any such problems or complaints from adjacent
Tenants, owners or other neighbors at, about or near the Premises.
Yes [ ] No [ ]
If yes, please describe. Existing Tenants should describe any such
problems or complaints not already disclosed to Landlord under the provisions of
the signed Lease Agreement.
------------------------------------------------------------------
------------------------------------------------------------------
9. Permits and Licenses
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without limitation,
any wastewater discharge permits, air emissions permits, and use permits or
approvals. Existing Tenants should attach copies of any new permits and
licenses as well as any renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding
the foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness
7
<PAGE>
thereof in entering into the Lease Agreement and the continuance thereof
throughout the term, and any renewals thereof, of the Lease Agreement.
I (print name) , acting with full authority to bind the
-----------------------
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and
warrant that the information contained in this certificate is true and correct.
(Prospective) Tenant:
By:
------------------------
Title:
------------------------
Date:
------------------------
8
<PAGE>
Exhibit F
First Amendment to Lease Agreement
Change of Commencement Date
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of _________________________, by and between
_____________________________ ("Landlord"), and ________________________
("Tenant"), with reference to the following facts:
Recitals
A. Landlord and Tenant have entered into that certain Lease Agreement dated
___________ (the "Lease"), for the leasing of certain premises containing
approximately __________ rentable square feet of space located at
____________________________, California (the "Premises") as such Premises are
more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true
--------
and correct.
2. The Commencement Date of the Lease shall be _____________________.
3. The last day of the Term of the Lease (the "Expiration Date") shall
be ______________.
4. The dates on which the Base Rent will be adjusted are:
for the period ____ to ____ the monthly Base Rent shall be $___________;
for the period ____ to ____ the monthly Base Rent shall be $______; and
for the period ____ to ____ the monthly Base Rent shall be $___________.
5. Effect of Amendment: Except as modified herein, the terms and conditions
-------------------
of the Lease shall remain unmodified and continue in full force and effect. In
the event of any conflict between the terms and conditions of the Lease and this
Amendment, the terms and conditions of this Amendment shall prevail.
6. Definitions: Unless otherwise defined in this Amendment, all terms not
-----------
defined in this Amendment shall have the meaning set forth in the Lease.
7. Authority: Subject to the provisions of the Lease, this Amendment shall
---------
be binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns. Each party hereto and the
persons signing below warrant that the person signing below on such party's
behalf is authorized to do so and to bind such party to the terms of this
Amendment.
1
<PAGE>
8. The terms and provisions of the Lease are hereby incorporated in this
Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
[PROPERTY MANAGER: Please provide Tenant information and Word Processing will
complete the signature block]
2
<PAGE>
EXHIBIT G
TENANT'S INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: Portfolio Vice President
Phone: (650) 571-2200
Name of (Prospective) Tenant: Foundry Networks, Inc.
Mailing Address:
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Contact Person, Title and Telephone Number(s):
----------------------------------
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):
------------------------------------------------------------
- --------------------------------------------------------------------------------
Address of (Prospective) Premises:
----------------------------------------------
Length of (Prospective) Initial Term:
-------------------------------------------
- --------------------------------------------------------------------------------
1. General Information:
Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations.
1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Use, Storage and Disposal of Hazardous Materials
2.1 Will any Hazardous Materials be used, generated, stored or disposed of
in, on or about the Premises? Existing Tenants should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of in, on or
about the Premises.
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
If Yes is marked, please explain:
----------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
2
<PAGE>
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about the
Premises, including the applicable hazard class and an estimate of the
quantities of such Hazardous Materials at any given time; estimated annual
throughput; the proposed location(s) and method of storage (excluding nominal
amounts of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated frequency, and
the proposed contractors or subcontractors. Existing Tenants should attach a
list setting forth the information requested above and such list should include
actual data from on-going operations and the identification of any variations in
such information from the prior year's certificate.
3. Storage Tanks and Sumps
3.1 Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or about the
Premises? Existing Tenants should describe any such actual or proposed
activities.
Yes [ ] No [ ]
If Yes is marked, please explain:
------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4. Waste Management
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing Tenants should describe any new reports filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. Wastewater Treatment and Discharge
5.1 Will your company discharge wastewater or other wastes to:
______ storm drain? _____ sewer?
______ surface water? _____ no wastewater or other wastes discharged.
Existing Tenants should indicate any actual discharges. If so, describe
the nature of any proposed or actual discharge(s).
__________________________________________________________________________
__________________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
3
<PAGE>
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted. Existing
Tenants should describe the actual treatment conducted.
___________________________________________________________________________
___________________________________________________________________________
6. Air Discharges
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will discharge into
the air; and will such air emissions be monitored? Existing Tenants should
indicate whether or not there are any such air filtration systems or stacks in
use in, on or about the Premises which discharge into the air and whether such
air emissions are being monitored.
4
<PAGE>
Yes [ ] No [ ]
If Yes is marked, please explain:
------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6.2 Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing Tenants should
specify any such equipment being operated in, on or about the Premises.
______Spray booth(s) ______Incinerator(s)
______Dip tank(s) ______Other (Please describe)
______Drying oven(s) ______No Equipment Requiring Air Permits
If Yes is marked, please explain:
------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
7. Hazardous Materials Disclosures
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to Fire
Department or other governmental or regulatory agencies' requirements? Existing
Tenants should indicate whether or not a Management Plan is required and has
been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan. Existing Tenants should
attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises regulated
under Proposition 65? Existing Tenants should indicate whether or not there are
any new Hazardous Materials being so used which are regulated under Proposition
65.
Yes [ ] No [ ]
If Yes is marked, please explain:
------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
8. Enforcement Actions and Complaints
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions, administrative
orders, or consent decrees or has your company received requests for
information, notice or demand letters, or any other inquiries regarding its
operations? Existing Tenants should indicate whether or not any such actions,
orders or decrees have been, or are in the process of being, undertaken or if
any such requests have been received.
Yes [ ] No [ ]
5
<PAGE>
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or decrees
and also describe any requests, notices or demands, and attach a copy of all
such documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety concerns?
Yes [ ] No [ ]
6
<PAGE>
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents related
thereto as requested by Landlord. Existing Tenants should describe and attach a
copy of any new complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
8.3 Have there been any problems or complaints from adjacent Tenants,
owners or other neighbors at your company's current facility with regard to
environmental or health and safety concerns? Existing Tenants should indicate
whether or not there have been any such problems or complaints from adjacent
Tenants, owners or other neighbors at, about or near the Premises.
Yes [ ] No [ ]
If yes, please describe. Existing Tenants should describe any such
problems or complaints not already disclosed to Landlord under the provisions of
the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
9. Permits and Licenses
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without limitation,
any wastewater discharge permits, air emissions permits, and use permits or
approvals. Existing Tenants should attach copies of any new permits and
licenses as well as any renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding
the foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness
7
<PAGE>
thereof in entering into the Lease Agreement and the continuance thereof
throughout the term, and any renewals thereof, of the Lease Agreement.
I (print name)__________________, acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and
warrant that the information contained in this certificate is true and correct.
(Prospective) Tenant:
By:
------------------------------------
Title:
------------------------------------
Date:
------------------------------------
8
<PAGE>
EXHIBIT H
SIGN CRITERIA
TO BE ATTACHED
1
<PAGE>
Exhibit I
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This Subordination, Non-Disturbance and Attornment Agreement (this "Agreement")
dated ________, 19__, is made among_______________________________, ("Tenant")
_____________________________________________________________ ("Landlord"), and
_________________________________ ________________________________("Mortgagee").
WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may
have been or may be from time to time renewed, extended, amended or
supplemented, called the "Note") dated _______________, 19__, executed by
Landlord, payable to the order of Mortgagee, in the principal face amount of
$________________, bearing interest and payable as therein provided, secured by,
among other things, a Deed of Trust (herein, as it may have been or may be from
time to time renewed, extended, amended or supplemented, called the "Deed of
Trust"), recorded in the office of the County Clerk of ______________ County,
California, covering, among other property, the land (the "Land") described in
Exhibit "A" which is attached hereto and incorporated herein by reference, and
the improvements (the "Improvements") thereon (such Land and Improvements being
herein together called the "Property");
WHEREAS, Tenant and Landlord executed a certain Lease Agreement dated
____________, 19__, (herein, as it may from time to time be renewed, extended,
amended or supplemented, called the "Lease"), covering a portion of the Property
(said portion being herein referred to as the "Premises"); and
WHEREAS, the term "Landlord" as used herein means the present landlord
under the Lease or, if the landlord's interest is transferred to any manner, the
successor(s) or assign(s) occupying the position of landlord under the Lease at
the time in question;
THEREFORE, in consideration of the mutual agreements herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Subordination. Tenant agrees and covenants that the Lease and the
rights of Tenant thereunder, all of Tenant's right, title and interest in and to
the property covered by the Lease, and any lease hereafter executed by Tenant
covering any part of the Property, are and shall be subordinate and inferior to
(a) the Deed of Trust and the rights of Mortgagee thereunder, and all right,
title and interest of Mortgagee in the Property, and (b) all other security
documents now or hereafter securing payment of any indebtedness of the Landlord
(or any prior Landlord) to Mortgagee which cover or affect the Property (the
"Security Documents"). This Agreement is not intended and shall not be construed
to subordinate the Lease to any mortgage, deed of trust or other security
document other than those referred to in the preceding sentence, securing the
indebtedness to Mortgagee. Without limitation of any other provision hereof,
Mortgagee may, at its option and without joinder or further consent of Tenant,
Landlord, or anyone else, at any time after the date hereof subordinate the lien
of the Deed of Trust (or any other lien or security interest held by Mortgagee
which covers or affects the Property) to the Lease by executing an instrument
which is intended for that purpose and which specifies such subordination; and,
in the event of any such election by Mortgagee to subordinate, Tenant will
execute any documents required to evidence such subordination; provided however,
notwithstanding that the Lease may be unilateral subordination by Mortgagee
hereafter be made superior to the lien of the Deed of Trust, the provisions of
the Deed of Trust relative to the rights of Mortgagee with respect to proceeds
arising from an eminent domain taking (including a voluntary conveyance by
Landlord) and/or insurance payable to reason of damage to or destruction of the
Premises shall be prior and superior to and shall control over any contrary
provisions in the Lease.
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<PAGE>
2. Non-Disturbance. Mortgagee agrees that so long as the Lease is in full
force and effect and Tenant is not in default in the payment of rent, additional
rent or other payments or in the performance of any of the other terms,
covenants or conditions of the Lease on Tenant's part to be performed (beyond
the period, if any, specified in the Lease within which Tenant may cure such
default),
(a) Tenant's possession of the Premises under the Lease shall not be
disturbed or interfered with by Mortgagee in the exercise of any of its rights
under the Mortgage, including any foreclosure or conveyance in lieu of
foreclosure, and
(b) Mortgagee will not join Tenant as a party defendant for the purpose
of terminating Tenant's interest and estate under the Lease in any proceeding
for foreclosure of the Mortgage.
3. Attornment.
(a) Tenant covenants and agrees that in the event of foreclosure of the
Mortgage, whether by power of sale or by court action, or upon a transfer of the
Property by conveyance in lieu of foreclosure (the purchaser at foreclosure or
the transferee in lieu of foreclosure, including Mortgagee if it is such
purchaser or transferee, being herein called "New Owner"), Tenant shall attorn
to the New Owner as Tenant's new landlord, and agrees that the Lease shall
continue in full force and effect as a direct lease between Tenant and New Owner
upon all of the terms, covenants, conditions and agreements set forth in the
Lease and this Agreement, except for provisions which are impossible for
Mortgagee to perform; provided, however, that in no event shall the New Owner
be:
(i) liable for any act, omission, default, misrepresentation, or
breach of warranty, of any previous landlord (including Landlord) or obligations
accruing prior to New Owner's actual ownership of the property; (other than for
a default by Landlord arising from Landlord's failure to perform any maintenance
or repair obligation required of Landlord under the Lease if, and only if, (i)
Tenant has provided New Owner with written notice of such default and an
opportunity to cure the same in accordance with the requirements of Section 5
hereof prior to exercising any of Tenant's rights under the Lease, (ii) Tenant
duly exercises its rights under the Lease to cure such default by making such
repairs or performing such maintenance to the Premises or the Building on behalf
of Landlord (1) in compliance with all applicable laws (2) with materials of a
quality and grade at least as equal to that in place as of the date of delivery
of the Premises to Tenant, and (3) without interference with the rights of other
tenants of the Property, (iii) the total liability for such default shall not
exceed the fair and reasonable cost to Tenant to make such repairs or perform
such maintenance on Landlord's behalf);
(ii) subject to any offset, defense, claim or counterclaim which
Tenant might be entitled to assert against any previous landlord (including
Landlord); except with respect to offsets arising from Tenant's repairs to or
maintenance of the Premises or the Building in accordance with subparagraph (i)
above;
(iii) bound by any payment of rent, additional rent or other
payments, made by Tenant to any previous landlord (including Landlord) for more
than one (1) month in advance;
(iv) bound by any amendment, or modification of the Lease
hereafter made, or consent by any previous landlord (including Landlord) under
the Lease to any assignment or sublease hereafter granted, without the written
consent of Mortgagee; or
2
<PAGE>
(v) liable for any deposit that Tenant may have given to any
previous landlord (including Tenant) which has not, as such, been transferred to
New Owner.
(b) The provisions of this Agreement regarding attornment by Tenant
shall be self-operative and effective without the necessity of execution of any
new lease or other document on the part of any party hereto or the respective
heirs, legal representatives, successors or assigns of any such party. Tenant
agrees, however, to execute and deliver at any time and from time to time, upon
the request of Landlord or of any holder(s) of any of the indebtedness or other
obligations secured by the Mortgage, any instrument or certificate which, in the
reasonable judgement of Landlord or of such holder(s), may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence such
attornment, including, if requested, a new lease of the Premises on the same
terms and conditions as the Lease for the then unexpired term of the Lease
including the Extended Term, if any.
4. Estoppel Certificate. Tenant agrees to execute and deliver from time
to time, upon the request of Landlord or of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, a certificate
regarding the status of the Lease in a form reasonably acceptable to Tenant,
consisting of statements, if true (or if not, specifying why not), (a) that the
Lease is in full force and effect, (b) the date through which rentals have been
paid, (c) the date of the commencement of the term of the Lease, (d) the nature
of any amendments or modifications of the Lease, (e) that no default, or state
of facts which with the passage of time or notice (or both) would constitute a
default, exists under the Lease, and (f) such other matters as may be reasonable
requested.
5. Acknowledgement and Agreement by Tenant. Tenant acknowledges and
agrees as follows:
(a) Tenant acknowledges that Landlord will execute and deliver to
Mortgagee in connection with the financing of the Property the Deed of Trust
which assigns the rent and all other sums due under the Lease to Mortgagee.
Tenant hereby expressly consents to such [absolute assignment] [collateral
assignment] and agrees that such assignment shall, in all respects, be superior
to any interest Tenant has in the Lease of the Property, subject to the
provision of the Agreement. Tenant will not amend, alter, terminate, or waive
any provision of, or consent to the amendment, alteration, termination or waiver
of any provision of the Lease without the prior written consent of Mortgagee,
and no termination of the Lease, whether pursuant to the terms of the Lease or
otherwise, will be effective without prior written consent of Mortgagee. Tenant
shall not prepay any rents or other sums due under the lease for more than one
(1) month in advance of the due date therefor. Tenant acknowledges that
Mortgagee will rely upon this instrument in connection with such financing.
(b) Mortgagee, in making any disbursements to Landlord, is under no
obligation or duty to oversee or direct the application of the proceeds of such
disbursements, and such proceeds may be used by Landlord for purposes other than
improvement of the Property.
(c) From and after the date hereof, in the event of any act or omission
by Landlord which would give Tenant the right, either immediately or after the
lapse of time, to terminate the Lease or to claim a partial or total eviction,
Tenant will not exercise any such right (i) until it has given written notice of
such act or omission to the Mortgagee; and (ii) until the same period of time as
is given to Landlord under the Lease to cure such act or omission shall have
elapsed following such giving of notice to Mortgagee and following tile time
when Mortgagee shall have become entitled under the Mortgage to remedy the same,
but in any event 30 days after receipt of such notice or such longer period of
time as may be necessary to cure or remedy such default, act, or omission
including such period of time necessary to obtain possession of the Property and
thereafter cure such default, act, or omission, during which period of time
Mortgagee shall be permitted to cure or remedy such default; act or omission;
provided,
3
<PAGE>
however that Mortgagee shall have no duty or obligation to cure or remedy any
beach of default. It is specifically agreed that Tenant shall not, as to
Mortgagee, require cure of any such default which is personal to Landlord, and
therefore not susceptible to cure by Mortgagee.
(d) In the event that Mortgagee notifies Tenant of a default under the
Mortgage, Note, or Security Documents and demands that Tenant pay its rent and
all other sums due under the Lease directly to Mortgagee, Tenant shall honor
such demand and pay the full amount of its rent and all other sums due under the
Lease directly to Mortgagee or as otherwise required pursuant to such notice
beginning with the payment next due after such notice of default, without
inquiry as to whether a default actually exists under the Mortgage, Security
Documents or otherwise in connection with the Note, and notwithstanding any
contrary instructions of or demands from Landlord.
(e) Tenant shall send a copy of any notice or statement under the Lease
to Mortgagee at the same time such notice or statement is sent to Landlord.
(f) Tenant has no right or option of any nature whatsoever, whether
pursuant to the Lease or otherwise, to purchase the Premises or the Property, or
any portion thereof or any interest therein, and to the extent that Tenant has
had, or hereafter acquires, any such right or option, same is hereby
acknowledged to be subject and subordinate to the Mortgage and is hereby waived
and released as against Mortgagee.
(g) This Agreement satisfies any condition or requirement in the Lease
relating to the granting of a non-disturbance agreement and Tenant waives any
requirement to the contrary in the Lease.
(h) Mortgagee and any New Owner shall have no liability to Tenant or
any other party for any conflict between the provisions of the Lease and the
provisions of any other lease affecting the Property, including, but not limited
to, any provisions relating to exclusive or non-conforming uses or rights,
renewal options and options to expand, and in the event of such a conflict,
Tenant shall have no right to cancel the Lease or take any other remedial action
against Mortgagee or New Owner, or against any other party for which Mortgagee
or any New Owner would be liable.
(i) Mortgagee and any New Owner shall have no obligation nor incur any
liability with respect to the erection or completion of the improvements in
which the Premises are located or for completion of the Premises or any
improvements for Tenant's use and occupancy, either at the commencement of the
term of the Lease or upon any renewal or extension thereof or upon the addition
of additional space, pursuant to any expansion rights contained in the Lease.
(j) Mortgagee and any New Owner shall have no obligation nor incur any
liability with respect to any warranties of any nature whatsoever, whether
pursuant to the Lease or otherwise, including, without limitation, any
warranties respecting use, compliance with zoning, Landlord's title, Landlord's
authority, habitability, fitness for purpose or possession.
(k) In the event that Mortgagee or any New Owner shall acquire title to
the Premises or the Property, Mortgagee or such New Owner shall have no
obligation, nor incur any liability, beyond Mortgagee's or New Owner's then
equity interest, if any, in the Property or the Premises, and Tenant shall look
exclusively to such equity interest or Mortgagee or New Owner, if any, for the
payment and discharge of any obligations imposed upon Mortgagee or New Owner
hereunder or under the Lease or for recovery of any judgement from Mortgagee, or
New Owner, and in no event shall Mortgagee, New Owner, nor any of their
respective officers, directors, shareholders, agents, representatives, servants,
employees or partners ever by personally liable for such judgement.
4
<PAGE>
(l) Nothing herein contained is intended, nor shall it be construed, to
abridge or adversely affect any right or remedy of Landlord under the Lease in
the event of any default by Tenant in the payment of rent and/or any other sums
due under the Lease or in the performance of any of the other terms, covenants
or conditions of the Lease on Tenant's part to be performed.
(m) Landlord has not agreed to any abatement of rent or other sums or
period of "free rent" for the Premises unless same is specifically provided in
the Lease, and Tenant agrees that in the event Mortgagee, or any New Owner
becomes the owner of the Property, no agreement for abatement of rent or any
other sum not specifically provided in the Lease will be binding on Mortgagee or
New Owner.
(n) Tenant have never permitted, and will not permit, the generation,
treatment, storage or disposal of any hazardous substance as defined under
federal, state, or local law, on the Premises or Property except for such
substances of a type and only in a quantity normally used in connection with the
occupancy or operation of buildings (such a non-flammable cleaning fluids and
supplies normally used in the day to day operation of first class [office or
retail establishments]) which substances are being held, stored, and used in
strict compliance with federal, state, and local laws. Tenant shall be solely
responsible for and shall reimburse Landlord for any loss, liability, claim or
expense, including without limitation, cleanup and all other expenses, that
Landlord may incur by reason of Tenant's violation of the requirements of this
Paragraph 5(n).
6. Acknowledgement and Agreement by Landlord. Landlord, as landlord under
the Lease and grantor under the Mortgage, acknowledges and agrees for itself and
its heirs, representative, successors and assigns, that: (a) this Agreement does
not constitute a waiver by Mortgagee of any of its rights under the Mortgage,
Note, or Security Documents, or in any way release Landlord from its obligations
to comply with the terms, provisions, conditions, covenants, agreements and
clauses of the Mortgage, Note, or Security Documents; (b) the provisions of the
Mortgage, Note, or Security Documents remain in full force and effect and must
be complied with by Landlord; and (c) Tenant is hereby authorized to pay its
rent and all other sums due under the Lease directly to Mortgagee upon receipt
of a notice as set forth in paragraph 5(d) above from Mortgagee and that Tenant
is not obligated to inquire as to whether a default actually exists under the
Mortgage, Security Documents or otherwise is connection with the Note. Landlord
hereby releases and discharges Tenant of and from any liability to Landlord
resulting from Tenant's payment to Mortgagee in accordance with this Agreement.
Landlord represents and warrants to Mortgagee that a true and complete copy of
the Lease has been delivered by Landlord to Mortgagee.
7. Lease Status. Landlord and Tenant certify to Mortgagee that neither
Landlord nor Tenant has knowledge of any default on the part of the other under
the Lease, and the Lease is bona fide and contains all of the agreements of the
parties thereto with respect to the letting of the Premises and that all of the
agreements and provisions therein contained are in full force and effect.
8. Notices. All notices, requests, consents, demands and other
communications required or which any parties desires to give hereunder shall be
in writing and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telegram, telex, or facsimile, by expedited delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, at the addresses specified at the end of this Agreement
(unless changed by similar notice in writing given by the particular party whose
address is to be changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery service or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or, in the case of telegram, telex or
facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of
address shall be effective except upon receipt. This Paragraph 8 shall not be
construed in any way to affect or impair any waiver of notice or demand provided
in this Agreement or in the lease or in any document evidencing,
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<PAGE>
securing or pertaining to the loan evidenced by the Note or to require giving of
notice or demand to or upon any person in any situation or for any reason.
9. Miscellaneous.
(a) This Agreement supersedes any inconsistent provision of the Lease.
(b) Nothing contained in this Agreement shall be construed to derogate
from in any way impair, or affect the lien, security interest or provisions of
the Mortgage, Note, or Security Documents.
(c) This Agreement shall inure to the benefit of the parties hereto,
their respective successors and permitted assigns, and any New Owner, and its
heirs, personal representatives, successors and assigns; provided, however, that
in the event of the assignment or transfer of the interest of Mortgagee, all
obligations and liabilities of the assigning Mortgagee under this Agreement
shall terminate, and thereupon all such obligations and liabilities shall be the
responsibility of the party to whom Mortgagee's interest is assigned or
transferred; and provided further that the interest of Tenant under this
Agreement may not be assigned or transferred without the prior written consent
of Mortgagee.
(d) THIS AGREEMENT AND, ITS VALIDITY, ENFORCEMENT AND INTERPRETATION
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, AND APPLICABLE UNITED
STATES FEDERAL LAW EXCEPT ONLY TO THE EXTENT, IF ANY, THAT THE LAWS OF THE STATE
IN WHICH THE PROPERTY IS LOCATED NECESSARILY CONTROL.
(e) The words "herein", "hereof", hereunder" and other similar
compounds of the word "here" as used in this Agreement refer to this entire
Agreement and not to any particular section or provision.
(f) This Agreement may not be modified orally or in any manner other
than by an agreement in writing signed by the parties hereto or their respective
successors in interest.
(g) If any provision of the Agreement shall be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not apply to or affect any other provision hereof, but
this Agreement shall be construed as if such invalidity, illegibility, or
unenforceability did not exist.
(h) If any bankruptcy proceedings shall hereafter commence with respect
to Landlord, and if the Lease is rejected by the trustee pursuant to section 365
(L) of the United States Bankruptcy Code, Tenant agrees with Mortgagee (i) not
to treat such lease as terminated, and (ii) to remain in possession of the
Premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
<TABLE>
<CAPTION>
Address or Mortgagee: Mortgagee:
<S> <C>
By:
- ---------------------------------------------------------- -------------------------------------------------------
- ---------------------------------------------------------- Its:
-----------------------------------------------------
- ----------------------------------------------------------
Date:
Attention: -----------------------------------------------------
-----------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Address of Tenant: Tenant:
By:
- ---------------------------------------------------------- -------------------------------------------------------
- ---------------------------------------------------------- Its:
------------------------------------------------------
- ----------------------------------------------------------
Date:
Attention: -----------------------------------------------------
------------------------------------------------
Address of Landlord: Landlord:
c/o Legacy Partners Commercial, Inc. ----------------------------------------------------------
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404 ----------------------------------------------------------
Attention:
By:
------------------------------------------------------
Its:
------------------------------------------------------
Date:
-----------------------------------------------------
</TABLE>
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<PAGE>
Addendum 1
Option to Extend the Lease
This Addendum 1 ("Addendum") is incorporated as a part of that certain Lease
Agreement dated September15, 1999 (the "Lease"), by and between Foundry
Networks, Inc., a California corporation ("Tenant"), and WIX/NSJ REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), for the
leasing of those certain premises located at 2100 Gold Street, San Jose,
California as more particularly described in Exhibit A to the Lease (the
---------
"Premises"). Any capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms as set forth in the Lease.
1. Grant of Extension Option. Subject to the provisions, limitations and
-------------------------
conditions set forth in Paragraph 5 below, Tenant shall have an Option
("Option") to extend the term of the Lease for five (5) years (the "Extended
Term").
2. Tenant's Option Notice. If Landlord does not receive written notice from
----------------------
Tenant of its exercise of this Option on a date which is not more than two
hundred seventy (270) days nor less than one hundred eighty (180) days prior to
the end of the initial term of the Lease (the "Option Notice"), all rights under
this Option shall automatically terminate and shall be of no further force or
effect.
3. Establishing the Initial Monthly Base Rent for the Extended Term. The
----------------------------------------------------------------
initial monthly Base Rent for the Extended Term shall be the then current market
rent for similar space within the competitive market area of the Premises (the
"Fair Rental Value"). "Fair Rental Value" of the Premises means the fair market
rental value of the Premises as of the commencement of the Extended Term, taking
into consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of the
Premises, including the condition and value of existing tenant improvements,
free rent periods, tenant improvement allowances, brokerage commissions, and the
monthly base rental paid by tenants for premises comparable to the
Premises, and located within the competitive market area of the Premises as
reasonably determined by Landlord.
If Landlord and Tenant are unable to agree on the Fair Rental Value for either
the Extended Term, within ten (10) days of receipt by Landlord of the Option
Notice for the Extended Term, Landlord and Tenant each, at its cost and by
giving notice to the other party, shall appoint a competent and disinterested
commercial real estate broker (hereinafter "broker") with at least five (5)
years' full-time commercial real estate brokerage experience in the geographical
area of the Premises to set the Fair Rental Value for the Extended Term. If
either Landlord or Tenant does not appoint a broker within ten (10) days after
the other party has given notice of the name of its broker, the single broker
appointed shall be the sole broker and shall set the Fair Rental Value for the
Extended Term. If two (2) brokers are appointed by Landlord and Tenant as stated
in this paragraph, they shall meet promptly and attempt to set the Fair Rental
Value. If the two (2) brokers are unable to agree within ten (10) days after the
second broker has been appointed, they shall attempt to select a third broker,
meeting the qualifications stated in this paragraph within ten (10) days after
the last day the two (2) brokers are given to set the Fair Rental Value. If they
are unable to agree on the third broker, either Landlord or Tenant by giving ten
(10) days' notice to the other party, can apply to the Presiding Judge of the
Superior Court of the county in which the Premises is located for the selection
of a third broker who meets the qualifications stated in this paragraph.
Landlord and Tenant each shall bear one-half (1/2) of the cost of appointing the
third broker and of paying the third broker's fee. The third broker, however
selected, shall be a person who has not previously acted in any capacity for
either Landlord or Tenant. Within fifteen (15) days after the selection of the
third broker, the third broker shall select one of the two Fair Rental Values
submitted by the first two brokers as the Fair Rental Value for the Extended
Term. Such third broker determination shall be binding on Landlord and Tenant.
If either of the first two brokers fails to submit their opinion of the Fair
Rental Value, then the single Fair Rental Value submitted shall automatically be
the monthly Base Rent for the Extended Term.
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<PAGE>
Upon determination of the initial monthly Base Rent for the Extended Term in
accordance with the terms outlined above, Landlord and Tenant shall immediately
execute, an amendment to this Lease. Such amendment shall set forth among other
things, the initial monthly Base Rent for the Extended Term and the actual
commencement date and expiration date of the Extended Term. Tenant shall have no
other right to extend the term of the Lease under this Addendum unless Landlord
and Tenant otherwise agree in writing.
4. Condition of Premises and Brokerage Commissions for the Extended Term. If
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Tenant timely and properly exercises this Option, in strict accordance with the
terms contained herein: (1) Tenant shall accept the Premises in its then "As-
Is" condition and, accordingly, Landlord shall not be required to perform any
additional improvements to the Premises; and (2) Tenant hereby agrees that it
will be solely responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured or hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with the Option; and Tenant hereby further agrees that
Landlord shall in no event or circumstance be responsible for the payment of any
such commissions and fees to Tenant's Broker.
5. Limitations On, and Conditions To, Extension Option. This Option is
---------------------------------------------------
personal to Tenant and may not be assigned, voluntarily or involuntarily,
separate from or as part of the Lease. At Landlord's option, all rights of
Tenant under this Option shall terminate and be of no force or effect if any of
the following individual events occur or any combination thereof occur: (1)
Tenant has been in material default more than twice during the initial term of
the Lease, or is in material default of any provision of the Lease on the date
of the Option Notice; and/or (2) Tenant has assigned its rights and obligations
under all or part of the Lease or Tenant has subleased more than ten percent
(10%) of the Premises, except to a Related Entity; and/or (3) Between the Lease
Date and the time the Option Notice is delivered there has occurred a material
and adverse change in Tenant's financial condition; and/or (4) Tenant has failed
to properly exercise this Option in a timely manner in strict accordance with
the provisions of this Addendum; and/or (5) Tenant no longer has possession of
all or any part of the Premises under the Lease (unless a Related Entity has
possession of the Premises), or if the Lease has been terminated earlier,
pursuant to the terms of the Lease.
6. Time is of the Essence. Time is of the essence with respect to each and
----------------------
every time period described in this Addendum.
2
<PAGE>
Addendum 2
Right of First Refusal
This Addendum 2 is incorporated as a part of that certain Lease Agreement dated
September 15, 1999, by and between Foundry Networks, Inc., a
California corporation ("Tenant"), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership corporation ("Landlord"), for the Premises
located at 2100 Gold Street, San Jose, California 95002 (the "Premises").
During the initial term of the Lease only, Tenant shall have a one time First
Right to Lease ("Right of First Refusal") the space within the Building commonly
known as 2130 Gold Street, San Jose, California, and containing approximately
26,000 square feet on the first (1st) floor of the Building, located at 2130
Gold Street, San Jose, California, as outlined on Exhibit A attached hereto and
made a part hereof (the "Expansion Space"). Tenant's right, as granted herein,
is subject to the following conditions:
i. Tenant's Right of First Refusal shall be void if, at any time, Tenant
has been, more than two (2) times during the Term of this Lease in material
default or is currently in material default in the performance of any of its
obligations under the Lease;
ii. Tenant's Right of First Refusal shall be subject to Landlord's review
and approval of Tenant's then current financial condition; and
iii. Tenant's Right of First Refusal shall be subject to the rights of the
then existing tenant pursuant to its existing Lease, as such Lease may be
modified, amended or extended.
Provided the above conditions are satisfied, and upon Landlord's receipt of a
bona fide third party offer to lease the Expansion Space which Landlord is
willing to accept (other than by the current occupant of the Expansion Space),
Landlord will notify Tenant in writing (i) that Landlord has received such third
party offer and (ii) of all material terms of such third party offer to lease
such Expansion Space to Tenant. Tenant shall have three (3) business days after
delivery of such notice to notify Landlord in writing ("Election Notice") of
Tenant's election to lease all the Expansion Space upon those terms. If Tenant
fails to notify Landlord of Tenant's election to lease the Expansion Space
within the time specified herein, it shall be deemed that (i) Tenant has elected
not to lease said Expansion Space; (ii) Landlord may thereafter enter into a
Lease Agreement with a third party; and (iii) all rights under this Right of
First Refusal shall terminate and be of no further force and effect. Time is of
the essence herein.
In the event Tenant exercises this Right of First Refusal as herein provided,
Tenant shall provide Landlord a $25,000.00 nonrefundable deposit, and the
parties shall have ten (10) working days after Landlord receives the Election
Notice from Tenant in which to execute an amendment to the Lease setting forth
the agreed-upon terms. Upon full execution of an amendment for the Expansion
Space, the nonrefundable deposit shall be credited toward Rent or security
deposit for the Expansion Space, as agreed between the parties.
This Right of Refusal shall terminate and be of no force and effect if, at any
time, the Premises are being subleased at the time of this Right of First
Refusal is offered, except to a Related Entity.
<PAGE>
<PAGE>
<PAGE>
Upon determination of the initial monthly Base Rent for the Extended Term in
accordance with the terms outlined above, Landlord and Tenant shall immediately
execute, an amendment to this Lease. Such amendment shall set forth among other
things, the initial monthly Base Rent for the Extended Term and the actual
commencement date and expiration date of the Extended Term. Tenant shall have no
other right to extend the term of the Lease under this Addendum unless Landlord
and Tenant otherwise agree in writing.
4. Condition of Premises and Brokerage Commissions for the Extended Term. If
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Tenant timely and properly exercises this Option, in strict accordance with the
terms contained herein: (1) Tenant shall accept the Premises in its then "As-
Is" condition and, accordingly, Landlord shall not be required to perform any
additional improvements to the Premises; and (2) Tenant hereby agrees that it
will be solely responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured or hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with the Option; and Tenant hereby further agrees that
Landlord shall in no event or circumstance be responsible for the payment of any
such commissions and fees to Tenant's Broker.
5. Limitations On, and Conditions To, Extension Option. This Option is
---------------------------------------------------
personal to Tenant and may not be assigned, voluntarily or involuntarily,
separate from or as part of the Lease. At Landlord's option, all rights of
Tenant under this Option shall terminate and be of no force or effect if any of
the following individual events occur or any combination thereof occur: (1)
Tenant has been in material default more than twice during the initial term of
the Lease, or is in material default of any provision of the Lease on the date
of the Option Notice; and/or (2) Tenant has assigned its rights and obligations
under all or part of the Lease or Tenant has subleased more than ten percent
(10%) of the Premises, except to a Related Entity; and/or (3) Between the Lease
Date and the time the Option Notice is delivered there has occurred a material
and adverse change in Tenant's financial condition; and/or (4) Tenant has failed
to properly exercise this Option in a timely manner in strict accordance with
the provisions of this Addendum; and/or (5) Tenant no longer has possession of
all or any part of the Premises under the Lease (unless a Related Entity has
possession of the Premises), or if the Lease has been terminated earlier,
pursuant to the terms of the Lease.
6. Time is of the Essence. Time is of the essence with respect to each and
----------------------
every time period described in this Addendum.
2
<PAGE>
Addendum 2
Right of First Refusal
This Addendum 2 is incorporated as a part of that certain Lease Agreement dated
September 15, 1999, by and between Foundry Networks, Inc., a
California corporation ("Tenant"), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership corporation ("Landlord"), for the Premises
located at 2100 Gold Street, San Jose, California 95002 (the "Premises").
During the initial term of the Lease only, Tenant shall have a one time First
Right to Lease ("Right of First Refusal") the space within the Building commonly
known as 2130 Gold Street, San Jose, California, and containing approximately
26,000 square feet on the first (1st) floor of the Building, located at 2130
Gold Street, San Jose, California, as outlined on Exhibit A attached hereto and
made a part hereof (the "Expansion Space"). Tenant's right, as granted herein,
is subject to the following conditions:
i. Tenant's Right of First Refusal shall be void if, at any time, Tenant
has been, more than two (2) times during the Term of this Lease in material
default or is currently in material default in the performance of any of its
obligations under the Lease;
ii. Tenant's Right of First Refusal shall be subject to Landlord's review
and approval of Tenant's then current financial condition; and
iii. Tenant's Right of First Refusal shall be subject to the rights of the
then existing tenant pursuant to its existing Lease, as such Lease may be
modified, amended or extended.
Provided the above conditions are satisfied, and upon Landlord's receipt of a
bona fide third party offer to lease the Expansion Space which Landlord is
willing to accept (other than by the current occupant of the Expansion Space),
Landlord will notify Tenant in writing (i) that Landlord has received such third
party offer and (ii) of all material terms of such third party offer to lease
such Expansion Space to Tenant. Tenant shall have three (3) business days after
delivery of such notice to notify Landlord in writing ("Election Notice") of
Tenant's election to lease all the Expansion Space upon those terms. If Tenant
fails to notify Landlord of Tenant's election to lease the Expansion Space
within the time specified herein, it shall be deemed that (i) Tenant has elected
not to lease said Expansion Space; (ii) Landlord may thereafter enter into a
Lease Agreement with a third party; and (iii) all rights under this Right of
First Refusal shall terminate and be of no further force and effect. Time is of
the essence herein.
In the event Tenant exercises this Right of First Refusal as herein provided,
Tenant shall provide Landlord a $25,000.00 nonrefundable deposit, and the
parties shall have ten (10) working days after Landlord receives the Election
Notice from Tenant in which to execute an amendment to the Lease setting forth
the agreed-upon terms. Upon full execution of an amendment for the Expansion
Space, the nonrefundable deposit shall be credited toward Rent or security
deposit for the Expansion Space, as agreed between the parties.
This Right of Refusal shall terminate and be of no force and effect if, at any
time, the Premises are being subleased at the time of this Right of First
Refusal is offered, except to a Related Entity.
<PAGE>
This Right of First Refusal is personal to Tenant and may not be assigned,
voluntarily or involuntarily, separate from or as a part of the Lease, except to
a Related Entity.
Should Tenant exercise the Right herein, Landlord and Tenant shall execute an
amendment to this Lease, adding the Expansion Space to the Premises and
adjusting the Rent and Tenant's proportionate share of the items set forth in
Paragraph 3 of this Lease. If Tenant does not elect to exercise the Right
herein, based upon the material terms proposed by Landlord, all Rights under
this Right of First Refusal shall terminate and be of no further force and
effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Q3 1999 10Q
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 19,734
<SECURITIES> 0
<RECEIVABLES> 154,246
<ALLOWANCES> 0
<INVENTORY> 13,795
<CURRENT-ASSETS> 188,455
<PP&E> 1,907
<DEPRECIATION> 1,520
<TOTAL-ASSETS> 188,842
<CURRENT-LIABILITIES> 23,609
<BONDS> 0
0
31,085
<COMMON> 4
<OTHER-SE> 134,144
<TOTAL-LIABILITY-AND-EQUITY> 188,842
<SALES> 78,383
<TOTAL-REVENUES> 78,383
<CGS> 35,265
<TOTAL-COSTS> 29,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (71)
<INCOME-PRETAX> 13,908
<INCOME-TAX> 4,828
<INCOME-CONTINUING> 9,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,080
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.17
</TABLE>
