<PAGE>
As filed with the Securities and Exchange Commission on July 9, 1999
Registration No. 333-xxxxx
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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FOUNDRY NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3576 77-0431154
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
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680 W. Maude Avenue, Suite 3
Sunnyvale, CA 94086
(408) 530-3300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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Bobby R. Johnson, Jr., President and Chief Executive Officer
FOUNDRY NETWORKS, INC.
Sunnyvale, CA 94086
(408) 530-3300
(Name, Address Including Zip Code, and Telephone Number Including Area Code,
of Agent for Service)
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Copies to:
Joshua L. Green Jorge del Calvo
David C. Lee Karen A. Dempsey
Robert S. Schlossman Davina K. Kaile
Russ K. Yoshinaka Karen M. Yan
VENTURE LAW GROUP PILLSBURY MADISON & SUTRO LLP
A Professional Corporation 2550 Hanover Street
2800 Sand Hill Road Palo Alto, CA 94304
Menlo Park, CA 94025
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title Of Each Class Of Securities Proposed Maximum Aggregate
To Be Registered Offering Price (1) Amount Of Registration Fee
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<S> <C> <C>
Common Stock, par value $.0001
per share....................... $86,250,000 $23,978
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated , 1999
[LOGO]
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Shares
Common Stock
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This is the initial public offering of Foundry Networks, Inc. We are offering
shares of our common stock. We anticipate the initial public offering
price will be between $ and $ per share.
We have applied to list our common stock on the Nasdaq National Market under
the symbol "FDRY."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
<TABLE>
<S> <C> <C> <C>
Underwriting
Price to Discounts Proceeds to
Public and Commissions Foundry Networks, Inc.
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to additional
shares to cover any over-allotments.
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
J.P. Morgan & Co.
The date of this prospectus is , 1999
<PAGE>
[INSIDE FRONT COVER]
[COLOR ARTWORK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 44
Principal Stockholders................................................... 54
Certain Transactions..................................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information Available to You.................................. 65
Index to Financial Statements............................................ F-1
</TABLE>
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Foundry Networks, NetIron, TurboIron and our gear logo are registered
trademarks, and FastIron, BigIron and IronView are trademarks of Foundry. All
other brand names or trademarks appearing in this prospectus are the property
of their respective holders.
Unless otherwise indicated, this prospectus assumes:
. that the underwriters have not exercised their option to purchase
additional shares; and
. all shares of preferred stock have been converted into shares of common
stock immediately prior to the closing of this offering.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus including "Risk Factors" and the financial statements, before
making an investment decision.
Our Business
Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Layer 2 switches provide dedicated bandwidth, while Layer 3 switches
route network traffic. Layer 4-7 switches, a new generation of networking
devices, provide the intelligence to control information delivery. Our products
provide solutions for many types of networks, including local area networks or
LANs, metropolitan area networks or MANs, and wide area networks or WANs. This
product breadth allows us to provide solutions throughout a customer's network,
from the wiring closet edge of an enterprise LAN to the LAN core, and from the
WAN edge of an Internet service provider to its network of Internet servers.
By using customized semiconductors, known as application-specific integrated
circuits, or ASICs, we provide switching products that offer better performance
at a lower cost than traditional software-based routers. Our Layer 2 and Layer
3 switches provide the bandwidth required to support the increasing use of
bandwidth-intensive and Internet-based applications. Our high performance Layer
4-7 switching products allow enterprises and Internet service providers to
direct traffic flow more efficiently, based on application type and end user,
while also allowing Internet service providers to offer their customers
differentiated, fee-based quality of service. By providing high levels of
performance and network intelligence capabilities at leading price points we
provide a comprehensive solution to address the rapidly growing networking
market.
The emergence of the Internet and bandwidth-intensive applications has posed
new demands on the networks of enterprises and Internet service providers. The
number of Internet users and volume of network traffic have grown
exponentially, with the majority of traffic now traversing LAN boundaries to
WANs and the Internet. In addition, the complexity of traffic has also
increased with the pervasiveness of new applications that incorporate
increasing amounts of data, voice, video and graphics. To satisfy these
demands, enterprises and Internet service providers require networking
solutions with superior performance and intelligence capabilities, resulting in
the emergence of a large market for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities.
Collaborative Research, an independent research and consulting firm
specializing in the Layer 4-7 switching market, estimates in a February 1999
report that the Layer 4-7 switching market totaled $130 million in 1998 and is
expected to grow to $1 billion in 2002. Dell'Oro Group, an independent
networking industry research and consulting firm, estimates in a March 1999
report that the Layer 3 switching market totaled $637 million in 1998 and is
expected to increase to $3.9 billion in 2002.
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Our solution to address this market provides the following benefits:
Breadth of Product Line. We are one of the few networking companies to
provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
products applicable to LANs, MANs and WANs, enabling us to provide solu-
tions throughout a customer's network.
Performance. Our products provide a high level of performance to allow
enterprises and Internet service providers to build highly reliable
networks that support unpredictable traffic flows, bandwidth-intensive
applications and dynamic end-user needs.
Intelligence. Our products provide the intelligence required to transport
unpredictable traffic and bandwidth-intensive applications, which improves
the performance, reliability and manageability of networks.
Leading Price Points. Our products are designed to offer superior perfor-
mance and network intelligence capabilities at leading price points.
Flexibility of Architecture. Our products are based on a uniform hardware
architecture that is compatible with all major existing network products.
This allows customers to integrate our products into their networks without
an extensive and expensive replacement of their existing network
components.
Since inception, our products have received the following awards:
FastIron. Network Magazine "1998 Gigabit Ethernet Product of the Year"
award granted in April 1998, LAN Times "Best of LAN Times" award granted in
October 1997 and Network Computing "Editor's Choice" award granted in
October 1997.
FastIron II. Network Computing "Editor's Choice" award for mid-range
Layer 3 switches granted in March 1999.
NetIron. Network Computing "Editor's Choice" award granted in January
1998 and Data Communications "Tester's Choice" award granted in November
1997 for Layer 3 switches.
BigIron. Rated by PC Week as the highest performing Gigabit chassis
switch in February 1999; Data Communications "Tester's Choice" award
granted in November 1998 and Business Communications "Best-in-Test" award
granted in September 1998.
ServerIron. Network Week "Infrastructure Product of the Year" award
granted in June 1999 and Network Computing "Flying Colors" award granted in
June 1998.
We sell our products through a direct sales force, resellers and an OEM. Our
products have been deployed in enterprises spanning many industries,
educational institutions and government agencies and in Internet service
providers.
We were incorporated in Delaware on May 22, 1996, and changed our name to
Foundry Networks, Inc. on January 22, 1997. Our principal executive offices are
located at 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086. Our telephone
number at that location is (408) 530-3300. References in the prospectus to
"we," "our," and "us" refer to Foundry. Our web site is located at
www.foundrynetworks.com. The information contained on our web site does not
constitute part of this prospectus.
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The Offering
<TABLE>
<S> <C>
Common stock offered by Foundry..... shares
Common stock to be outstanding after
this offering...................... shares
Use of proceeds..................... For working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. "FDRY"
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of June 30, 1999.
This number excludes as of June 30, 1999: (1) 3,508,969 shares subject to
outstanding options and 295,334 shares available for future options grants
under our 1996 Stock Plan; (2) 353,000 shares subject to non-plan options; and
(3) 30,000 shares subject to warrants to purchase Series A preferred stock
which will convert to warrants to purchase common stock upon completion of this
offering. This number also excludes 950,000 shares reserved for issuance under
our 1999 Directors' Stock Option Plan and 1999 Employee Stock Purchase Plan and
2,000,000 additional shares available for future option grants under our 1996
Stock Plan which were authorized in July 1999.
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
May 22, 1996 Six Months
(Inception) Year Ended Ended
to December 31, June 30,
December 31, --------------- ---------------
1996 1997 1998 1998 1999
------------ ------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net..................... $ -- $3,381 $17,039 $4,203 $39,487
Gross profit..................... -- 1,546 8,606 2,121 21,146
Income (loss) from operations.... (2,140) (9,129) (9,765) (4,443) 3,870
Net income (loss)................ (2,013) (9,007) (9,352) (4,230) 2,912
Diluted net income (loss) per
share........................... (1.04) 0.08
Weighted average shares used in
computing diluted net income
(loss) per share................ 8,992 34,880
Pro forma basic net income (loss)
per share....................... (0.41) 0.11
Weighted average shares used in
computing pro forma basic net
income (loss) per share......... 22,882 27,170
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
(unaudited)
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $12,340 $12,340 $
Working capital.................................. 21,319 21,319
Total assets..................................... 36,453 36,453
Total stockholders' equity (deficit)............. (9,351) 21,734
</TABLE>
See Note 2 of the Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in computing
pro forma per share amounts.
The pro forma balance sheet data summarized above assumes the conversion of
all outstanding shares of preferred stock into common stock upon completion of
this offering. The pro forma as adjusted data above adjusts the pro forma
amounts to reflect the application of the net proceeds from the sale of
shares of common stock offered by Foundry at an assumed initial public offering
price of $ per share, after deducting the estimated underwriting discount and
the estimated offering expenses.
4
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.
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
$2.9 million for the six months ended June 30, 1999. As of June 30, 1999, we
had an accumulated deficit of $17.5 million. We expect to incur increased costs
and expenses related to:
. sales and marketing, including expansion of our direct sales operation
and distribution channels;
. 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.
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 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 delay 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 believe that period-to-period comparisons of our operating results should
not be relied upon as an indicator of our future performance. The primary
factors that may affect us include the following:
. fluctuations in demand for our products and services, particularly in
Europe and Asia;
5
<PAGE>
. unexpected product returns or 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 sole- 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.
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. Its substantial resources and market
dominance have enabled it to reduce prices on its products within a short
period of time following the introduction of these products, which reduces the
margins and profitability of its competitors. Purchasers of networking
solutions may choose Cisco's products because of its longer operating history,
broad product line and strong reputation in the networking market. In addition,
Cisco may have developed or could in the future develop new technologies that
directly compete with our products or render our products obsolete.
In addition to Cisco, we 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. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
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.
We must develop and expand our North American direct sales operation and
reseller distribution channels and continue to provide excellent customer
support to increase revenue.
Our North American distribution strategy focuses primarily on developing and
expanding our direct sales operation and, to a lesser extent, our indirect
distribution channels through
6
<PAGE>
resellers. Our inability to effectively manage the expansion of our domestic
sales and support staff or establish our indirect distribution channels could
harm our ability to grow and increase revenue. We recently expanded our sales
force and plan to hire additional sales personnel. Our ability to increase
revenue to the level we expect depends on the additional hiring, training and
retention of a qualified sales force. However, competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. This expansion of our direct sales operation
may not be successfully completed and the cost of this expansion may exceed the
revenue generated. Our expanded sales and support staff may not compete
successfully against the significantly larger and well-funded sales and
marketing operations of many of our current or potential competitors. 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.
In addition, 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. Some of our
resellers sell products that compete with our products. Our resellers may not
market our products effectively or continue to devote the resources necessary
to provide us with effective sales, marketing and technical support.
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.
Therefore, we need highly trained customer service and support personnel.
Hiring customer service and support personnel is very competitive in our
industry due to the limited number of people available with the necessary
technical skills and understanding of our products.
Our future success depends on our ability to introduce new products with
superior performance in a timely manner.
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. The introduction of new products
involves substantial risks. For example, we have experienced delays in
releasing new products and product enhancements in the past which delayed
sales, increased expenses and resulted in lower quarterly revenue than
anticipated. During the development of our products, we have experienced delays
in the prototyping of our ASICs, which in turn has led to delays in product
introductions. In the future, we may experience delays in product development.
We may also introduce a product before industry standards or demand are
established. Poorly timed product introductions may affect our ability to
compete and harm our operating results. 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 harm our business.
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
7
<PAGE>
the six months ended June 30, 1999, America Online, Hewlett-Packard and Mitsui
accounted for 17%, 15% and 10% 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.
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
that will 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 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.
In January 1999, we entered into an OEM Purchase Agreement with Hewlett-
Packard whereby Hewlett-Packard agreed to purchase our products for resale to
its customers and for
8
<PAGE>
its own internal use. For the six months ended June 30, 1999, Hewlett-Packard
accounted for 15% 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 this agreement
could harm our ability to market and sell our products to potential customers.
This agreement continues until May 18, 2000, unless terminated earlier for a
material breach by either party. The agreement automatically renews for two
additional one year periods, unless the agreement is terminated within 60 days
prior to the end of any period.
This agreement provides that Hewlett-Packard may postpone, cancel, increase
or decrease any order made under the agreement without penalty. In addition,
this agreement provides manufacturing rights and access to our source code upon
the occurrence of specified conditions of default. If we were to default,
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.
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
9
<PAGE>
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 sustain and increase our international sales depends on
successfully expanding our international operations.
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.
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 sole 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 sole
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 from these
suppliers. We may encounter shortages and delays in obtaining
10
<PAGE>
components in the future which could impede our ability to meet customer
orders. Our principal sole-sourced components include:
. ASICs;
. programmable integrated circuits;
. selected other integrated circuits;
. power supplies;
. custom-tooled sheet metal; and
. long-range optics.
Our principal limited-sourced components include:
. dynamic and static random access memories, commonly known as DRAMs and
SRAMs;
. printed circuit boards;
. sheet metal; and
. microprocessors.
We depend on anticipated product orders to determine our material
requirements. Lead times for sole- 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.
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
11
<PAGE>
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.
Our success depends on the widespread market acceptance of our products.
Our success depends on achieving widespread market acceptance of our products
and their underlying technologies. Factors that may affect the acceptance of
our products include:
. widespread market acceptance of Gigabit Ethernet Layer 3 switching
technologies;
. market adoption of Layer 4-7 switching technologies;
. the performance, price and total cost of ownership of our products;
. the availability and price of competing products and technologies; and
. the success of our direct sales operation, resellers and our OEM.
If our products do not achieve market acceptance, our operating results could
be harmed.
The adoption of standards for new technologies in our industry is important and
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, the adoption of an industry standard related to
Gigabit Ethernet was an important step for our products to achieve market
acceptance. An important standards setting organization in our industry is the
Institute of Electrical and Electronics Engineers, often referred to as IEEE.
The IEEE standards board officially approved the standard related to Gigabit
Ethernet, specifically the IEEE 802.3z standard, in June 1998, after
approximately two years of work. We introduced Gigabit Ethernet products in May
1997, over a year prior to the adoption of the IEEE 802.3z standard. We are in
the process of and intend to develop products using other technological
advancements, such as Gigabit Ethernet over copper and 10 Gigabit Ethernet, and
may develop these products prior to the adoption of industry standards related
to these technologies. If we introduce a product before an industry standard
has become widely accepted, 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, because we develop some products prior to the adoption of industry
standards, we may develop products that do not comply with the eventual
industry standard. Our failure to develop products that comply with industry
standards would hurt our ability to sell these products. Finally, 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.
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
12
<PAGE>
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.
We have experienced rapid growth which has placed, and continues to place, a
significant strain on our resources. For example, we had 131 full-time
employees as of June 30, 1999 compared to 55 full-time employees as of June 30,
1998, an increase of 138%. 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.
We expect our anticipated growth and expansion to strain our management,
operational and financial resources. To accommodate this 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.
We may not be able to install adequate control systems in an efficient and
timely manner, and 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.
If we fail to lease adequate additional space, our business could be harmed.
In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We believe, however, that
by the end of 1999, we will need additional space to accommodate our growth.
The commercial real estate market in the San Francisco Bay area is volatile and
unpredictable in terms of available space, rental fees, occupancy rates and
preferred locations. If we fail to
13
<PAGE>
lease new space on reasonable terms, our ability to expand our business may be
negatively affected or our operating results could be harmed. In addition, if
not handled appropriately, the transition to a new facility could disrupt our
operations.
Our products must comply with government regulations.
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 industry
standards 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.
Any acquisitions we make could harm our business.
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;
. 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 agreement 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.
We believe that our existing working capital together with the proceeds from
this 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 may need
additional capital. The development and marketing of new products and the
expansion of our direct sales operation and reseller channels and associated
support personnel are expected to require a significant commitment of
resources. In addition, if the market for our products were to develop more
slowly than anticipated or if we fail to establish significant market share and
achieve a meaningful level of revenue, we may incur significant operating
losses and utilize significant amounts of capital. As a result, we could be
required to raise substantial additional capital. To the extent that we raise
additional capital through the
14
<PAGE>
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.
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.
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 markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert 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.
15
<PAGE>
Our stock price may be extremely volatile and you may not be able to resell
your shares at or above the offering price.
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.
We face a number of unknown risks associated with the year 2000 problem.
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.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000" for more detailed information.
Our executive officers and directors will control % of our common stock and be
able to significantly influence matters requiring stockholder approval.
Our executive officers, directors and entities affiliated with them will, in
the aggregate, will beneficially own approximately % of our outstanding common
stock upon completion of this offering. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions. Please see "Principal Stockholders"
for more detailed information.
Some provisions of our charter documents may have anti-takeover effects that
could prevent a change in our control.
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. See "Description of Capital Stock--
Delaware Anti-Takeover Law and Charter and Bylaw Provisions."
16
<PAGE>
Future sales of our common stock may depress our stock price.
Upon completion of this offering, we will have shares of common stock
outstanding. All the shares sold in this offering can be freely traded. The
remaining 33,757,293 shares of common stock outstanding after this offering are
subject to lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Immediately after the 180 day lock-up
period, 31,140,670 of these shares will become available for sale. The
remaining shares of our common stock will become available at various times
thereafter upon 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 this offering or after the expiration of the lock-up
and holding periods could cause the market price of our common stock to
decline.
The purchasers in the offering will immediately experience substantial dilution
in net tangible book value.
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. As a result, purchasers of shares will experience immediate and
substantial dilution of approximately $ in net tangible book value per
share, or approximately % of the offering price of $ per share. In
contrast, existing stockholders paid an average price of $ per share.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You should not rely on these
forward-looking statements which apply only as of the date of the prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "will,"
"intend," "estimate" and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of certain
markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those discussed in these forward-looking
statements. Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered by us at
an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, are estimated to be $ , or if the underwriters' over-allotment
option is exercised in full. We expect to use the net proceeds of this offering
for working capital and general corporate purposes. Pending these uses, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of its business and do not anticipate paying any cash
dividends in the foreseeable future. Furthermore, our credit agreement
prohibits the payment of cash dividends.
18
<PAGE>
CAPITALIZATION
The following table shows:
. our actual capitalization as of June 30, 1999;
. our capitalization as of that date on a pro forma basis to give effect
to the conversion of all preferred stock outstanding at June 30, 1999
into common stock upon the completion of this offering; and
. our capitalization on a pro forma as adjusted basis to reflect our
receipt of the net proceeds from the sale of shares of common stock
offered by us at an assumed initial public offering price of $ per
share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, unaudited)
<S> <C> <C> <C>
Bank line of credit............................. $ 2,000 $ 2,000 $ 2,000
Current portion of capital lease obligations.... 90 90 90
------- ------- -------
Redeemable convertible preferred stock, $0.0001
par value per share, 15,166,954 shares
authorized, 15,116,596 issued and outstanding,
actual; 5,000,000 shares authorized, none
issued or outstanding pro forma and pro forma
as adjusted.................................... 31,085 -- --
------- ------- -------
Stockholders' equity (deficit):
Common stock, $0.0001 par value per share,
50,000,000 shares authorized, 18,640,697
shares issued and outstanding, actual;
100,000,000 shares authorized, 33,757,293
shares issued and outstanding pro forma;
100,000,000 shares authorized and shares
issued and outstanding pro forma as adjusted.. 2 3
Treasury stock.................................. (6,480) (6,480) (6,480)
Additional paid-in capital...................... 29,195 60,279
Notes receivable from stockholders.............. (859) (859) (859)
Deferred stock compensation..................... (13,749) (13,749) (13,749)
Accumulated deficit............................. (17,460) (17,460)
------- ------- -------
Total stockholders' equity (deficit)........... (9,351) 21,734
------- ------- -------
Total capitalization......................... $(9,351) $21,734 $
======= ======= =======
</TABLE>
The number of shares of capital stock referenced above excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This number also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. See "Management" and Note 5 of Notes to Financial
Statements.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately $
or $ per share of common stock. "Net tangible book value" per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities and divided by the total number of shares of common stock
after giving effect to the conversion of all outstanding shares of preferred
stock into 15,116,596 shares of common stock. After giving effect to the sale
of the shares of common stock offered by us at an assumed initial public
offering price of $ per share, and the adjustments set forth above, our pro
forma net tangible book value as of June 30, 1999 would have been $ or $
per share of common stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share before the offering... $
Increase attributable to new investors............................
---
Pro forma net tangible book value after the offering................
---
Dilution per share to new investors................................. $
===
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999, the
differences between the existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ --------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 33,757,293 % $ % $
New investors..........
---------- ----- -------- ----------
Totals............... 100.0% $ 100.0%
========== ===== ======== ==========
</TABLE>
The information in the table is based upon the initial public offering price
of $ per share before deducting underwriter discounts and commissions and
estimated offering expenses payable by us. The information concerning existing
stockholders is based on the number of shares of common stock outstanding on
June 30, 1999 and gives effect to the conversion of all outstanding shares of
preferred stock into common stock upon completion of this offering. The
information presented with respect to existing stockholders excludes as of June
30, 1999: (1) 3,508,969 shares subject to outstanding options and 295,334
shares available for future option grants under our 1996 Stock Plan; (2)
353,000 shares subject to non-plan options; and (3) 30,000 shares subject to
warrants to purchase Series A preferred stock which will convert to warrants to
purchase common stock upon completion of this offering. This information also
excludes 950,000 shares reserved for issuance under our 1999 Directors Stock
Option Plan and 1999 Employee Stock Purchase Plan and 2,000,000 additional
shares available for future option grants under our 1996 Stock Plan which were
authorized in July 1999. The issuance of common stock in connection with the
exercise of these options and warrants will result in further dilution to new
investors. See "Management" and Note 5 of Notes to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The selected financial data set forth below should be read together with the
financial statements and related notes, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the other information
contained in this prospectus. The selected balance sheet data at December 31,
1997 and 1998 and the selected statement of operations data for the period from
inception of Foundry, May 22, 1996, until December 31, 1996 and for the years
ended December 31, 1997 and 1998 are derived from, and qualified by reference
to, our audited financial statements and notes thereto included elsewhere in
this prospectus. The selected balance sheet data at December 31, 1996 are
derived from Foundry's audited balance sheet not included herein. The selected
balance sheet data at June 30, 1999 and the selected statement of operations
data for the six months ended June 30, 1998 and 1999 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
unaudited financial statements have been prepared on a basis consistent with
the audited financial statements appearing elsewhere in this prospectus and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of such data. The
historical results of operations are not necessarily indicative of results to
be expected for any subsequent period.
<TABLE>
<CAPTION>
Period from
May 22, 1996 Six Months
(Inception) Year Ended Ended
to December 31, June 30,
December 31, ---------------- ----------------
1996 1997 1998 1998 1999
------------ ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net.................. $ -- $ 3,381 $17,039 $ 4,203 $39,487
Cost of revenue............... -- 1,835 8,433 2,082 18,341
------- ------- ------- ------- -------
Gross profit................ -- 1,546 8,606 2,121 21,146
Operating expenses:
Research and development..... 1,914 5,403 8,797 3,250 3,625
Sales and marketing.......... -- 3,419 7,258 2,745 6,973
General and administrative... 226 1,853 1,589 569 1,655
Amortization of deferred
stock compensation.......... -- -- 727 -- 5,023
------- ------- ------- ------- -------
Total operating expenses.... 2,140 10,675 18,371 6,564 17,276
------- ------- ------- ------- -------
Income (loss) from opera-
tions........................ (2,140) (9,129) (9,765) (4,443) 3,870
Interest income, net.......... 127 122 413 213 24
------- ------- ------- ------- -------
Income (loss) before provision
for income taxes............. (2,013) (9,007) (9,352) (4,230) 3,894
Provision for income taxes.... -- -- -- -- 982
------- ------- ------- ------- -------
Net income (loss)............. $(2,013) $(9,007) $(9,352) $(4,230) $ 2,912
======= ======= ======= ======= =======
Basic net income (loss) per
share........................ $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.24
Diluted net income (loss) per
share........................ $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.08
Weighted average shares--
basic(a)..................... 1,349 4,523 8,992 8,029 12,164
Weighted average shares--
diluted(a)................... 1,349 4,523 8,992 8,029 34,880
Pro forma basic net income
(loss) per share............. $ (0.41) $ 0.11
Weighted average shares--pro
forma basic(a)............... 22,882 27,170
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------- -----------
1996 1997 1998 1999
------- -------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 3,823 $ 3,182 $ 4,567 $12,340
Working capital...................... 3,505 4,076 10,663 21,319
Total assets......................... 4,557 6,988 19,238 36,453
Long term obligations, less current
portion............................. 344 178 -- --
Total stockholders' equity (defi-
cit)................................ (1,903) (10,509) (18,926) (9,351)
</TABLE>
- --------
(a) See Note 2 of the Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in
computing per share amounts.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read together with "Selected Financial Data" and our
financial statements and related notes appearing elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. The actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to those set forth under "Risk Factors" and
elsewhere in this prospectus.
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 two 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 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 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 one of our manufacturing partners. We
expect to realize lower costs and higher volume efficiencies as a result of
this transition. However, these price reductions may not occur or this
manufacturer may not adequately fulfill its
22
<PAGE>
obligations. The failure to obtain cost reductions or this manufacturer's
failure to meet its obligations could harm our gross margins and operating
results.
In connection with the grant of stock options to employees, we recorded
deferred stock compensation of $4.7 million in 1998 and $14.8 million for the
six months ended June 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 an increase in
stockholders' deficit and is being amortized to operations ratably over the
respective vesting periods. We recorded amortization of deferred stock
compensation expense of approximately $727,000 for the year ended December 31,
1998 and $5.0 million for the six months ended June 30, 1999. At June 30, 1999
we had approximately $13.7 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.
Since inception we have incurred significant losses and, as of June 30, 1999,
we had an accumulated deficit of $17.5 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>
Six Months
Year Ended Ended
December 31, June 30,
-------------- --------------
1997 1998 1998 1999
------ ----- ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Revenue, net................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............................. 54.3 49.5 49.5 46.4
------ ----- ------ -----
Gross profit................................ 45.7 50.5 50.5 53.6
------ ----- ------ -----
Operating expenses:
Research and development.................... 159.8 51.6 77.3 9.2
Sales and marketing......................... 101.1 42.6 65.3 17.6
General and administrative.................. 54.8 9.3 13.6 4.2
Amortization of deferred stock
compensation............................... -- 4.3 -- 12.7
------ ----- ------ -----
Total operating expenses................... 315.7 107.8 156.2 43.7
Income (loss) from operations................ (270.0) (57.3) (105.7) 9.9
Interest income, net......................... 3.6 2.4 5.1 --
------ ----- ------ -----
Income (loss) before provision for income
taxes....................................... (266.4) (54.9) (100.6) 9.9
Provision for income taxes................... -- -- -- 2.5
------ ----- ------ -----
Net income (loss)............................ (266.4)% (54.9)% (100.6)% 7.4%
====== ===== ====== =====
</TABLE>
Six Months Ended June 30, 1999 and 1998
Revenue. Revenue increased to $39.5 million for the six months ended June
30, 1999 from $4.2 million for the six months ended June 30, 1998. The increase
in revenue was primarily due to the introduction of BigIron in the third
quarter of 1998. The increase in revenue was also due to significant growth in
the enterprise LAN switching market, increased sales to Internet service
providers, broader market acceptance of our Gigabit Ethernet Layer 3 and Layer
4-7 switching products and expansion of our sales force.
For the six months ended June 30, 1999, sales to America Online, Hewlett-
Packard and Mitsui accounted for 17%, 15% and 10% of revenue. Hewlett-Packard
is both an OEM and an end user.
23
<PAGE>
Gross profit. Gross profit increased to $21.1 million for the six months
ended June 30, 1999 from $2.1 million for the six months ended June 30, 1998,
primarily due to a significant increase in revenue. As a percentage of revenue,
gross profit was 53.6% for the six months ended June 30, 1999 and 50.5% for the
six months ended June 30, 1998. 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 increased to $3.6
million for the six months ended June 30, 1999 from $3.3 million for the six
months ended June 30, 1998, primarily due to the addition of engineering
personnel and related costs. Research and development costs are expensed as
incurred. As a percentage of revenue, research and development expenses
decreased from 77.3% to 9.2% because of the significant increase in revenue. 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 to $7.0 million for the six months ended June 30, 1999 from $2.7
million for the six months ended June 30, 1998, primarily due to the addition
of sales and marketing personnel, increased commission expenses resulting from
significantly higher sales and increased advertising and promotional expenses.
As a percentage of revenue, sales and marketing expenses decreased from 65.3%
to 17.6% because of the significant increase in revenue. 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 to $1.7 million for the
six months ended June 30, 1999 from $569,000 for the six months ended June 30,
1998, primarily due to an increase in the allowance for doubtful accounts, the
addition of personnel necessary to support the increase in revenue and general
corporate expenses consistent with the increased scale of operations. We expect
these 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 credit and capital lease
obligations. Interest income decreased to $24,000 for the six months ended June
30, 1999 from $213,000 for the six months ended June 30, 1998, 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.
During the six months ended June 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 of our financing in March 1998.
Income taxes. We have recorded income tax expense for the six months ended
June 30, 1999 of $982,000. This reflects an effective tax rate of 25%, based
upon the estimated
24
<PAGE>
annualized tax rate. We have provided a full valuation allowance against our
deferred tax assets, consisting primarily of net operating loss carryforwards,
because of the uncertainty regarding their realization. When we are able to
conclude that our deferred tax assets are likely to be realized, our income tax
provision will reflect a one-time credit eliminating the valuation allowance.
Net Income. Net income increased to $2.9 million for the six months ended
June 30, 1999 from a net loss of $4.2 million for the six months ended June 30,
1998. This increase was primarily due to significantly higher revenue.
Years Ended December 31, 1998 and 1997
Revenue. Revenue increased to $17.0 million for the year ended December 31,
1998 from $3.4 million for the year ended December 31, 1997. The significant
increase was primarily due to the introduction of new products during 1998,
including our server load balancing and transparent caching switches and our
BigIron chassis-based products. In 1997, sales to Mitsui and Incyte
Pharmaceuticals, Inc. accounted for 49% and 14% of revenue, and sales to Mitsui
accounted for 21% of revenue in 1998.
Gross profit. Gross profit increased to $8.6 million for the year ended
December 31, 1998 from $1.5 million for the year ended December 31, 1997,
primarily due to the significant increase in revenue. As a percentage of
revenue, gross profit increased to 50.5% for the year ended December 31, 1998
from 45.7% for the year ended December 31, 1997, primarily as a result of
spreading manufacturing costs over a greater number of units sold.
Research and development. Research and development expenses increased to
$8.8 million for the year ended December 31, 1998 from $5.4 million for the
year ended December 31, 1997, primarily due to the addition of engineering
personnel and increased costs associated with launching the new BigIron chassis
based products in the third quarter of 1998. As a percentage of revenue,
research and development expenses decreased due to significantly higher
revenue.
Sales and marketing. Sales and marketing expenses increased to $7.3 million
for the year ended December 31, 1998 from $3.4 million for the year ended
December 31, 1997, primarily due to the addition of sales and marketing
personnel, increased commission expenses resulting from higher sales and
increased advertising and promotional expenses.
General and administrative. General and administrative expenses decreased to
$1.6 million for the year ended December 31, 1998 from $1.9 million for the
year ended December 31, 1997, primarily due to costs incurred in 1997 relating
to the settlement of a lawsuit of approximately $750,000. Excluding the
$750,000 incurred in 1997, general and administrative expenses would have
increased by $450,000 for the year ended December 31, 1998 over the same period
in 1997. The increase was a result of the increase in allowance for doubtful
accounts and addition of personnel related to significantly higher revenue.
Interest income. Interest income increased to $413,000 for the year ended
December 31, 1998 from $122,000 for the year ended December 31, 1997, as a
result of greater cash balances generated from the sale of preferred stock in
March 1998.
Net loss. Net loss increased to $9.4 million for the year ended December 31,
1998 from $9.0 million for the year ended December 31, 1997, as a result of the
amortization of deferred stock compensation in 1998 in the amount of $727,000
which was offset by significantly increased revenue together with increased
expenses related to the addition of personnel, engineering prototype expenses
and costs related to expanding our operations.
25
<PAGE>
Quarterly Results of Operations
The following tables set forth our statement of operations data for each of
the six quarters ended June 30, 1999, including these amounts expressed as a
percentage of total revenue. This unaudited quarterly information has been
prepared on the same basis as our audited financial statements and, in the
opinion of management, reflects all adjustments, consisting only of normal
recurring entries, necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue, net............ $ 1,842 $ 2,361 $ 4,030 $ 8,806 $15,425 $24,062
Cost of revenue......... 915 1,167 1,918 4,433 7,707 10,634
------- ------- ------- ------- ------- -------
Gross profit.......... 927 1,194 2,112 4,373 7,718 13,428
Operating expenses:
Research and
development........... 1,383 1,867 3,705 1,842 1,746 1,879
Sales and marketing.... 1,209 1,536 1,887 2,626 2,717 4,256
General and
administrative........ 251 318 365 655 670 985
Amortization of
deferred stock
compensation.......... -- -- 233 494 1,115 3,908
------- ------- ------- ------- ------- -------
Total operating
expenses............. 2,843 3,721 6,190 5,617 6,248 11,028
------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (1,916) (2,527) (4,078) (1,244) 1,470 2,400
Interest income, net.... 40 173 135 65 24 --
------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. (1,876) (2,354) (3,943) (1,179) 1,494 2,400
Provision for income
taxes.................. -- -- -- -- 377 605
------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,876) $(2,354) $(3,943) $(1,179) $ 1,117 $ 1,795
======= ======= ======= ======= ======= =======
<CAPTION>
Three Months Ended
--------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Percentage of Revenue:
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 49.7 49.4 47.6 50.3 50.0 44.2
------- ------- ------- ------- ------- -------
Gross profit.......... 50.3 50.6 52.4 49.7 50.0 55.8
Operating expenses:
Research and
development........... 75.1 79.1 91.9 20.9 11.3 7.8
Sales and marketing.... 65.6 65.1 46.8 29.8 17.6 17.7
General and
administrative........ 13.6 13.4 9.1 7.5 4.4 4.1
Amortization of
deferred stock
compensation.......... -- -- 5.8 5.6 7.2 16.2
------- ------- ------- ------- ------- -------
Total operating
expenses............. 154.3 157.6 153.6 63.8 40.5 45.8
------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (104.0) (107.0) (101.2) (14.1) 9.5 10.0
Interest income, net.... 2.2 7.3 3.4 0.7 0.2 --
------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. (101.8) (99.7) (97.8) (13.4) 9.7 10.0
Provision for income
taxes.................. -- -- -- -- 2.5 2.5
------- ------- ------- ------- ------- -------
Net income (loss)....... (101.8)% (99.7)% (97.8)% (13.4)% 7.2% 7.5%
======= ======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
Our revenue increased in each quarter since the first quarter of 1998 as a
result of the introduction of new products, significant growth in our market,
increasing market acceptance of Gigabit Ethernet Layer 3 and Layer 4-7
switching and the expansion of our sales force. Gross profit has ranged from
49.7% to 55.8%, as a percentage of revenue, in the quarters presented and
fluctuates from quarter to quarter due to the mix of products sold.
Our research and development expenses increased in absolute dollars and as a
percentage of revenue in the first three quarters of 1998 primarily due to
development costs related to bringing our BigIron chassis-based product to
market in a timely manner in the third quarter of 1998. In particular, our
third quarter of 1998 includes significant expenditures for semiconductors,
assembly and reworking associated with the prototype BigIron chassis-based
product. Our research and development expenses, in absolute dollars, in the
fourth quarter of 1998 returned to approximately the same level experienced in
the second quarter of 1998. We currently do not expect that the introduction of
new products in the near future will have as significant an impact on our
research and development expenses as did the introduction of BigIron.
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 sole- 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 "Risk
Factors--We may not meet quarterly financial expectations, which could cause
our stock price to decline."
Liquidity and Capital Resources
We have funded our operations to date primarily through the private sales of
common and preferred stock for net proceeds of approximately $33.4 million and,
to a lesser extent, from a capital equipment lease line and bank line of
credit. For the six months ended June 30, 1999, we have satisfied our liquidity
requirements primarily through cash flow generated from operations.
Cash provided by operating activities was $3.4 million for the six months
ended June 30, 1999. Cash utilized in operating activities was $13.2 million in
1998 and $9.8 million in 1997. The cash utilized in 1998 and 1997 was due to
net losses, as well as working capital required to fund our growth in
operations, including accounts receivable and inventory.
Cash utilized in investing activities was $145,000 for the six months ended
June 30, 1999, $414,000 in 1998 and $526,000 in 1997. These amounts primarily
represented purchases of property and equipment. From inception through June
30, 1999, we have invested a total of approximately $1.8 million in property
and equipment.
Financing activities provided $4.6 million in cash for the six months ended
June 30, 1999, consisting primarily of principal repayments on capital lease
obligations, offset by proceeds from sale of our capital stock and the exercise
of stock options and proceeds from the bank
27
<PAGE>
line of credit. In 1998, we generated $15.0 million of cash and in 1997, we
generated $9.6 million of cash, in each case primarily from an equity financing
and the exercise of stock options, offset by principal repayments on capital
lease obligations.
Our principal source of liquidity as of June 30, 1999 consisted of $12.3
million in cash. 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 and provides for interest at the bank's prime rate. 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 June
30, 1999, there have been borrowings of $2.0 million under this line of credit.
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 June 30, 1999, we did not have any material commitments for capital
expenditures. However, we expect to incur capital expenditures as we expand our
operations in the near future. 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. Although it is difficult for us to predict future liquidity
requirements with certainty, we believe that the net proceeds from this
offering, together with our existing cash balances and anticipated funds from
operations, will satisfy our cash requirements for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek additional funds through public
or private equity financings or from other sources. Additional financing may
not be available to us or, if available, financing may not be available on
terms favorable to us and our stockholders.
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.
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. We continue to assess the potential effect and costs of remediating
the year 2000 problem for 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 or the costs associated
with these activities.
Our internal Quality Assurance Department has tested and intends to continue
to test all of our 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.
28
<PAGE>
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 expenses 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 believe that we have identified 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. 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 that has been
certified by the vendor to be year 2000 compliant; however, we have not
conducted any independent tests to confirm year 2000 compliance. In addition,
we are still in the process of evaluating and replacing or modifying, as
necessary, our other internal systems. We expect to complete the process of
modifying, upgrading or replacing all of our internal systems before the
occurrence of any material disruption of our business.
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, may be affected by the year 2000 problem. We
are currently assessing the potential effect and costs of remediating the year
2000 problem with the office and facility equipment used at our headquarters in
Sunnyvale, California. We are also currently assessing the potential effect and
costs of remediating the year 2000 problem with the office and facilities
equipment, personal computers and software applications used by our more than
ten domestic and international field sales offices and our approximately 35
sales representatives who work from home offices.
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
29
<PAGE>
to assist in our efforts. Although we do not anticipate that these expenses
will be material, these expenses, if higher than anticipated, could harm our
results of operations and financial condition.
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. We have not yet developed a contingency plan to address
any situation that may result if we are unable to solve our year 2000 issues,
and we do not anticipate the need to do so. If we must develop a contingency
plan, the development and implementation of this plan could harm our business.
Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance and the level of associated incremental costs could be
adversely affected by, among other things, availability and cost of programming
and testing resources, third party suppliers' ability to modify software, and
unanticipated problems identified in the ongoing compliance review.
Recently Issued Accounting Standards
See Note 2 of Notes to Financial Statements for recently adopted and recently
issued accounting standards.
30
<PAGE>
BUSINESS
Foundry Networks designs, develops, manufactures and markets a comprehensive
suite of high performance networking products for enterprises and Internet
service providers. Our Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switches
enable our customers to build and maintain efficient, high performance
networks. Our products provide solutions for all types of networks, including
LANs, MANs and WANs. This product breadth allows us to provide solutions
throughout a customer's network, from the wiring closet edge of an enterprise
LAN to the LAN core, and from the WAN edge of an Internet service provider to
its network of Internet servers. Our Layer 2 and Layer 3 switches provide the
bandwidth required to support the increasing use of bandwidth-intensive and
Internet-based applications. Our high performance Layer 4-7 switching products
with network intelligence capabilities allow enterprises and Internet service
providers to direct traffic flow more efficiently, based on application type
and end user, while also allowing Internet service providers to offer their
customers differentiated, fee-based quality of service. We sell our products
through a direct sales force, resellers and an OEM. Our products have been
deployed in enterprises spanning many industries, educational institutions and
government agencies and in Internet service providers. By providing high levels
of performance and network intelligence capabilities at leading price points,
we provide a comprehensive solution to address the rapidly growing networking
market.
Industry Background
The pervasiveness of computing by businesses, organizations and individuals,
and the need to interconnect computing devices to enable widespread
communication, have given rise to the multi-billion dollar computer networking
industry. The explosive growth of the Internet and corporate internal and
external communications needs are driving the recent growth in enterprise and
Internet service provider networks. The complexity of information traveling
over networks is also rapidly increasing with the adoption of bandwidth-
intensive applications that include increasing amounts of data, voice, video
and graphics. The increase in users, coupled with these new bandwidth-intensive
applications, has resulted in exponential growth in network traffic. This
growth has led to a demand by enterprises and Internet service providers for
networking solutions with superior performance and intelligence capabilities.
Evolution of Market Needs
Early data networks were adopted to connect a limited number of computers
within close proximity, allowing users to share simple, common services, such
as file servers and printers. In these networks, called local area networks or
LANs, traffic patterns were predictable because the majority of traffic resided
within the LAN and remained local to a specific part of the LAN. Widespread
Internet usage, the proliferation of client-server applications and the
adoption of new bandwidth-intensive applications have increased traffic loads
and created unpredictable traffic patterns. Today, the majority of traffic
traverses the boundaries of the LAN to networks outside of the LAN. Such
communication traditionally required an organization to utilize costly long
distance carrier services that often provided inadequate performance. As a
result of today's traffic flows, enterprises increasingly require low cost,
high performance networking equipment to enable effective communications across
geographically dispersed networks, known as MANs and WANs.
Challenges to enterprise network performance are magnified when applied to
Internet service providers. As their customers have increasingly become
dependent on Internet access, Internet service providers demand networking
solutions that ensure the highest levels of performance and scalability.
Similar to enterprise needs, Internet service providers require low
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cost, high performance solutions for both their internal networks and access to
the Internet. The exponential growth of Internet traffic, combined with the
business critical nature of the services that Internet service providers
provide, necessitates heightened requirements for reliability.
Evolution of Network Solutions
Early LANs consisted of hubs, which enabled multiple users to share network
resources, and software-based routers, which supported multiple protocols and
moved traffic around the network. Increased use of bandwidth-intensive
applications and a larger number of users strained these early network
infrastructures, making it increasingly difficult for them to handle new
applications while still performing at an acceptable speed. Network devices
known as Layer 2 switches replaced hubs to provide dedicated bandwidth to
users, while Fast Ethernet technology was introduced to provide data
transmission speeds of 100 Mbps, or ten times faster than original hubs.
Despite these improvements, the installed base of traditional routers, relying
on software to analyze network traffic, was unable to accommodate increased
data speeds and changing traffic patterns and became the new network
bottleneck.
Two new technologies, Gigabit Ethernet, capable of data transmission speeds
of 1000 Mbps, and Layer 3 switching, evolved in parallel to handle growing and
unpredictable traffic patterns and address the performance needs of bandwidth-
intensive applications. Gigabit Ethernet is the most recent evolution of
Ethernet technology, which is the dominant LAN transmission technology with
more than 95% market share in 1998, according to the independent research firm,
Dell'Oro Group. Gigabit Ethernet-based Layer 3 switches combine Gigabit
transmission speeds with the forwarding capabilities of software-based routers.
In Layer 3 switches, the software forwarding capabilities that enabled early
routers to move traffic around the network are performed in hardware,
integrated on ASICs built into the switch. This integration enables
manufacturers to develop Layer 3 switches at lower costs while improving
network performance.
Next Generation Needs and Solutions
As enterprises and Internet service providers seek to accommodate network
user needs, adding bandwidth alone is not an adequate solution. Due to the
increased use of multiple traffic types for many applications, enterprises and
Internet service providers have an acute need for solutions that provide
network intelligence to distinguish among and prioritize different types of
traffic and regulate the network response to traffic. Particularly for Internet
service providers, network intelligence allows them to maintain network
reliability and offer differentiated, fee-based quality of service.
To address these needs for network intelligence, a new class of device, Layer
4-7 switches, has emerged as a complement to the performance capabilities of
existing Layer 3 switches. These switches provide increased network
intelligence, and therefore greater network efficiency, by utilizing
information about the application and the end user. Both classes of switches
are necessary components of a comprehensive networking solution. Layer 3
switches provide the bandwidth and routing needed to support new applications
while Layer 4-7 switches give enterprises and Internet service providers the
intelligence to control information delivery. Key Layer 4-7 switching
capabilities include the ability to:
. enhance server performance and reliability by distributing traffic
across multiple servers that support Internet applications;
. increase network security by detecting, stopping and identifying the
source of a hacker attack;
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. improve Internet response time by inspecting an end user's web site
address and sending traffic to a specific server that hosts the desired
content; and
. lreduce WAN operating costs and improve Internet response time by
redirecting web traffic destined for remote Internet hosts to a group of
local cache servers.
The challenge to the networking company is to provide cost-effective, higher
bandwidth solutions and the increased intelligence required to meet new network
demands placed on enterprises and Internet service providers. Alternatives to
Gigabit Ethernet technology, such as asynchronous transfer mode, are complex
and expensive, and do not utilize existing networking investments or provide
network intelligence capabilities. Although existing Layer 2 and Layer 3
switches utilize Gigabit Ethernet technology, they often do not scale to span
the entire network or provide the performance required by today's network
users. Existing Layer 3 switches, although essential to the performance of the
network, do not incorporate the Layer 4-7 network intelligence capabilities
necessary to provide traffic direction.
A large market has emerged for a broad range of high performance, cost-
effective switching solutions with network intelligence capabilities that
address the needs of enterprises and Internet service providers. Collaborative
Research, an independent research and consulting firm specializing in the Layer
4-7 switching market, estimates in a February 1999 report that the Layer 4-7
switching market totaled $130 million in 1998 and is expected to grow to $1.0
billion in 2002. Dell'Oro Group estimates in a March 1999 report that the Layer
3 switching market totaled $637 million in 1998 and is expected to increase to
$3.9 billion in 2002.
Solution
We offer a comprehensive suite of Gigabit Ethernet Layer 2, Layer 3 and Layer
4-7 products for enterprises and Internet service providers. Our solution
provides the following benefits:
Breadth of Product Line. We are one of the few networking companies to
provide a full suite of Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7
products applicable to LANs, MANs and WANs. This product breadth is
attractive to customers who desire a single source for their high
performance networking solutions. Our products allow us to provide
solutions throughout a customer's network, from the wiring closet edge of
an enterprise LAN to the LAN core, and from the WAN edge of an Internet
service provider to its network of Internet servers.
Performance. Our products provide a high level of performance and a non-
blocking architecture across multiple types of networks. A non-blocking ar-
chitecture allows all users attached to the switch to access the network
simultaneously without any negative impact on performance. We believe that
we currently offer the highest-performing non-blocking switches in the mar-
ket. The performance of our products allows enterprises and Internet serv-
ice providers to build highly reliable networks that support unpredictable
traffic flows, bandwidth-intensive applications and dynamic end-user needs.
Intelligence. Our products provide the intelligence required to transport
unpredict- able traffic and bandwidth-intensive applications, improving the
performance, reliability and manageability of networks. Our products direct
traffic using information about the application and end user, enabling
enterprises and Internet service providers to control information delivery
and realize benefits such as increased revenue through application- or
availability-based service fees.
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Leading Price Points. Our products are designed to offer superior
performance and network intelligence capabilities at leading price points.
According to the Tolly Group, an independent test firm, and Network World,
an independent networking publication, our BigIron 4000 and 8000 products
offer the best cost per Gigabit of throughput for Layer 3 Gigabit Ethernet
switches. Unlike other low-priced switches that provide limited
functionality, our products offer customers higher value for their
networking equipment investment by providing a comprehensive feature set
while maintaining low price points.
Flexibility of Architecture. Our products are based on a uniform hardware
architecture that is compatible with all major existing network products
without any significant loss of performance or functionality. Our
architecture is designed to support the emerging standards for 10 Gigabit
Ethernet and Gigabit Ethernet over copper. Our architecture is also
designed to support emerging technologies such as wave division
multiplexing. As a result, our customers can integrate our products into
their networks without an extensive and expensive replacement of their
existing network components.
Strategy
Our objective is to be the leading provider of next generation high
performance network solutions. We intend to achieve this objective by providing
a broad suite of the most cost-effective, highest-performing network switching
products for enterprises and Internet service providers. Key elements of our
strategy include:
Leverage Product Breadth to Both Enterprises and Internet Service
Providers. We intend to continue leveraging our comprehensive product
breadth to offer solutions to the enterprise and Internet service provider
markets. Our end-to-end network solution spans the LAN, MAN and LAN/WAN
with high levels of performance and functionality, at leading price points.
We intend to continue to offer value-added feature sets that provide for
redundancy, ease of use and management of the network.
Maintain a Market Leadership Position in Layer 4-7 Switches. We believe
the demand for Layer 4-7 intelligent capabilities will be a very important
growth area for Internet service providers and an area of increasing
importance to enterprises. We intend to maintain a leadership position in
this market by continually improving the performance and functionality of
our Layer 4-7 products. Our products are designed to provide the
performance and network intelligence capabilities that enable Internet
service providers to rapidly deliver new revenue-generating applications
and services to end-user customers, while providing a high degree of
service reliability.
Maintain Technology Leadership. We intend to maintain our technology
leadership through continual enhancements of existing products and ongoing
development of new products that provide higher levels of performance and
intelligence. We also intend to pursue cost reduction efforts that will
allow us to remain highly competitive while offering customers leading
price points. We intend to ensure that our hardware and software
architectures are flexible and extensible and are designed to support
emerging technologies such as 10 Gigabit Ethernet, Gigabit Ethernet over
copper and wave division multiplexing.
Expand Global Sales Organization. We intend to expand our global sales
presence with our direct sales organization in the United States, strategic
channel partners outside the United States and select original equipment
manufacturers. In addition, we intend to work with resellers in the United
States to penetrate select vertical markets such as small Internet service
providers. We intend to increase our worldwide sales force and establish
additional channel partner relationships to build greater worldwide sales
presence.
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Deliver World Class Service and Support. We intend to expand our service
and support infrastructure to meet the needs of our growing customer base.
Our goal is to minimize our customers' network downtime by offering a wide
range of service and support programs to meet individual customer needs,
including prompt onsite hardware repair and replacement, twenty-four hour,
seven day-a-week web and telephone support, system software and network
management software upgrades and technical documentation updates.
Products
We provide a comprehensive line of network switches designed to meet the
price, performance, reliability and feature requirements of enterprises and
Internet service providers. Our product suite includes Gigabit Ethernet edge
switches, Gigabit Ethernet and Internet protocol over synchronous optical
network (also known as IP over SONET) core switches and Gigabit Ethernet
intelligent network service switches for server farms. Edge switches are used
to connect individuals and groups of workstations to the network. Core switches
are the most critical network component and serve as the convergence point for
the majority of network traffic. Layer 4-7 switches are used in server farms to
provide centralized collection points for server-based applications used by
enterprises and Internet service providers.
<TABLE>
<CAPTION>
Product/First Area of List Price per Port
Date of Deployment/ (as of June 30,
Shipment Product Type Configuration Options Performance 1999)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FastIron LAN edge 24 10/100 Mbps ports 3 Mpps $ 149
May 1997 Layer 2 24 10/100 Mbps ports $ 199
+1 Gigabit Ethernet port
24 10/100 Mbps ports $ 240
+ 2 Gigabit Ethernet ports
- -----------------------------------------------------------------------------------------------
FastIron II LAN edge 72 10/100 Mbps ports 23 Mpps $ 195
October 1998 Layer 2/3 + 2 Gigabit Ethernet ports
72 10/100 Mbps ports $ 243
+ 4 Gigabit Ethernet ports
72 10/100 Mbps ports $ 331
+ 8 Gigabit Ethernet ports
- -----------------------------------------------------------------------------------------------
NetIron LAN edge and core 16 10/100 Mbps ports 3 Mpps $ 562
June 1997 Layer 2/3 24 10/100 Mbps ports $ 416
1 Gigabit Ethernet port $ 1,995
2 Gigabit Ethernet ports $ 1,847
- -----------------------------------------------------------------------------------------------
TurboIron/8 LAN edge and core 8 Gigabit Ethernet ports 12 Mpps $ 1,249
July 1998 Layer 2/3/4-7
- -----------------------------------------------------------------------------------------------
BigIron 4000 LAN edge and core 88 10/100 Mbps ports 48 Mpps $ 465
August 1998 LAN/WAN edge 32 Gigabit Ethernet ports $ 2,280
Layer 2/3/4
- -----------------------------------------------------------------------------------------------
BigIron 8000 LAN edge and core, 184 10/100 Mbps ports 96 Mpps $ 450
September 1998 LAN/WAN edge 64 Gigabit Ethernet ports $ 2,296
Layer 2/3/4
2 port OC-3 IP over SONET $12,497
4 port OC-3 IP over SONET $ 8,748
2 port OC-12 IP over SONET $22,497
- -----------------------------------------------------------------------------------------------
ServerIron LAN server farm 8 10/100 Mbps ports 3 Mpps $ 786
April 1998 Layer 2/4-7 16 10/100 Mbps ports $ 624
24 10/100 Mbps ports $ 791
</TABLE>
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Foundry Edge Switching Solutions
FastIron. The FastIron workgroup switch provides Fast Ethernet and Giga-
bit Ethernet switching. Designed to accelerate workgroup and server perfor-
mance in enterprises, the FastIron workgroup switch offers redundancy,
bandwidth management for delay-intensive applications and complete network
management support.
FastIron II. The FastIron II is a redundant, chassis-based wiring closet
switch that offers non-blocking Fast Ethernet and Gigabit Ethernet
performance of up to 23 million packets per second. FastIron II is offered
in Layer 2 and Layer 3 configurations and supports all major industry
standard routing protocols. This protocol support is necessary to ensure
interoperability with installed enterprise applications and equipment.
Foundry Switching Solutions for the Network Core
NetIron and TurboIron/8. Our NetIron and TurboIron/8 switches allow small
and medium-sized enterprises to increase performance at their network core
with multi-protocol Layer 3 switching. NetIron provides Ethernet, Fast
Ethernet and Gigabit Ethernet connectivity, while TurboIron/8 offers all
Gigabit Ethernet Layer 2, Layer 3 and Layer 4-7 switching. Both products
support a full suite of industry standard routing protocols. We also offer
multi-layer switching that enables NetIron and TurboIron/8 switches to
transparently perform processing-intensive Internet protocol and Internet
protocol exchange (IPX) traffic forwarding, freeing existing routers to
handle non-IP and IPX traffic and to manage and communicate with other
routers. This capability reduces the workload of routers and the need for
costly upgrades, and improves the overall network performance.
BigIron 4000 and BigIron 8000. Our BigIron 4000 and BigIron 8000 switches
are designed for the core of large enterprises and Internet service
providers. BigIron switches can be deployed in collapsed backbone data
centers and server farms of local area and metropolitan area networks.
BigIron also can be used as a high performance local and wide area network
router. BigIron provides Ethernet, Fast Ethernet and Gigabit Ethernet Layer
2, Layer 3 and Layer 4 switching, multi-protocol support and Packet over
SONET on a single platform. We believe our BigIron switches provide the
industry's highest non-blocking Gigabit Ethernet port density and
performance with up to 64 Gigabit Ethernet ports and 96 million packets per
second performance. In addition to supporting the full range of industry
standard routing protocols, BigIron supports BGP4, a necessary protocol for
Internet service providers that require high performance connectivity to
the Internet.
Foundry Intelligent Network Service Switching Solutions for the Server Farm
ServerIron. Our ServerIron switch provides Internet service providers and
enterprises with high performance Layer 4-7 switching that improves the
availability, performance and scalability of Internet services such as
content publishing, web hosting and e-commerce. ServerIron is compatible
with all major server vendors and operating systems and requires no special
server agent software. As a switch-based hardware platform, ServerIron is
designed to provide the high performance, high port density, scalable
capacity and multiple levels of redundancy required by users of mission
critical Internet applications. Our TurboIron/8 switch can also be upgraded
with Layer 4-7 capabilities.
IronView Network Management Solutions
IronView. Our IronView network management solution provides a
comprehensive set of easy-to-use tools to simplify management of our
switches. A command line interface streamlines local and remote management
and configuration. Industry standard simple
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network management protocol and configuration applications are available on
major platforms for graphical user interface management, including HP OpenView
for Sun Solaris, Windows NT and stand-alone Windows NT. Our switches also
include a user-friendly web interface. Industry standard remote monitoring
simplifies network monitoring and a mirror port is included for network tracing
and troubleshooting.
Foundry's Product Awards
Since inception, our products have received the following awards:
FastIron: Network Magazine "1998 Gigabit Ethernet Product of the Year"
award granted in April 1998, LAN Times "Best of LAN Times" award granted in
October 1997 and Network Computing "Editor's Choice" award granted in Octo-
ber 1997.
FastIron II: Network Computing "Editor's Choice" award for mid-range
Layer 3 switches granted in March 1999.
NetIron: Network Computing "Editor's Choice" award granted in January
1998 for Layer 3 switches and Data Communications "Tester's Choice" award
granted in November 1997.
BigIron: Rated by PC Week as the highest performing Gigabit chassis
switch in February 1999; Data Communications "Tester's Choice" award
granted in November 1998 and Business Communications "Best-in-Test" award
granted in September 1998.
ServerIron: Network Week "Infrastructure Product of the Year" award
granted in June 1999 and Network Computing "Flying Colors" award granted in
June 1998.
Hardware and Software Architecture
IronCore
All of our products are based on the IronCore hardware architecture. IronCore
allows us to provide customers with consistent performance, reliability and
features, as well as the ability to leverage their networking equipment
investment. The IronCore architecture also allows us to quickly bring new
products to market that meet customer needs and interoperate with existing
networking equipment.
The IronCore architecture reflects our expertise in custom designed
programmable ASICs. These ASICs provide high performance and integrated Layer
2, Layer 3 and Layer 4 switching capabilities. This programmable design allows
us to offer customers the flexibility of field-upgradeable software features
without compromising performance. We have developed 13 custom ASICs used
throughout our product portfolio.
The IronCore chassis architecture consists of a high-speed data highway that
incorporates a backplane and crosspoint switching fabric and supports up to
eight interface modules. The crosspoint switching fabric allows all lines of
communication to intersect with one another. Our implementation of the
crosspoint switching fabric includes custom designed, high speed ASICs that
provide throughput of up to 128 Gigabits and 96 million packets per second.
This amount of throughput allows each module connected to the switch to support
simultaneous communication among all workstations connected to the switch,
while all workstations connected to the switch can operate at maximum
performance. Therefore, IronCore allows enterprises and Internet service
providers to have dedicated access to the network at any time, using any
application at the maximum speed.
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IronWare and Internet IronWare Software
Our IronWare and Internet IronWare software work with the IronCore hardware
architecture to provide high performance switching. IronWare, which is pre-
installed on our Layer 2 and Layer 3 products, provides network design
flexibility, multiple levels of redundancy for reliability and support for
current and future applications. Our Internet IronWare software provides
industry-leading intelligent switching capabilities, such as server load-
balancing and transparent cache switching, for our Layer 4-7 products.
Customers
The following table is a representative list of companies that have purchased
over $100,000 of Foundry products since January 1, 1998.
<TABLE>
<CAPTION>
Enterprises Enterprises Internet Service Providers
- ----------- ----------- --------------------------
<S> <C> <C>
Arlington Public Schools Michigan State University America Online
ATI Technologies Mitsui & Co. AT&T Cerfnet
AXA Colonia Netscape Communications AT&T WorldNet
Brann Software Network Appliance Cable & Wireless
Carnival Cruise Lines Nextel Communications France Telecom
Cendant Corporation Ontario Ministry of Finance MindSpring Enterprises
DLJdirect Paramount Pictures None Networks
Dubai Ministry of Labor Parkedale Pharmaceuticals Sprint
and Social Affairs
Ericsson Samsung Electronics Telewest Communications
First Union San Francisco Newspaper Agency ThruNet
Fort James Paper Sun Microsystems Uunet Technologies
Fox Liberty Network U.S. Army (Redstone Arsenal) Verio
Goto.com United States Bureau of Land
Management
Harris Corporation Universal Computer Systems
Hewlett-Packard University of Miami
ibeam Broadcasting University of Oklahoma
Incyte Pharmaceuticals University of Washington
LTV Steel Co. University of Washington Medical
Center
McKinsey & Company Veritas Software
Wright Patterson Air Force Base
Xoom.com
</TABLE>
Customer Case Studies
Internet Service Provider
America Online. America Online required a high performance switch
solution to support its growth and enhance members' online experience. AOL
selected us as its primary supplier of Ethernet, Fast Ethernet and Gigabit
Ethernet Layer 2 and Layer 4 switches based upon functionality, port
density, management, price and the responsiveness of our service and
technical organization. Our FastIron workgroup switches, as well as our
FastIron II switches, are deployed in fully redundant configurations to
efficiently and reliably manage the extremely large traffic volumes that
traverse AOL's network. Our ServerIron Layer 4-7 switches provide server
load balancing capabilities that enable AOL to improve server performance
and run higher capacity sites. In addition to front ending AOL.com, our
switches support AOL Internet services such as Digital City, a popular
local content network and community guide and ICQ, an instant
communications and chat technology on the Internet.
Higher Education
The University of Oklahoma. The University of Oklahoma enrolls more than
25,000 students and has approximately 1,830 full-time faculty members. The
university's goal was
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to build a cost-effective, switched local area network that would support
distance learning via web archived classes and, in the future, real-time
video on demand. All incoming engineering students are required to purchase
laptop computers for connectivity to the university's local area network.
Classes are videotaped and accessible via a web archive. Video on demand
will enable students to dial into a class in progress. After evaluating
numerous Gigabit Ethernet vendors, they chose us based on price, features
and support. The network includes our FastIron workgroup switches at the
edge and BigIron 4000 switches in the core. Each FastIron workgroup switch
is connected to video on demand servers and linked together via Gigabit
Ethernet to provide a high performance, cost-effective solution.
Service Industry
Carnival Cruise Lines. Carnival Cruise Lines wanted to provide passengers
on its Sensation Superliner ships with in-room interactive video services.
Carnival selected us to provide the necessary network infrastructure based
on our ability to provide a high performance, attractively priced multicast
solution in a small physical space. Carnival installed a BigIron 4000 in
the broadcast center and FastIron II switches throughout the ship. Our
solution provides reliable high-speed connectivity to 1,024 passenger
cabins and supports 1,000 simultaneous interactive sessions and up to 300
concurrent video streams. Passengers use a web-like browser interface on
the television set to choose from a selection of movies, video on demand,
and music stations and make shore excursion reservations.
Government
The United States Army Aviation and Missile Command (Redstone
Arsenal). The United States Army Aviation and Missile Command (Redstone
Arsenal) develops, acquires, fields and sustains aviation and missile
systems for the Army. The Redstone Technical Test Center tests weapons
systems using computer simulation and modeling applications. The
organization required a cost-effective, high-speed network to support more
than 500 nodes. Redstone Arsenal evaluated ATM technology but selected our
Gigabit Ethernet solution based on cost, bandwidth capabilities and ease of
use. RedStone Arsenal installed a BigIron 4000 in the network core to
interconnect 10 of the facility's test centers via Gigabit Ethernet. A
TurboIron switch connects three additional test areas via Gigabit Ethernet
and aggregates traffic into the BigIron 4000.
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Sales and Marketing
Our sales strategy includes a domestic and international field sales
organization, domestic and international resellers and a key OEM relationship.
Domestic field sales. Our domestic field organization establishes and
maintains direct relationships with key accounts and strategic customers.
To a lesser extent, our field organization also works with resellers to
assist in communicating product benefits to end user customers and
proposing networking solutions. As of June 30, 1999, our field organization
included over 23 sales representatives and system engineers. In addition,
as of June 30, 1999, we maintained field offices in 20 major metropolitan
areas in the United States.
Domestic resellers. Our domestic resellers include regional networking
system resellers and vertical resellers who focus on specific markets such
as small Internet service providers. We provide sales and marketing
assistance and training to our resellers, who in turn provide first level
support to end-user customers. We intend to leverage our relationship with
key resellers to penetrate select vertical markets.
International sales. Product fulfillment and first level support are
provided by resellers and integrators. Our international resellers include
Mitsui in Japan, Samsung in Korea, Mitech in the United Kingdom, Boreal in
France and Pan Dacom in Germany. We also provide field support in key
Canadian, European and Asia Pacific locations including Toronto, London,
Paris, Frankfurt, Munich and Taipei. We intend to expand our international
presence through additional sales and engineering personnel and through the
addition of key resellers and integrators.
OEM. We established an OEM relationship with Hewlett-Packard in January
1999. Pursuant to our agreement, Hewlett-Packard markets and sells our
products on a private label basis through its worldwide sales force.
Hewlett-Packard also purchases our products for use in its internal
networks. For the six months ended June 30, 1999, sales to Hewlett-Packard
accounted for 15% of our revenue.
Marketing programs. We have numerous marketing programs designed to
inform existing and potential customers, as well as resellers and OEMs,
about the capabilities and benefits of our company and products. Our
marketing efforts also support the sale and distribution of our products
through our field organizations and channels. Our marketing efforts include
advertising, public relations, participation in industry trade shows and
conferences, participation in independent third-party product tests,
presentations and our web site. We have begun an e-commerce initiative
directed at existing customers and resellers.
Customer Service and Support
Our service and support organization maintains and supports our products sold
by our field organization to end users. Our resellers and OEM are responsible
for installation, maintenance and support services to their customers. We may
offer limited assistance to our resellers and OEM in providing service and
support to their end user customers.
TechNet, our comprehensive suite of service and support options, provides
customers with a variety of programs to meet specific support needs. TechNet
Gold gives customer network operations the highest level of priority and our
full range of services. TechNet Silver provides customers with all the tools
needed to optimize network performance and uptime. TechNet Bronze extends
warranty support with software updates and telephone and online support.
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Manufacturing
We operate under a modified "turn key" process utilizing strategic
manufacturing partners that are ISO 9000 certified and have global
manufacturing capabilities. We maintain control and procurement responsibility
for all proprietary components. All designs, documentation, selection of
approved suppliers, quality control and repairs are performed at our
facilities. In the first quarter of 1999, we began transitioning our assembly
and testing functions from our Sunnyvale facility to one of our manufacturing
partners in order to realize lower costs and higher volume efficiencies. Our
approach to manufacturing provides the flexibility of outsourcing while
maintaining quality control of delivered products to customers. We have
selected this approach to ensure our ability to respond to rapid growth and
sudden market shifts.
We currently have two primary manufacturing partners. One partner, Celestica-
Asia, located in San Jose, California, assembles and tests our printed circuit
boards. The other partner, Hadco, located in Santa Clara, California, assembles
and tests our backplane products. Both companies are ISO certified and have
global manufacturing facilities providing full back-up capability and local
content for foreign sales if required. We perform all prototype and pre-
production procurement and component qualification with support from our
manufacturing partners. Any interruptions in the operations of either of these
manufacturing partners or delays in their shipment of products would negatively
impact our ability to meet scheduled product deliveries to our customers. We
design all ASICs, printed circuit boards and sheet metal while working closely
with semiconductor partners on future component selection and design support.
All materials used in our products are processed through a full qualification
cycle and controlled by use of an "Approved Vendor Listing" that must be
followed by our sources. We perform extensive testing of all our products
including in-circuit testing of all printed circuit board assemblies, full
functional testing, 24 hour burn-in and power cycling at maximum and minimum
configuration levels. Please see "Risk Factors--Our reliance on third- party
manufacturing vendors to manufacture our products may cause a delay in our
ability to fill orders."
Research and Development
Our future success depends on our ability to enhance existing products and
develop new products that enable us to maintain a technology lead. We work with
customers and prospects, as well as partners and industry research
organizations, to identify and implement new solutions that meet the current
and future needs of enterprises and Internet service providers. Whenever
possible, our products are based on industry standards to ensure
interoperability. We intend to continue to support emerging industry standards
integral to our product strategy.
We use a uniform architecture across our product line, including programmable
ASICs, and system and network management software. This enables us to quickly
bring new products and features to market. For example, we shipped the
industry's first Gigabit Ethernet Layer 2 and Layer 3 switch in June 1997. We
are currently developing new switching solutions that provide new levels of
performance, scalability and functionality for the LAN, MAN and LAN/WAN. We
also have engineering efforts focused on cost reduction.
As of June 30, 1999, we had an engineering staff of 33 responsible for
hardware design and development, architecture and software development,
documentation and quality assurance. Our research and development expenses
totaled $8.8 million in 1998, $5.4 million in 1997 and $1.9 million in 1996.
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Competition
We believe that we compete favorably in the key competitive factors that
impact our markets, including technical expertise, price points, new product
innovation, product features, service and support, brand awareness and
distribution. We intend to remain competitive through ongoing investment in
research and development efforts to enhance existing products and introduce new
products. We will seek to expand our market presence through aggressive
marketing and sales efforts and through the continued implementation of cost
reduction efforts. However, our market is still evolving and we may not be able
to compete successfully against current and future competitors.
The market in which we operate is highly competitive. Cisco maintains a
dominant position in this market and several of its products compete directly
with our products. Its substantial resources and market dominance have enabled
it to reduce prices on its products within a short period of time following the
introduction of these products, which reduces the margins and profitability of
its competitors. Purchasers of networking solutions may choose Cisco's products
because of its longer operating history, broad product line and strong
reputation in the networking market. In addition, Cisco may have developed or
could in the future develop new technologies that directly compete with our
products or render our products obsolete.
In addition to Cisco, we 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. Furthermore, companies that do not offer a directly
competitive product to our products could develop new products or enter into
agreements with other networking companies to provide a product that competes
with our products or provides a more complete solution than we can offer.
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.
Intellectual Property
Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. 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.
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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 markets have extensive patent portfolios with respect to networking
technology, while we do not currently own any patents or have any patent
applications pending. From time to time, third parties, including leading
companies, have asserted and may assert 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
would be harmed.
Employees
As of June 30, 1999, we had 131 employees, including 64 in sales and
marketing, 33 in engineering, 23 in manufacturing and 11 in general and
administrative functions. We are not subject to any collective bargaining
agreements and believe our employee relations are good.
Facilities
In June 1999, we leased approximately 9,500 additional square feet in our
current facility primarily for the expansion of our manufacturing capabilities.
This lease expires at the end of February 2000. Prior to that date we leased
approximately 18,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative and
manufacturing. This lease expires in November 2001. We also lease space in
various other geographic locations for sales and service personnel.
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MANAGEMENT
Executive Officers and Directors
The names and ages of our executive officers and directors as of June 30,
1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Bobby R. Johnson, Jr......... 42 President, Chief Executive Officer, and
Chairman of the Board of Directors
H. Earl Ferguson............. 61 Vice President, Hardware Engineering
Drusilla W. Demopoulos....... 38 Vice President, Marketing
Timothy D. Heffner........... 50 Vice President, Finance and Administration,
Chief Financial Officer
Ken K. Cheng................. 44 Vice President, Product and Program
Management
Wilburn W. McGill............ 56 Vice President, Manufacturing
Robert W. Shackleton......... 48 Vice President, North American Sales
William S. Kallaos........... 51 Vice President, International Sales
Seth D. Neiman(a)............ 45 Director
Andrew K. Ludwick(a)......... 53 Director
</TABLE>
- --------
(a) Member of Audit Committee and Compensation Committee
Bobby R. Johnson, Jr. co-founded Foundry and has served as President, Chief
Executive Officer and Chairman of the board of directors of Foundry since its
inception in May 1996. From August 1993 to October 1995, Mr. Johnson co-founded
and served as President, Chief Executive Officer and Chairman of the board of
directors of Centillion Networks, Inc., a provider of local area network
switches. From September 1991 to February 1993, Mr. Johnson was Vice President
and General Manager of Internetworking Hardware for Network Equipment
Technologies, a wide area networking company. Mr. Johnson holds a B.S. with
honors from North Carolina State University.
H. Earl Ferguson co-founded Foundry and has served as Vice President,
Hardware Engineering, and chief technical officer of Foundry since July 1996.
From August 1993 to February 1996, Mr. Ferguson was co-founder and Vice
President of Engineering of Centillion Networks and the Vice President of
Engineering for the Centillion Business Unit of Bay Networks. From December
1991 to February 1993, Mr. Ferguson was Director of Internetworking Hardware
for Network Equipment Technologies. Mr. Ferguson holds six patents in
internetworking technologies. Mr. Ferguson holds a B.S. from the University of
Washington and M.S. from the University of Michigan.
Drusilla W. Demopoulos has served as Vice President of Marketing of Foundry
since November 1996. From April 1994 to October 1996, Ms. Demopoulos was
Director of Marketing for Centillion Networks, and for the Centillion Business
Unit of Bay Networks. From January 1991 to March 1994, she was Senior Manager
of Public Relations for Network Equipment Technologies. Ms. Demopoulos holds a
B.A. with honors from Georgia State University.
Timothy D. Heffner has served as Vice President, Finance and Administration
and Chief Financial Officer of Foundry since November 1996. From September 1994
to November 1996, Mr. Heffner was Director of Finance for Centillion Networks
and for the Centillion Business Unit of Bay Networks. From January 1994 to
September 1994, Mr. Heffner was Chief Financial Officer of Digital Generation
Systems, a network services company. Mr. Heffner holds a B.S. from San Jose
State University.
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<PAGE>
Ken K. Cheng has served as Vice President of Product and Program Management
of Foundry since July 1998. From December 1993 to July 1998, Mr. Cheng was
Senior Vice President and Chief Operating Officer of Digital Generation
Systems, a network services company. From December 1988 to December 1993, Mr.
Cheng was Director of LAN/WAN Internetworking Hardware for Network Equipment
Technologies. Mr. Cheng holds a B.S. from Queen's University and an M.B.A. from
Santa Clara University.
Wilburn W. McGill has served as Vice President of Manufacturing of Foundry
since February 1997. From March 1996 to February 1997, Mr. McGill was the Vice
President of Operations at Ancot Corporation, a networking analyzer company.
From May 1995 to March 1996, Mr. McGill was Vice President of Engineering and
Operations for DTC Data Technology Corporation, a network interface card
company. From January 1990 to February 1994, Mr. McGill was General Manager for
the Research and Development Division of Centera Ltd., a networking solutions
company.
Robert W. Shackleton has served as Vice President of North American Sales of
Foundry since April 1997. From March 1989 to March 1997, Mr. Shackleton was
Senior Director of United States Distribution and Sales for Network Equipment
Technologies. Mr. Shackleton holds a B.A. with honors from the University of
Colorado and attended Stanford University's Business School Executive
Management Program.
William S. Kallaos has served as Vice President of International Sales of
Foundry since April 1997. From September 1984 to February 1997, Mr. Kallaos
worked for UB Networks in a variety of positions, most recently as Vice
President of United States Sales. Mr. Kallaos holds a B.A. with honors from the
University of Missouri.
Seth D. Neiman has served as a member of the board of directors of Foundry
since its inception in May 1996. Since August 1994, Mr. Neiman has held various
positions at Crosspoint Venture Partners, a venture capital firm, and has been
a partner of Crosspoint since January 1996. From September 1991 to July 1994,
Mr. Neiman was Vice President of Engineering at Coactive Networks, a local area
networks company. Mr. Neiman serves on the board of Brocade Communications
Systems, Inc., where he is Chairman of the Board. Mr. Neiman holds a B.A. from
Ohio State University.
Andrew K. Ludwick has served as a member of the board of directors of Foundry
since May 1999. From September 1995 to October 1997, Mr. Ludwick was Chief
Executive Officer of Bay Networks, a networking company. From July 1985 to
September 1995, Mr. Ludwick was founder, President and Chief Executive Officer
of SynOptics, an internetworking company. Mr. Ludwick currently serves as a
member of the boards of directors of a number of private companies. Mr. Ludwick
holds a B.A. from Harvard College and an M.B.A. from Harvard Business School.
Board Composition
Upon completion of this offering, we will have an authorized board of three
to five directors. The number of our directors is currently set at three. Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next annual meeting or until his successor is
duly elected and qualified. The executive officers serve at the discretion of
the board of directors. There are no family relationships among any of our
directors or executive officers.
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<PAGE>
Executive Compensation
The following table provides summary information concerning the compensation
received for services rendered to us during 1998 by our Chief Executive Officer
and each of the other four most highly compensated executive officers, each of
whose aggregate compensation during our last fiscal year exceeded $100,000
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------- ------------
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position ($) ($) ($) Options (#) ($)(a)
- ------------------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Bobby R. Johnson, Jr... $139,090 $ -- $ -- -- $470
President, Chief
Executive Officer,
Chairman of the Board
of Directors
Robert W. Shackleton... 111,590 2,500 74,112(b) 7,500 504
Vice President,
Domestic Sales
William S. Kallaos..... 109,090 -- 35,821(b) -- 370
Vice President,
International Sales
Wilburn W. McGill...... 125,090 11,500 12,830(c) 15,000 430
Vice President,
Manufacturing
Drusilla W.
Demopoulos............ 119,840 2,500 -- -- 407
Vice President,
Marketing
</TABLE>
- --------
(a) Represents premiums paid for life insurance.
(b) Represents commissions paid based on total sales.
(c) Represents partial forgiveness by Foundry of loans and interest outstanding
under loans made to Mr. McGill in connection with the exercise of options.
Option Grants in Last Fiscal Year
The following table provides summary information regarding stock options
granted to each of the Named Executive Officers in 1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential Realizable
% Of Total Value At Assumed
Number Of Options Annual Rates of Stock
Securities Granted To Price Appreciation
Underlying Employees In Exercise Or For Option Term ($)(d)
Options Fiscal Year Base Price Expiration ----------------------
Name Granted(#) (%)(a) ($/Share)(b) Date(c) 5% 10%
- ---- ---------- ------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bobby R. Johnson, Jr.... -- --% $ -- -- $ -- $ --
Robert W. Shackleton.... 7,500 0.3 0.50 6/10/08 2,358 5,977
William S. Kallaos...... -- -- -- -- -- --
Wilburn W. McGill....... 15,000 0.6 0.50 4/29/08 4,717 11,953
Drusilla W. Demopoulos.. -- -- -- -- -- --
</TABLE>
- --------
(a) Based on the aggregate of 2,722,500 shares subject to options granted by us
in 1998.
(b) The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined by our board
of directors.
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<PAGE>
(c) These stock options were granted under the 1996 Stock Plan and were
immediately exercisable. These options were exercised prior to December 31,
1998, but we have a right to repurchase at cost any shares that remain
unvested at the time of the officer's cessation of employment. The shares
vest at a rate of 1/48th per month subject to earlier termination in the
event of termination of employment and provide for partial acceleration
upon a change of control.
(d) The potential realizable value assumes that the fair market value of our
common stock on the date of grant appreciates at the indicated annual rate
compounded annually for the entire 10-year term of the option and that the
option is exercised and sold on the last day of its term for the
appreciated stock price. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the rules of the SEC, and do not
represent our prediction of stock performance. Actual gains, if any, on
stock option exercises will depend on the future performance of our common
stock. The gains shown are net of the option exercise price, but do not
include deductions for taxes and other expenses payable upon the exercise
of the option or for sale of underlying shares of common stock.
On January 26, 1999 the board of directors authorized the grant of options to
the following Named Executive Officers, at an exercise price of $2.50 per
share: Drusilla W. Demopoulos, 28,000 shares; Robert W. Shackleton, 50,000
shares; and Wilburn W. McGill, 75,000 shares. These options were granted
outside of the 1996 Stock Plan, but the exercise and repurchase rights of the
options are substantially similar to those granted officers in 1998 under the
1996 Stock Plan.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table provides summary information concerning stock option
exercises during our last fiscal year and options outstanding at the end of the
last fiscal year:
<TABLE>
<CAPTION>
Number of Shares
Underlying Value of Unexercised
Unexercised In-the Money Options
Options at at
December 31, 1998 December 31, 1998(a)
Shares ----------------- --------------------
Acquired Value Exercisable / Exercisable /
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------- -------- ------------- --------------------
<S> <C> <C> <C> <C>
Bobby R. Johnson, Jr.... -- $ -- -- $--
Robert W. Shackleton.... 7,500 3,750 -- --
William S. Kallaos...... -- -- -- --
Wilburn W. McGill....... 15,000 7,500 -- --
Drusilla W. Demopoulos.. 32,000 22,400 -- --
</TABLE>
- --------
(a) The value was calculated by determining the difference between the fair
market value of underlying securities and the exercise price, multiplied by
the number of shares issued upon exercise of the option. The fair market
value of our common stock was $1.00 per share on December 31, 1998 as
determined by our board of directors.
Director Compensation
Except for the grant of stock options, directors are not compensated for
their services as directors. All directors are eligible to participate in our
1996 Stock Plan. Upon completion of this offering, directors who are not our
employees will be eligible to participate in our 1999 Directors' Stock Option
Plan. See "--1996 Stock Plan" and "--1999 Directors' Stock Option Plan."
On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share which was granted to him in connection with his appointment as a member
of our board of directors.
Committees of the Board of Directors
In July 1999, the board established the audit committee, compensation
committee and stock option subcommittee. The audit committee reviews our annual
audit and meets with our independent auditors to review our internal controls
and financial management practices. The
47
<PAGE>
audit committee currently consists of Seth D. Neiman and Andrew K. Ludwick. The
compensation committee recommends compensation for some of our personnel to the
board and generally administers our stock plans. The compensation committee
currently consists of Messrs. Neiman and Ludwick. The stock option subcommittee
administers our discretionary stock plans with respect to grants to optionees
who are not officers or non-employee directors of Foundry under guidelines to
be established by the board. The stock option subcommittee currently consists
of Bobby R. Johnson, Jr.
On June 9, 1999, we sold to a family trust of which Mr. Ludwick is a trustee
125,000 shares of our Series C preferred stock at a purchase price of $8.00 per
share.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
currently Seth D. Neiman and Andrew K. Ludwick. Neither has at any time been an
officer or employee of Foundry.
1996 Stock Plan
Our 1996 Stock Plan was adopted by our board of directors and approved by our
stockholders in July 1996. A total of 10,270,000 shares of common stock for
stock option grants were originally reserved under this plan. Our board of
directors and our stockholders approved a 1,000,000 share increase in October
1998, and a 1,000,000 share increase in May 1999. In addition, in July 1999,
our board of directors approved a 2,000,000 share increase plus an automatic
annual increase on the first day of each of Foundry's fiscal years from 2000
through 2006 equal to the lesser of:
. 1,500,000 shares;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by our board of directors.
The July 1999 increase will be submitted to our stockholders for approval
prior to the completion of this offering, and, if approved, will bring the
total number of shares currently reserved under this plan to 14,270,000. As of
June 30, 1999, options to purchase 12,608,000 shares of common stock with a
weighted average exercise price equal to $1.07 per share have been granted
under the 1996 Stock Plan. Of these, 633,334 options have been canceled and
returned to the option pool so that, as of June 30, 1999, 295,334 shares
remained available for future grant.
The 1996 Stock Plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and the grant
of nonstatutory stock options and stock purchase rights to employees, non-
employee directors and consultants. The plan may be administered by our board
or a committee appointed by the board. The administrator of the 1996 Stock Plan
will determine number, vesting schedule, and exercise price for options, or
conditions for stock purchase rights, granted under the 1996 Stock Plan
provided, however, an individual employee may not receive option grants and
stock purchase rights for more than 1,000,000 shares in any fiscal year. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value in excess of $100,000 as of the date the options
were granted, the excess options will be treated as nonstatutory stock options.
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<PAGE>
Incentive stock options granted under the 1996 Stock Plan must have an
exercise price equal to at least 100% of the fair market value of the common
stock on the date of the grant, and at least 110% of the fair market value in
the case of incentive stock options granted to an employee who holds more than
10% of the total voting power of all classes of our stock or the stock of any
parent or subsidiary. Nonstatutory stock options granted under the 1996 Stock
Plan will have an exercise price as determined by the administrator of the 1996
Stock Plan; provided, however, that the exercise price of a nonstatutory stock
option granted to a Named Executive Officer must equal at least 100% of the
fair market value of the common stock on the date of grant in order for that
grant to qualify as performance-based compensation under applicable tax law.
Payment of the exercise price may be made in cash or other forms of
consideration approved by the administrator.
The administrator determines the term of options, which may not exceed 10
years, or 5 years in the case of an incentive stock option granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock or the stock of any parent or subsidiary. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by such optionee.
Options granted under the 1996 Stock Plan generally may be exercised
immediately after the grant date, but to the extent the shares subject to the
options are not vested as of the date of exercise, we retain a right to
repurchase any shares that remain unvested at the time of the optionee's
termination of employment by paying an amount equal to the exercise price times
the number of unvested shares. Options granted under the 1996 Stock Plan
generally vest at the rate of 1/4th of the total number of shares subject to
the options twelve months after the date of grant and 1/48th of the total
number of shares subject to the options each month thereafter.
In addition to stock options, the administrator may issue stock purchase
rights under the 1996 Stock Plan to employees, non-employee directors and
consultants. The administrator determines the number of shares, price, terms,
conditions and restrictions related to a grant of stock purchase rights. The
purchase price of a stock purchase right granted under the 1996 Stock Plan will
be as determined by the administrator. The period during which the stock
purchase right is held open is determined by the administrator, but in no case
shall this period exceed 30 days. Unless the administrator determines
otherwise, the recipient of a stock purchaser right must execute a restricted
stock purchase agreement granting Foundry an option to repurchase unvested
shares at cost upon termination of the recipient's relationship with us.
In the event we sell all or substantially all of our assets or merge with
another corporation, then each option may be assumed or an equivalent option
substituted by the successor corporation. However, if the successor corporation
does not agree to this assumption or substitution, the option or stock purchase
right will terminate. Upon the closing of the transaction, outstanding
repurchase rights will terminate unless acquired by the acquiror or purchaser.
The board of directors may amend, modify or terminate the 1996 Stock Plan at
any time as long as any amendment, modification or termination does not impair
vesting rights of plan participants and provided that stockholder approval
shall be required for an amendment to the extent required by applicable law.
The 1996 Stock Plan will terminate in July 2006 unless the board of directors
terminates it earlier.
1999 Directors' Stock Option Plan
The 1999 Directors' Stock Option Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to completion of this offering. A
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<PAGE>
total of 450,000 shares of common stock has been reserved for issuance under
the 1999 Directors' Stock Option Plan.
Under the 1999 Directors' Stock Option Plan, each non-employee director who
becomes a non-employee director after the effective date of the plan will
receive an automatic initial grant of an option to purchase 75,000 shares of
common stock upon appointment or election. Initial grants to non-employee
directors shall be vested and exercisable in full on the date of the grant. The
1999 Directors' Stock Option Plan also provides for annual grants, on the date
of each annual meeting of our stockholders, to each non-employee director who
has served on our board of directors for at least six months. The annual grant
to non-employee directors is an option to purchase 20,000 shares of common
stock, which will be vested and exercisable in full on the date of grant. The
exercise price of all stock options granted under the 1999 Directors' Stock
Option Plan shall be equal to the fair market value of a share of our common
stock on the date of grant of the option. Options granted under the 1999
Directors' Stock Option Plan have a term of ten years. However, options will
terminate if they are not exercised within 12 months after the director's death
or disability or within 90 days after the director ceases to serve as a
director for any other reason.
In the event of a sale of all or substantially all of our assets or our
merger or consolidation with or into another corporation in which the ownership
of more than 50% of the total combined voting power of our outstanding
securities changes hands, all outstanding options shall be assumed or an
equivalent option substituted by the successor corporation. However, if the
successor corporation does not agree to this assumption or substitution, the
option will terminate.
The 1999 Directors' Stock Option Plan is designed to work automatically
without administration. However, to the extent administration is necessary, it
will be performed by the board of directors other than the director or
directors that have a personal interest at stake. Although the board of
directors may amend or terminate the 1999 Directors' Stock Option Plan, it may
not take any action that may adversely affect any outstanding option without
the consent of the optionee. The 1999 Directors' Stock Option Plan will have a
term of ten years unless terminated earlier. We have not issued any options
under the 1999 Directors' Stock Option Plan to date.
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan was adopted by the board of directors
in July 1999. We will be submitting it for approval by the stockholders prior
to the completion of this offering. A total of 500,000 shares of common stock
has been reserved for issuance under the 1999 Employee Stock Purchase Plan,
none of which have been issued as of the date of this offering. The number of
shares reserved for issuance under the 1999 Employee Stock Purchase Plan will
be increased on the first day of each of our fiscal years from 2000 through
2009 by the lesser of:
. 500,000 shares;
. 2% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. the number of shares determined by the board of directors.
The 1999 Employee Stock Purchase Plan becomes effective on the date of this
prospectus. Unless terminated earlier by the board of directors, the 1999
Employee Stock Purchase Plan shall terminate on the 10-year anniversary of the
date of this offering.
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<PAGE>
The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the IRS Code, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods, other than
the first offering period, commencing on February 1 and August 1 of each year.
Each offering period will consist of four consecutive purchase periods of six
months' duration, and at the end of each six month period an automatic purchase
will be made for participants. The initial offering period is expected to
commence on the date of this offering and end on July 31, 2001; the initial
purchase period is expected to begin on the date of this offering and end on
January 31, 2000. The 1999 Employee Stock Purchase Plan will be administered by
the board of directors or by a committee appointed by the board. Employees
(including officers and employee directors) of ours, or of any majority-owned
subsidiary designated by the board, are eligible to participate in the 1999
Employee Stock Purchase Plan if we or any subsidiary employs them for at least
20 hours per week and more than five months per year. Under the 1999 Employee
Stock Purchase Plan, eligible employees may purchase common stock through
payroll deductions, which in any event may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the common stock at the beginning of each offering period or at the end of each
purchase period. Employees may end their participation in the 1999 Employee
Stock Purchase Plan at any time during an offering period and participation
ends automatically on termination of employment.
Under the 1999 Employee Stock Purchase Plan no employee shall be granted an
option if immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock. In addition, no employee shall be
granted an option under the 1999 Employee Stock Purchase Plan if the option
would permit the employee to purchase stock under all of our employee stock
purchase plans in an amount that exceeds $25,000 of fair market value for each
calendar year in which the option is outstanding at any time. In addition, no
employee may purchase more than 2,500 shares of common stock under the 1999
Employee Stock Purchase Plan in any one purchase period. If the fair market
value of the common stock on a purchase date other than the final purchase date
of an offering period is less than the fair market value at the beginning of
the offering period, each participant in the 1999 Employee Stock Purchase Plan
shall automatically be withdrawn from the offering period as of the purchase
date and re-enrolled in a new 24 month offering period beginning on the first
business day following the purchase date.
The 1999 Employee Stock Purchase Plan provides that, in the event of our
merger or consolidation with or into another corporation or a sale of all or
substantially all of our assets, each right to purchase stock under the 1999
Employee Stock Purchase Plan will be assumed or an equivalent right will be
substituted by the successor corporation. However, our board of directors will
shorten any ongoing offering period so that employees' rights to purchase stock
under the 1999 Employee Stock Purchase Plan are exercised prior to the
transaction in the event that the successor corporation refuses to assume each
purchase right or to substitute an equivalent right. The board of directors has
the power to amend or terminate the 1999 Employee Stock Purchase Plan and to
change or terminate offering periods as long as any action does not adversely
affect any outstanding rights to purchase stock under the 1999 Employee Stock
Purchase Plan. However the board may amend or terminate the 1999 Employee Stock
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid Foundry's incurring adverse accounting
charges. We have not issued any shares under the 1999 Employee Stock Purchase
Plan to date.
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401(k) Retirement Plan
Effective January 1, 1997, we adopted the Foundry Networks 401(k) plan
covering our full-time employees. The 401(k) plan is intended to qualify under
Section 401(a) of the IRS Code, and its accompanying trust is intended to be a
tax-exempt trust under Section 501(c) of the IRS Code. Contributions to the
401(k) plan by employees or by us, and the investment earnings on them, are not
taxable to employees until withdrawn from the 401(k) plan, and contributions by
us, if any, will be deductible by us when made. Under the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit of $10,000 in 1999 and to have the amount
of such reduction contributed to the 401(k) plan. The trustees of the 401(k)
plan, at the direction of participants, invest the assets of the 401(k) plan in
any of certain designated investment options. The 401(k) plan permits, but does
not require, additional matching contributions to the 401(k) plan by us on
behalf of all participants to the 401(k) plan. To date, we have not made any
matching contributions to the 401(k) plan.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derives an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
relief such as injunctive relief or rescission.
Upon completion of this offering, our bylaws will provide that Foundry shall
indemnify its directors and officers and may indemnify its employees and other
agents to the full extent permitted by law. We believe that indemnification
under our bylaws will cover at least negligence and gross negligence on the
part of an indemnified party. Our bylaws will also permit us to advance
expenses incurred by an indemnified party in connection with the defense of any
action or proceeding arising out of the party's status or service as a
director, officer, employee or other agent of Foundry upon an undertaking by
the indemnified party to repay these advances if it is ultimately determined
that the party is not entitled to indemnification.
We have also entered into indemnification agreements with our officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require us to indemnify
officers and directors against liabilities that may arise by reason of their
status or service as officers and directors, but not for liabilities arising
from willful misconduct of a culpable nature, and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. We believe that our certificate of incorporation and bylaw
provisions and indemnification agreements are
52
<PAGE>
necessary to attract and retain qualified persons as officers and directors. In
addition, we will obtain directors' and officers' liability insurance prior to
completion of this offering.
At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of June 30, 1999 and as adjusted to reflect the sale of
the common stock offered by us under this prospectus by:
. each of our directors, Named Executive Officers, and founders who are ex-
ecutive officers;
. all directors and executive officers as a group; and
. each person who is known to us to own beneficially more than 5% of our
common stock.
<TABLE>
<CAPTION>
Percent Beneficially
Owned
------------------------
Number Before After
Name and Address of Shares Offering Offering
- ---------------- ---------- ---------- ----------
<S> <C> <C> <C>
Directors and Executive Officers:
Bobby R. Johnson, Jr................. 8,050,000 23.8%
H. Earl Ferguson..................... 1,595,000 4.7
Drusilla W. Demopoulos (a)........... 600,000 1.8
Wilburn W. McGill (b)................ 485,000 1.4
Robert W. Shackleton (c)............. 492,500 1.5
William S. Kallaos (d)............... 405,000 1.2
Seth D. Neiman (e)................... 5,419,870 16.1
Andrew K. Ludwick (f)................ 282,500 *
All directors and executive officers
as a group (10 persons) (g)......... 18,284,870 53.8
5% Stockholders:
Entities affiliated with Crosspoint
Venture Partners (h)............... 5,419,870 16.1
2925 Woodside Rd.
Woodside, CA 94062
Entities affiliated with
Institutional Venture Partners
(i)................................ 3,045,206 9.0
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Entities affiliated with Accel
Partners (j)....................... 2,340,505 6.9
428 University Ave.
Palo Alto, CA 94301
Entities affiliated with
VantagePoint Venture Partners (k).. 2,274,914 6.7
1001 Bayhill Drive, Ste. 140
San Bruno, CA 94066
</TABLE>
- --------
* Less than one percent of the outstanding shares of common stock.
(a) Includes 572,000 shares subject to stock pledge agreements in favor of
Foundry, 211,250 of which are subject to our right of repurchase at cost
upon cessation of employment, and 28,000 shares issuable upon the exercise
of an option which was exercisable as of June 30, 1999.
(b) Includes 410,000 shares subject to stock pledge agreements in favor of
Foundry, 179,376 of which are subject to our right of repurchase at cost
upon cessation of employment and 5,000 of which are held jointly with
Billie J. McGill, and 75,000 shares issuable upon the exercise of an
option which was exercisable as of June 30, 1999.
(c) Includes 442,500 shares subject to stock pledge agreements in favor of
Foundry, 205,000 of which are subject to our right of repurchase at cost
upon cessation of employment, and 50,000 shares issuable upon the exercise
of an option which was exercisable as of June 30, 1999.
(d) Includes 405,000 shares subject to a stock pledge agreement in favor of
Foundry, 185,625 of which are subject to our right of repurchase at cost
upon cessation of employment.
(e) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996), and
1,546,392 shares held by Crosspoint Venture Partners LS 1997. Seth D.
Neiman is a general partner of the general partner of the Crosspoint
entities and is a director of Foundry. He disclaims beneficial ownership
of the shares held by the Crosspoint entities except to the extent of his
pecuniary interest in these shares.
54
<PAGE>
(f) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
trustee and 5,000 shares transferred to his minor children and held in
custodial accounts on their behalf.
(g) Includes 5,419,870 shares held by entities affiliated with Mr. Neiman as
described in Note (a), 3,539,689 shares subject to our right of repurchase
upon cessation of employment by officers and 218,000 shares issuable upon
the exercise of options which were exercisable as of June 30, 1999.
(h) Includes 3,873,478 shares held by Crosspoint Venture Partners (1996) and
1,546,392 shares held by Crosspoint Venture Partners LS 1997.
(i) Includes 50,814 shares held by Institutional Venture Management VII, L.P.,
106,584 shares held by IVP Founders Fund I, L.P. and 2,887,808 shares held
by Institutional Venture Partners VII, L.P.
(j) Includes 243,413 shares held by Accel Internet/Strategic Technology Fund
L.P., 112,344 shares held by Accel Investors 97 L.P., 95,960 shares held
by Accel Keiretsu V L.P., 1,837,297 shares held by Accel V L.P. and 51,491
shares held by Elmore C. Patterson Partners.
(k) Includes 34,364 shares held by VantagePoint Advisors, LLC and 2,240,550
shares held by VantagePoint Venture Partners 1996.
Except as otherwise noted, the address of each person listed in the table is
c/o Foundry Networks, Inc., 680 W. Maude Avenue, Suite 3, Sunnyvale, CA 94086.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned.
The table includes all shares of common stock issuable within 60 days of June
30, 1999 upon the exercise of options and other rights beneficially owned by
the indicated stockholders on that date.
The applicable percentage of ownership for each stockholder is based on
33,757,293 shares of common stock outstanding as of June 30, 1999, together
with applicable options for that stockholder. Shares of common stock issuable
upon exercise of options and other rights beneficially owned are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights, but are not deemed outstanding for
computing the percentage ownership of any other person.
55
<PAGE>
CERTAIN TRANSACTIONS
Since our inception, we have issued shares of preferred stock in private
placement transactions as follows: 5,750,000 shares of Series A preferred stock
at $1.00 per share in June 1996; 4,086,954 shares of Series B preferred stock
at $2.30 per share in June, August and December 1997; 5,154,642 shares of
Series C preferred stock at $2.91 per share in March 1998; and 125,000 shares
of Series C preferred stock at $8.00 per share in June 1999 to a family trust
of which Andrew K. Ludwick, a director of Foundry, is a trustee. Each share of
preferred stock converts automatically upon completion of the offering into one
share of common stock. In October 1996, we also issued in a private placement
transaction warrants for 30,000 shares of Series A preferred stock at a
purchase price of $1.00 per share, which will convert to warrants to purchase
common stock upon completion of this offering. See "Description of Capital
Stock--Warrants."
The following table summarizes the shares of preferred stock purchased by
directors and 5% stockholders of Foundry and persons and entities associated
with them in private placement transactions.
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Stockholders Stock Stock Stock
- ------------ --------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with Crosspoint Venture
Partners(a).................................... 3,330,000 543,478 1,546,392
Andrew K. Ludwick(b)............................ 125,000
Bobby R. Johnson, Jr.(c)........................ 600,000
Entities affiliated with Institutional Venture
Partners(d).................................... 1,420,000 1,195,652 429,554
Entities affiliated with Accel Partners(e)...... 1,739,130 601,375
Entities affiliated with VantagePoint Venture
Partners(f).................................... 2,274,914
</TABLE>
- --------
(a) Includes shares held by Crosspoint Venture Partners (1996) and Crosspoint
Venture Partners LS 1997. Seth D. Neiman is a general partner of the
general partner of the Crosspoint entities and is a director of Foundry. He
disclaims beneficial ownership of the shares held by the entities except to
the extent of his pecuniary interest in these shares.
(b) Includes 125,000 shares sold to a family trust of which Mr. Ludwick is a
trustee and 2,500 shares transferred to one of his children.
(c) In June 1999, we repurchased 400,000 shares of our common stock from Mr.
Johnson at his original purchase price of $0.01 per share.
(d) Includes shares held by Institutional Venture Management VII, L.P., IVP
Founders Fund I, L.P. Fund I, L.P. and Institutional Venture Partners VII,
L.P.
(e) Includes shares held by Accel Internet/Strategic Technology Fund L.P.,
Accel Investors '97 L.P., Accel Keiretsu V L.P., Accel V L.P. and Elmore C.
Patterson Partners.
(f) Includes shares held by VantagePoint Advisors, LLC and VantagePoint Venture
Partners 1996.
On June 6, 1996, we sold Bobby R. Johnson, Jr. 7,850,000 shares of our common
stock at a purchase price of $0.01 per share, paid for by Mr. Johnson through
(a) the assignment of proprietary information, discussed below, and (b) the
cancellation of debt owed to Mr. Johnson. Under the agreement, we held the
right to repurchase any shares that remained unvested upon either a voluntary
termination of employment by Mr. Johnson or a termination by us for cause. 25%
of the stock vested as of May 22, 1996, and the remaining shares vested monthly
over each of the next 48 months. Also on June 6, 1996, and in connection with
the stock sale discussed above, Mr. Johnson executed an assignment agreement,
in which he assigned to us certain business concepts and proprietary
information relating to the development of next generation high performance
campus LAN infrastructure products. In June 1999, we repurchased 400,000 shares
of our common stock from Mr. Johnson at his original purchase price of $0.01
per share.
56
<PAGE>
On December 4, 1996, we granted Drusilla W. Demopoulos an option to purchase
540,000 shares of our common stock at an exercise price of $0.10 per share
under our 1996 Stock Plan. This option was immediately exercisable subject to
our right to repurchase at cost any shares that remain unvested upon cessation
of employment. In connection with the exercise of this option on June 25, 1997,
we provided a loan to Ms. Demopoulos, pursuant to a note secured by a stock
pledge agreement, in the principal amount of $54,000 with an interest rate of
6.68%, due upon the earlier of June 25, 2002 or twelve months after the closing
of Foundry's initial public offering. On December 17, 1997, we granted Ms.
Demopoulos an option to purchase 32,000 shares of our common stock at an
exercise price of $0.30 per share under our 1996 Stock Plan. This option was
immediately exercisable subject to our right to repurchase at cost any shares
that remain unvested upon cessation of employment. In connection with the
exercise of this option on April 29, 1998, we provided a second loan to
Ms. Demopoulos, pursuant to a note secured by a stock pledge agreement, in the
principal amount of $9,600 with an interest rate of 5.58%, due upon the earlier
of April 28, 2003 or twelve months after the closing of Foundry's initial
public offering.
On August 11, 1998, we granted Ken K. Cheng an option to purchase 415,000
shares of our common stock at an exercise price of $0.50 per share under our
1996 Stock Plan. This option was immediately exercisable subject to our right
to repurchase at cost any shares that remain unvested upon cessation of
employment. In connection with the exercise of this option on October 6, 1998,
we provided a loan to Mr. Cheng, pursuant to a note secured by a stock pledge
agreement, in the principal amount of $207,458 with an interest rate of 5.03%,
due upon the earlier of October 5, 2003 or twelve months after the closing of
Foundry's initial public offering.
On June 28, 1999, Andrew K. Ludwick exercised a fully vested option to
purchase 160,000 shares of our common stock at an exercise price of $8.00 per
share granted him in connection with his appointment as a member of our board
of directors. On June 9, 1999, we sold to a family trust of which Mr. Ludwick
is a trustee, 125,000 shares of our Series C preferred stock at a purchase
price of $8.00 per share.
Indemnification Agreements
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters."
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General Matters
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.0001 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.
The following description of our capital stock is not complete and is
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of June 30, 1999, and after giving effect to the conversion of our
preferred stock into common stock at a one-to-one ratio, there were 33,757,293
shares of common stock outstanding that were held of record by approximately
121 stockholders. Also outstanding as of that date were options to purchase
3,861,969 shares of common stock and warrants to purchase 30,000 shares of
Series A preferred stock, which will convert to warrants to purchase common
stock upon completion of this offering. Assuming no exercise of the
underwriters' overallotment option, exercise of outstanding options under our
1996 Stock Plan or exercise of the warrant, and after giving effect to the sale
of shares offered here, there will be shares of common stock outstanding
upon completion of this offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of Foundry, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of common stock
are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
Preferred Stock
Upon completion of this offering, all outstanding shares of preferred stock
will be converted into 15,116,596 shares of common stock. Thereafter, our board
of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, $0.0001 par
value, in one or more series. The board of directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
each series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Foundry without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. We currently have no plans to
issue any shares of preferred stock.
58
<PAGE>
Warrants
As of June 30, 1999, there were warrants outstanding to purchase 30,000
shares of Series A preferred stock which will convert to warrants to purchase
common stock upon completion of this offering. The warrants contain provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications,
consolidations and certain dilutive issuances of securities at prices below the
then existing warrant exercise price.
Registration Rights
Assuming the conversion of all outstanding preferred stock into common stock
upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock, which
will convert to warrants to purchase common stock upon completion of this
offering, or their transferees are entitled to registration rights with respect
to these shares under the Securities Act. These rights are provided under the
terms of an agreement between Foundry and the holders of these securities.
Subject to limitations in the agreement, these registration rights include the
following:
. The holders of at least 30% of these securities then outstanding may
require, on one occasion beginning one year after the date of this
prospectus, that we use our best efforts to register these securities
for public resale, provided that the anticipated aggregate offering
price, net of underwriting discounts and commissions, of such public
resale would exceed $10,000,000.
. If we register any of our common stock either for our own account or for
the account of other security holders, the holders of these securities
are entitled to include their shares of common stock in that
registration, subject to the ability of the underwriters to limit the
number of shares included in the offering.
. The holders of these securities may also require us, not more than once
in any 12 month period and no more than three times total, to register
all or a portion of these securities on Form S-3 when use of that form
becomes available to us, provided, among other limitations, that the
proposed aggregate selling price, net of any underwriters' discounts or
commissions, is at least $1,000,000.
We will be responsible for paying all registration expenses other than
underwriting discounts and commissions, and the holders selling their shares
will be responsible for paying all selling expenses.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the acquisition of Foundry and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Foundry to negotiate with it
first. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure Foundry outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
59
<PAGE>
We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Foundry
without further action by the stockholders.
Upon completion of this offering, our bylaws will provide that stockholder
action can only be taken at an annual or special meeting. The bylaws provide
that special meetings of stockholders can be called only by the board of
directors, the Chairman of the Board, if any, and the President. The bylaws set
forth an advance notice procedure with regard to the nomination, other than by
or at the direction of the board of directors, of candidates for election as
directors and with regard to business to be brought before a meeting of
stockholders.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is . The
Transfer Agent's address and telephone number is , ( )
.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market after this
offering could cause the market price of our common stock to decline.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of contractual and legal restrictions on
resale, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of common
stock. Of these shares, the shares sold in the offering (and any shares
issued upon exercise of the underwriters' overallotment option) will be freely
tradable without restriction under the Securities Act, unless purchased by
"affiliates" of ours as that term is defined in Rule 144 under the Securities
Act. Affiliates generally include officers, directors or 10% stockholders.
Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions as described below.
The remaining 33,757,293 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 under the Securities
Act, which are summarized below. Sales of these shares in the public market, or
the availability of such shares for sale, could cause the market price of our
common stock to decline.
Our stockholders have entered into lock-up agreements generally providing
that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the effective date of the registration statement filed pursuant to this
offering. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements will not be salable until such
agreements expire or are waived. Taking into account the lock-up agreements,
the following shares will be eligible for sale in the public market at the
following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market;
. Beginning 180 days after the effective date, approximately 31,140,670
shares will be eligible for sale pursuant to Rules 701, 144 and 144(k),
of which all but 14,365,251 shares are held by affiliates;
. An additional 2,491,623 shares will be eligible for sale pursuant to
Rule 701 at various times beginning 180 days after the effective date
when these shares are released from our repurchase option with respect
to these shares, of which all but 1,320,172 shares are held by
affiliates; and
. An additional 125,000 shares will be eligible for sale pursuant to Rule
144 on June 10, 2000.
Rule 144
Under Rule 144, beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for
at least one year, which includes
61
<PAGE>
the holding period of any prior owner other than an affiliate, would generally
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
. 1% of the outstanding shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Foundry.
Rule 144(k)
Under Rule 144(k), a person who was not an affiliate of Foundry at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, which includes the holding period
of any prior owner except an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, consultants or advisors,
other than affiliates, who purchases or receives shares from us in connection
with a compensatory stock purchase plan or option plan or other written
agreement will be eligible to resell these shares beginning 90 days after the
effective date of the registration statement of which this prospectus is a
part, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its holding period
requirements.
Registration Rights
Upon completion of this offering, the holders of 15,089,096 shares of common
stock and warrants to purchase 30,000 shares of Series A preferred stock which
will convert to warrants to purchase common stock upon completion of this
offering will be entitled to registration rights with respect to these shares
under the Securities Act. When these shares are registered under the Securities
Act, they will be freely tradable unless held by affiliates.
Stock Options
In addition, we intend to file registration statements under the Securities
Act as promptly as possible upon the completion of this offering to register
7,107,303 shares of common stock to be issued pursuant to our employee benefit
plans or upon exercise of non-plan options. As a result, any options or rights
exercised under the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan or
the 1999 Directors' Stock Option Plan after the effectiveness of the
registration statements will be available for sale in the public market 180
days after the effective date of this offering upon the expiration of lock-up
agreements. However, such shares held by affiliates will still be subject to
the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise resalable under Rule 701.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P.
Morgan Securities Inc. have severally agreed to purchase from Foundry the
number of shares of common stock set forth beside their names below at a public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ................................................
J.P. Morgan Securities Inc. ..........................................
---
Total...............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the common stock is subject to the terms and conditions set forth
in the underwriting agreement. The underwriting agreement requires the
underwriters to purchase all of the shares of the common stock offered by this
prospectus, if any are purchased. The shares of common stock offered by the
underwriters pursuant to this prospectus are subject to prior sale, when, as
and if delivered to and accepted by the underwriters, and subject to the
underwriters' right to reject any order in whole or in part.
We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price of $ this prospectus and to certain dealers at a price that
represents a concession not in excess of $ per share. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $ per
share from the initial public offering price. Any such securities dealers may
resell any shares purchased from the underwriters to certain other brokers or
dealers at a discount of up to $ per share from the public offering price.
The underwriters may change the public offering price after the common stock is
released for sale to the public.
The underwriters may sell more shares than the total number set forth in the
table above. To cover these sales, we have granted the underwriters an option
to purchase up to an aggregate of additional shares of common stock at the
initial public offering price, less the underwriting discounts and commissions.
The underwriters may exercise this option at any time within 30 days after the
date of this prospectus only to cover these sales. To the extent the
underwriters exercise this option, each of the underwriters will purchase
shares in approximately the same proportion as the number of shares of common
stock to be purchased by it shown in the above table bears to , and we will
be obligated, pursuant to the option, to sell those shares to the underwriters.
If purchased, the underwriters will offer the additional shares on the same
terms as those on which the shares are being offered. If the underwriters
exercise their over-allotment option in full, the total public offering price
will be $ , the total underwriting discount will be $ , and the total
proceeds to Foundry will be $ .
We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.
63
<PAGE>
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the common stock. Specifically, the underwriters may over-allot shares of
our common stock in connection with this offering, thereby creating a short
position in the underwriters' account. A short position results when an
underwriter sells more shares of common stock than such underwriter is
committed to purchase. Additionally, to cover over-allotments or to stabilize
the market price of the common stock, the underwriters may bid for, and
purchase, shares of our common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if they do, they may discontinue doing so at
any time. The underwriters also may reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by
such underwriter or dealer.
Foundry and its officers and directors and substantially all of our
stockholders have agreed not to offer, sell or make any other disposition of
any shares of our common stock or other securities convertible into or
exchangeable or exercisable for shares of our common stock or derivatives of
our common stock for a period of 180 days after the date of this prospectus,
directly or indirectly, without the prior written consent of Deutsche Bank
Securities Inc.
The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
Pricing of this Offering
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock will be
determined by negotiation among Foundry and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
. prevailing market conditions;
. Foundry's results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of other companies
which Foundry and the representatives of the underwriters believe to be
comparable to us; and
. estimates of Foundry's business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
64
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Foundry by Venture Law Group, A Professional Corporation, Menlo Park,
California. Joshua L. Green, a director of Venture Law Group, is the Secretary
of Foundry. Pillsbury Madison & Sutro LLP, Palo Alto and San Francisco,
California, is acting as counsel for the underwriters in connection with
selected legal matters relating to the shares of common stock offered by this
prospectus. As of the date of this prospectus, a family trust of which a
director of Venture Law Group is trustee and two investment partnerships
affiliated with Venture Law Group own a total of 25,000 shares of Foundry's
Series A preferred stock and 10,868 shares of Series B preferred stock, which
shares will convert into 35,868 shares of our common stock upon the completion
of this offering.
EXPERTS
The audited financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock in this offering. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Foundry and the common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference room in Washington, DC. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's web site at
www.sec.gov.
Upon completion of this offering, Foundry will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the web site of the SEC referred to above.
65
<PAGE>
FOUNDRY NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants ................................ F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)........................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Foundry Networks, Inc.:
We have audited the accompanying balance sheets of Foundry Networks, Inc. (a
Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the period from inception,
May 22, 1996, to December 31, 1996 and for the years ended December 31, 1997
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundry Networks, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception, May 22, 1996, to December 31, 1996 and for
the years ended December 31, 1997 and 1998 in conformity with generally
accepted accounting principles.
San Jose, California
June 17, 1999
ARTHUR ANDERSEN LLP
F-2
<PAGE>
FOUNDRY NETWORKS, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1999
December 31, Pro Forma
------------------ June 30, Stockholders'
1997 1998 1999 Equity (Note 5)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents....... $ 3,182 $ 4,567 $ 12,340
Accounts receivable, net of
allowance for doubtful
accounts of $10, $399, and
$1,074, respectively........... 1,234 6,607 13,381
Inventories..................... 1,497 7,201 9,735
Prepaid expenses and other
current assets................. 363 367 582
-------- -------- --------
Total current assets........ 6,276 18,742 36,038
-------- -------- --------
Property and equipment:
Computers and related
equipment...................... 1,207 1,603 1,748
Furniture and fixtures.......... 62 80 80
-------- -------- --------
1,269 1,683 1,828
Less: Accumulated
depreciation................... (557) (1,187) (1,413)
-------- -------- --------
Net property and equipment.. 712 496 415
-------- -------- --------
$ 6,988 $ 19,238 $ 36,453
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Bank line of credit............. $ -- $ -- $ 2,000
Current portion of capital
lease obligations.............. 166 178 90
Accounts payable................ 1,405 6,059 7,170
Accrued payroll and related
expenses....................... 493 937 1,297
Other accrued expenses.......... 113 534 2,282
Income taxes payable............ -- -- 982
Deferred revenue................ 23 371 898
-------- -------- --------
Total current liabilities... 2,200 8,079 14,719
-------- -------- --------
Capital lease obligations, net of
current portion................. 178 -- --
-------- -------- --------
Commitments and contingencies
(Note 3)
Redeemable convertible preferred
stock, $0.0001 par value,
aggregate liquidation preference
of $30,150 at December 31, 1998
and $30,514 at June 30, 1999:
Authorized -- 15,166,954
shares at June 30, 1999 and
5,000,000 shares pro forma
Issued and outstanding--
9,836,954 shares at December
31, 1997, 14,991,596 shares
at December 31, 1998,
15,116,596 shares at June 30,
1999 and none pro forma....... 15,119 30,085 31,085
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.0001 par
value:
Authorized -- 50,000,000
shares at June 30, 1999 and
100,000,000 shares pro forma
Issued and outstanding--
17,514,375 shares at
December 31, 1997, 18,610,656
shares at December 31, 1998,
18,640,697 shares at June 30,
1999 and 33,757,293 shares
pro forma.................... 2 2 2 $ 3
Treasury stock.................. -- -- (6,480) (6,480)
Additional paid-in capital...... 769 6,117 29,195 60,279
Notes receivable from
stockholders................... (260) (713) (859) (859)
Deferred stock compensation..... -- (3,960) (13,749) (13,749)
Accumulated deficit............. (11,020) (20,372) (17,460) (17,460)
-------- -------- -------- --------
Total stockholders' equity
(deficit).................. (10,509) (18,926) (9,351) $ 21,734
-------- -------- -------- ========
$ 6,988 $ 19,238 $ 36,453
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FOUNDRY NETWORKS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
Inception
(May 22, Year Ended Six Months Ended
1996) to December 31, June 30,
December 31 ---------------- ------------------
1996 1997 1998 1998 1999
----------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue, net.................. $ -- $ 3,381 $17,039 $ 4,203 $ 39,487
Cost of revenue............... -- 1,835 8,433 2,082 18,341
------- ------- ------- -------- --------
Gross profit................ -- 1,546 8,606 2,121 21,146
------- ------- ------- -------- --------
Operating expenses:
Research and development.... 1,914 5,403 8,797 3,250 3,625
Sales and marketing......... -- 3,419 7,258 2,745 6,973
General and administrative.. 226 1,853 1,589 569 1,655
Amortization of deferred
stock compensation......... -- -- 727 -- 5,023
------- ------- ------- -------- --------
Total operating expenses.. 2,140 10,675 18,371 6,564 17,276
------- ------- ------- -------- --------
Income (loss) from
operations................... (2,140) (9,129) (9,765) (4,443) 3,870
Interest income, net.......... 127 122 413 213 24
------- ------- ------- -------- --------
Income (loss) before provision
for income taxes............. (2,013) (9,007) (9,352) (4,230) 3,894
Provision for income taxes.... -- -- -- -- 982
------- ------- ------- -------- --------
Net income (loss)............. $(2,013) $(9,007) $(9,352) $ (4,230) $ 2,912
======= ======= ======= ======== ========
Basic net income (loss) per
share........................ $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.24
======= ======= ======= ======== ========
Weighted average shares used
in computing basic net income
(loss) per share............. 1,349 4,523 8,992 8,029 12,164
======= ======= ======= ======== ========
Diluted net income (loss) per
share........................ $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.08
======= ======= ======= ======== ========
Weighted average shares used
in computing diluted net
income (loss) per share...... 1,349 4,523 8,992 8,029 34,880
======= ======= ======= ======== ========
Pro forma basic net income
(loss) per share
(unaudited).................. $ (0.41) $ 0.11
======= ========
Weighted average shares used
in computing pro forma basic
net income (loss) per share
(unaudited).................. 22,882 27,170
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FOUNDRY NETWORKS, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Redeemable
Convertible Notes
Preferred Stock Common Stock Treasury Stock Additional Receivable
---------------- -------------- -------------- Paid-in From
Shares Amount Shares Amount Shares Amount Capital Stockholders
------- -------- ------ ------ ------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT INCEPTION....................... -- $ -- -- $-- -- $ -- $ -- $ --
Issuance of common stock to founders for
cash and technology rights................. -- -- 10,980 1 -- -- 109 --
Issuance of common stock for notes
receivable................................. -- -- 475 -- -- -- 47 (47)
Issuance of Series A redeemable convertible
preferred stock, net of issuance costs
of $31..................................... 5,750 5,719 -- -- -- -- -- --
Net loss................................... -- -- -- -- -- -- --
------- -------- ------ ---- --- ------- ------- -----
BALANCES AT DECEMBER 31, 1996............... 5,750 5,719 11,455 1 -- -- 156 (47)
Issuance of common stock for cash.......... -- 4,159 1 -- -- 415 --
Issuance of common stock for notes
receivable................................. -- 2,050 -- -- -- 213 (213)
Issuance of Series B redeemable convertible
preferred stock............................ 4,087 9,400 -- -- -- -- -- --
Repurchase of common stock................. -- -- (150) -- -- -- (15) --
Net loss................................... -- -- -- -- -- -- -- --
------- -------- ------ ---- --- ------- ------- -----
BALANCES AT DECEMBER 31, 1997............... 9,837 15,119 17,514 2 -- -- 769 (260)
Issuance of common stock for cash.......... -- -- 367 -- -- -- 212 --
Issuance of common stock for notes
receivable................................. -- -- 985 -- -- -- 474 (474)
Issuance of Series C redeemable convertible
preferred stock, net of issuance costs
of $34..................................... 5,155 14,966 -- -- -- -- -- --
Deferred stock compensation................ -- -- -- -- -- -- 4,687 --
Amortization of deferred stock
compensation............................... -- -- -- -- -- -- -- --
Repurchase of common stock................. -- -- (255) -- -- -- (25) --
Cancellation of notes receivable from
stockholders............................... -- -- -- -- -- -- -- 21
Net loss................................... -- -- -- -- -- -- -- --
------- -------- ------ ---- --- ------- ------- -----
BALANCES AT DECEMBER 31, 1998............... 14,992 30,085 18,611 2 -- -- 6,117 (713)
Issuance of common stock for cash
(unaudited)................................ -- -- 348 -- -- -- 1,644 --
Issuance of common stock for notes
receivable (unaudited)..................... -- -- 82 -- -- -- 146 (146)
Issuance of Series C redeemable convertible
preferred stock (unaudited)................ 125 1,000 -- -- -- -- -- --
Deferred stock compensation (unaudited).... -- -- -- -- -- -- 14,812 --
Amortization of deferred stock compensation
(unaudited)................................ -- -- -- -- -- -- -- --
Repurchase of common stock from a founder
(unaudited)................................ -- -- (400) -- 400 (6,480) 6,476 --
Net income (unaudited)..................... -- -- -- -- -- -- -- --
------- -------- ------ ---- --- ------- ------- -----
BALANCES AT JUNE 30, 1999 (unaudited)....... 15,117 $ 31,085 18,641 $ 2 400 $(6,480) $29,195 $(859)
======= ======== ====== ==== === ======= ======= =====
Total
Deferred Stockholders'
Stock Accumulated Equity
Compensation Deficit (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
BALANCES AT INCEPTION....................... $ -- $ -- $ --
Issuance of common stock to
founders for cash and technology
rights..................................... -- -- 110
Issuance of common stock for notes
receivable................................. -- -- --
Issuance of Series A redeemable
convertible preferred stock, net of
issuance costs of $31...................... -- -- --
Net loss................................... -- (2,013) (2,013)
------------ ----------- -------------
BALANCES AT DECEMBER 31, 1996............... -- (2,013) (1,903)
Issuance of common stock for cash.......... -- -- 416
Issuance of common stock for notes
receivable................................. -- -- --
Issuance of Series B redeemable convertible
preferred stock............................ -- -- --
Repurchase of common stock................. -- -- (15)
Net loss................................... -- (9,007) (9,007)
------------ ----------- -------------
BALANCES AT DECEMBER 31, 1997............... -- (11,020) (10,509)
Issuance of common stock for cash.......... -- -- 212
Issuance of common stock for notes
receivable................................. -- -- --
Issuance of Series C redeemable convertible
preferred stock, net of issuance costs
of $34..................................... -- -- --
Deferred stock compensation................ (4,687) -- --
Amortization of deferred stock
compensation............................... 727 -- 727
Repurchase of common stock................. -- -- (25)
Cancellation of notes receivable from
stockholders............................... -- -- 21
Net loss................................... -- (9,352) (9,352)
------------ ----------- -------------
BALANCES AT DECEMBER 31, 1998............... (3,960) (20,372) (18,926)
Issuance of common stock for cash
(unaudited)................................ -- -- 1,644
Issuance of common stock for notes
receivable (unaudited)..................... -- -- --
Issuance of Series C redeemable
convertible preferred stock (unaudited).... -- -- --
Deferred stock compensation (unaudited).... (14,812) -- --
Amortization of deferred stock compensation
(unaudited)................................ 5,023 -- 5,023
Repurchase of common stock from a founder
(unaudited)................................ -- -- (4)
Net income (unaudited)..................... -- 2,912 2,912
------------ ----------- -------------
BALANCES AT JUNE 30, 1999 (unaudited)....... $(13,749) $(17,460) $(9,351)
============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FOUNDRY NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period
from
Inception
(May 22, Year Ended Six Months Ended
1996) to December 31, June 30,
December 31, ----------------- ------------------
1996 1997 1998 1998 1999
------------ ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........ $(2,013) $(9,007) $ (9,352) $ (4,230) $ 2,912
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities:
Depreciation........... 88 469 630 326 226
Amortization of
deferred stock
compensation.......... -- -- 727 -- 5,023
Cancellation of notes
receivable from
stockholders.......... -- -- 21 -- --
Provision for allowance
for doubtful
accounts.............. -- 10 389 89 675
Provision for excess
and obsolete
inventories........... -- 106 1,012 34 1,113
Issuance of common
stock for certain
technology rights..... 94 -- -- -- --
Change in operating
assets and
liabilities:
Accounts receivable.. -- (1,244) (5,762) 18 (7,449)
Inventories.......... -- (1,603) (6,716) (862) (3,647)
Prepaid expenses and
other current
assets.............. (78) (285) (4) 41 (215)
Accounts payable..... 117 1,288 4,654 (122) 1,111
Accrued liabilities.. 123 483 865 25 2,108
Income taxes
payable............. -- -- -- -- 982
Deferred revenue..... -- 23 348 67 527
------- ------- -------- -------- --------
Net cash provided by
(used in) operating
activities......... (1,669) (9,760) (13,188) (4,614) 3,366
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment............... (243) (526) (414) (218) (145)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from bank line
of credit.............. -- -- -- -- 2,000
Principal payments on
capital lease
obligations............ -- (156) (166) (82) (88)
Proceeds from issuance
of common stock........ 16 416 212 32 1,644
Repurchase of common
stock.................. -- (15) (25) -- (4)
Net proceeds from
issuance of redeemable
convertible preferred
stock.................. 5,719 9,400 14,966 14,966 1,000
------- ------- -------- -------- --------
Net cash provided by
financing
activities......... 5,735 9,645 14,987 14,916 4,552
------- ------- -------- -------- --------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS.............. 3,823 (641) 1,385 10,084 7,773
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD...... -- 3,823 3,182 3,182 4,567
------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............ $ 3,823 $ 3,182 $ 4,567 $ 13,266 $ 12,340
======= ======= ======== ======== ========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of property and
equipment through
capital lease
obligations............. $ 500 $ -- $ -- $ -- $ --
Issuance of common stock
for notes receivable.... 47 213 474 85 146
Increase in treasury
stock on repurchase of
common stock............ -- -- -- -- 6,480
Cash paid for interest... -- 28 18 9 48
Cash paid for income
taxes................... -- 2 1 1 3
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
(All information as of and for the six months ended June 30, 1998 and 1999 is
unaudited)
1. ORGANIZATION OF THE COMPANY:
Foundry Networks, Inc. (the Company or Foundry) was incorporated in Delaware
on May 22, 1996 under the name Perennium Networks, Inc., and changed its name
to StarRidge Networks, Inc. on June 5, 1996 and to Foundry Networks, Inc. on
January 22, 1997. Foundry designs, develops, manufactures and markets a
comprehensive suite of high performance networking products for enterprises and
Internet service providers.
During 1997, Foundry commenced commercial shipment of its products and
emerged from the development stage. Although no longer in the development
stage, Foundry continues to be subject to the risks and challenges similar to
other companies in a comparable stage of development. These risks include, but
are not limited to, dependence on key individuals, dependence on key suppliers
of integral components, successful development and marketing of products, the
ability to obtain adequate financing to support growth and competition from
substitute products and larger companies with greater financial, technical,
management and marketing resources.
2. SIGNIFICANT ACCOUNTING POLICIES:
Unaudited Interim Financial Data
The unaudited interim financial statements for the six months ended June 30,
1998 and 1999 have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all normal recurring
adjustments necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. Results
for the six months ended June 30, 1999 are not necessarily indicative of
results in future periods.
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposited in checking and money
market accounts with original maturities of less than three months.
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>
December 31,
-------------
1997 1998 June 30, 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Purchased parts.................................. $ 577 $5,302 $6,643
Work-in-process.................................. 667 1,281 1,393
Finished goods................................... 253 618 1,699
------ ------ ------
$1,497 $7,201 $9,735
====== ====== ======
</TABLE>
F-7
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Provision for excess and obsolete inventory in the amounts of $106,000,
$1,012,000 and $1,113,000 were recorded for the years ended December 31, 1997
and 1998 and the six months ended June 30, 1999, respectively. Approximately
$779,000 of work-in-process inventory was consigned at contract manufacturers'
sites as of December 31, 1998.
Concentrations
Financial instruments that potentially subject Foundry to a concentration of
credit risk principally consist of accounts receivable. Foundry performs
ongoing credit evaluations of its customers and generally does not require
collateral. To date, credit losses have been immaterial and within management's
expectations. During the year ended December 31, 1998, Foundry provided
approximately $389,000 to its allowance for doubtful accounts. Total write-offs
of uncollectible amounts were immaterial during fiscal 1997 and 1998. Ten
customers accounted for 78% and 58% of trade receivables as of December 31,
1997 and 1998, respectively.
Foundry purchases several key components used in the manufacture of products
from single or limited sources and depends on supply from these sources to meet
its needs. In addition, Foundry depends on contract manufacturers for major
portions of the manufacturing requirements. The inability of the suppliers or
manufacturers to fulfill the production requirements of Foundry could
negatively impact future results.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
<TABLE>
<S> <C>
Computers and related equipment...................................... 2 years
Furniture and fixtures............................................... 3 years
</TABLE>
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 reserves for estimated warranty expenses associated with sales.
From inception to December 31, 1998, Foundry did not record a reserve for sales
returns because product returns were immaterial. For the six months ended June
30, 1999, Foundry recorded a reserve for sales returns equal to $250,000,
consistent with increasing revenue, which has been netted with revenue in the
statements of operations.
During 1997 and 1998 and the six months ended June 30, 1999, approximately
100%, 99% and 99%, respectively, of Foundry's total revenue were derived from
product sales. The percentages of revenue to significant customers were as
follows:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended
--------------- June 30,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Customer A..................................... 49% 21% 10%
Customer B..................................... 14% -- --
Customer C..................................... -- -- 17%
Customer D..................................... -- -- 15%
</TABLE>
F-8
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Sales in significant markets are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended
-------------- June 30,
1997 1998 1999
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
United States..................................... $1,649 $11,816 $30,972
Japan............................................. 1,647 3,657 4,055
</TABLE>
Foundry sells to various countries in North America, Europe, Asia, South
America and Australia. Sales to individual countries other than disclosed above
within these continents represent less than 10% of total revenue.
Software Development Costs
Foundry accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of eligible product development costs begins upon the
establishment of technological feasibility, which Foundry has defined as
completion of a working model. Internally generated costs which were eligible
for capitalization, after consideration of factors such as realizable value,
were not material for the period from inception to December 31, 1996, the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999 and,
accordingly, all software development costs have been charged to research and
development expense in the accompanying statements of operations.
Computation of Per Share Amounts
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
period from inception to December 31, 1996, the years ended December 31, 1997
and 1998 and the six months ended June 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 were
9,249,000, 11,075,829, 17,334,190, and 16,618,430 for the period from inception
to December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998, respectively. For the six months ended June 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 has been calculated
F-9
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
Period from
Inception (May Year Ended Six Months
22, 1996) to December 31, Ended June 30,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
-------------- -------- ------- ------- -------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss).......... $(2,013) $ (9,007) $(9,352) $(4,230) $ 2,912
------- -------- ------- ------- -------
Basic:
Weighted average shares
of common stock
outstanding............. 6,719 14,993 17,799 17,567 18,695
Less: Weighted average
shares subject to
repurchase.............. (5,370) (10,470) (8,807) (9,538) (6,531)
------- -------- ------- ------- -------
Weighted average shares
used in computing basic
net income (loss) per
common share............ 1,349 4,523 8,992 8,029 12,164
======= ======== ======= ======= =======
Basic net income (loss) per
common share.............. $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.24
======= ======== ======= ======= =======
Diluted:
Weighted average shares
of common stock
outstanding............. 18,695
Add: Weighted average
dilutive potential
common stock............ 16,185
-------
Weighted average shares
used in computing
diluted net income
(loss) per common
share................... 1,349 4,523 8,992 8,029 34,880
======= ======== ======= ======= =======
Diluted net income (loss)
per common share.......... $ (1.49) $ (1.99) $ (1.04) $ (0.53) $ 0.08
======= ======== ======= ======= =======
Pro forma basic:
Shares used above........ 8,992 12,164
Pro forma adjustment to
reflect weighted effect
of assumed conversion of
redeemable convertible
preferred stock
(unaudited)............. 13,890 15,006
------- -------
Weighted average shares
used in computing pro
forma basic net income
(loss) per common share
(unaudited)............. 22,882 27,170
======= =======
Pro forma basic net income
(loss) per common share
(unaudited)............... $ (0.41) $ 0.11
======= =======
</TABLE>
F-10
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation (SFAS No. 123), in October 1995.
This accounting standard permits the use of either a fair value based method or
the method defined in Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees" (APB Opinion 25) to account for stock-based
compensation arrangements. Companies that elect to employ the valuation method
provided in APB Opinion 25 are required to disclose the pro forma net income
(loss) that would have resulted from the use of the fair value based method.
Foundry has elected to determine the value of stock-based compensation
arrangements under the provisions of APB Opinion 25, and accordingly, the pro
forma disclosures required under SFAS No. 123 have been included in Note 5.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) which establishes standards
for reporting and presentation of comprehensive income. SFAS No. 130 was
adopted by Foundry in 1998. This standard defines comprehensive income as the
changes in equity of an enterprise except those resulting from stockholder
transactions. Comprehensive income (loss) for the period from inception to
December 31, 1996, the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 equaled net income (loss).
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 was adopted by Foundry in 1997. SFAS No. 131 establishes
standards for disclosures about operating segments, products and services,
geographic areas and major customers. 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.
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
F-11
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. COMMITMENTS AND CONTINGENCIES:
Foundry leases its office facilities under a noncancellable operating lease
expiring in October 2001. Rent expense was approximately $66,000, $245,000 and
$263,000, respectively, for the period from inception to December 31, 1996 and
the years ended December 31, 1997 and 1998.
Foundry leases equipment under a long-term lease agreement that is classified
as a capital lease. The lease expires in December 1999. Future payments on the
lease together with the present value of the payments, as of December 31, 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Lease Lease
------- ---------
<S> <C> <C>
1999....................................................... $ 184 $248
2000....................................................... -- 258
2001....................................................... -- 235
----- ----
Total minimum lease payments............................. 184 $741
====
Less: Amount representing interest (6.6%).................. (6)
-----
Present value of minimum lease payments.................... 178
Less: Current portion of capital lease obligations......... (178)
-----
Long-term portion of capital lease obligations............. $ --
=====
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with a cost and related accumulated depreciation of approximately
$500,000 and $312,000, respectively, at December 31, 1997 and $500,000 and
$500,000, respectively, at December 31, 1998.
Foundry is subject to various claims which arise in the normal course of
business. Although the amount of any liability with respect to such litigation
cannot be determined, in the opinion of management, the ultimate disposition of
these claims will not have a material adverse effect on Foundry's financial
position or results of operations. During 1997, Foundry incurred costs and
expenses in the amount of $750,000 related to the settlement of a lawsuit,
which is reflected in the 1997 statements of operations under general and
administrative expenses.
F-12
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. INCOME TAXES:
Foundry accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". A valuation
allowance has been recorded for the total net deferred tax assets as a result
of uncertainties regarding realization of the assets based upon the limited
operating history of Foundry, the lack of profitability to date and the
uncertainty of future profitability. As of December 31, 1997 and 1998,
components of the net deferred income tax assets were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Net operating loss carryforwards.......................... $3,348 $6,126
Capitalized start-up costs................................ 699 552
Capitalized organization costs............................ 12 9
Tax credits............................................... 514 1,348
Reserve and other cumulative temporary differences........ 345 1,150
------ ------
4,918 9,185
Less: Valuation allowance................................. (4,918) (9,185)
------ ------
Net deferred tax assets................................. $ -- $ --
====== ======
</TABLE>
As of December 31, 1998, Foundry had cumulative net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $15.3 million, which expire in various periods from 2003 to 2015.
Under current tax law, net operating loss carryforwards available in any given
year may be limited upon the occurrence of certain events, including
significant changes in ownership interests.
As of December 31, 1997 and 1998, Foundry had no significant deferred tax
liabilities.
5. STOCKHOLDERS' EQUITY (DEFICIT):
Redeemable Convertible Preferred Stock
In June 1996, Foundry issued 5,750,000 shares of Series A redeemable
convertible preferred stock (Series A) at $1.00 per share. In June to December
1997, Foundry issued 4,086,954 shares of Series B redeemable convertible
preferred stock (Series B) at $2.30 per share. In March 1998 Foundry issued
5,154,642 shares of Series C redeemable convertible preferred stock (Series C)
at $2.91 per share. The rights with respect to Series A, B and C are as
follows:
Dividends
Holders of Series A, B and C are entitled to receive non-cumulative dividends
at an annual rate of $0.07, $0.16 and $0.23 per share, respectively, when and
if declared by the board of directors. No distributions may be made to holders
of common stock until all dividends declared on Series A, B and C have been
paid. No dividends have been declared or paid through December 31, 1998.
F-13
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Liquidation
In the event of liquidation, Series A, B and C stockholders have a preference
of $1.00, $2.30 and $2.91 per share (with the Series C having a preference over
Series A and B, and Series B having a preference over Series A), respectively,
plus all declared and unpaid dividends over holders of the common stock.
Thereafter, all remaining assets will be distributed among holders of common
stock as if the Series A, B and C shares were converted into common stock.
Conversion
Each share of outstanding preferred stock is convertible, at the option of
the holder, into one share of common stock. The conversion rate is subject to
adjustment based on a formula to prevent dilution. Each share of convertible
preferred stock will automatically convert into common stock upon the closing
of a public offering resulting in proceeds of not less than $20,000,000.
Redemption
Each share of outstanding preferred stock must be redeemed in four annual
installments beginning on March 19, 2004, and continuing thereafter on each
March 19 until and including March 19, 2007. The preferred stock is redeemable
for cash equal to $1.00, $2.30 and $2.91 per share of Series A, B and C,
respectively (as adjusted for any stock dividends, combinations or splits).
Voting Rights
The holders of Series A, B and C are entitled to the number of votes equal to
the number of shares of common stock into which such preferred stock is
convertible.
Common Stock
Foundry had 17,514,375 and 18,610,656 shares of common stock issued and
outstanding at December 31, 1997 and 1998, respectively. Included in such
outstanding shares are 10,980,000 shares issued to Foundry's founders in 1996
(the Founders Shares). The Founders Shares were issued subject to a repurchase
option by Foundry. The Founders Shares vest out of the repurchase option 25
percent upon issuance, with the balance vesting ratably each month for the 48
months after issuance. At December 31, 1998, approximately 2,917,000 of the
Founders Shares are unvested and no Founders Shares have been repurchased. As
further defined in the respective stock purchase agreements, (i) any unvested
Founders Shares immediately vest prior to the sale or merger of Foundry to
certain non-controlled parties and (ii) Foundry has certain rights of first
refusal to repurchase the Founders Shares until such time that Foundry's common
shares trade on a public market.
F-14
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following shares of common stock have been reserved for future issuance
as of December 31, 1998:
<TABLE>
<S> <C>
Conversion of Series A convertible redeemable preferred
stock outstanding.......................................... 5,750,000
Conversion of Series B convertible redeemable preferred
stock outstanding.......................................... 4,086,954
Conversion of Series C convertible redeemable preferred
stock outstanding.......................................... 5,154,642
1996 Stock Plan............................................. 3,234,344
Conversion of preferred stock warrants outstanding.......... 30,000
----------
18,255,940
==========
</TABLE>
Notes Receivable from Stockholders
Foundry's stock option plan allows for the exercise of stock options in
exchange for stockholders' notes receivable. The following table summarizes the
non-recourse notes receivable outstanding as of December 31, 1998 (in
thousands, except interest rate):
<TABLE>
<CAPTION>
Maturity
Date Principal Number of Shares Interest Rate
-------- --------- ---------------- -------------
<S> <C> <C> <C>
2001................................ $ 36 475 6.16%
2002................................ $203 1,830 5.97%--6.68%
2003................................ $474 985 5.03%--5.58%
</TABLE>
Preferred Stock Warrants
During October 1996, in connection with a sales and leaseback arrangement,
Foundry issued warrants, to the lessor to purchase 30,000 shares of Series A at
$1.00 per share, which will convert to warrants to purchase common stock upon
completion of an initial public offering. At the date of issuance, the value of
the warrants were deemed immaterial and, accordingly, no expense was recorded.
These warrants expire in September 2003.
Pro Forma Stockholders' Equity
The board of directors has authorized the filing of a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed initial public offering (IPO). If the IPO
is consummated under the terms presently anticipated, (i) all of the
outstanding redeemable convertible preferred stock at June 30, 1999 will be
converted into 15,116,596 shares of common stock upon the closing of the IPO.
The effect of the conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying balance sheet as of June 30, 1999.
Stock Options
Under Foundry's 1996 Stock Plan (the Plan), the board of directors authorized
the issuance of 11,270,000 shares to employees and consultants as of December
31, 1998. Nonstatutory options granted under the Plan must be issued at a price
equal to at least 85% of the fair
F-15
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
market value of Foundry's common stock at the date of grant if granted to
others. Incentive stock options granted under the Plan must be issued at a
price at least equal to the fair market value of Foundry's common stock at the
date of grant. All options may be exercised at any time within ten years of the
date of grant or within one month of termination of employment, or such shorter
time as may be provided in the stock option agreement, and vest over a vesting
schedule determined by the board of directors, generally four years.
The following option activity in the Plan occurred during the period from
inception (May 22, 1996) to June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Options Average
Outstanding Exercise Price
----------- --------------
<S> <C> <C>
Granted..................................... 3,944,000 $0.10
Exercised................................... (475,000) 0.10
----------
Balances, December 31, 1996................... 3,469,000 0.10
Granted..................................... 4,250,500 0.13
Exercised................................... (6,209,375) 0.10
Cancelled................................... (301,250) 0.10
----------
Balances, December 31, 1997................... 1,208,875 0.19
Granted..................................... 2,722,500 0.62
Exercised................................... (1,351,281) 0.51
Cancelled................................... (267,500) 0.25
----------
Balances, December 31, 1998................... 2,312,594 0.51
Granted (unaudited)......................... 1,691,000 6.43
Exercised (unaudited)....................... (430,041) 4.16
Cancelled (unaudited)....................... (64,584) 0.30
----------
Balances, June 30, 1999 (unaudited)........... 3,508,969 2.92
==========
</TABLE>
As of December 31, 1998, Foundry had issued an aggregate of 8,035,656 shares
of common stock to employees of Foundry of which 4,316,268 shares are subject
to repurchase rights at the option of Foundry at $0.10 - $1.00 per share. In
1997 and 1998, Foundry repurchased 150,000 and 255,000 shares, respectively, of
unvested common stock from employees at $0.10 per share. As of June 30, 1999,
an aggregate of 295,334 shares were available for future option grants under
the Plan.
F-16
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
and vested at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
--------------------------------- -----------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Vested Price
-------- ----------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.10.................... 524,844 8.06 $0.10 190,746 $0.10
$0.30.................... 326,000 8.63 $0.30 81,500 $0.30
$0.50.................... 877,750 9.54 $0.50 26,479 $0.50
$1.00.................... 584,000 9.84 $1.00 1,677 $1.00
--------- ----- -------
$0.10-$1.00.............. 2,312,594 $0.51 300,402
========= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Vested at December 31, 1997..................... 200,104 $0.10
Vested at December 31, 1998..................... 300,402 $0.19
Vested at June 30, 1999 (unaudited)............. 378,862 $0.35
</TABLE>
Foundry accounts for stock options issued to employees under APB Opinion No.
25 whereby the difference between the exercise price and the fair value at the
date of grant is recognized as compensation expense. Had compensation expense
been determined consistent with SFAS No. 123, net income would have decreased
and losses would have increased to the following pro forma amounts (in
thousands except per share data):
<TABLE>
<CAPTION>
Period
from Inception Year Ended
(May 22, 1996) to December 31, Six Months
December 31, ---------------- Ended June 30,
1996 1997 1998 1999
----------------- ------- ------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Net income (loss) as
reported.................. $(2,013) $(9,007) $(9,352) $2,912
Pro forma net income
(loss).................... (2,035) (9,060) (9,483) 2,570
Basic net income (loss) per
share as reported......... (1.49) (1.99) (1.04) 0.24
Pro forma net income (loss)
per share................. (1.51) (2.00) (1.05) 0.21
Diluted net income (loss)
per share as reported..... (1.49) (1.99) (1.04) 0.08
Pro forma diluted net
income (loss) per share... (1.51) (2.00) (1.05) 0.07
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and 1998
was $0.02, $0.03 and $0.12, respectively. Pursuant to the provisions of SFAS
No. 123, the compensation cost associated with options granted in 1996, 1997
and 1998 was estimated on the grant date using the Black-Scholes model and the
following assumptions:
<TABLE>
<S> <C>
Risk free interest rate..................................... 5.13 to 6.83%
Average expected life of option............................. 4 years
Dividend yield.............................................. 0%
Volatility of common stock.................................. 0.01%
</TABLE>
F-17
<PAGE>
FOUNDRY NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with the issuance of certain stock options to employees in 1998
and for the six months ended June 30, 1999, Foundry has recorded deferred stock
compensation in the aggregate amount of approximately $4,687,000 and
$14,812,000, respectively, representing the difference between the deemed fair
value of Foundry's common stock for accounting purposes and the exercise price
of stock options at the date of grant. Foundry is amortizing the deferred stock
compensation expense over the vesting period, generally four years. For the
year ended December 31,1998 and the six months ended June 30, 1999,
amortization expense was approximately $727,000 and $5,023,000, respectively.
At June 30, 1999, the remaining deferred stock compensation of approximately
$13.7 million will be amortized as follows: $4.1 million in the last two
quarters of fiscal 1999, $5.3 million during fiscal 2000, $2.9 million during
fiscal 2001, $1.2 million during fiscal 2002 and $200,000 during fiscal 2003.
The amortization expense relates to options granted to employees in all
operating expense categories. The amortization of deferred stock compensation
has not been separately allocated to these categories. The amount of deferred
stock compensation expense to be recorded in future periods could decrease if
options for which accrued but unvested compensation has been recorded are
forfeited.
6. SUBSEQUENT EVENTS:
In January 1999, Foundry granted 353,000 nonstatutory stock options to
certain key employees outside of the 1996 Plan at an exercise price of $2.50
per share. The options vest over a four-year period and expire in January 2009.
The weighted average remaining contractual life of the options was 9.6 years as
of June 30, 1999.
In January 1999, the Company entered into a lease agreement for additional
office facilities. The following summarizes future payments (in thousands):
<TABLE>
<S> <C>
1999................................ $126
2000................................ 18
----
$144
====
</TABLE>
In February 1999, Foundry entered into a revolving line of credit agreement
(the Agreement) with a bank which expires on February 18, 2000. The Agreement
provides for borrowings up to $10,000,000 of eligible accounts receivable at
the bank's prime rate. Borrowings are collaterized by substantially all of
Foundry's assets. The Agreement contains restrictive covenants which, among
other things, require Foundry to maintain certain financial ratios and limits
the payment of dividends. Borrowings outstanding under the line of credit as of
June 30, 1999 were $2,000,000.
In March 1999, Foundry issued a letter of credit in the amount of $1,000,000
to a supplier which expires on December 31, 1999.
In May 1999, the board of directors approved an amendment to Foundry's 1996
Stock Option Plan to increase the number of shares of common stock reserved
under the Plan from 11,270,000 to 12,270,000 shares.
In June 1999, Foundry issued 125,000 shares of Series C redeemable
convertible preferred stock at $8.00 per share to a family trust, of which a
director of Foundry is a trustee, for gross proceeds of $1,000,000.
In June 1999, the Company repurchased 400,000 unvested shares from a founder
at $0.01 per share. The repurchase was recorded as treasury stock on the
accompanying balance sheet as of June 30, 1999. Foundry recorded the repurchase
at the deemed fair value of the common stock on the transaction date.
F-18
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in the
prospectus is current only as of its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 2
Risk Factors............................................................. 5
Forward-Looking Statements............................................... 18
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 44
Principal Stockholders................................................... 54
Certain Transactions..................................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information Available
to You.................................................................. 65
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. Dealers are also obligated
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
[CORPORATION LOGO]
Foundry Networks, Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
J.P. Morgan & Co.
Prospectus
,
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
SEC registration fee................................................ $23,978
NASD filing fee..................................................... 9,125
Nasdaq National Market listing fee.................................. *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky qualification fees and expenses............................ 5,000
Transfer Agent and Registrar fees................................... *
Miscellaneous fees and expenses..................................... *
-------
Total............................................................. *
=======
</TABLE>
- --------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Upon
completion of this offering, Article XIII of our certificate of incorporation
(Exhibit 3.2) and Article VI of our bylaws (Exhibit 3.4) will provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
we have entered into indemnification agreements with our officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among Foundry and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since inception in May 1996, we have sold and issued the following
unregistered securities:
1. In June 1996, we issued and sold 10,980,000 shares of common stock to a
total of 4 investors for an aggregate purchase price of $109,800.
2. In June 1996, we issued 5,750,000 shares of Series A preferred stock to a
total of 17 investors for an aggregate cash consideration of $5,750,000.
3. In October 1996, we issued warrants to purchase 30,000 shares of Series A
preferred stock, which will convert to warrants to purchase common stock
upon completion of this offering, to an entity in connection with an
equipment lease agreement.
4. In June, August and December 1997, we issued a total of 4,086,954 shares of
Series B preferred stock to a total of 14 investors for an aggregate cash
consideration of $9,399,994.20.
II-1
<PAGE>
5. In March 1998, we issued 5,154,642 shares of Series C preferred stock to a
total of 15 investors for an aggregate cash consideration of $15,000,008.
6. In June 1999, we issued 125,000 shares of Series C preferred stock to one
investor, a family trust of which Andrew K. Ludwick, a director of Foundry,
is a trustee, for an aggregate cash consideration of $1,000,000.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 2 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Other schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Sunnyvale, State of
California on July 9, 1999.
FOUNDRY NETWORKS, INC.
/s/ Bobby R. Johnson, Jr.
By: _________________________________
Bobby R. Johnson, Jr.
President, Chief Executive
Officer andChairman of the Board
of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Bobby R.
Johnson, Jr. and Timothy D. Heffner, and each of them, as his attorney-in-
fact, with full power of substitution, for him in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments), and any and all Registration Statements filed pursuant
to Rule 462 under the Securities Act of 1933, as amended, in connection with
or related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Bobby R. Johnson, Jr. President, Chief Executive July 9, 1999
______________________________________ Officer and Chairman of
(Bobby R. Johnson, Jr.) the Board of Directors
(Principal Executive
Officer)
/s/ Timothy D. Heffner Vice President, Finance & July 9, 1999
______________________________________ Administration, Chief
(Timothy D. Heffner) Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Seth D. Neiman Director July 9, 1999
______________________________________
(Seth D. Neiman)
/s/ Andrew K. Ludwick Director July 9, 1999
______________________________________
(Andrew K. Ludwick)
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders
of Foundry Networks, Inc.
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Foundry Networks, Inc. included in this
Registration Statement and have issued our report thereon dated June 17, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
June 17, 1999
<PAGE>
FOUNDRY NETWORKS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------------------- --------- ---------- ---------- --------
Balance Balance
at Charged to at End
Beginning Costs and of
Description of Period Expenses Deductions Period
- -------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Period ended December 31, 1996:
Allowance for doubtful accounts....... $ -- $ -- $-- $ --
Allowance for sales returns........... $ -- $ -- $-- $ --
Year ended December 31, 1997:
Allowance for doubtful accounts....... $ -- $ 10,000 $-- $ 10,000
Allowance for sales returns........... $ -- $ -- $-- $ --
Year ended December 31, 1998:
Allowance for doubtful accounts....... $10,000 $389,000 $-- $399,000
Allowance for sales returns........... $ -- $ -- $-- $ --
</TABLE>
<PAGE>
Foundry Networks, Inc. Exhibits Index
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of Foundry Networks,
Inc.
3.2 Amended and Restated Certificate of Incorporation of Foundry Networks,
Inc. (proposed).
3.3 Amended and Restated Bylaws of Foundry Networks, Inc.
3.4 Amended and Restated Bylaws of Foundry Networks, Inc. (proposed).
4.1 Specimen Stock Certificate.
4.2 Preferred Stock Purchase Warrant dated October 9, 1996.
5.1 Opinion of Venture Law Group regarding the legality of the common stock
being registered.*
10.1 1996 Stock Plan (amended July 8, 1999).
10.2 1999 Employee Stock Purchase Plan dated July 8, 1999.
10.3 1999 Directors' Stock Option Plan dated July 8, 1999.
10.4 Form of Indemnification Agreement between Foundry Networks, Inc. and
each of its Officers and Directors.
10.5 OEM Purchase Agreement dated January 6, 1999 between Foundry Networks,
Inc. and Hewlett-Packard Company, Workgroup Networks Division.**
10.6 Reseller Agreement dated July 1, 1997 between Foundry Networks, Inc.
and Mitsui & Co., Ltd.**
10.7 Common Stock Purchase Agreement and Assignment Agreement between
StarRidge Networks, Inc. and Bobby R. Johnson, Jr. dated June 6, 1996.
10.8 Promissory Note, Pledge and Security Agreement and Assignment Separate
from Certificate dated June 25, 1997, executed by Drusilla Demopoulos
in connection with a loan from Foundry Networks, Inc. in connection
with the exercise of options to purchase common stock.
10.9 Promissory Note, Pledge and Security Agreement and Assignment Separate
from Certificate dated April 29, 1998, executed by Drusilla Demopoulos
in connection with a loan from Foundry Networks, Inc. in connection
with the exercise of options to purchase common stock.
10.10 Promissory Note, Pledge and Security Agreement and Assignment Separate
from Certificate dated October 6, 1998, executed by Ken Cheng in
connection with a loan from Foundry Networks, Inc. in connection with
the exercise of options to purchase common stock.
10.11 Lease agreement dated October 16, 1996, between StarRidge Networks,
Inc. and PaineWebber Qualified Plan Property Fund Four, L.P. for
offices at 680 W. Maude Ave., Sunnyvale, CA 94086.
10.12 Sublease agreement dated March 15, 1999 between Foundry Networks, Inc.
and Prolifix Medical, Inc. for offices at 680 W. Maude Ave., Sunnyvale,
CA 94086.
23.1 Consent of Arthur Andersen, LLP, Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney (included on Page II-4)
27.1 Financial Data Schedule (EDGAR-filed version only)
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment requested as to certain portions of this exhibit.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FOUNDRY NETWORKS, INC.
The undersigned, Bobby R. Johnson, Jr. and Edgar B. Cale, III, hereby
certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of said corporation, which was incorporated on May 22,
1996, under the name Perennium Networks, Inc., and changed its name to StarRidge
Networks, Inc., on June 5, 1996, and to Foundry Networks, Inc., on January 22,
1997.
2. That the Certificate of Incorporation of this corporation as amended
to the date hereof be amended and restated in its entirety as follows:
"ARTICLE I
The name of this corporation is Foundry Networks, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
The name of this corporation's registered agent at such address is Corporation
Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. This corporation is authorized to issue two classes of capital stock
in the aggregate amount of Sixty-Five Million One Hundred Sixty-Six Thousand
Nine Hundred Fifty-Four (65,166,954) shares to be designated "Common Stock" and
"Preferred Stock, " respectively.
B. Of such authorized shares, Fifty Million (50,000,000) shares shall be
designated "Common Stock," and have a par value of $.0001 per share.
C. Of such authorized shares, Fifteen Million One Hundred Sixty-Six
Thousand Nine Hundred Fifty-Four (15,166,954) shares shall be designated
"Preferred Stock," and shall have a par value of $.0001 per share. Of such
Preferred Stock, Five Million Seven Hundred Eighty Thousand (5,780,000) shares
shall be designated "Series
<PAGE>
A Preferred Stock," Four Million Eighty-Six Thousand Nine Hundred Fifty-Four
(4,086,954) shares shall be designated "Series B Preferred Stock" and Five
Million Three Hundred Thousand (5,300,000) shares shall be designated "Series C
Preferred Stock." The rights, preferences, privileges and restrictions granted
to and imposed on the Preferred Stock are as set forth below in this Article IV.
1. Dividend Provisions.
-------------------
(a) The holders of shares of Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock including pursuant to an event causing the Conversion Price of the
Preferred Stock to be adjusted pursuant to Section 3(d) hereof) on the Common
Stock of this corporation, at the per annum rate of $0.07, $0.16, and $0.23 per
share for the Series A Preferred Stock, the Series B Preferred Stock, and the
Series C Preferred Stock, respectively (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), payable when, as and if declared by the Board of Directors. Such
dividends shall be non-cumulative.
(b) After payment of the dividend preference referred to above,
outstanding shares of Preferred Stock shall participate with shares of Common
Stock as to any additional declaration or payment of any dividend (payable other
than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock including pursuant to an event causing the Conversion
Price of the Preferred Stock to be adjusted pursuant to Section 3(d) hereof),
with the outstanding shares of Preferred Stock participating as if converted
into Common Stock.
2. Liquidation Preference. In the event of any liquidation,
----------------------
dissolution or winding up of this corporation, either voluntary or involuntary,
(a) the holders of Series C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of this corporation to the holders of Series B Preferred Stock,
the holders of Series A Preferred Stock, and the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of $2.91
(the "Original Series C Issue Price") for each outstanding share of Series C
Preferred Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), plus an amount
equal to declared but unpaid dividends on such shares. If the assets and funds
thus distributed among the holders of the Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably to the holders
of the Series C Preferred Stock; and
-2-
<PAGE>
(b) subject to the rights of the holders of Series C Preferred Stock
as set forth in subparagraph (a) of this Section 2, the holders of Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of this corporation to the
holders of the Series A Preferred Stock and the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of $2.30
(the "Original Series B Issue Price") for each outstanding share of Series B
Preferred Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), plus an amount
equal to declared but unpaid dividends on such shares. If, upon the occurrence
of such events as described in subparagraph (b) of this Section 2, the assets
and funds thus distributed among the holders of the Series B Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of this
corporation legally available for distribution shall be distributed ratably to
the holders of the Series B Preferred Stock; and
(c) subject to the rights of the holders of Series C Preferred Stock
as set forth in subparagraph (a) of this Section 2, and subject to the rights of
the holders of Series B Preferred Stock as set forth in subparagraph (b) of this
Section 2, the holders of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of this corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of $1.00 (the "Original
Series A Issue Price") for each outstanding share of Series A Preferred Stock
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares), plus an amount equal to declared but
unpaid dividends on such shares. If, upon the occurrence of such events as
described in subparagraph (c) of this Section 2, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably to the holders
of the Series A Preferred Stock; and
(d) upon the completion of, and subject to, the distributions required
by subparagraphs (a), (b), and (c) of this Section 2, the remaining assets of
this corporation available for distribution to stockholders shall be distributed
pro rata among the holders of Series C Preferred Stock (on an as-converted
basis) and the holders of Common Stock (and, if applicable, the holders of the
Series B Preferred Stock as provided below) until the holders of the Series C
Preferred Stock shall have received an aggregate of two and one-half (2.5) times
the Original Series C Issue Price per share (including amounts paid pursuant to
Section 2(a) above); provided, however, that in the event the terms of this
--------
subparagraph (d) cause the Multiple of Return (as defined below) for the Series
C Preferred Stock to exceed the Multiple of Return for the Series B Preferred
Stock, then the amount of the distribution otherwise payable to the Series C
Preferred Stock pursuant to subparagraphs (a) and (d) shall be allocated and
distributed among the holders of Series B Preferred Stock and the Series C
Preferred Stock in such proportion that results in the Multiple of Return for
the Series B Preferred Stock to equal
-3-
<PAGE>
the Multiple of Return for the Series C Preferred Stock. For purposes of this
subparagraph (d), the Multiple of Return shall be equal to the quotient obtained
by dividing (x) the price per share payable on the respective series of
Preferred Stock upon any liquidation event pursuant to and in accordance with
the terms of this Section 2 (assuming the conversion of the applicable series of
Preferred Stock into Common Stock if such conversion would result in a higher
price per share to be paid upon such liquidation than would be received without
such conversion, but without taking into account the reallocation between the
Series B Preferred Stock and the Series C Preferred Stock provided for in this
subparagraph (d)) by (y) the Original Issue Price of such series of Preferred
Stock.
For the purpose of clarifying the operation of subparagraph (d) above, the
following methodology will apply:
First, calculate the amount per share that would be payable to each
outstanding share of Series B and Series C Preferred Stock upon any such
liquidation event without giving effect to the proviso set forth in subparagraph
-------
(d). As described in subparagraph (d), the above per share amounts will be
calculated in order to maximize the return for each series of stock. For
example, if a certain series of preferred stock would receive a greater amount
per share if such series converted to common stock than if it did not convert,
then, for purposes of this first calculation, such series shall be deemed to
have converted. Based upon the results of this calculation, then calculate the
Multiple of Return for each of the Series B Preferred Stock and Series C
Preferred Stock, respectively, by dividing the per share amounts calculated
above by the applicable Original Issue Price for each such series. In the event
the Multiple of Return for the Series C Preferred Stock is greater than the
Multiple of Return for the Series B Preferred Stock, the adjustment set forth in
the proviso of subparagraph (d) must be made. In order to calculate the
adjustment, first determine the total aggregate amount payable to both the
Series B Preferred Stock and Series C Preferred Stock; this amount represents
---
the maximum amount that will be distributed to, and allocated among, the holders
of the Series B Preferred Stock and Series C Preferred Stock. In order to
determine the Multiple of Return that applies to both the Series B Preferred
Stock and Series C Preferred Stock (the "Adjusted Multiple"), then divide the
aggregate liquidation amount payable to both the Series B Preferred Stock and
Series C Preferred Stock by the aggregate amount originally invested by the
holders of the Series C Preferred Stock and Series B Preferred Stock. Finally,
in order to determine the dollar amount per share to be paid to each series,
multiply the applicable Original Issue Price for each such series by the
Adjusted Multiple.
If, upon the occurrence of such events as described in subparagraph
(d) of this Section 2, assets remain in the Company, the holders of Common Stock
of the Company shall receive all of the remaining assets of the Company pro rata
based on the number of shares of Common Stock held by each.
-4-
<PAGE>
A consolidation, merger, sale, lease or other disposition of all or
substantially all of the Company's assets shall be deemed to be a liquidation,
dissolution or winding up of the Company for the purposes of the liquidation
preference contemplated by this Section 2.
3. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share (the "Issue Date") at the office of this corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the applicable
Original Series Issue Price by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares
of each series of Preferred Stock shall be the applicable Original Issue Price
for such series; provided, however, that the Conversion Price for each series of
Preferred Stock shall be subject to adjustment as set forth in this Section 3.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Preferred Stock immediately upon the earliest of
(i) the closing of a firm commitment underwritten public offering of the Common
Stock of this corporation pursuant to a registration statement on Form S-1 under
the Securities Act of 1933, as amended (the "Act") having aggregate proceeds not
less than $20,000,000 (net of underwriting discounts and commissions and
offering expenses), or (ii) the date specified by written consent or agreement
of the holders of a majority of the then outstanding shares of Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Preferred
-----------------------
Stock shall be entitled to voluntarily convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. In the event of an automatic conversion pursuant to Sections 3(b),
the outstanding shares of Preferred Stock shall be converted automatically
without any
-5-
<PAGE>
further action by the holder of such shares and whether or not the certificates
representing such shares are surrendered to this corporation or its transfer
agent, and provided further, that this corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion, unless the certificates evidencing such shares of
Preferred Stock are delivered to this corporation or its transfer agent as
provided herein. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Act, as aforesaid, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments. The Conversion Price of the
----------------------------
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue, after the date upon
which any shares of Series C Preferred Stock were first issued (the "Series C
Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price in effect for
the Series B Preferred Stock or the Series C Preferred Stock immediately prior
to the issuance of such Additional Stock, the Conversion Price with respect to
the Series B Preferred Stock or the Series C Preferred Stock, as the case may
be, in effect immediately prior to each such issuance shall automatically
(except as otherwise provided in this clause (i)) be adjusted to a price
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (the "Outstanding Common") plus the number of shares of
Common Stock that the aggregate consideration received by this corporation for
such issuance would purchase at such Conversion Price for such series in effect
immediately prior to such issuance; and the denominator of which shall be the
number of Outstanding Common plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series B
Preferred Stock or the Series C Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which are not required to
be made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years from
the date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the event giving rise
to the adjustment being carried forward. Except to the limited extent provided
for in Sections 3(d)(i)(E)(3) and 3(d)(i)(E)(4), no adjustment of such
Conversion Price pursuant to this Section 3(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
-6-
<PAGE>
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the
Series C Purchase Date) of options to purchase or rights to subscribe for Common
Stock, securities by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such convertible or
exchangeable securities, the following provisions shall apply for all purposes
of this Section 3(d)(i) and Section 3(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections
3(d)(i)(C) and 3(d)(i)(D)), if any, received by this corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by this corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by this corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 3(d)(i)(C) and 3(d)(i)(D)).
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<PAGE>
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to this corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series B Preferred Stock or the Series C Preferred Stock, as the case may be, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series B Preferred Stock or the Series C Preferred
Stock, as the case may be, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections 3(d)(i)(E)(1) and (2)
shall be appropriately adjusted to reflect any change, termination or expiration
of the type described in either Section 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
----------------
(or deemed to have been issued pursuant to Section 3(d)(i)(E)) by this
corporation after the Series C Purchase Date) other than:
(A) Common Stock issued pursuant to a transaction described in
Section 3(d)(iii) hereof,
(B) Shares of Common Stock issuable or issued to employees,
consultants or directors of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board of Directors of this
corporation,
(C) Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with
transactions with primarily a non-equity financing purpose including commercial
credit arrangements or equipment financings.
-8-
<PAGE>
(D) Shares of Common Stock or Preferred Stock issuable upon
exercise of warrants outstanding as of the date of this Amended and Restated
Certificate of Incorporation,
(E) Capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are approved by the Board of Directors
of this corporation,
(F) Shares of Common Stock issued or issuable upon
conversion of the Preferred Stock, and
(G) Shares of Common Stock issued or issuable in a public
offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(iii) In the event this corporation should at any time or from
time to time after the Series C Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
------------------------
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each of the Series A, Series B, and Series C Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
(with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 3(d)(i)(E)).
(iv) If the number of shares of Common Stock outstanding at any
time after the Series C Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each of the Series A, Series B, and Series
C Preferred Stock shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
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<PAGE>
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(d)(i), then, in each such
case for the purpose of this subsection 3(e), the holders of the Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of this
corporation into which their shares of Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 2 or this Section 3) the holders of the Preferred Stock, respectively,
shall thereafter be entitled to receive upon conversion of the Preferred Stock,
the number of shares of stock or other securities or property of this
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 3
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of this
-------------
Amended and Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Preferred Stock pursuant to this Section 3, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in
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<PAGE>
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holders of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Amended and
Restated Certificate of Incorporation, as it may be amended or restated from
time to time.
(k) Notices. Any notice required by the provisions of this
-------
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given five (5) days after having been deposited in the United States
mail, postage prepaid, return receipt requested, and addressed to each holder of
record at his address appearing on the books of this corporation, with written
verification of receipt.
4. Redemption.
----------
(a) This corporation shall redeem, from any source of funds
legally available therefor, the Preferred Stock in four annual installments
beginning on
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<PAGE>
March 19, 2004, and continuing thereafter on each March 19 until and including
March 19, 2007 (each a "Redemption Date"), whereupon the remaining Preferred
Stock outstanding shall be redeemed. This corporation shall effect such
redemptions on the applicable Redemption Dates by paying in cash in exchange for
the shares of Preferred Stock to be redeemed a sum equal to $1.00, $2.30, and
$2.91 per share of Series A Preferred Stock, Series B Preferred Stock, and
Series C Preferred Stock, respectively (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Redemption Price"). The number of shares of each
series of Preferred Stock that this corporation shall be required under this
Section 4(a) to redeem on any one Redemption Date shall be equal to the amount
determined by dividing (i) the aggregate number of shares of such series of
Preferred Stock outstanding immediately prior to the Redemption Date by (ii) the
number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies).
Any redemption effected pursuant to this Section 4(a) shall be made on
a pro-rata basis among the holders of each series of Preferred Stock in
proportion to the shares of such series of Preferred Stock then held by them.
(b) At least 30 but no more than 60 days prior to each Redemption
Date, written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Preferred Stock to be redeemed, at the
address last shown on the records of this corporation for such holder, notifying
such holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, the Redemption Date, the Redemption Price, the
place at which payment may be obtained and calling upon such holder to surrender
to this corporation, in the manner and at the place designated, his certificate
or certificates representing the shares to be redeemed (the "Redemption
Notice"). Except as provided in Section 4(d), on or after the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender to this
corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of shares
of Preferred Stock designated for redemption in the Redemption Notice as holders
of Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of this corporation legally available for redemption
of shares of Preferred Stock on any Redemption Date are
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<PAGE>
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
each series of shares to be redeemed, on a pari passu basis, based upon their
holdings of each such series of Preferred Stock, with one-third of the legally
available funds being allocated to the Series A Preferred Stock, to the Series B
Preferred Stock, and to the Series C Preferred Stock, respectively. The shares
of Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when additional
funds of this corporation are legally available for the redemption of shares of
Preferred Stock such funds will immediately be used to redeem the balance of the
shares which this corporation has become obliged to redeem on any Redemption
Date, but which it has not redeemed.
(d) On or prior to each Redemption Date, this corporation shall
deposit the Redemption Price of all shares of Preferred Stock designated for
redemption in the Redemption Notice and not yet redeemed with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust corporation to pay the Redemption Price for such shares to
their respective holders on or after the Redemption Date upon surrender of their
share certificates. As of the date of such deposit (even if prior to the
Redemption Date), the deposit shall constitute full payment of the shares to
their holders, and from and after the date of the deposit the shares so called
for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificates therefor, and
the right to convert such shares as provided in Section 3 hereof. Such
instructions shall also provide that any moneys deposited by this corporation
pursuant to this Section 4(d) for the redemption of shares thereafter converted
into shares of this corporation's Common Stock pursuant to Section 3 hereof
prior to the Redemption Date shall be returned to this corporation forthwith
upon such conversion. The balance of any moneys deposited by this corporation
pursuant to this Section 4(d) remaining unclaimed at the expiration of two (2)
years following the Redemption Date shall thereafter be returned to this
corporation upon its request expressed in a resolution of its Board of
Directors.
5. Voting Rights. The holder of each share of Preferred Stock shall
-------------
have the right to one vote for each share of Common Stock into which such
Preferred Stock could be converted immediately after the close of business on
the record date fixed for a meeting or the effective date of a written consent,
and with respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation as
amended or restated from time to time, and shall be entitled to vote,
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<PAGE>
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares of Common Stock into which shares
of Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
6. Protective Provisions.
---------------------
(a) So long as any shares of Preferred Stock are outstanding,
this corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of a majority of the then
outstanding shares of Preferred Stock:
(i) other than as set forth in Article IV, Section 4
hereof, purchase, redeem or otherwise acquire any shares of Preferred Stock;
(ii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, any series of Preferred Stock with regard to redemption, voting,
dividends or upon liquidation;
(iii) except for repurchases of Common Stock from
directors, employees or consultants, take any action that results in the
redemption or repurchase of Common Stock in an amount greater than $25,000 in
any twelve (12) month period;
(iv) declare or pay dividends on or make any distribution
on account of Common Stock;
(v) issue or sell (or allow any subsidiary to issue or
sell) stock or other securities to any other corporation, partnership or other
entity unless such entity is wholly-owned by this corporation;
(vi) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporations (other than a wholly-owned subsidiary corporation)
or effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of this corporation is disposed of;
(vii) liquidate, dissolve or wind up this corporation;
(vii) adopt, alter, amend or repeal any provision of this
corporation's amended and restated certificate of incorporation; or
(ix) increase the size of the Board of Directors.
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<PAGE>
(b) So long as at least 1,000,000 shares of Series A Preferred Stock
are outstanding, at any annual or special meeting called, or any other action
taken, for the purpose of electing directors to the Company's Board of
Directors:
(i) the holders of Series A Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors and to remove from office such director and to fill any vacancy
caused by the resignation, death or removal of such director; and
(ii) the holders of Common Stock, voting as a separate class,
shall be entitled to elect one (1) member of the Company's Board of Directors
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director.
(c) So long as at least 1,000,000 shares of Series B Preferred Stock
are outstanding, this corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the Series B Preferred Stock then outstanding, voting as a separate
class, adopt, alter or repeal any provision of this corporation's amended and
restated certificate of incorporation which adversely affects the Series B
Preferred Stock in a manner different from the Series A Preferred Stock.
(d) So long as at least 1,000,000 shares of Series C Preferred Stock
are outstanding, this corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the Series C Preferred Stock then outstanding, voting as a separate
class, adopt, alter or repeal any provision of this corporation's amended and
restated certificate of incorporation which adversely affects the Series C
Preferred Stock in a manner different from the Series A or Series B Preferred
Stock.
7. Status of Converted Stock. Any shares of Preferred Stock acquired by
-------------------------
this corporation by redemption, purchase, conversion or otherwise shall be
canceled and shall not be issuable by this corporation. This Amended and
Restated Certificate of Incorporation shall be appropriately amended to effect
the corresponding reduction in this corporation's authorized capital stock.
8. Common Stock. Subject to all of the rights of Preferred Stock as
------------
expressly provided herein or by law, the Common Stock shall possess all such
rights and privileges as are afforded to capital stock by applicable law in the
absence of any express grant of rights or privileges in this Amended and
Restated Certificate of Incorporation.
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<PAGE>
ARTICLE V
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or as may hereafter be amended, a director of this
corporation shall not be personally liable to this corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
This corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that,
he, his testator or intestate is or was a director or officer of this
corporation or any predecessor of this corporation or serves or served at any
other enterprise as a director, officer or employee at the request of this
corporation or any predecessor to this corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of any
provision of this Amended and Restated Certificate of Incorporation inconsistent
with this Article V, shall eliminate or reduce the effect of this Article V, in
respect of any matter occurring, or any cause of action, suit, claim or
proceeding that, but for this Article V would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of this corporation.
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<PAGE>
ARTICLE VIII
The number of directors which constitutes the Board of Directors of this
corporation shall be as specified in the Bylaws of this corporation. At each
annual meeting of stockholders, directors of this corporation shall be elected
to hold office until the expiration of the term for which they are elected and
until their successors have been duly elected and qualified, except that if any
such election shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the General Corporation
Law of Delaware.
ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE XI
This corporation is to have perpetual existence."
3. The amendment and restatement of the Amended and Restated Certificate
of Incorporation herein certified was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on March 19, 1998.
/s/ Bobby R. Johnson, Jr.
_____________________________________
Bobby R. Johnson, Jr.
Chief Executive Officer
/s/ Edgar B. Cale, III
_____________________________________
Edgar B. Cale, III
Secretary
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FOUNDRY NETWORKS, INC.
The undersigned, Bobby R. Johnson, Jr. and Joshua L. Green, hereby certify
that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of said corporation, which was incorporated on May 22,
1996, under the name Perennium Networks, Inc., and changed its name to StarRidge
Networks, Inc., on June 5, 1996, and to Foundry Networks, Inc., on January 22,
1997.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on May 22, 1996.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Foundry Networks, Inc. (the
"Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, 19805. The name
of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is One
Hundred Five Million (105,000,000) shares, each with a par value of $0.0001 per
share. One Hundred Million (100,000,000) shares shall be Common Stock and Five
Million (5,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of
<PAGE>
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
This Article VI shall become effective only when the Corporation qualifies
for an exemption from Section 2115 of the California Corporations Code (the
"Effective Time").
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.
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<PAGE>
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of a corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) through bylaw provisions, agreements with such
agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the General Corporation Law of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to a corporation, its stockholders, and
others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIV shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
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The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Sunnyvale, California, on ____________________.
__________________________________
Bobby R. Johnson, Jr.
Chief Executive Officer
__________________________________
Joshua L. Green
Secretary
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Exhibit 3.3
BYLAWS
OF
FOUNDRY NETWORKS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such time and place as may be fixed from time to time
by the Board of Directors, and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
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Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of the Chairman of the Board, a
majority of the Board of Directors or stockholders owning at least a majority of
the entire capital stock of the corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote there at, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present
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or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation or of these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt
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notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be filled by a majority
of the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
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<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on ten (10) days' notice to each director by mail or forty-eight (48)
hours' notice to each director either personally, by telegram, by facsimile or
by courier service; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or the certificate of incorporation or these
bylaws. If a quorum shall not be present at any meeting of the Board of
Directors,
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the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of
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the corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at such person's address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail, by facsimile or by courier service. Notice to directors may also be
given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president and a secretary and may
choose a vice president and a treasurer.
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Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. The Chairman of the Board shall have and may exercise such powers as
are, from time to time, assigned to such person by the Board and as may be
provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. The Vice
Chairman of the Board shall have and may exercise such powers as are, from time
to time, assigned to such person by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENT
Section 8. The president shall be the chief executive officer of the
corporation unless the Board selects another individual as chief executive
officer, in which case such individual shall have all the authority set forth
below; and in the absence of the Chairman and Vice Chairman of the Board the
president shall preside at all meetings of the stockholders and the Board of
Directors; the president shall have general and active management of the
business
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of the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision such person shall be. The secretary shall
have custody of the corporate seal of the corporation and the secretary, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
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Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of such person's inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. The treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all such person's transactions as treasurer and of the financial condition of
the corporation.
Section 15. If required by the Board of Directors, the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office and for the
restoration to the corporation, in case of such person's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in such person's possession or under such
person's control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the
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event of his inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice- chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by such person in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
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Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
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any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or
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for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation. The indemnification provided for in
this Section 6 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and (iii)
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation's obligation to provide
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indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that such
person is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that such person, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is
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governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974," as amended from time to time; the corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to such Act of Congress shall be deemed "fines."
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ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
18
<PAGE>
CERTIFICATE OF ADOPTION BY THE SECRETARY OF
FOUNDRY NETWORKS, INC.
The undersigned, Edgar B. Cale III, hereby certifies that he is the duly
elected and acting Secretary of Foundry Networks, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation in effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this
23 day of January, 1997.
/s/Edgar B. Cale III
___________________________________
Edgar B. Cale III, Secretary
<PAGE>
Exhibit 3.4
BYLAWS
OF
FOUNDRY NETWORKS, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is Corporation Service Company.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 Annual Meeting.
--------------
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2, who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this Section 2.2.
<PAGE>
(c) In addition to the requirements of Section 2.5, for nominations or
other business to be properly brought before an annual meeting by a stockholder
pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder
must have given timely notice thereof in writing to the secretary of the
Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (A)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (B) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
-2-
<PAGE>
2.3 Special Meeting.
----------------
(a) A special meeting of the stockholders may be called at any time
by the Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 60 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by
-3-
<PAGE>
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a director shall furnish to
the secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 2.5. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed by
the Bylaws, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
-4-
<PAGE>
2.9 Voting.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-5-
<PAGE>
2.12 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number of Directors.
-------------------
The number of directors constituting the entire Board of Directors
shall be three. Thereafter, this number may be changed by a resolution of the
Board of Directors or of the stockholders, subject to Section 3.4 of these
Bylaws. No reduction of the authorized number of directors shall have the
effect of removing any director before such director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is
-6-
<PAGE>
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies. A vacancy created by
the removal of a director by the vote of the stockholders or by court order may
be filled only by the affirmative vote of a majority of the shares represented
and voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute a majority of the quorum). Each director so
elected shall hold office until the next annual meeting of the stockholders and
until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
-7-
<PAGE>
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 Waiver of Notice.
----------------
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<PAGE>
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
3.10 Board Action by Written Consent without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 Approval of Loans to Officers.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 Removal of Directors.
--------------------
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors;
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<PAGE>
provided, however, that if the stockholders of the Corporation are entitled to
cumulative voting, if less than the entire Board of Directors is to be removed,
no director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman of the Board of Directors.
----------------------------------
The Corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series), (b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to
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<PAGE>
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers.
-----------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such
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<PAGE>
duties as are provided in these Bylaws or as the Board of Directors may from
time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 Vice Presidents.
---------------
-12-
<PAGE>
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the Corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
-13-
<PAGE>
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
--------------------------------------------------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification of Others.
-------------------------
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the Corporation, (b) who is or was serving at the request of the
Corporation as an employee or agent
-14-
<PAGE>
of another corporation, partnership, joint venture, trust or other enterprise,
or (c) who was an employee or agent of a corporation which was a predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation
6.5 Insurance.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
-15-
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The Corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money,
-16-
<PAGE>
notes or other evidences of indebtedness that are issued in the name of or
payable to the Corporation, and only the persons so authorized shall sign or
endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full
-17-
<PAGE>
or summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
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<PAGE>
8.9 Seal.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-19-
<PAGE>
Exhibit 4.1
Number ((CertNumber)) FOUNDRY NETWORKS, INC. *((NoOfshares))* Shares
A Delaware Corporation Common Stock
THIS CERTIFIES THAT *((Name))* is the record holder of *((SharesSpelled))*
shares of Common Stock of FOUNDRY NETWORKS, INC. transferable only on the share
register of the Corporation by the holder, in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed or assigned.
This certificate and the shares represented hereby shall be held subject to
all of the provisions of the Certificate of Incorporation and the Bylaws of said
Corporation and any amendments thereto, a copy of each of which is on file at
the office of the Corporation and made a part hereof as fully as though the
provisions of said Certificate of Incorporation and Bylaws were imprinted in
full on this Certificate, to all of which the holder of this Certificate, by
acceptance hereof, assents and agrees to be bound.
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences or rights.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers this ((Day)) day of ((Month)),
19((Year)).
_______________________________________ ___________________________________
President Secretary
<PAGE>
FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO
________________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE AND DOES HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ____________________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE
SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION
IN THE PREMISES.
DATED _________________, 19___
____________________________________
(Signature)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS
ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
<PAGE>
EXHIBIT 4.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
PREFERRED STOCK PURCHASE WARRANT
Warrant No. A-1 Number of Shares 30,000
Series A Preferred Stock
StarRidge Networks, Inc.
Void after September 30, 2003
1. Issuance. This Warrant is issued to Lighthouse Capital Partners II,
L.P. by StarRidge Networks, Inc., a Delaware corporation (hereinafter with its
successors called the "Company").
2. Purchase Price; Number of Shares. The registered holder of this
Warrant (the "Holder"), commencing on the date hereof, is entitled upon
surrender of this Warrant with the subscription form annexed hereto duly
executed, at the principal office of the Company, to purchase from the Company
the following securities (collectively, the "Shares"): at a price per share of
$1.00 (the "Purchase Price"), 30,000 fully paid and nonassessable shares of
Series A Preferred Stock, $.0001 par value, of the Company (the "Preferred
Stock"). Until such time as this Warrant is exercised in full or expires, the
Purchase Price and the securities issuable upon exercise of this Warrant are
subject to adjustment as hereinafter provided. The person or persons on whose
name or names any certificate representing shares of Preferred Stock is issued
hereunder shall be deemed to have become the holder of record of the shares
represented thereby as at the close of business on the date this Warrant is
exercised with respect to such shares, whether or not the transfer books of the
Company shall be closed.
3. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
or by check, (ii) by the surrender by the Holder to the Company of any
promissory notes or other obligations issued by the Company, with all such notes
and obligations so surrendered being credited against the Purchase Price in an
amount equal to the principal amount thereof plus accrued interest to the date
of surrender, or (iii) by any combination of the foregoing.
4. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares of Preferred Stock
equal to the value of this Warrant or any portion hereof by the surrender of
this Warrant or such portion to the Company,
<PAGE>
with the net issue election notice annexed hereto duly executed, at the
principal office of the Company. Thereupon, the Company shall issue to the
Holder such number of fully paid and nonassessable shares of Preferred Stock as
is computed using the following formula:
X = Y(A-B)
------
where: X = the number of shares of Preferred Stock to be issued to the
Holder pursuant to this Section 4.
Y = the number of shares of Preferred Stock covered by this Warrant
in respect of which the net issue election is made pursuant to
this Section 4.
A = the fair market value of one share of Preferred Stock, as
determined in good faith by the Board, as at the time the net
issue election is made pursuant to this Section 4.
B = the Purchase Price in effect under this Warrant at the time the
net issue election is made pursuant to this Section 4.
5. Partial Exercise. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
6. Fractional Shares. In no event shall any fractional share of
Preferred Stock be issued upon any exercise of this Warrant. If, upon exercise
of this Warrant as an entirety, the Holder would, except as provided in this
Section 6, be entitled to receive a fractional share of Preferred Stock, then
the Company shall pay the fair market value of such fractional share.
7. Expiration Date; Automatic Exercise. This Warrant shall expire at the
close of business on September 30, 2003, and shall be void thereafter.
Notwithstanding the foregoing, this Warrant shall automatically be deemed to be
exercised in full pursuant to the provisions of Section 4 hereof, without any
further action on behalf of the Holder, immediately prior to the time this
Warrant would otherwise expire pursuant to the preceding sentence or pursuant to
Section 11.
8. Reserved Shares; Valid Issuance. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Preferred Stock and Common Stock, $.0001 par
value, of the Company (the "Common Stock"), free from all preemptive or similar
rights therein, as will be sufficient to permit, respectively, the exercise of
this Warrant in full and the conversion into shares of Common Stock of all
shares of Preferred Stock receivable upon such exercise. The Company further
covenants that such shares as may be issued pursuant to such exercise and/or
conversion will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes (other than taxes on Holders income),
liens and charges with respect to the issuance thereof.
-2-
<PAGE>
9. Stock Splits and Dividends. If after the date hereof the Company
shall subdivide the Preferred Stock, by split-up or otherwise, or combine the
Preferred Stock, or issue additional shares of Preferred Stock in payment of a
stock dividend on the Preferred Stock, the number of shares of Preferred Stock
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend, or proportionately
decreased in the case of a combination, and the Purchase Price shall forthwith
be proportionately decreased in the case of a subdivision or stock dividend, or
proportionately increased in the case of a combination.
10. Adjustments for Diluting Issuances. The antidilution rights
applicable to the Preferred Stock and the Common Stock of the Company are set
forth in the Restated Certificate of Incorporation, as amended from time to time
(the "Articles"), a true and complete copy in its current form which is attached
hereto as Exhibit A. Such rights shall not be restated, amended or modified in
any manner which effects the Holder differently than the holders of Series A
Preferred without such Holder's prior written consent. The Company shall
promptly provide the Holder hereof with any restatement, amendment or
modification to the Articles promptly after the same has been made.
11. Mergers and Reclassifications. If after the date hereof the Company
shall enter into any Reorganization (as hereinafter defined), then, as a
condition of such Reorganization, lawful provisions shall be made, and duly
executed documents evidencing the same from the Company or its successor shall
be delivered to the Holder, so that the Holder shall thereafter have the right
to purchase, at a total price not to exceed that payable upon the exercise of
this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such Reorganization by a holder of the
number of shares of Preferred Stock which might have been purchased by the
Holder immediately prior to such Reorganization, and in any such case
appropriate provisions shall be made with respect to the rights and interest of
the Holder to the end that the provisions hereof (including without limitation,
provisions for the adjustment of the Purchase Price and the number of shares
issuable hereunder and the provisions relating to the net issue election) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof. For the purposes of
this Section 11, the term "Reorganization" shall include without limitation any
reclassification, capital reorganization or change of the Preferred Stock (other
than as a result of a subdivision, combination or stock dividend provided for in
Section 9 hereof), or any consolidation of the Company with, or merger of the
Company into, another corporation or other business organization (other than a
merger in which the Company is the surviving corporation and which does not
result in any reclassification or change of the outstanding Preferred Stock), or
any sale or conveyance to another corporation or other business organization of
all or substantially all of the assets of the Company.
Notwithstanding the term of this Warrant fixed pursuant to Section 7 above
and the provisions of this Section 11, the right to purchase Preferred Stock as
granted herein shall expire, to the extent not previously exercised, immediately
upon the closing of a merger or consolidation
-3-
<PAGE>
of the Company with or into another corporation when the Company is not the
surviving corporation (other than a merger or consolidation for the principal
purpose of changing the domicile of the Company), or the sale of all or
substantially all of the Company's properties and assets to any other person, in
each case where the shareholders of the Company immediately prior to such
merger, consolidation or sale of assets own (directly or indirectly) less than
50% of the voting securities of the surviving entity or purchaser of assets in
such transaction (collectively, a "Merger"), provided, that the Holder realizes
a value per share for the Warrant equal to or greater than two times the
Purchase Price per share (as adjusted pursuant to this Warrant) (the "Minimum
Value").
The Company shall notify the Holder, in accordance with Section 13 below,
of any proposed Merger, and if the Company fails to deliver such notice, then
notwithstanding anything to the contrary in this Warrant, the rights to purchase
the Company's Preferred Stock (or the shares of stock and other securities and
property receivable upon such Merger by a holder of Preferred Stock (the "Other
Consideration")) shall not expire until the later of (i) the closing of the
Merger or (ii) ten (10) business days after actual receipt by Holder of such
notice; provided however, that notwithstanding the foregoing in no event shall
the right to purchase Preferred Stock (or Other Consideration) under this
Warrant expire under this Section 11 unless the Holder receives written notice
of the proposed Merger at least five (5) business days prior to the closing of
such Merger and the Holder realizes at least the Minimum Value. If the closing
of the Merger does not take place after such notice to the Holder, the Company
shall promptly notify the Holder that such proposed transaction has been
terminated, and the Holder may rescind any exercise of its purchase rights
promptly after such notice of termination of the proposed transaction if the
exercise of the Warrant occurred after the Company notified the Holder that the
Merger was proposed, or if the exercise was otherwise precipitated by such
proposed Merger. In the event of such rescission, the Warrant will continue to
be exercisable on the same terms and conditions contained herein.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall promptly deliver to the Holder a
certificate of the Company's chief financial officer setting forth the Purchase
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
13. Notices of Record Date, Etc. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, sell or otherwise acquire or dispose of any shares of
stock of any class or any other securities or property, or to receive any other
right;
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale or conveyance of all or substantially all of its assets; or
-4-
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company;
then in each such event the Company will provide or cause to be provided to the
Holder a written notice thereof. Such notice shall be provided at least twenty
(20) days prior to the date specified in such notice on which any such action is
to be taken.
14. Representations, Warranties and Covenants. This Warrant is issued and
delivered by the Company and accepted by the Holder on the basis of the
following representations, warranties and covenants made by the Company:
A. The Company has all necessary authority to issue, execute and
deliver this Warrant and to perform its obligations hereunder. This Warrant has
been duly authorized issued, executed and delivered by the Company and is the
valid and binding obligation of the Company, enforceable in accordance with its
terms except as limited by applicable bankruptcy, insolvency, fraudulent
conveyance and other laws affecting the enforcement of creditors' rights and
remedies generally and the availability of equitable remedies may be limited.
B. The shares of Preferred Stock issuable upon the exercise of this
Warrant have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable.
C. The issuance, execution and delivery of this Warrant do not, and
the issuance of the shares of Preferred Stock upon the exercise of this Warrant
in accordance with the terms hereof will not, (i) violate or contravene the
Company's Articles or by-laws, or any law, statute, regulation, rule, judgment
or order applicable to the Company, (ii) violate, contravene or result in a
breach or default under any material contract, agreement or instrument to which
the Company is a party or by which the Company or any of its assets are bound or
(iii) require the consent or approval of or the filing of any notice or
registration with any person or entity, except for blue sky filings that will be
filed in a timely manner.
D. So long as this Warrant has not terminated, Holder shall be
entitled to receive such financial and other information as the Holder would be
entitled to receive under the Series A Preferred Stock Purchase Agreement if
Holder were a holder of that number of shares issuable upon full exercise of
this Warrant.
E. As of the date hereof, the authorized capital stock of the
Company consists of (i) 30,000,000 shares of Common Stock, of which 10,980,000
shares are issued and outstanding and 5,780,000 shares are reserved for issuance
upon the exercise of this Warrant and the conversion of the Preferred Stock, and
(ii) 6,000,000 shares of Series A Preferred Stock, of which 5,750,000 are issued
and outstanding shares and 30,000 shares are reserved for issuance upon the
exercise of this Warrant. Attached hereto as Exhibit B is a capitalization
table summarizing the capitalization of the Company, including, without
limitation, the current Conversion Price of the Series A Preferred Stock.
-5-
<PAGE>
15. Registration Rights. The Company grants to the Holder registration
rights contained in Sections 1.2, 1.3 and 1.12 of the Company's Investor Rights
Agreement dated as of June 6, 1996 (the "Registration Rights Agreement"), so
that (i) the shares of Common Stock issuable upon conversion of the shares of
Preferred Stock issuable upon exercise of this Warrant shall be "Registrable
Securities," and (ii) the Holder shall be a "Holder," for all purposes of such
Registration Rights Agreement, including, without limitation, the right of first
offer in Section 2.4 of the Registration Rights Agreement.
16. Amendment. The terms of this Warrant may be amended, modified or
waived only with the written consent of the Holder.
17. Representations and Covenants of the Holder. This Preferred Stock
Purchase Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Holder, which by its acceptance
hereof the Holder hereby confirms:
A. Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Holder's rights contained herein
will be acquired for investment and not with a view to the sale or distribution
of any part thereof, and the Holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.
B. Accredited Investor. Holder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
C. Private Issue. The Holder understands (i) that the Preferred
Stock issuable upon exercise of the Holder's rights contained herein is not
registered under the 1933 Act or qualified under applicable state securities
laws on the ground that the issuance contemplated by this Warrant will be exempt
from the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 17.
D. Financial Risk. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
18. Notices, Transfers, Etc.
A. Any notice or written communication required or permitted to be
given to the Holder may be given by certified mail or delivered to the Holder at
the address most recently provided by the Holder to the Company.
B. Subject to compliance with applicable federal and state
securities laws, this Warrant may be transferred by the Holder, to a non-
competitor of the Company, with respect to any or all of the shares purchasable
hereunder. Upon surrender of this Warrant to the
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<PAGE>
Company, together with the assignment notice annexed hereto duly executed, for
transfer of this Warrant as an entirety by the Holder, the Company shall issue a
new warrant of the same denomination to the assignee. Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
by the Holder for transfer with respect to a portion of the shares of Preferred
Stock purchasable hereunder, the Company shall issue a new warrant to the
assignee, in such denomination as shall be requested by the Holder hereof, and
shall issue to such Holder a new warrant covering the number of shares in
respect of which this Warrant shall not have been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of an affidavit and/or bond of the Holder or
other evidence reasonably satisfactory to the Company of the loss, theft or
destruction of such Warrant.
19. No Impairment. The Company will not, by amendment of its Articles or
through any reclassification, capital reorganization, consolidation, merger,
sale or conveyance of assets, dissolution, liquidation, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder.
20. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
California.
21. Successors and Assigns. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
22. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any rights granted herein shall be a
Saturday or Sunday or a legal holiday in California, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
23. Qualifying Public Offering. If the Company shall effect a firm
commitment underwritten public offering of shares of Common Stock which results
in the conversion of the Preferred Stock into Common Stock pursuant to the
Company's Articles in effect immediately prior to such offering, then, effective
upon such conversion, this Warrant shall change from the right to purchase
shares of Preferred Stock to the right to purchase shares of Common Stock, and
the Holder shall thereupon have the right to purchase, at a total price equal to
that payable upon the exercise of this Warrant in full, the number of shares of
Common Stock which would have been receivable by the Holder upon the exercise of
this Warrant for shares of Preferred Stock immediately prior to such conversion
of such shares of Preferred Stock into shares of Common
-7-
<PAGE>
Stock, and in such event appropriate provisions shall be made with respect to
the rights and interest of the Holder to the end that the provisions hereof
(including, without limitation, the provisions for the adjustment of the
Purchase Price and of the number of shares purchasable upon exercise of this
Warrant and the provisions relating to the net issue election) shall thereafter
be applicable to any shares of Common Stock deliverable upon the exercise
hereof.
THIS SPACE IS INTENTIONALLY BLANK
-8-
<PAGE>
24. Value. The Company and the Holder agree that the value of this
Warrant on the date of grant is $100.
Dated: October 9, 1996 STARRIDGE NETWORKS, INC.
[CORPORATE SEAL] By: /s/ Bobby R. Johnson, Jr.
-------------------------------
Name: Bobby R. Johnson
-----------------------------
Title: President and CEO
----------------------------
Attest:
/s/ Edgar B. Cale III
_____________________________________________
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: LIGHTHOUSE MANAGEMENT
PARTNERS II, L.P., its general partner
By: LIGHTHOUSE CAPITAL
PARTNERS, INC., its general partner
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
----------------------------------
Title: Managing Director
---------------------------------
-9-
<PAGE>
Subscription
To:___________________________________ Date:____________________________
The undersigned hereby subscribes for _____________ shares of Preferred
Stock covered by this Warrant. The certificate(s) for such shares shall be
issued in the name of the undersigned or as otherwise indicated below. The
undersigned hereby reconfirms the representations and warranties of Section 17
of the Preferred Stock Purchase Warrant.
_____________________________________
Signature
_____________________________________
Name for Registration
_____________________________________
Mailing Address
Net Issue Election Notice
To:___________________________________ Date_____________________________
The undersigned hereby elects under Section 4 to surrender the right to
purchase _____________ shares of Preferred Stock pursuant to this Warrant. The
certificate(s) for such shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below. The
undersigned hereby reconfirms the representations and warranties of Section 17
of the Preferred Stock Purchase Warrant.
_____________________________________
Signature
_____________________________________
Name for Registration
_____________________________________
Mailing Address
-10-
<PAGE>
Assignment
For value received ____________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
________________________________________________________________________________
[Please print or typewrite name and address of Assignee]
________________________________________________________________________________
the within Warrant, and does hereby irrevocably constitute and appoint _________
_______________________ its attorney to transfer the within Warrant on the books
of the within named Company with full power of substitution on the premises.
Dated:_________________________
___________________________________
In the Presence of:
_______________________________
-11-
<PAGE>
Exhibit A
Restated Certificate of Incorporation
See attached pages.
-12-
<PAGE>
State of Delaware
Office of the Secretary of State
______________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"STARRIDGE NETWORKS, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF OCTOBER,
A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
____________________________________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 8139916
DATE: 10-09-96
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
STARRIDGE NETWORKS, INC.
a Delaware Corporation
The undersigned, Bobby R. Johnson, Jr. and Edgar B. Cale III, hereby
certify that:
ONE: They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of said corporation.
TWO: The Certificate of Incorporation of said corporation was originally
filed on May 22, 1996.
THREE: That the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is StarRidge Networks, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
The name of this corporation's registered agent at such address is Corporation
Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which this corporation is authorized to issue is Thirty-Six
Million (36,000,000) shares of capital stock.
B. Of such authorized shares, Thirty Million (30,000,000) shares shall be
designated "Common Stock," and have a par value of $.0001 per share.
C. Of such authorized shares, Six Million (6,000,000) shares shall be
designated "Series A Preferred Stock," and shall have a par value of $.0001 per
share. The rights, preferences, privileges and restrictions granted to and
imposed on the Series A Preferred Stock, are as set forth below in this Article
IV.
<PAGE>
1. Dividend Provisions.
-------------------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock pursuant to an event causing the Conversion Price of the
Series A Preferred Stock to be adjusted pursuant to Section 3(d) hereof) on the
Common Stock of this corporation, at the rate of $0.07 per share (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares) per annum, payable when, as and if declared by the
Board of Directors. Such dividends shall be non-cumulative.
(b) After payment of the dividend preference referred to above,
outstanding shares of Series A Preferred Stock shall participate with shares of
Common Stock as to any additional declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock including pursuant to an event causing the
Conversion Price of the Series A Preferred Stock to be adjusted pursuant to
Section 3(d) hereof), with the outstanding shares of Series A Preferred Stock
participating as if converted into Common Stock.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $1.00 (the "Original Series A Issue Price") for
each outstanding share of Series A Preferred Stock (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), plus an amount equal to declared but unpaid dividends on such
shares. If, upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2, any remaining assets shall be distributed
ratably among the holders of the Common Stock.
(c) A consolidation, merger, sale, lease or other disposition of
all or substantially all of the Company's assets shall be deemed to be a
liquidation,
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<PAGE>
dissolution or winding up of the Company for the purposes of the liquidation
preference contemplated by this Section 2.
3. Conversion. The holders of the Series A Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
----------------
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share (the "Issue Date") at the office of this
corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares of
Series A Preferred Stock shall be the Original Series A Issue Price; provided,
however, that the Conversion Price for the Series A Preferred Stock shall be
subject to adjustment as set forth in this Section 3.
(b) Automatic Conversion. Each share of Series A Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such Series A Preferred Stock immediately upon
the earliest of (i) the closing of a firm commitment underwritten public
offering of the Common Stock of this corporation pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended (the "Act")
having aggregate gross proceeds not less than $10,000,000, or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock shall be entitled to voluntarily convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to this corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. In the event of an
automatic conversion pursuant to Sections 3(b), the outstanding shares of Series
A Preferred Stock shall be converted automatically without any further action by
the holder of such shares and whether or not the certificates representing such
shares are surrendered to the corporation or its transfer agent, and provided
further, that the corporation shall not be
-3-
<PAGE>
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion, unless the certificates evidencing such shares
of Series A Preferred Stock are delivered to the corporation or its transfer
agent as provided herein. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Act, as
aforesaid, the conversion may, at the option of any holder tendering Series A
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Series
A Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments. The Conversion Price of the
----------------------------
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) In the event this corporation should at any time or
from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such increase of
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price for the
Series A Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of Series A shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3(d)(i), then, in
each such case for the purpose of this subsection 3(e), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this corporation into which their shares of
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<PAGE>
Series A Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3) the holders of the Series A Preferred Stock, respectively, shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock the number of shares of stock or other securities or property of this
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series A
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of
-------------
this Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 3,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth
-5-
<PAGE>
(A) such adjustment and readjustment, (B) the Conversion Price for such series
of Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holders of such Series A Preferred Stock, this corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to this Restated Certificate of Incorporation, as it may be
amended or restated from time to time.
(k) Notices. Any notice required by the provisions of this
-------
Section 3 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given five (5) days after having been deposited in the United States
mail, postage prepaid, return receipt requested, and addressed to each holder of
record at his address appearing on the books of this corporation, with written
verification of receipt.
4. Redemption.
----------
(a) This corporation shall redeem, from any source of funds
legally available therefor, the Series A Preferred Stock in four annual
installments beginning on June 30, 2003, and continuing thereafter on each June
30 until and including June 30, 2006, (each a "Series A Redemption Date"),
whereupon the remaining Series A Preferred Stock outstanding shall be redeemed.
The corporation shall effect such redemptions on the applicable Series A
Redemption Dates by paying in cash in exchange for the shares of Series A
Preferred Stock to be redeemed a sum equal to $1.00
-6-
<PAGE>
per share of Series A Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared but unpaid
dividends on such shares (the "Redemption Price"). The number of shares of
Series A Preferred Stock that the corporation shall be required under this
Section 4(a) to redeem on any one Series A Redemption Date shall be equal to the
amount determined by dividing (i) the aggregate number of shares of Series A
Preferred Stock outstanding immediately prior to the Series A Redemption Date by
(ii) the number of remaining Series A Redemption Dates (including the Redemption
Date to which such calculation applies).
Any redemption effected pursuant to this Section 4(a) shall be
made on a pro-rata basis among the holders of the Series A Preferred Stock in
proportion to the shares of Series A Preferred Stock then held by them.
(b) At least 30 but no more than 60 days prior to each
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock to
be redeemed, at the address last shown on the records of the corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to the corporation, in the manner and at the place
designated, his certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in Section 4(d), on or
after the Redemption Date, each holder of a Series A Preferred Stock to be
redeemed shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption in the Redemption
Notice as holders of Series A Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the corporation legally
available for redemption of shares of Series A Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of Series A Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of such shares ratably among the
holders of such shares to be redeemed based upon their holdings of Series A
Preferred Stock. The shares of Series A Preferred Stock not redeemed shall
remain outstanding and
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<PAGE>
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the corporation are legally available for
the redemption of shares of Series A Preferred Stock such funds will immediately
be used to redeem the balance of the shares which the corporation has become
obliged to redeem on any Redemption Date, but which it has not redeemed.
(d) On or prior to each Redemption Date, the corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock
designated for redemption in the Redemption Notice and not yet redeemed with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or after the
Redemption Date upon surrender of their share certificates. As of the date of
such deposit (even if prior to the Redemption Date), the deposit shall
constitute full payment of the shares to their holders, and from and after the
date of the deposit the shares so called for redemption shall be redeemed and
shall be deemed to be no longer outstanding, and the holders thereof shall cease
to be stockholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust corporation
payment of the Redemption Price of the shares, without interest, upon surrender
of their certificates therefor, and the right to convert such shares as provided
in Section 3 hereof. Such instructions shall also provide that any moneys
deposited by the corporation pursuant to this Section 4(d) for the redemption of
shares thereafter converted into shares of the corporation's Common Stock
pursuant to Section 3 hereof prior to the Redemption Date shall be returned to
the corporation forthwith upon such conversion. The balance of any moneys
deposited by the corporation pursuant to this Section 4(d) remaining unclaimed
at the expiration of two (2) years following the Redemption Date shall
thereafter be returned to the corporation upon its request expressed in a
resolution of its Board of Directors.
5. Voting Rights. The holder of each share of Series A Preferred
-------------
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock could be converted immediately after the close of
business on the record date fixed for a meeting or the effective date of a
written consent, and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the Bylaws of this
corporation as amended or restated from time to time, and shall be entitled to
vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares of Common Stock into which shares
of Series A Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
-8-
<PAGE>
6. Protective Provisions.
---------------------
(a) So long as any shares of Series A Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of a majority of
the then outstanding shares of Series A Preferred Stock:
(i) other than as set forth in Article IV.C.4 hereof,
purchase, redeem or otherwise acquire any shares of Series A Preferred Stock;
(ii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series A Preferred Stock with regard to redemption, voting,
dividends or upon liquidation;
(iii) except for repurchases of Common Stock from
directors, employees or consultants, take any action that results in the
redemption or repurchase of Common Stock in an amount greater than $25,000 in
any twelve (12) month period;
(iv) declare or pay dividends on or make any distribution
on account of Common Stock;
(v) make or permit any subsidiary to issue or sell stock
or other securities to any other corporation, partnership or other entity unless
such entity is wholly-owned by this corporation;
(vi) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporations (other than a wholly-owned subsidiary corporation)
or effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(vii) liquidate, dissolve or wind up the corporation;
(viii) adopt, alter, amend or repeal any provision of the
corporation's certificate of incorporation; or
(ix) increase the size of the Board of Directors.
(b) So long as at least 1,000,000 shares of Series A Preferred
Stock are outstanding, at any annual or special meeting called, or any other
action taken, for the purpose of electing directors to the Company's Board of
Directors:
(i) the holders of Series A Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors and
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<PAGE>
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director;
(ii) the holders of Common Stock, voting as a separate
class, shall be entitled to elect one (1) member of the Company's Board of
Directors and to remove from office such director and to fill any vacancy caused
by the resignation, death or removal of such director; and
(iii) the holders of Common Stock and the holders of Series
A Preferred Stock, voting together as a class, shall be entitled to elect the
remaining members of the Board of Directors.
7. Status of Converted Stock. Any shares of Series A Preferred Stock
-------------------------
acquired by this corporation by redemption, purchase, conversion or otherwise
shall be canceled and shall not be issuable by this corporation. This Restated
Certificate of Incorporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital stock.
8. Common Stock. Subject to all of the rights of Preferred Stock as
------------
expressly provided herein or by law, the Common Stock shall possess all such
rights and privileges as are afforded to capital stock by applicable law in the
absence of any express grant of rights or privileges in this Restated
Certificate of Incorporation.
ARTICLE V
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or as may hereafter be amended, a director of the corporation
shall not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
The corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that,
he, his testator or intestate is or was a director or officer of this
corporation or any predecessor of this corporation or serves or served at any
other enterprise as a director, officer or employee at the request of this
corporation or any predecessor to this corporation.
Neither any amendment nor repeal of this Article V, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article V, shall eliminate or reduce the effect of this Article V, in respect of
any matter occurring, or any cause of action, suit, claim or proceeding that,
but for this Article V would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
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<PAGE>
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of this corporation.
ARTICLE VIII
The number of directors which constitutes the Board of Directors of this
corporation shall be as specified in the Bylaws of this corporation. At each
annual meeting of stockholders, directors of this corporation shall be elected
to hold office until the expiration of the term for which they are elected and
until their successors have been duly elected and qualified, except that if any
such election shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the General Corporation
Law of Delaware.
ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE XI
This corporation is to have perpetual existence.
* * *
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<PAGE>
FOUR: The amendment and restatement of the Restated Certificate of
Incorporation herein certified was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on October 4, 1996.
/s/ Bobby R. Johnson, Jr.
________________________________
Bobby R. Johnson, Jr.,
Chief Executive Officer
/s/ Edgar B. Cale III
________________________________
Edgar B. Cale III, Secretary
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<PAGE>
EXHIBIT B
Capitalization Table
See attached pages.
-28-
<PAGE>
STARRIDGE NETWORKS, INC.
CAPITALIZATION TABLE
October 7, 1996
Preferred Stock:
Series A Preferred Stock Authorized: 6,000,000
Series A Preferred Stock Outstanding: 5,750,000
Series A Preferred Stock Warrant to Lighthouse: 30,000
Common Stock:
Common Stock Authorized: 30,000,000
Common Stock Outstanding: 10,980,000
Common Stock Reserved for Pool: 10,270,000
Total:
Authorized: 36,000,000
Outstanding or Reserved: 27,030,000
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<PAGE>
Exhibit 10.1
Foundry Networks, Inc.
1996 STOCK PLAN
(As amended through July 8, 1999)
1. Purposes of the Plan. The purposes of this 1996 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary in which the
---------
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option, restricted stock purchase and stock bonus plans
under applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any stock exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
------------
(h) "Company" means Foundry Networks, Inc., a Delaware corporation,
-------
formerly known as StarRidge Networks, Inc.
<PAGE>
(i) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" means the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(k) "Director" means a member of the Board.
--------
(l) "Employee" means any person (including if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company, with the status of employment determined
based upon such minimum number of hours or periods worked as shall be determined
by the Administrator in its discretion, subject to any requirements of the Code.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior
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<PAGE>
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Listed Security" means any security of the Company that is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(q) "Named Executive" means any individual who, on the last day of
---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(r) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(s) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
------
(u) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(v) "Optionee" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(w) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(x) "Plan" means this 1996 Stock Plan.
----
(y) "Reporting Person" means an officer, director, or greater than
----------------
ten percent stockholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
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<PAGE>
(z) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(aa) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
----------
Act, as the same may be amended from time to time, or any successor provision.
(bb) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(cc) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(dd) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(ee) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ff) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 14,270,000 shares of Common Stock, plus an automatic annual
increase on the first day of each of the Company's fiscal years beginning in
2000 and ending in 2006 equal to the lesser of: (i) 1,500,000 Shares; (ii) three
percent (3%) of the Shares outstanding on the last day of the immediately
preceding fiscal year; or (iii) such lesser number of shares as is determined by
the Board of Directors. The Shares may be authorized, but unissued, or
reacquired Common Stock. If an Option should expire or become unexercisable for
any reason without having been exercised in full, the unpurchased Shares that
were subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. In addition, any Shares of Common
Stock which are retained by the Company upon exercise of an Option or Stock
Purchase Right in order to satisfy the exercise or purchase price for such
Option or Stock Purchase Right or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan. Shares repurchased by the Company pursuant to any repurchase right
which the Company may have shall not be available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of
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<PAGE>
Optionees and, if permitted by the Applicable Laws, the Board may authorize one
or more officers (who may (but need not) be Officers) to grant Options or Stock
Purchase Rights to Employees and Consultants.
(b) Administration With Respect to Reporting Persons. With respect to
------------------------------------------------
Options and Stock Purchase Rights granted to Reporting Persons and Named
Executives, the Plan may (but need not) be administered so as to permit such
Options and Stock Purchase Rights to qualify for the exemption set forth in Rule
16b-3 and to qualify as performance-based compensation under Section 162(m) of
the Code.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions (including, without
limitation, vesting schedules), not inconsistent with the terms of the Plan, of
any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan; and
-5-
<PAGE>
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Purchase Right
may, if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Option granted to an Optionee who, at the time the Option is granted, is a Ten
Percent Holder, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the written option
agreement. After the date, if any, on which the Common
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<PAGE>
Stock becomes a Listed Security, the five (5) year limitation on option grants
to Ten Percent Holders described above shall only apply to the grant of
Incentive Stock Options.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in Section 14 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 1,000,000 Shares.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted, prior to the date, if any, on which the
Common Stock becomes a Listed Security, to a person who, at the time of the
grant of such Option, is a Ten Percent Holder, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of the
grant; or
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive, the per share Exercise Price shall be no less
than 100% of the Fair Market Value on the date of grant if such Option is
intended to qualify as performance-based compensation under Section 162(m) of
the Code;
(C) granted, prior to the date, if any, on which the
Common Stock becomes a Listed Security, to a person other than a Named Executive
or a Ten Percent Holder, the per Share exercise price shall be no less than 85%
of the Fair Market Value per Share on the date of grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
-7-
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) any combination of the foregoing methods of
payment, or (8) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, and reflected in the written option
agreement, which may include vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee; provided that if required by
the Applicable Laws, any option granted prior to the date, if any, upon which
the Common Stock becomes a Listed Security, shall become exercisable at the rate
of at least twenty percent (20%) per year over five (5) years from the date the
Option is granted. In the event that any of the Shares issued upon exercise of
an Option (which exercise occurs prior to the date, if any, upon which the
Common Stock becomes a Listed Security) should be subject to a right of
repurchase in the Company's favor, such repurchase right shall, if required by
the Applicable Laws, lapse at the rate of at least twenty percent (20%) per year
over five (5) years from the date the Option is granted. Notwithstanding the
above, in the case of an Option granted to an officer, Director or Consultant of
the Company or any Parent, Subsidiary or Affiliate of the Company, the Option
may become fully exercisable, or a repurchase right, if any, in favor of the
Company shall lapse, at any time or during any period established by the
Administrator. The Administrator shall have the discretion to determine whether
and to what extent the vesting of Options shall be tolled during any unpaid
leave of absence ; provided however that in the absence of such determination,
vesting of Options shall be tolled during any such leave.
-8-
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 10(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall occur and this Section 10(b) shall not apply if (i) the
Optionee is a Consultant who becomes an Employee; or (ii) the Optionee is an
Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 10(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such
-9-
<PAGE>
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within thirty (30) days following termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of Optionee's Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee's estate
or the person who acquired the right to exercise the option by bequest or
inheritance does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer
-10-
<PAGE>
Stock Purchase Rights under the Plan, it shall advise the offeree in writing of
the terms, conditions and restrictions related to the offer, including the
number of Shares that such person shall be entitled to purchase, the price to be
paid, and the time within which such person must accept such offer, which shall
in no event exceed thirty (30) days from the date upon which the Administrator
made the determination to grant the Stock Purchase Right. In the case of a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security and if required by the Applicable Laws at such time,
the purchase price of Shares subject to such Stock Purchase Rights shall not be
less than 85% of the Fair Market Value of the Shares as of the date of the
offer, or, in the case of a Ten Percent Holder, the price shall not be less than
100% of the Fair Market Value of the Shares as of the date of the offer. If the
Applicable Laws do not impose the requirements set forth in the preceding
sentence and with respect to any Stock Purchase Rights granted after the date,
if any, on which the Common Stock becomes a Listed Security, the purchase price
of Shares subject to Stock Purchase Rights shall be as determined by the
Administrator. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, provided, however, that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or any Parent or Subsidiary of
the Company, it shall lapse at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
-11-
<PAGE>
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising or receiving the Option or Stock
Purchase Right) shall make such arrangements as the Administrator may require
for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
Option or Stock Purchase Right and the issuance of Shares. The Company shall
not be required to issue any Shares under the Plan until such obligations are
satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of
-12-
<PAGE>
Shares with respect to which the Option or Stock Purchase Right is exercised but
such Participant shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the applicable Tax Date.
13. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of shares of Common
Stock that have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or that have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of Shares described in Section 3(a)(i) and 8 above,
as well as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. Except as may be otherwise set forth in
------------------------
the Notice of Stock Option Grant, in the event of a proposed sale of all or
substantially all of the Company's assets or a merger of the Company with or
into another corporation in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company are transferred to a
person or persons different form the persons holding those securities
immediately prior to such transaction, each outstanding Option or Stock Purchase
Right shall be assumed or an equivalent option or right shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the successor corporation does not agree to assume the
Option or Stock Purchase Right or to substitute an equivalent option or right,
in which case such
-13-
<PAGE>
Option or Stock Purchase Right shall terminate upon the consummation of the
merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution, provided that, after the date, if any, upon which the
Common Stock becomes a Listed Security, the Administrator may in its discretion
grant transferable Nonstatutory Stock Options pursuant to Option Agreements
specifying (i) the manner in which such Nonstatutory Stock Options are
transferable and (ii) that any such transfer shall be subject to the Applicable
Laws. The designation of a beneficiary by an Optionee will not constitute a
transfer. An Option or Stock Purchase Right may be exercised, during the
lifetime of the holder of Option or Stock Purchase Right, only by such holder or
a transferee permitted by this Section 16.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with the Applicable Laws, the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant
-14-
<PAGE>
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any Stock
Exchange. As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
20. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under the Applicable Laws. All Options and
Stock Purchase Rights issued under the Plan shall become void in the event such
approval is not obtained.
21. Information to Optionees and Purchasers. Prior to the date, if any,
---------------------------------------
upon which the Common Stock becomes a Listed Security and if required by the
Applicable Laws, the Company shall provide financial statements at least
annually to each Optionee and to each individual who acquired Shares Pursuant to
the Plan, during the period such Optionee or purchaser has one or more Options
or Stock Purchase Rights outstanding, and in the case of an individual who
acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options or Stock Purchase Rights under the Plan is limited to
key employees whose duties in connection with the Company assure their access to
equivalent information. In addition, at the time of issuance of any securities
under the Plan, the Company shall provide to the Optionee or the Purchaser a
copy of the agreement(s) pursuant to which securities under the Plan are issued.
-15-
<PAGE>
Exhibit 10.2
FOUNDRY NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Foundry Networks, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Foundry Networks, Inc., a Delaware corporation.
-------
(e) "Compensation" means total cash compensation received by an
------------
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses, commissions and incentive
compensation, but excludes relocation, expense reimbursements, tuition or other
reimbursements and income realized as a result of participation in any stock
option, stock purchase, or similar plan of the Company or any Designated
Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
<PAGE>
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
(q) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan as a result of a stockholder-
approved amendment to the Plan, and (ii) all or a portion of such additional
Shares are to be issued with respect to one or more Offering Periods that are
underway at the time of such increase ("Additional Shares"), and (iii) the Fair
-----------------
Market Value of a Share of Common Stock on the date of such increase (the
"Approval Date Fair Market Value") is higher than the Fair Market Value on the
- --------------------------------
Offering Date for any such Offering Period, then in such instance the Purchase
Price with respect to Additional Shares shall be 85% of the Approval Date Fair
Market Value or the Fair Market Value of a Share of Common Stock on the Purchase
Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
-2-
<PAGE>
(t) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months' duration, with new Offering
Periods commencing on or about February 1 and August 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until July 31, 2001. The
--------
Plan shall continue until terminated in accordance with Section 19 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on January
31, 2000. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Purchase Period to be
affected.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than twenty percent (20%) (or such greater percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during a Purchase Period may
increase and on one occasion only during a Purchase Period may decrease the rate
of his or her Contributions with respect to the Offering Period by completing
and filing with the Company a new subscription agreement authorizing a change in
the payroll deduction rate. The change in rate shall be effective as of the
beginning of the next calendar month following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Purchase Period to 0%. Payroll
deductions shall re-commence at the rate provided in such participant's
subscription agreement at the beginning of the first Purchase Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however
-4-
<PAGE>
that the maximum number of Shares an Employee may purchase during each Purchase
Period shall be 2,500 Shares (subject to any adjustment pursuant to Section 19
below), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after
a Purchase Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
-5-
<PAGE>
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any
--------------------
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
500,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2000 and ending in 2009 equal to the lesser
of (i) 500,000 Shares, (ii) two percent (2%) of the Shares outstanding on the
last day of the immediately preceding fiscal year, or (iii) such lesser number
of Shares as is determined by the Board. If the Board determines that, on a
given Purchase Date, the number of shares with respect to which options are to
be exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Offering Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the Plan
on such Purchase Date, the Board may in its sole discretion provide (x) that the
Company shall make a pro rata allocation of the Shares of Common Stock available
for purchase on such Offering Date or Purchase Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Purchase Date, and continue all Offering Periods then in
effect, or (y) that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Purchase Date, as applicable, in
as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Purchase Date,
-6-
<PAGE>
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
-7-
<PAGE>
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which date any Purchase Period and
-----------------
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
-8-
<PAGE>
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 19); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting
-9-
<PAGE>
and adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
FOUNDRY NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Foundry Networks, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Purchase Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Foundry Networks, Inc. 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
-2-
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:__________________________
SOCIAL SECURITY #:__________________
DATE:_______________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
____________________________________
(Signature)
____________________________________
(Print name)
-3-
<PAGE>
FOUNDRY NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Foundry Networks, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for
----
the Offering Period that began on _________ ___, _____. This withdrawal covers
all Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ______________________________
Signature of Employee
______________________________
Social Security Number
<PAGE>
Exhibit 10.3
FOUNDRY NETWORKS, INC.
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. Purposes of the Plan. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the Common Stock of the Company.
------------
(e) "Company" means Foundry Networks, Inc., a Delaware corporation.
-------
(f) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "Corporate Transaction" means a dissolution or liquidation of the
---------------------
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "Director" means a member of the Board.
--------
(i) "Employee" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "Option" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means an Outside Director who receives an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Directors' Stock Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 450,000 Shares of Common Stock (the "Pool"). The Shares may
----
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by the
Company upon exercise of an Option in order to satisfy the exercise price for
such Option, or any withholding taxes due with respect to such exercise, shall
be treated as not issued and shall continue to be available under the Plan. If
Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 75,000 Shares (the "First Option") on the date on which
such person first becomes an Outside Director after the effective date of this
Plan, whether through election by the shareholders of the Company or appointment
by the Board of Directors to fill a vacancy.
(iii) Each Outside Director, including an Outside Director who
did not receive a First Option grant, shall be automatically granted an Option
to purchase 20,000 Shares (the "Subsequent Option") on the date of each Annual
Meeting of the Company's stockholders immediately following which such Outside
Director is serving on the Board, provided that, on such date, he or she shall
have served on the Board for at least six (6) months prior to the date of such
Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors receiving an
Option on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
stockholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 17 hereof.
(vii) The terms of each option granted hereunder shall be as
follows:
(1) each option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 below;
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of each option, determined in
accordance with Section 8 hereof;
(3) each Option shall be fully vested and exercisable as
of the date of grant.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the
-3-
<PAGE>
Common Stock; (ii) to determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with Section 8
of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind
rules and regulations relating to the Plan; (v) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
-4-
<PAGE>
8. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
-----------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System).
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 below has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise
-5-
<PAGE>
of the Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee: (A)
-----------------
during the term of the Option who is, at the time of his or her death, a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that an Optionee was not
entitled to exercise the Option at the date of death or termination or if he or
she does not exercise such Option (to the extent he or she was entitled to
exercise) within the time specified above, the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the
Plan.
10. Nontransferability of Options. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code
-6-
<PAGE>
or the rules thereunder). The designation of a beneficiary by an Optionee does
not constitute a transfer. An Option may be exercised during the lifetime of an
Optionee only by the Optionee or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii),
(iii) and (iv) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, including a Change of Control, and except as otherwise
provided in a Stock Option Agreement issued under the Plan, each outstanding
Option shall be assumed or an equivalent option shall be substituted by the
successor corporation or a Parent or Subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the outstanding
Options or to substitute equivalent options, in which case the Options shall
terminate upon the consummation of the transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon exercise of an Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the occurrence of such
transaction if the Optionee had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 11); provided however that if such
consideration received in the transaction was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
exercise of the Option to be solely common stock of the successor corporation or
its Parent equal
-7-
<PAGE>
to the Fair Market Value of the per Share consideration received by holders of
Common Stock in the transaction.
(c) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time (the "Applicable Laws"). Such compliance shall be determined by the
---------------
Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
-8-
<PAGE>
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
-9-
<PAGE>
FOUNDRY NETWORKS, INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
((OptioneeAddress1))
((OptioneeAddress2))
You have been granted an option to purchase Common Stock of Foundry
Networks, Inc. (the "Company") as follows:
-------
Date of Grant ((GrantDate))
Vesting Commencement Date ((VestingStartDate))
Exercise Price per Share ((ExercisePrice))
Total Number of Shares Granted ((SharesGrante))
Total Exercise Price ((TotalExercisePrice))
Expiration Date ((ExpirDate))
Vesting Schedule: This Option may be exercised, in whole
----------------
or in part, in accordance with the
following schedule: 100% of the Option
Shares shall be vested and exercisable
in full as of the Date of Grant.
Termination Period: This Option may be exercised for 90 days
------------------
after termination of Optionee's
Continuous Status as a Director, or such
longer period as may be applicable upon
death or Disability of Optionee as
provided in the Plan, but in no event
later than the Expiration Date as
provided above.
-10-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: FOUNDRY NETWORKS, INC.
____________________________ By:__________________________
Signature
Title:_______________________
____________________________
Print Name
-11-
<PAGE>
FOUNDRY NETWORKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. Grant of Option. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
-------- ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
--------
Price"'), subject to the terms and conditions of the 1999 Directors' Stock
- -----
Option Plan (the "Plan"), which is incorporated herein by reference.
----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
--------- ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
-12-
<PAGE>
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain
----------------
federal tax consequences relating to this Option under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal income tax liability upon exercise. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. The long-
term capital gain will be taxed for federal income tax purposes at a maximum
rate of 20 percent.
-13-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
FOUNDRY NETWORKS, INC.
By:___________________________________
_____________________________
((Optionee))
Title:________________________________
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
__________________________________
Spouse of Optionee
-14-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: Foundry Networks, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Foundry Networks,
Inc. Common Stock, under and pursuant to the Company's 1999 Directors' Stock
Option Plan and the Nonstatutory Stock Option Agreement dated _______________,
as follows:
Grant Number: _____________________________
Date of Purchase: _____________________________
Number of Shares: _____________________________
Purchase Price: _____________________________
Method of Payment of
Purchase Price: _____________________________
Social Security No.: _____________________________
The shares should be issued as follows:
Name: _____________________________
Address: _____________________________
_____________________________
_____________________________
Signed: _____________________________
Date: _____________________________
-15-
<PAGE>
Exhibit 10.4
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
____________, 199__. by and between Foundry Networks, Inc., a Delaware
corporation (the "Company"), and ((IndemniteeName)) (the "Indemnitee").
-------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
-1-
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section 1(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby. Any advances to be made under this Agreement
shall be paid by the Company to Indemnitee within twenty (20) days following
delivery of a written request therefor by Indemnitee to the Company.
-2-
<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by
-3-
<PAGE>
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
-4-
<PAGE>
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a
-5-
<PAGE>
right to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law,
but such indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
-6-
<PAGE>
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
-7-
<PAGE>
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
Foundry Networks, Inc.
By: ______________________________________
Title: ______________________________________
Address: 680 W. Maude Ave.
Sunnyvale, CA 94086
AGREED TO AND ACCEPTED:
____________________________________
((IndemniteeName))
Address: ((IndemniteeAddress1))
((IndemniteeAddress2))
-9-
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL
OEM PURCHASE AGREEMENT
BY AND BETWEEN
HEWLETT-PACKARD COMPANY
WORKGROUP NETWORKS DIVISION
AND
FOUNDRY NETWORKS
Page 1 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
OEM AGREEMENT
TABLE OF CONTENTS
1. SCOPE OF AGREEMENT
1.1 General
1.2 Eligible Purchasers
1.3 Term Of Agreement
2. DEFINITIONS
3. ORDER AND SHIPMENT OF OEM PRODUCTS
3.1 Orders
3.2 Order Acknowledgment
3.3 Emergency Orders
3.4 Forecasts
3.5 Lead Time
3.6 Forecast Flexibility
3.7 Order Changes
3.8 Shipment Requirements
3.9 HP Option To Accept Overshipments
3.10 Meeting Delivery Dates
3.11 No Advance Shipment
3.12 Title And Risk Of Loss
3.13 Packing List
3.14 Packaging
3.15 Responsibility For Damage
4. PRICES AND PAYMENT TERMS
4.1 OEM Product Prices
4.2 Changed Prices
4.3 Payment Procedure
4.4. Most Favored Purchaser Warranty
4.5 Sales Taxes And Duties
5. NONCOMPLYING PRODUCTS
5.1 Credit, Repair, Or Replacement
5.2 Replenishment Period
6. RETURN OF NONCOMPLYING AND FAILING OEM PRODUCTS
6.1 Return Materials Authorization
6.2 Return Charges
6.3 Duty To Remove Marks Or Destroy Noncomplying Products
6.4 Failure Returns
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
Page 2 of 72
<PAGE>
7. ENGINEERING PROCESS OR DESIGN CHANGES
7.1 Foundry Proposed Changes
7.2 Notice Of Proposed Change
7.3 HP Proposed Changes
7.4 Option To Terminate
7.5 Safety Standard Changes
7.6 HP Software Release Process
8. QUALITY
8.1 Quality Program
8.2. HP's Right To Inspect
9. WARRANTIES
9.1 Product Warranties
9.2 Survival Of Warranties
9.3 Epidemic Failure Warranty
9.4 DISCLAIMER
10. SUPPORT SERVICES
10.1 General
10.2 Equipment Loan
10.3 Substitute Products
10.4 Failure Rate
10.5 Class Failure Remedies
10.6 Anomalous Behavior
10.7 Purchase Hold
10.8 Survival Of Support Obligations
11. ASSURANCE OF SUPPLY
11.1 Discontinuance
11.2 HP's Right To Manufacture
11.3 Consulting Services
11.4 Deposit Agreement
12. TRAINING
12.1 Technical Training
12.2 HP's Rights In Training Classes And Materials
13. MARKETING AND LICENSING
13.1 Marketing Authority
13.2 No Rights In Marks
13.3 Private Labeling
13.4 Software License
13.5. Documentation License
Page 3 of 72
<PAGE>
14. INTELLECTUAL PROPERTY PROTECTION
14.1 Foundry's Duty To Defend
14.2 HP's Duty To Notify
14.3 Remedies For Infringing Products
14.4 Limitations
15. COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS
15.1 Country Of Origin Certification
15.2 Country Of Origin Marking
15.3 Duty Drawback
16. GOVERNMENTAL COMPLIANCE
16.1 Duty To Comply
16.2 Procurement Regulations
16.3 Ozone Depleting Substances
17. FORCE MAJEURE EVENTS
17.1 Delaying Causes
17.2 HP Option
17.3 Resumption Of Agreement
18. EVENTS OF DEFAULT
18.1 Notice Of Breach
18.2 Causes Of Breach
18.3 H.P's Rights Upon Breach
18.4 Foundry's Rights Upon Breach
19. CONFIDENTIAL INFORMATION
19.1 Confidential Information
19.2 Exclusions
20. INSURANCE REQUIREMENTS
20.1 Insurance Coverage
20.2 Claims Made Coverage
20.3 Additional Requirements
21. LIMITATION OF LIABILITY
22. TERMINATION
22.1 Outstanding Orders
22.2 Return Of Property
22.3 Surviving Provisions
23. MISCELLANEOUS
23.1 Notices
23.2 Exhibits
Page 4 of 72
<PAGE>
23.3 Independent Contractors
23.4 Assignment
23.5 No Waiver
23.6 Reference To Days
23.7 Headings
23.8 No Publication
23.9 Severability
23.10 Entire Agreement
23.11 Governing Law
24. DISPUTE RESOLUTION
24.1 Dispute Resolution Process
24.2 Exceptions to Dispute Resolution Process
EXHIBIT A OEM PRODUCTS AND SPECIFICATIONS
EXHIBIT B ELIGIBLE PURCHASERS
EXHIBIT C OEM PRODUCT PRICES TO HP
EXHIBIT D SUPPORT TERMS
EXHIBIT E EQUIPMENT LOAN AGREEMENT
EXHIBIT F CONFIDENTIAL DISCLOSURE AGREEMENT
EXHIBIT G RECIPIENTS FOR RECEIPT OF NOTICES AND RELATIONSHIP MANAGERS
EXHIBIT H DEPOSIT AGREEMENT
Page 5 of 72
<PAGE>
CONFIDENTIAL
OEM PURCHASE AGREEMENT
THIS AGREEMENT is entered into between HEWLETT-PACKARD COMPANY, a Delaware
corporation through its Workgroup Networks Division primarily located at 8000
Foothills Boulevard, Roseville, CA 95747 ("HP") and FOUNDRY NETWORKS, INC., a
Delaware corporation having its primary offices located at 680 W. Maude Avenue,
Suite 3, Sunnyvale, CA 94086 ("Foundry"), effective as of January 6, 1999 (the "
Effective Date"). The parties hereby agree as follows:
1. SCOPE OF AGREEMENT
1.1 General. This Agreement sets forth the terms and conditions under which
-------
Foundry will sell, license and support the OEM Products listed in Exhibit A to
---------
this Agreement. The OEM Products are regarded as "Original Equipment
Manufacturer" products that will either be sold separately or incorporated into
HP Products for resale worldwide under Foundry's label or under HP's private
label. The OEM Products and the HP Products will be marketed, serviced, and
supported by HP's field organization, subject to the marketing, service, and
support obligations of Foundry pursuant to this Agreement. All OEM Products must
be new, except as otherwise provided by the parties.
1.2 Eligible Purchasers. This Agreement enables HP, HP Subsidiaries and HP
-------------------
Subcontractors as specified in Exhibit B to this Agreement to purchase OEM
Products from Foundry under the terms of this Agreement or any subsequent
Product Addendum. Unless a Product Addendum specifically refers to and amends a
term of this Agreement, the terms and conditions of this Agreement will control
and take precedence over any conflicting terms in a Product Addendum.
1.3 Term Of Agreement. This Agreement will commence as of the Effective Date
-----------------
and continue through May 18, 2000 (the "Term") , unless terminated earlier under
the terms of this Agreement. After the initial Term, this Agreement will
continue automatically for two (2) additional separate one (1) year periods,
unless terminated upon 60 days notice prior to expiration of the initial Term or
of any additional periods. Extension of this Agreement beyond the initial Term
and additional periods shall be as agreed by the parties in writing.
2. DEFINITIONS
The following capitalized terms will have these meanings throughout this
Agreement.
"Days" means calendar days unless otherwise specified herein.
----
"Delivery Date" means the date specified in an Order for the delivery of OEM
-------------
Products by Foundry to the destination required under the Order.
"Documentation" means the user and technical manuals and other documentation
-------------
that Foundry will make available with the OEM Products.
"Eligible Purchasers" mean those parties authorized to purchase OEM Products
-------------------
under this Agreement as listed in Section 1.2 above.
-----------
"Failing Products" means OEM Products which are found to be
----------------
Page 6 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
Noncomplying Products after delivery to HP customers.
"Forecast" means HP's estimate of its purchase requirements over a six-month
--------
period, or such other period mutually agreed to by the parties.
"HP Products" means the HP products or systems that will incorporate the OEM
-----------
Products and that will be marketed and sold to end-user customers by HP and its
distributors.
"HP Property" means all property, including without limitation, models, tools,
-----------
equipment, copies of designs and documentation and other materials that may be
furnished to Foundry by HP or on HP's behalf or separately paid for by HP for
use by Foundry in connection with this Agreement.
"Intellectual Property Rights" means all rights in patents, copyrights, trade
----------------------------
secrets, mask works, Marks and other similar rights.
"Lead Time" means the time between the date an Order is sent and the Delivery
---------
Date.
"Marks" means the trademarks, service marks, trade dress, trade names, logos,
-----
insignia, symbols, designs or other marks identifying a party or its products.
"Noncomplying Product" means any OEM Product received by HP that does not comply
--------------------
with the Specifications, or otherwise does not comply with other provisions of
this Agreement. Noncomplying Products include, without limitation, dead-on-
arrival products.
"OEM Products" means the customized products listed and described in Exhibit A,
------------ ---------
all related Documentation, Parts and other deliverables provided pursuant to
this Agreement.
"Orders" means a written or electronic purchase order or release issued by HP to
------
Foundry for purchase of' the OEM Products.
"Parts" means the replacement parts, components, consumables or other products
-----
that may be supplied in conjunction with or as additions to the OEM Products.
"Product Addendum" means an addendum to this Agreement entered into between
----------------
Foundry and an Eligible Purchaser naming additional OEM Products and product
specific requirements in addition to those requirements specified in this
Agreement.
"Software" means any software or firmware included or bundled with the OEM
--------
Products, as designated in the description of OEM Products in Exhibit A.
---------
"Specifications" means the technical, functional, aesthetic and other
--------------
requirements for the OEM Products as specified or referenced in Exhibit A or as
---------
agreed to by the parties.
"Subcontractor" means a third party listed in Exhibit B that may purchase OEM
------------- ---------
Products under the terms of this Agreement on behalf of HP.
"Subsidiary" means an entity controlled by or under common control with a party
----------
to this Agreement, through ownership or control of more than 50% of the voting
power of the shares or other means of ownership or control, provided that such
control continues to exist.
"Support" means ongoing maintenance and technical support for the OEM
-------
Page 7 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
Products provided by Foundry to HP as more fully described in Exhibit D.
---------
"Technical Information" means Foundry's manufacturing information and technology
---------------------
deemed necessary by HP to support OEM Products and to exercise any manufacturing
rights provided under this Agreement, including, but not limited to: (i)
specifications, software, schematics designs, drawings or other materials
pertinent to the most current revision level of manufacturing of the OEM
Products; (ii) copies of all inspection, manufacturing, test and quality control
procedures and any other work processes; (iii) jig, fixture and tooling designs;
(iv) Foundry technical history files; (v) support documentation; and (vi) any
additional technical information or materials listed in the Escrow Agreement
agreed to by the parties.
"Technical Materials" means jigs, fixtures and tools used by Foundry to
-------------------
manufacture the OEM Products, and any production software used in such
manufacture.
3. ORDER AND SHIPMENT OF OEM PRODUCTS
3.1. Orders. Each delivery of OEM Products will be initiated by an Order
------
issued to Foundry by HP. Each Order will include: (i) unit quantity; (ii) unit
price; (iii) shipping destination; (iv) Delivery Date; and (v) other
instructions or requirements pertinent to the Order. HP may schedule regular
intervals for deliveries by an appropriate Order setting forth the intervals. To
the extent of any inconsistency between the terms of an Order and the terms of
this Agreement, the terms specified in this Agreement will control and take
precedence.
3.2. Order Acknowledgment. An Order will be deemed to have been placed as of
--------------------
the date of receipt of the Order by Foundry. Foundry will promptly confirm the
receipt of an Order through facsimile or electronically to HP by the end of the
next working day following receipt of the order by Foundry. Orders within
Forecasts and Lead Time requirements of this Agreement will be deemed accepted
upon receipt by Foundry. For Orders exceeding Forecast, Foundry will have two
(2) additional working day in which to reject or acknowledge the order with
respect to the excess.
3.3. Emergency Orders. If HP deems it necessary, HP may order OEM Products by
----------------
facsimile on an emergency basis ("Emergency Order") subject to the availability
of such OEM Products in Foundry's inventory Foundry shall use its best efforts
to ship the Emergency Order to HP's stipulated destinations as quickly as
reasonably possible after the receipt by Foundry. Any reprioritization of HP
Orders will be as agreed by the parties. Subject to HP's approval, HP will pay
any additional expenses related to such Emergency Orders.
3.4. Forecasts. HP will provide a six month rolling Forecast of its projected
---------
monthly Orders. Any quantities listed in any Forecast or other correspondence
between the parties are only estimates made as an accommodation for planning
purposes and do not constitute a commitment on HP's part to purchase such
quantity. HP may revise any Forecasts in its sole discretion. Notwithstanding
the foregoing, any minimum purchase commitments set forth in Exhibit C apply to
this Agreement.
3.5. Lead Time. Foundry will determine the Lead Time for each OEM Product,
---------
which in no event will exceed [ * ] days without HP's prior written
consent. Foundry will, for any proposed increase of the Lead Time, give HP no
less than [ * ] days advance notice to approve or reject any proposed
increase in Lead Time.
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*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
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3.6 Forecast Flexibility. If any Order contains a Delivery Date which
--------------------
necessitates a shorter Lead Time, or any Order has a unit quantity such that the
addition of such quantity to the total quantity of units for all Orders
previously accepted during the month in which the Order is placed, would result
in a total number of units for that month that exceeds the Two-month Forecast
for such month by [ * ] then Foundry will use its best efforts to accommodate
such shorter Lead Time or fill such excess, as the case may be. All Orders which
cumulatively are within such [ * ] upside will be deemed to be Orders within
Forecast requirements for purposes of Section 3.2 of this Agreement. Unless
otherwise agreed by the parties in writing, if the cumulative Orders issued
during any month is less than [ * ] of the Two-month Forecast, HP will be
required to issue Orders which, in addition to the total quantity of units for
all Orders previously accepted during the month in which the Order is placed,
would result in a total number of units for that month equal to [ * ] of the
Two-month Forecast. For purposes of this Section 3.6, "Two-month Forecast" means
the Forecast as provided by HP to Foundry 2 months prior to the month in which
the applicable Order is issued.
3.7 Order Changes. Pursuant to Section 3.6 above, HP may without charge
-------------
postpone, decrease, or increase any Order by notice to Foundry at least [ * ]
[ * ] days prior to the Delivery Date. Postponement or decrease shall be for a
period of not more than thirty (30) days from the original Delivery Date.
Notwithstanding the forecast flexibility stated in Section 3.6 above, if HP
proposes a postponement, decrease, or cancellation of an Order and Foundry
accepts such postponement, decrease, or cancellation after such [ * ] day time
period, Foundry will be entitled to be reimbursed by HP for actual costs
incurred by Foundry as a direct result of such postponement, decrease, or
cancellation that are not recoverable by the shipment of the OEM Products
affected to HP or other authorized purchasers within a reasonable period of time
or the exercise by Foundry, in a commercially reasonable manner, of other
mitigation measures.
3.8 Shipment Requirements. All Orders are required to be shipped complete.
---------------------
Foundry will give HP immediate notice if it knows that it cannot meet a Delivery
Date or that only a portion of the OEM Products will be available for shipment
to meet a Delivery Date. For partial shipments, Foundry will ship the available
OEM Products unless directed by HP to reschedule shipment. If Foundry ships any
OEM Product by a method other than as specified in the corresponding Order,
Foundry will pay any resulting increase in the cost of freight. HP may utilize
drop shipment options to any HP shipping destination. If HP designates a drop
shipment location outside the country in which the Order is placed, HP agrees to
pay any additional costs associated with the shipment. Without limiting the
provisions of this Agreement with regard to Noncomplying OEM Products and OEM
Product warranties, shipments will be considered by Foundry to have been
accepted by HP in terms of conformance with the requirements of an Order, unless
otherwise notified by HP within 2 days of receipt.
3.9 HP Option to Accept Overshipments. If Foundry ships more OEM Products
---------------------------------
than ordered, the amount of the overshipment may either be kept by HP for credit
against future Orders or returned to Foundry pursuant to Article 6 below, at
---------
HP's election.
3.10 Meeting Delivery Dates. If due to Foundry's failure to make a
----------------------
timely shipment, the specified method of transportation would not permit Foundry
to meet the Delivery Date, Foundry will notify HP of the late shipment and the
OEM Products affected will be shipped by air
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*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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transportation or other expedient means acceptable to HP. Foundry will pay for
any resulting increase in the freight cost over that which HP would have been
required to pay by the specified method of transportation.
3.11 No Advance Shipment. If OEM Products are delivered more than ten (10)
-------------------
days in advance of the Delivery Date. HP may, at its option, either return the
OEM Products pursuant to Article 6 below or keep the OEM Products with payment
---------
due as provided in Section 4.3 below.
-----------
3.12 Title And Risk Of Loss. Unless otherwise specified in writing by HP,
----------------------
HP will designate the carrier on each shipment and shipments will be FCA,
Foundry's dock or freight forwarder. Title to OEM Product hardware and media
ordered hereunder and risk of loss or damage will pass from Foundry to HP upon
Foundry's delivery of the OEM Products to the common carrier specified by HP,
subject to the provisions below with respect to packing and handling.
3.13 Packing List. Each delivery of OEM Products to HP must include a packing
------------
list that contains at least:
(a) The Order number and the HP part number;
(b) The quantity of OEM Products or Parts shipped; and
(c) The date of shipment
3.14 Packaging. Foundry must preserve, package, handle, and pack all OEM
---------
Products so as to protect the OEM Products from loss or damage, in conformance
with good commercial practice, the Specifications, government regulations, and
other applicable standards. Special static protection must be provided for OEM
Products requiring such packaging.
3.15 Responsibility For Damage. Foundry will be liable for any loss or damage
-------------------------
due to its failure to properly preserve, package, handle, or pack OEM Products.
HP will not be required to assert any claims for such loss or damage against the
common carrier involved. Further, HP will not be liable for any loss or damage
due to a release of chemicals or other hazardous materials to the environment
prior to HP's actual receipt of the corresponding OEM Products.
4. PRICES AND PAYMENT TERMS
4.1. OEM Product Prices. Foundry's prices for the OEM Products are listed in
------------------
Exhibit C, in U.S. currency unless otherwise stated and may only be changed as
- ---------
stated in Exhibit C. The prices for Parts will be Foundry's published prices,
---------
less any applicable discounts, unless the parties agree to a price schedule for
Parts.
4.2. Changed Prices. If, during the Term, changed prices or price formulas
--------------
are put in effect by mutual agreement of HP and Foundry or reduced prices or
price formulas are otherwise put in effect by Foundry, such prices or price
formulas (if resulting in lower prices than the then current price) will apply
to all Orders issued by HP after the effective date of such prices or price
formulas and to all unshipped Orders.
4.3. Payment Procedure. Payment for OEM Products will be net 37 days, after
-----------------
the latest of receipt by HP of an appropriate invoice from Foundry, the
corresponding OEM Products or Parts, or the Delivery Date. Except as otherwise
provided in this Agreement, associated freight expenses and duties will be paid
directly by HP. HP will not be liable
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*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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for any costs related to or payments for unordered or Nonconforming Products.
4.4. Most Favored Purchaser Warranty. If during the term, Foundry offers a
-------------------------------
materially better price or pricing formula to other purchasers or similar
volumes of OEM Products, then Foundry agrees to offer such price or pricing
formula to HP for the next Order and for all future Orders.
4.5. Sales Taxes And Duties. Prices are exclusive of all taxes or duties after
----------------------
delivery to the designated destination (other than taxes levied on Foundry's
income) that Foundry may be required to collect or pay upon shipment of the OEM
Products. Any such taxes or duties must appear as a separate item on Foundry's
invoice. HP agrees to pay such taxes or duties unless HP is exempt from such
taxes or duties. Where applicable, HP will provide Foundry with an exemption
resale certificate.
5. NONCOMPLYING PRODUCTS
5.1. Credit, Repair, or Replacement. HP may elect in its sole discretion to
------------------------------
return a Noncomplying Product for credit, replacement or repair at Foundry's
expense. In addition, HP may return for repair or replacement an entire lot of
OEM Products if a tested sample, which consists of two (2) or more of the same
OEM Product, of that lot contains Noncomplying Products. In the event of an
overshipment, HP may elect to keep the additional units, subject to the payment
procedures in Section 4.3.
-----------
5.2. Replenishment Period. Foundry will return the replacement or repaired OEM
--------------------
Products as soon as possible but in no event later than two (2) work days after
receipt of the Noncomplying Product from HP.
6. RETURN OF NONCOMPLYING AND FAILING OEM PRODUCTS
6.1. Return Materials Authorization. All OEM Products returned by HP to
------------------------------
Foundry must be accompanied by a Return Materials Authorization ("RMA"). Unless
further verification is reasonably required by Foundry, Foundry will supply an
RMA within two work days of HP's request. HP may return the OEM Product without
an RMA if Foundry fails to provide one.
6.2. Return Charges. All Noncomplying and failing OEM Products returned by
--------------
HP to Foundry, and all replacement or repaired OEM Products shipped by Foundry
to HP to replace Noncomplying or failing OEM Products, will be at Foundry's risk
and expense, including transportation charges (round trip charges for
replacement or repaired OEM Products).
6.3. Duty to Remove Marks Or Destroy Noncomplying Products. Foundry agrees not
-----------------------------------------------------
to sell, transfer distribute or otherwise convey any part, component, product or
service bearing or incorporating HP Marks, part numbers or other identifiers,
including any HP packaging, copyrights or code, to any party other than to
Eligible Purchasers. Foundry will remove from all rejected, returned or
unpurchased OEM Products any such HP Marks or identifiers, even if such removal
would require destruction of the OEM Products. Foundry further agrees not to
represent that such OEM Products are built for HP or to HP specifications.
Foundry will defend and indemnify HP against any claims, losses, liabilities,
costs or expenses that HP may incur as a result of Foundry's breach of this
obligation.
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*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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6.4. Failure Returns. All Failing Products may be returned by HP to Foundry
---------------
for repair or replacement. Failure returns within the warranty period shall be
repaired or replaced by Foundry and returned to HP at no cost as soon as
possible but no later than fourteen (14) days after receipt of the Failing
Products from HP. Returns of Failing Products outside of the warranty period set
forth herein shall be repaired or replaced at the agreed out of warranty repair
cost. Foundry shall track the repair history of each OEM Product. Any Failing
Product returned for a third time to Foundry shall be replaced with a new OEM
Product. In the event that the rate of no trouble found (NTF) returns to Foundry
from HP exceeds [ * ] of all failure returns, the parties will negotiate in good
faith to determine an appropriate course of action to reduce the cost of
processing NTF returns which may include a charge to HP for testing and shipping
NTF OEM Products.
7. ENGINEERING PROCESS OR DESIGN CHANGES
7.1. Foundry Proposed Changes. Foundry will not, without the prior written
------------------------
consent of HP, make or incorporate in OEM Products shipped to HP any changes
affecting the electrical performance, the mechanical form, fit, or function, the
environmental compatibility or chemical characteristics, software compatibility,
or the life, reliability, or quality of OEM Products (collectively, "Engineering
Changes").
7.2. Notice Of Proposed Change. Foundry will give HP notice of any proposed
-------------------------
Engineering Change, and will provide evaluation samples and other appropriate
information as specified by HP at least sixty (60) days prior to the first
proposed shipment of any OEM Products to HP involving an Engineering Change.
Regardless of whether HP approves a proposed Engineering Change, Lead Time will
not be changed except as provided in Section 3.5 above. In addition, Foundry
will give HP notice of any "minor" changes and/or bug fixes in an OEM Product
which is not specified in Section 7.1 above including component value and/or
vendor changes, process or design changes; and geographical relocation of
manufacturing processes. Foundry will give HP as much advance notice of such
"minor" changes as is reasonable.
7.3. HP Proposed Changes. HP may propose changes to designs or the technical
-------------------
and functional Specifications for OEM Products at any time prior to shipment of
corresponding released OEM Products. The costs and effective dates of such
proposed changes shall be negotiated and agreed to by the parties. Additionally,
with respect to the customizing features stated in Exhibit A, HP may change the
---------
previously supplied HP drawings, designs or Specifications for such features of
the OEM Products at any time prior to shipment of corresponding released OEM
Products and any such change will be effective upon notice to Foundry. If any
such changes reasonably and directly affect the prices or delivery schedules of
OEM Products, an equitable adjustment will be made provided that Foundry makes a
written claim for an adjustment within 30 days from the date HP gives notice to
Foundry of the change and HP agrees in writing to the adjustment.
7.4. Option To Terminate. If the parties are unable to agree, after having
-------------------
followed the dispute resolution process set forth in Article 24 of this
----------
Agreement, upon any HP proposed changes pursuant to Section 7.3 above, HP and
-----------
Foundry may agree to terminate this Agreement as to any OEM Products affected
subject to the provisions set forth in Article 22.
7.5. Safety Standard Changes. Foundry will immediately give notice to HP if
-----------------------
any upgrade, substitution or other change to an OEM Product is required to make
that product meet applicable safety standards or other governmental statutes,
rules, orders or regulations, even those that are not defined as Engineering
Changes in Section 7.1 above. All affected
-----------
Page 12 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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OEM Products already purchased by HP may, at HP'S election, either be returned
to Foundry for upgrade to current revisions or upgraded by Foundry or HP in the
field pursuant to the procedures outlined in Section 10.5 below. If an OEM
------------
Product meets applicable safety standards and other governmental requirements at
the time of manufacture, HP and Foundry will allocate the costs of any
subsequent upgrade, substitution or other change required hereunder in an
equitable manner based on good faith discussions between the parties. If such
discussions render no equitable solution, then the parties may either mutually
agree to escalate the matter to their respective vice presidents or general
managers, as applicable, or in the alternative, divide the costs equally between
them.
7.6. HP Software Release Process. Notwithstanding the provisions in Sections
---------------------------
7.1 and 7.2 hereof, HP's release of Software changes and upgrades will
be exclusively governed by the process set forth in Exhibit D to this Agreement.
---------
8. QUALITY
8.1. Quality Program. Foundry agrees to maintain an objective quality program
---------------
for all OEM Products. Foundry's program will be in accordance with quality
requirements agreed to by the parties. Foundry will, upon HP's request, provide
to HP copies of Foundry's program and supporting test documentation.
8.2. HP's Right to Inspect. HP has the right to inspect with reasonable notice
---------------------
and at times mutually agreed by the parties, at Foundry's plant, the OEM
Products and associated manufacturing processes. Manufacturing processes may be
inspected at any time during the Term. HP's inspection may be for any reason
reasonably related to this Agreement, including to assure Foundry's compliance
with HP's requirements. HP's right of inspection will apply as well to any
vendor or subcontractor of Foundry. Foundry will inform such vendors or
subcontractors of HP's right to inspect, and, if necessary, use all reasonable
effort to secure such rights for HP.
9. WARRANTIES
9.1. Product Warranties. Foundry warrants that all OEM Products will:
------------------
(1) Be manufactured, processed, and assembled by Foundry or by companies
under Foundry's direction;
(2) Substantially conform to the Specifications, and other criteria
referred to in this Agreement or agreed to by the parties in writing;
(3) Conform strictly to the requirements of all Orders;
(4) Be free from defects in design, material and workmanship;
(5) Be free and clear of all liens, encumbrances, restrictions, and other
claims against title or ownership;
(6) Not violate or infringe any third party Intellectual Property Rights
and Foundry warrants that it is not aware of any facts upon which such
claim could be made. If Foundry learns of any claim or any facts upon
which claim could be made, it will promptly notify HP of this
information;
Page 13 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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(7) Be "Year 2000 Compliant." Year 2000 Compliant products will perform
without error, loss of data, or loss of functionality arising form an
inability to process, calculate, compare or sequence date data
accurately. In addition, Year 2000 Compliant products will perform
according to the definition and performance matrices set forth in
Exhibit D. This Year 2000 Compliance warranty will remain in effect
---------
through January 1, 2001, notwithstanding any other warranty period
specified in this Agreement; and
(8) Be new and will contain only new Parts, except as otherwise agreed by
the parties.
9.2. Survival Of Warranties. All warranties specified above will survive any
----------------------
inspection, delivery, acceptance, or payment by HP and be in effect for the
longer of Foundry's normal warranty period or the fourteen (14) month period
following the date of shipment of the OEM Product to HP by Foundry.
9.3. Epidemic Failure Warranty. In addition to the warranties specified above,
-------------------------
Foundry warrants all OEM Products against epidemic failure for a period of three
years after receipt of that OEM Product or the associated HP Product by HP's
customers. An epidemic failure means the occurrence of the same failure in any
[ * ] of OEM Products, within a three (3) month date code population of such OEM
Products.
9.4. DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, FOUNDRY MAKES
----------
NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING ANY OEM PRODUCTS,
INCLUDING WARRANTIES OF THEIR MERCHANTABILITY OR THEIR FITNESS FOR ANY
PARTICULAR PURPOSE.
10. SUPPORT SERVICES
10.1. General. Foundry will provide HP with Support for the OEM Products as
-------
specified in the Support Terms attached as Exhibit D. Foundry will maintain
---------
such number of qualified personnel as is necessary to provide timely and
knowledgeable maintenance and support service. Foundry warrants that all Support
will be provided in a professional and workmanlike manner.
10.2. Equipment Loan. Either party to this Agreement may provide equipment to
--------------
the other party under the terms of an Equipment Loan Agreement attached as
Exhibit E to this Agreement, solely for use in the other party's manufacturing,
- ---------
testing, adapting and/or supporting the OEM Products. The parties agree that an
Equipment Loan Agreement will be completed and executed within six (6) months of
the effective date of this Agreement. All equipment will be clearly segregated
from the receiving company's property and identified as the sole property of the
loaning company. Loaned equipment may not be transferred, assigned, loaned or
otherwise encumbered in any way. Loaned equipment may be provided to third
parties for fulfillment of either party's obligations hereunder only upon the
loaning party's prior written consent. Loaned equipment will be returned to the
loaning party, at the receiving party's expense, upon termination of this
Agreement.
10.3. Substitute Products. If Foundry develops any products that have the same
-------------------
or similar form, fit, and function and are more efficient at the
same or lower price than the comparable OEM Products available under this
Agreement, HP will have the right to substitute the newer products at the same
price as the comparable OEM Products for all subsequent
Page 14 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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purchases under this Agreement. Such substitute products must be compatible with
the current version or the HP Products. Foundry products which include different
or increased functionality at a greater price will be available to HP under the
terms of this Agreement at prices to be agreed by the parties.
10.4 Failure Rate. Notwithstanding that the warranties given in Section 9.1
------------ -----------
above apply to 100% of OEM Products, Foundry and HP acknowledge that the failure
rates listed in Exhibit D for each OEM Product are expected. If the actual
---------
failure rate for OEM Products exceeds this expected rate, Foundry will provide
additional engineering and technical support needed to bring the actual failure
rate within the specified failure rate. Foundry will provide to HP on a monthly
basis a failure report which details the root cause of failures on returned OEM
Products.
10.5 Class Failure Remedies. Upon the occurrence of any of the following
----------------------
events: (i) a failure rate exceeding the rate specified in Section 10.4 above;
------------
(ii) an epidemic failure as described in Section 9.3; or (iii) a safety standard
-----------
change under Section 7.5 above (each referred to as a "Class Failure"), HP will
-----------
have the following additional remedies for a three year period commencing upon
receipt by HP's end-user customer of the OEM Product or the corresponding HP
Product.
(1) In the event of a Class Failure, Foundry will provide HP no later than
ten days following the Class Failure a root cause analysis and
corrective action plan. HP will make available such information and
assistance reasonably required to allow Foundry to conduct its root
cause analysis and provide its corrective action report.
(2) If, after review of the root cause analysis and corrective action
plan, HP determines in its reasonable opinion that the Class Failure
necessitates a field stocking recall or customer based recall or
retrofit, HP may then require that the OEM Products are: (i) returned
to Foundry for repair or replacement; (ii) repaired or replaced by
Foundry in the field; or (iii) repaired or replaced by HP in the
field, including products in distributor inventory and HP's installed
base. If a field repair can be performed by HP service personnel (at
HP or HP's customer sites) and is deemed desirable by HP, Foundry will
provide the appropriate replacement OEM Products, Parts or upgrades
free of charge to HP. Such OEM Products, Parts or upgrades will have
the highest shipping priority.
(3) Except as provided in Section 7.5 above regarding safety standard
-----------
changes, Foundry will, within 90 days after completion of the recalls
or retrofits, reimburse HP for its reasonable and direct costs in
performing such services.
10.6 Anomalous Behavior. In the event that an OEM Product delivered to HP
------------------
complies with and performs to the Specifications, but fails to be usable in HP's
intended application due to latent errors, unanticipated incompatibilities or
other anomalous behavior, HP will provide Foundry written notice of such
failure, specifying in such notice the reason that the OEM Product is
unacceptable. The parties will attempt to determine the cause of the
unacceptability (such as faulty design, material defects, incompatibility with
HP applications, timing problems or internal oscillations, etc.), and formulate
a mutually acceptable remedy of the cause of unacceptability. In the event that
the cause of the unacceptability cannot be determined or the parties do not
agree
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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upon a mutually acceptable remedy of the cause of unacceptability, either party
may invoke the escalated resolution procedure set forth in Article 24 of this
----------
Agreement. Failing resolution, either party may in its sole judgment terminate
this Agreement with respect to the affected OEM Product or terminate the entire
agreement if such product is deemed material by HP to the entire agreement, and
such termination will be construed as though it is for the mutual convenience of
Foundry and HP.
10.7 Purchase Hold. If any Eligible Purchaser having the right to purchase an
-------------
OEM Product under this Agreement or under any other agreement with Foundry
believes in good faith that an OEM Product is defective in terms of material or
manufacturing process, then, irrespective of any other rights provided HP
hereunder, HP may implement a purchase hold to suspend purchases of such OEM
Products without any liability. HP and Foundry will meet at least weekly during
such purchase hold to discuss the status of the defect and anticipated duration
of the purchase hold. Such purchase hold may be removed if HP reasonably
believes that sufficient action has been taken to correct the defect or that
sufficient assurances exist that such defect will be corrected within a
reasonable time. HP and Foundry agree that Delivery Dates on then-existing
Orders will be pushed out in order to reflect such purchase hold. Additionally,
HP and Foundry agree that the term of any minimum purchase commitment set forth
in Exhibit C shall be deemed to have been automatically extended for the
---------
duration of any purchase hold which HP believes in good faith will affect HP's
ability to fulfill such minimum purchase commitment.
10.8 Survival Of Support Obligations. Foundry's maintenance and support
-------------------------------
obligations specified in this Article 10, and in the Support Terms in Exhibit D
---------- ---------
will run for the Term and any additional periods under Section 1.3 above and
-----------
will continue for a period of five (5) years after Foundry ships the last OEM
Product to HP or an HP customer. This obligation includes making necessary Parts
available to HP, as further provided in the Support Terms.
11. ASSURANCE OF SUPPLY
11.1. Discontinuance. Foundry acknowledges its obligation to manufacture,
--------------
supply and support the OEM Products without interruption. If, however, this
Agreement remains in effect after the third (3rd) year following the Effective
Date of this Agreement and following such initial three-year availability period
it becomes impractical for Foundry to continue the supply or support of any OEM
Product (a "Discontinued Product"), Foundry will give notice to HP no less than
six (6) months in advance of the last date the Discontinued Product can be
ordered. After receipt of notice of discontinuance, HP may, at its option:
(1) Purchase from Foundry such quantity of the Discontinued Product as
HP deems necessary for its future requirements;
(2) Provide Foundry forecast information in order to justify the continued
manufacture of the Discontinued Product. If, upon request by HP,
Foundry agrees to remanufacture the Discontinued Products strictly to
support HP's continuing demand, the parties will negotiate in good
faith and agree to reasonable build sizes, inventory requirements, and
costs associated with Foundry's manufacturing process; and
(3) Request that Foundry substitute a comparable product for the
Discontinued Product.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
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If, Foundry in the exercise of its good faith judgement reasonably determines
that options (2) and (3) above are not commercially reasonable and HP in the
exercise of its good faith judgement determines that option (1) above is not
commercially reasonable, the parties agree to follow the Dispute Resolution
Process as set forth in Article 24 of this Agreement to arrive at a mutually
----------
agreeable resolution to the proposed discontinuance of an OEM Product. If,
after exhausting the Dispute Resolution Process the parties are unable to arrive
at a mutually agreeable solution, then HP may, at its option, manufacture the
Discontinued Product under the manufacturing rights granted in Section 11.2
------------
below; provided, however, that HP's Orders for the Discontinued Product exceeded
10 units over the preceding six (6) months. The parties will negotiate in good
faith and agree on any royalties to be paid to Foundry on any Discontinued
Products manufactured by HP.
11.2. HP's Right To Manufacture. Subject to the terms of Section 11.1 and
------------------------- ----------------
Section 18.3 (2), Foundry hereby grants to HP, under Foundry's Intellectual
- ----------------
Property Rights, an irrevocable, non-exclusive, world-wide license to use,
modify, reproduce, import, manufacture, distribute, offer for sale and sell the
OEM Product; provided that, notwithstanding anything to the contrary herein,
such right and license shall expire [ * ] months after HP's initial exercise of
such right and license. HP may sublicense these rights to a third party,
provided such third party complies with the terms of this license and any
associated obligations of confidentiality. In the event HP elects to exercise
this right:
(1) Foundry will release to HP all Technical Information or other
materials deposited under the terms of the Escrow Agreement described
below, necessary for the manufacture of the OEM Product. Subject to
the sublicense rights granted above, HP will keep all Technical
Information confidential in accordance with the terms of Article 19
----------
below. If Foundry has failed to place Technical Information in escrow
or to update the escrow as provided below, HP may use the measures
described in paragraph (2) below to obtain such information.
(2) Foundry will furnish to HP all Technical Materials within seven (7)
days after HP has notified Foundry of its exercise of its rights
hereunder. If the materials are not delivered within this time period,
HP will have the right to collect such materials at Foundry's plant or
offices at a time agreed by the parties and Foundry agrees to assist
HP in such collection. If HP has to use measures to collect the
materials itself, it may invoice Foundry for its costs. Upon receipt
of such invoice, Foundry will pay HP for collection costs within
thirty seven (37) days
(3) Foundry will furnish to HP within seven (7) days after HP's written
request, the names and addresses of Foundry's sources for Parts not
manufactured by Foundry, including the appropriate part numbers for
commercially available equivalents of electronic parts. Foundry will
use all reasonable efforts to ensure that HP will have the right to
purchase all such Parts directly from Foundry's vendors and Foundry
will assign purchasing rights with such vendors to HP to the extent
permitted.
(4) Foundry will furnish to HP without charge all Parts catalogues,
schematics, material lists, engineering change orders, and other
servicing documentation deemed necessary by HP to service and support
the OEM Product.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
(5) Foundry will assign to HP any license rights it may have with third
parties for software, documentation or any intellectual property used
in the manufacture of the OEM Product.
11.3. Consulting Services. Foundry will, in support of Technical Information
-------------------
conveyed to HP hereunder, provides:
(1) Up to [ * ] of consulting services, as required by HP, provided
that HP bears the cost of reasonable travel expenses; and
(2) Additional consulting services at the rate of [ * ] per work hour,
plus reasonable travel expenses of those so engaged.
11.4. Deposit Agreement. At HP's request and as security for the fulfillment of
-----------------
Foundry's obligations under this Agreement, Foundry will deposit a copy of the
Technical Information, including any source code for all software contained in
the OEM Products (the "Deposit") pursuant to the terms of HP's standard Deposit
Agreement, attached as Exhibit H; provided, however, that HP may not request
Foundry to make such deposit within the first one-hundred and eighty (180) days
following the Effective Date of this Agreement. HP will have the right to
inspect and verify that the appropriate Deposit of current and complete
information is being made. The Deposit will be updated by Foundry on a regular
basis, but no less than annually, and at least once immediately prior to HP's
exercise of its rights hereunder.
12. TRAINING
12.1. Technical Training. Foundry will provide to HP technical training, for a
------------------
period not to exceed two (2) weeks, sufficient to allow HP to become fully
familiar with each OEM Product and its market. Foundry will provide training for
Software upgrades and Engineering Changes as defined in Article 7 for a period
---------
not to exceed one (1) week. Software training shall be available from Foundry
for each HP OEM Product Software release. Such training will be at no charge to
HP except for any reasonable travel expenses of Foundry. HP may further request
and Foundry will provide additional training at Foundry's then current standard
price for such training as reasonably necessary to inform HP personnel of
upgraded, enhanced or new versions of the OEM Products. Other training will be
provided upon mutually agreeable terms and conditions.
12.2. HP's Rights In Training Classes And Materials. HP may at no charge use,
---------------------------------------------
reproduce, modify, display and perform either internally or for HP's customers,
all training classes, methods, and materials supplied or developed by Foundry
under this Agreement. HP's use may be in any manner HP reasonably deems
appropriate provided that any such information which is Confidential Information
of Foundry may only be used pursuant to the provisions in Article 19,
Confidential Information.
13. MARKETING AND LICENSING
13.1. Marketing Authority. HP will have the authority to market the OEM
-------------------
Products and any HP Products containing the OEM Products to the extent it deems
appropriate, in its sole discretion. Without limiting the generality of the
foregoing sentence, nothing in this Agreement will be construed or interpreted
to place a "best efforts" obligation upon HP
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
with respect to marketing the HP Products or OEM Products or preclude HP from
independently developing, purchasing, licensing, or marketing any product which
performs the same or similar function as the OEM Products. HP will have the
right to use its then current standard form business and license terms for all
marketing and distribution of the OEM Products and HP Products.
13.2. No Rights In Marks. Except as otherwise specified in the private labeling
------------------
section below, nothing in this Agreement should be construed to grant either
party any rights in the Marks of the other party. Foundry acknowledges, however,
that HP may use the name of Foundry and the name of the OEM Products in
advertising and marketing the OEM Products or the HP Products solely to
accurately identify the source of such products. The OEM Products will be
affixed with copyright notices sufficient to give notice as to the rights of the
parties in their respective products.
13.3. Private Labeling. If HP decides during the Term to create HP private
----------------
label versions of the OEM Products, Foundry will ensure that the OEM Products
contain the HP Marks, serial number format and packaging specified by HP and
conforming to HP specifications for external appearance (which will not require
any material change in form or dimensions of the OEM Products or require
commercially unreasonable actions). Except as provided herein, Foundry will have
no other right or license in any HP Marks.
13.4. Software License. If the OEM Products include Software, Foundry hereby
----------------
grants to HP, under Foundry's Intellectual Property Rights in such Software, a
non-exclusive, non-transferable, worldwide, fully paid-up license to use,
import, offer for sale, distribute and grant sublicense to customers to use the
Software in object code form as integrated with the OEM Products or the HP
Products. In no event will HP distribute such Software apart from the OEM
Products except for support purposes. All copies of the Software distributed
hereunder will be sublicensed pursuant to HP's then current standard form
business and license terms. The rights granted under this Section 13.4 will
extend to HP Subsidiaries and third party channels of distribution.
13.5. Documentation License. Foundry hereby grants HP a non-exclusive,
---------------------
non-transferable, worldwide, fully paid up license to distribute customized
versions of the Documentation prepared by Foundry to HP's specification in HP's
name and other information, other than Confidential Information, furnished by
Foundry under this Agreement. HP may distribute such Documentation without
Foundry's logo or other identification of source provided that HP will not
remove any copyright notices contained on copies of Documentation as provided by
Foundry. These rights with respect to the Documentation will extend to HP
Subsidiaries and third party channels of distribution. Notwithstanding anything
to the contrary herein, HP and Foundry agree that HP will remain the exclusive
owner to all right, title, and interest (including without limitation
intellectual property rights) in and to the HP specific materials incorporated
into the customized versions. Foundry may only convey the customized
documentation to HP.
14. INTELLECTUAL PROPERTY PROTECTION
14.1. Foundry's Duty To Defend. Foundry will defend and hold harmless HP and
------------------------
its Subsidiaries, Subcontractors and customers from any claim that any OEM
Product, any combination of an OEM Product with an HP Product, any Software,
Documentation or a Foundry Mark, or any product provided as part of Foundry's
Support services constitutes an unauthorized use or infringement of any third
party's Intellectual Property Rights. Foundry will pay all costs, damages and
expenses
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
(including reasonable attorneys' fees) incurred by HP, its Subsidiaries,
Subcontractors or customers and will pay any award with respect to any such
claim or agreed to in any settlement of that claim.
14.2. HP's Duty To Notify. HP will give Foundry prompt notice of any such claim
-------------------
or action, and will give Foundry the authority, information, and reasonable
assistance (at Foundry's expense) necessary to defend. If Foundry does not
diligently pursue resolution of the claim nor provide HP with reasonable
assurances that it will diligently pursue resolution, then HP may, without in
any limiting its other rights and remedies, defend the claim.
14.3. Remedies For Infringing Products. If the use or combination of any
--------------------------------
product provided hereunder is enjoined by a court of law and such injunction is
not dismissed within 30 days (the "Infringing Product"), Foundry will, at its
sole expense and option:
(1) Procure for HP and its customers the right to continue using or
combining the Infringing Product;
(2) Replace the Infringing Product with a non-infringing product of
equivalent function and performance; or
(3) Modify the Infringing Product to be non-infringing, without detracting
from function or performance.
14.4. Limitations. Foundry will be relieved of its indemnification obligations
-----------
under this Article 14 to the extent that the claim arises solely and directly
----------
from Foundry's compliance with an HP Specification provided that all
Implementations of that Specification constitute an unauthorized use or
infringement of a third party Intellectual Property Right.
15. COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS
15.1. Country Of Origin Certification. Upon HP's request, Foundry will provide
-------------------------------
HP with an appropriate certification stating the country of origin for OEM
Products, sufficient to satisfy the requirements of the customs authorities of
the country of receipt and any applicable export licensing regulations,
including those of the United States.
15.2. Country Of Origin Marking. Foundry will mark each OEM Product, or the
-------------------------
container if there is no room on the OEM Product, with the country of origin.
Foundry will, in marking OEM Products, comply with the requirements of the
customs authorities of the country of receipt.
15.3. Duty Drawback. If OEM Products delivered under this Agreement are
-------------
imported, Foundry will when possible allow HP to be the importer of record. If
HP is not the importer of record and Foundry obtains duty drawback rights to OEM
Products, Foundry will, upon HP's request, provide HP with documents required by
the customs authorities of the country of receipt to prove importation and to
transfer duty drawback rights to HP.
16. GOVERNMENTAL COMPLIANCE
16.1. Duty To Comply. Foundry agrees to comply with all federal, state, local
--------------
and foreign laws, rules, and regulations applicable to its performance of this
Agreement or to OEM Products supplied hereunder. Without limiting the generality
of the foregoing sentence, Foundry
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
represents that:
(1) Foundry will comply with all equal employment opportunity and non-
discrimination requirements prescribed by Presidential Executive
Orders, including the requirements of Executive Order 11246, the
Vocational Rehabilitation Act, and the Vietnam Era Veterans'
Readjustment Assistance Act;
(2) Each chemical substance contained in OEM Products is on the inventory
of chemical substances compiled and published by the Environmental
Protection Agency pursuant to the Toxic Substances Control Act;
(3) All OEM Products will be shipped in conformance with government or
freight regulations and requirements applicable to chemicals; and
(4) Foundry will provide complete and accurate material safety data sheets
prior to shipping any OEM Product.
16.2 Procurement Regulations. For OEM Products purchased under this Agreement
-----------------------
for incorporation into products to be sold under a federal contract or
subcontract, those applicable procurement regulations that are required by
federal statute or regulation to be inserted in contracts or subcontracts will
upon notice to Foundry be deemed incorporated in this Agreement and made to
apply to all Orders issued hereunder
16.3 Ozone Depleting Substances. Foundry hereby certifies that no OEM Product
--------------------------
nor any component of any OEM Product:
(1) Contains any "Class 1 Substance" or " Class 2 Substance," as those
term are defined in 42 USC Section 7671 and implementing regulations
of the United States Environmental Protection Agency at 40 CFR Part
82, as now in existence or hereafter amended; or
(2) Has been manufactured with a process that uses any Class 1 or Class 2
Substance within the meaning of 42 USC Section 7671 and implementing
regulations of the United States Environmental Protection Agency at 40
CFR Part 82, as now existence or hereafter amended.
17. FORCE MAJEURE EVENTS
17.1 Delaying Causes. Subject to the provisions of this Article, Foundry will
---------------
not be liable for any delay in performance under this Agreement caused by any
"act of God" or other cause beyond Foundry's control and without Foundry's fault
or negligence (a "delaying cause") Notwithstanding the above, Foundry will not
be relieved of any liability for any delay or failure to perform its defense
obligations with respect to third party Intellectual Property Rights or furnish
remedies for Infringing Products as described in Article 14 above.
----------
17.2 HP Option. Foundry will immediately give HP notice of any delaying cause.
---------
In the event of a delaying cause, HP may act in its sole discretion to:
(1) Terminate this Agreement or any part hereof as to OEM Products not
shipped: or
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
(2) Suspend this Agreement in whole or in part for the duration of the
delaying cause, buy similar products elsewhere, and deduct from any
quantities specified under this Agreement the quantity so purchased.
17.3 Resumption Of Agreement. If HP elects to purchase other similar products
-----------------------
in the event of a delaying cause, HP may resume performance under this Agreement
once the delaying cause eases and extend the Term up to the length of time the
delaying cause endured. Unless HP gives notice of termination as provided above
within 30 days after notice from Foundry of the delaying cause. HP will be
deemed to have elected to suspend this Agreement for the duration of the
delaying cause.
18. EVENTS OF DEFAULT
18.1 Notice Of Breach. If either party is in breach of any provision of this
----------------
Agreement, the non-breaching party may, by notice to the breaching party, except
as otherwise prohibited by the United States bankruptcy laws, terminate the
whole or any part of this Agreement or any Order, unless the breaching party
cures the breach within [ * ] days after receipt of notice.
18.2 Causes Of Breach. For purposes of Section 18.1 above, the term "breach"
----------------
includes without limitation any:
(1) Proceeding, whether voluntary or involuntary, in bankruptcy or
insolvency by or against a party;
(2) Appointment, with or without a party's consent, of a receiver or an
assignee for the benefit of creditors;
(3) Foundry's chronic or extreme failure to deliver OEM Products to HP as
provided herein. Chronic failure to deliver shall be defined as
Foundry's failure to satisfy the unit quantity or Delivery Date
requirements within [ * ] after the original Delivery Date of at least
[ * ] non-emergency Orders within any [ * ] month period. Extreme
failure to deliver shall be defined as Foundry's failure to satisfy
the unit quantity requirements of any single non-emergency Order
within [ * ] days of the original Delivery Date unless otherwise
agreed by the parties in writing; provided that such causes of breach
described in this Section 18.2 (3) shall not be effective until one-
hundred and eighty (180) days after the effective date of this
Agreement; or
(4) Other failure by a party to comply with any material provision of this
Agreement with additional failure to provide the non-breaching party,
upon request, with reasonable assurances of future performance;
provided that such causes of breach described in this Section 18.2 (4)
shall not be effective until one-hundred and eighty (180) days after
the effective date of this Agreement.
For any event which would have otherwise been considered a breach of this
Agreement but for the time periods excluded in Sections 18.2(3) and 18.2(4), HP
and Foundry agree that the term of any minimum purchase commitment set forth in
Exhibit C shall be deemed to have been automatically extended for the duration
- ---------
of any such event which HP believes in good faith will affect HP's ability to
fulfill such minimum purchase commitment.
18.3 HP's Rights Upon Breach. In the event HP terminates this
-----------------------
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
Agreement in whole or in part as provided above, any minimum purchase
commitments shall automatically be deemed to be void and, in addition to any
other remedies provided HP hereunder, HP's rights include the following options:
(1) For the Causes of Breach stated in Section 18.2 (4), HP may procure,
upon such terms and in such manner as HP reasonably deems appropriate,
products similar to the OEM Product(s) provided hereunder as to which
this Agreement is terminated. Foundry agrees to reimburse HP upon
demand for additional reasonable costs incurred by HP in purchasing,
qualifying and testing such similar products. The parties agree that
the maximum such reimbursement will be [ * ]. Notwithstanding the
foregoing, Foundry agrees to continue to supply OEM Products to HP for
a period not to exceed 6 months following HP's exercise of its rights
under this Section 13.3(1); and
(2) For the Causes of Breach stated in Sections 18.2 (1) and 18.2 (2), HP
may at is option: (a) without paying license fees or royalties other
than any third-party royalties which Foundry would otherwise by
contract then be required in order for HP to exercise its right and
license granted herein, unless otherwise agreed by the parties,
enforce its right to manufacture as set forth in Section 11.2 of this
Agreement the OEM Product(s) provided hereunder as to which this
Agreement is terminated; provided that, notwithstanding anything to
the contrary herein, such right and license shall expire [ * ] months
after HP's initial exercise of such right and license; or (b) procure,
upon such terms and in such manner as HP reasonably deems appropriate,
products similar to the OEM Product(s) provided hereunder as to which
this Agreement is terminated. Foundry agrees to reimburse HP upon
demand for additional reasonable costs incurred by HP in purchasing,
qualifying and testing such similar products. The parties agree that
the maximum such reimbursement will be [ * ]. Notwithstanding the
foregoing, if Foundry continues to operate, Foundry agrees to continue
to supply OEM Products to HP for a period not to exceed 6 months
following HP's exercise of its rights under this Section 18.3(2).
For the Cause of Breach stated in Section 18.2 (3), in the event HP elects not
to terminate this Agreement in whole or in part, any minimum purchase
commitments shall automatically be deemed to be void and, in addition to any
other remedies provided HP hereunder, HP may require Foundry to maintain
protective inventory of OEM Products and/or components as follows in order to
ensure Foundry's ability to fulfill HP's future Orders as provided herein. Upon
receipt of notice from HP, Foundry agrees to maintain a protective inventory up
to [ * ] of supply of HP's average monthly forecast for the most recent [ * ]
month rolling forecast period of each OEM Product. In addition, upon receipt of
notice from HP, Foundry agrees to maintain a protective inventory up to [ * ] of
HP's average monthly forecast of each critical, single sourced, or long lead
time component and up to [ * ] of HP's average monthly forecast for all other
components. If any of these inventories is depleted, Foundry agrees to replenish
the inventory as soon as possible after depletion. In addition, Foundry agrees
to rotate its supply of OEM Products in inventory to maintain a fresh stock of
inventory.
Foundry further agrees to continue the performance of this Agreement to the
extent not terminated under the provisions of this Section.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
18.4 Foundry's Rights Upon Breach. In the event Foundry terminates this
--------------------------
Agreement in whole or in part as provided above, in addition to any other
remedies provided Foundry hereunder, Foundry's rights include the following
options:
(1) For the Causes of Breach stated in Section 18.2 (1) and 18.2 (2),
Foundry will retain all rights to receive any amounts otherwise due
under this Agreement and Foundry may cancel any outstanding Orders;
and
(2) For the Cause of Breach stated in Section 18.2 (4), Foundry may
invoice HP for all reasonable costs and expenses associated solely
with the collection of any amounts otherwise then due and payable to
Foundry by HP in accordance with this Agreement. Notwithstanding the
foregoing statement, any remaining amount due Foundry by HP as the
result of any unfulfilled minimum purchase in this Agreement may be
invoiced by Foundry upon Foundry's termination under this Section
18.4(2).
19. CONFIDENTIAL INFORMATION
19.1 Confidential Information. During the Term, a party (the "Recipient") may
------------------------
receive or have access to certain information of the other party (the
"Discloser") that is marked as "Confidential Information," including, though not
limited to, information or data concerning the Discloser's products or product
plans, business operations, strategies, customers and related business
information. The Recipient will protect the confidentiality of Confidential
Information with the same degree of care as the Recipient uses for its own
similar information, but no less than a reasonable degree of care, under the
terms of the Confidential Disclosure Agreement attached as Exhibit F (the
---------
"CDA"). To the extent any term of this Agreement conflicts with any term in the
CDA, the terms of this Agreement will control and take precedence. Confidential
Information may only be used by those employees of the Recipient who have a need
to know such information for the purposes related to this Agreement. The
parties acknowledge that all Technical Information and Forecasts are deemed
Confidential Information to be protected for a term of three (3) years from the
date of disclosure.
19.2 Exclusions. The foregoing confidentiality obligations will not apply to
----------
any information that is (a) already known by the Recipient prior to disclosure,
(b) independently developed by the Recipient prior to or independent of the
disclosure, (c) publicly available through no fault of the Recipient, (d)
rightfully received from a third party with no duty of confidentiality, (e)
disclosed by the Recipient with the Discloser's prior written approval, or (f)
disclosed under operation of law.
20. INSURANCE REQUIREMENTS
20.1 Insurance Coverage. Foundry will maintain Comprehensive or Commercial
------------------
General Liability Insurance (including but not limited to premises and
operations, products and completed operations, broad form contractual liability,
broad form property damage and personal injury liability) with a minimum limit
of $1,000,000 combined single limit per occurrence and $2,000,000 in the
aggregate, protecting HP from claims of bodily injury, including death, and
property damage that may arise from use of the OEM Products or acts or omissions
of Foundry hereunder. Each policy obtained by Foundry will name HP, its
officers, directors and employees as additional insureds on the certificates of
insurance
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
and will stipulate that the insurance coverage afforded the additional insureds
will apply as primary insurance and that no other insurance will be called upon
to contribute to a loss covered thereunder. Each certificate of insurance will
provide that coverages will not be canceled, allowed to expire, modified or
reduced in coverage without 30 days' prior written notice to HP. Policies
triggered by the occurrence of a covered event will be maintained with HP named
as an additional insured throughout the term of this Agreement and for at least
one year thereafter.
20.2 Claims Made Coverage. If any policies have "claims made" coverage,
Foundry will maintain such coverages with HP named as an additional insured for
a minimum of three years after termination of this Agreement. Foundry will
promptly notify HP upon any decision not to maintain such coverage. Foundry will
deliver copies of policies or certificates evidencing such policies to the HP
contact listed in Exhibit G.
---------
20.3 Additional Requirements. All deductibles on policies providing coverage
-----------------------
will be paid by Foundry. In addition, Foundry will obtain from each insurance
company providing insurance under this Article a written waiver of the right of
subrogation against HP. In no event will the coverages or limits of any
insurance required under this Article, or the lack or unavailability of any
other insurance, be deemed to limit or diminish Foundry's obligations or
liability to HP under this Agreement.
21. LIMITATION OF LIABILITY
UNLESS OTHERWISE STATED IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE FOR ANY
SPECIAL OR CONSEQUENTIAL DAMAGES OF THE OTHER ARISING OUT OF ANY PERFORMANCE OF
THIS AGREEMENT OR IN FURTHERANCE OF THE PROVISIONS OR OBJECTIVES OF THIS
AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY,
CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. NOTWITHSTANDING THE ABOVE, FOUNDRY WILL BE RESPONSIBLE FOR ANY DAMAGES
OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER
ARTICLE 14 ABOVE.
- ----------
22. TERMINATION
22.2 Outstanding Orders. All Orders issued prior to the expiration of this
------------------
Agreement must be fulfilled pursuant to and subject to the terms of this
Agreement, even if the Delivery Dates are after expiration. Upon termination of
this Agreement for Foundry's breach, HP may cancel any outstanding Order or
require Orders to be fulfilled even if a Delivery Date is after the date of
termination.
22.3 Return Of Property. Each party must return all property belonging to the
------------------
other party upon expiration or termination. All such property must be in good
condition, normal wear and tear excepted. Each party will determine the manner
and procedure for return. Each party will bear all return freight costs if
return is due to its own convenience or an uncured breach by that party.
Otherwise, the party to which the property is on loan will bear all such costs.
22.4 Surviving Provisions. Notwithstanding the expiration or early termination
--------------------
of this Agreement, the provisions regarding Warranties in Article 9, Support in
---------
Article 10, Manufacturing Rights in Article 11, Marketing and Licensing in
- ---------- ----------
Article 13, Intellectual Property in Article 14, Confidentiality in Article 19,
- ---------- ---------- ----------
Insurance Requirements in Article 20, Limitation of Liability in Article 21, and
---------- ----------
the Miscellaneous provisions below will each survive in accordance with their
terms.
Page 25 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
23. MISCELLANEOUS.
23.1 Notices. All notices to be given under this Agreement must be in writing
-------
addressed to the receiving party's designated recipient specified in Exhibit G.
---------
Notices are validly given upon the earlier of confirmed receipt by the receiving
party or three (3) days (or seven days, for international notices) after
dispatch by courier or certified mail, postage prepaid, properly addressed to
the receiving party. Notices may also be delivered by fax and will be validly
given upon oral or written confirmation of receipt. Either party may change its
address for purposes of notice by giving notice to the other party in accordance
with these provisions.
23.2 Exhibits. Each Exhibit attached to this Agreement is deemed a part of
--------
this Agreement and incorporated herein wherever reference to it is made.
23.3 Independent Contractors. The relationship of the parties established
-----------------------
under this Agreement is that of independent contractors and neither party is a
partner, employee, agent or joint venturer of or with the other.
23.4 Assignment. Neither this Agreement nor any right, license, privilege or
----------
obligation provided herein may be assigned, transferred or shared by either
party without the other party's prior written consent; provided, however, that
either party may assign this Agreement to any person or entity (the "Assignee")
into which the assigning party has merged or which has otherwise succeeded to
all or substantially all of the business and assets to which this Agreement
pertains, by merger, consolidation, reorganization or otherwise (the
"Transaction"). Each party agrees to give the other party prior notice of any
agreement to merge or transfer its business to a third party as of the date of
such agreement and to make any such agreement subject to the conditions set
forth in this Section 23.4. The assigning party must ensure that the Assignee
has assumed in writing or by operation of law the assigning party's obligations
and liabilities under this Agreement. In the event that the assigning party does
not ensure the assumption of its obligations and liabilities under this
Agreement or the Assignee refuses to assume such obligations and liabilities,
the Assignee and/or the assigning party as the case may be will automatically be
deemed to be in breach of a material provision of this Agreement.
Notwithstanding anything to the contrary herein, in the event the non-assigning
party determines in its reasonable opinion such assignment would be detrimental
to the performance of this Agreement or to the non-assigning party's business,
the non-assigning party may elect at any time to terminate this Agreement upon
written notice to the assigning party. Any such termination shall be effective
upon completion of the Transaction, and any minimum purchase commitments will be
automatically deemed to be void upon such termination. This Agreement will be
binding on the successors and permitted assigns of the parties and the name of
the party appearing herein will be deemed to include the names of such party's
successors or permitted assigns to the extent necessary to carry out the intent
of this Agreement.
23.5 No Waiver. The waiver of any term, condition, or provision of this
---------
Agreement must be in writing and signed by an authorized representative of the
waiving party. Any such waiver will not be construed as a waiver of any other
term, condition, or provision except as provided in writing, nor as a waiver of
any subsequent breach of the same term, condition, or provision.
Page 26 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
23.6 Reference To Days. All references in this Agreement to "days" will,
-----------------
unless otherwise specified herein, mean calendar days.
23.7 Headings. The Section headings used in this Agreement are for convenience
--------
of reference only. They will not limit or extend the meaning of any provision of
this Agreement, and will not be relevant in interpreting any provision of this
Agreement.
23.8 No Publication. Neither party may publicize or disclose to any third
--------------
party, without the written consent of the other party, the terms of this
Agreement. Without limiting the generality of the foregoing sentence, no press
releases may be made without the mutual written consent of each party.
23.9 Severability. If any provision in this Agreement is held invalid or
------------
unenforceable by a body of competent jurisdiction, such provision will be
construed, limited or, if necessary, severed to the extent necessary to
eliminate such invalidity or unenforceability. The parties agree to negotiate in
good faith a valid, enforceable substitute provision that most nearly effects
the parties' original intent in entering into this Agreement or to provide an
equitable adjustment in the event no such provision can be added. The other
provisions of this Agreement will remain in full force and effect.
23.10 Entire Agreement. This Agreement comprises the entire understanding
----------------
between the parties with respect to its subject matters and supersedes any
previous communications, representations, or agreements, whether oral or
written. For purposes of construction, this Agreement will be deemed to have
been drafted by both parties. No modification of this Agreement will be binding
on either party unless in writing and signed by an authorized representative of
each party.
23.11 Governing Law. This Agreement will be governed in all respects by the
-------------
laws of California without reference to any choice of laws provisions.
24. DISPUTE RESOLUTION
24.1 Dispute Resolution Process. The Parties recognize that disagreements may
--------------------------
reasonably arise during the course of their business relationship. The Parties
desire to resolve these amicably, and will seek to address all issues promptly
and in good faith. Prior to pursuing other remedies which may be available, the
Parties agree to follow the process set forth below:
24.1.1 Issues shall first be addressed by the respective contributors
within each organization. In the event the disagreement is not resolved to
both parties' satisfaction after reasonable and diligent efforts, within
[ * ] days from the time a party's representative first provides written
notice to the other party's representative of the issue, the issue will be
escalated to the next level as described in Section 24.1.2 below;
24.1.2 Issues will then be raised to the respective Relationship
Managers set forth in Exhibit G to this Agreement for resolution. In the
---------
event the disagreement is not resolved to both parties' satisfaction after
reasonable and diligent efforts, within [*] days from the time the
applicable representative specified in this Section first provides written
notice to the other party's applicable representative of the issue, the
issue will be escalated to the next level as described in Section 24.1.3
Page 27 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
below.
24.1.3 Issues will then be raised to Foundry's CEO, and to the
General Manager of HP's Workgroup Networks Division for resolution. Only
if the issue cannot be resolved at this level after reasonable and
diligent efforts within [ * ] days from the time the applicable
representative specified in this Section first provides written notice of
the issue to his/her counterpart of the other party, either party may
pursue any remedy outside of this process, subject to the terms of this
Agreement.
24.1.4 Notwithstanding any other provision of this Article 24, either
party may resort to court action for injunctive relief at any time if the
dispute resolution processes set forth in this Section would permit or
cause irreparable injury to such party or any third party claiming against
such party, due to delay arising out of the dispute resolution process.
24.1.5 At each escalation level, both parties will be granted an
opportunity to state the reasons for their views, and an opportunity to
present any materials supporting their statement. Each individual
responsible for deciding the issue will provide the other party with a
written statement of his/her conclusions and the reasons therefore.
24.2 Exceptions to Dispute Resolution Process. Without limiting the foregoing,
----------------------------------------
the parties agree that a party's breach of the Intellectual Property Protection
provisions as stated in Article 14 of this Agreement or of Confidential
Information provisions as stated in Article 19 of this Agreement will be
considered urgent matters requiring action which bypasses the Dispute Resolution
Process as set forth in Section 24.1 above.
APPROVED AND AGREED TO:
FOUNDRY: HEWLETT-PACKARD
By: /s/ Bobby R. Johnson Jr. By: /s/ Charles T. Olsen
---------------------------- ---------------------------
Typed Name: Bobby R. Johnson Jr. Typed Name: Charles T. Olsen
-------------------- -------------------
Title: President and CEO Title: R & D Manager
------------------------- ------------------------
Page 28 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT A
OEM PRODUCTS AND SPECIFICATIONS
[NUMBER OF SEQUENTIAL PAGES OMITTED: 15]
[ * ]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT B
ELIGIBLE PURCHASERS
HP Entities:
Hewlett-Packard Co.
Product Support Division (PSD)
8000 Foothills Boulevard
Roseville, CA 95747
Hewlett-Packard Co.
Workgroup Networks Division (WND)
8000 Foothills Boulevard
Roseville, CA 95747
Personal Information Product Manufacturing & Distribution (PPMD)
Hewlett-Packard Co.
3055 Venture Drive
Lincoln, CA 95648
Subcontractors:
None
Subsidiaries:
None
Page 42 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT C
OEM PRODUCT PRICES TO HP
1. Production Units. OEM Product pricing to HP is a discount-off-list
----------------
pricing model from the Foundry North America Price List. All prices, unless
stated otherwise, are in US dollars ($).
The discount from the Foundry North America Price List will be based on
revenue levels as stated in the table below. Revenue to Foundry per Quarter
is defined as cumulative dollar purchases after the then-current discount
on Orders issued by HP for OEM Products in the preceding HP fiscal quarter.
<TABLE>
<CAPTION>
Revenue to Foundry per Quarter Discount from List
------------------------------ ------------------
<S> <C>
[ * ] [ * ]
[ * ] [ * ]
[ * ] [ * ]
</TABLE>
Notwithstanding the foregoing, the discount for the initial six month
period following HP's first OEM Product availability to HP customers is
[ * ] and will thereafter be calculated quarterly based on previous quarter
performance. The appropriate discount will be applied to Foundry's North
America Price List in effect at time the Order is issued. If Foundry's
North America Price List changes between the time that an Order is issued
and the Delivery Date such that HP's price for an OEM Product would
decrease, Foundry agrees that the lower price will apply to all unshipped
Orders and all Orders issued by HP after the effective date of such lower
price.
In addition to the discount-off-list price noted above, the cost for each
chassis OEM Product listed in Exhibit A to this Agreement will include an
additional dollar amount as agreed by the parties which includes (1) the
cost of all of the accessories included with each chassis OEM Product and
as listed in Exhibit A to this Agreement, (2) the cost of customization and
customization upgrades as stated in Exhibit A and Exhibit D to this
Agreement for each OEM Product shipped to HP, and (3) the cost of Foundry's
TechNet Bronze Software support for the life of the OEM Products shipped to
HP. This additional cost for each chassis OEM Product will be [ * ] and
will change only as agreed in writing by the parties. The cost of Foundry's
TechNet Silver Hardware support product will be available to HP at the then
current discounted list price for that product less the then current
discounted list price for Foundry's TechNet Bronze Software support
product.
HP and Foundry agree to review the volume discount levels and market
conditions at least every six months and to make adjustments to the agreed
upon discount levels, volume discount levels, and/or OEM product prices to
HP if necessary. HP and Foundry agree to review price erosion plans and
product cost reduction plans at least every six months to ensure alignment
with market trends for the OEM Products in the market(s) in which HP
competes with those OEM Products.
2. Minimum Purchase Commitment. HP agrees to purchase that amount of OEM
---------------------------
Products which represent no less than [ * ] of gross revenue to Foundry
after the appropriate discount during the initial term of this Agreement
ending May 18, 2000.
Page 43 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT D
SUPPORT TERMS
1.0 Phone Support
-------------
1. Foundry agrees that it will staff a 24x7, 1-800 phone number, on or
before February 1, 1999 that will be accessed only by HP's call center
personnel.
2. HP call center personnel will use this number only in those instances
when they are unable to completely respond to a customers inquiry on the
OEM Products.
3. HP will supply required materials unique to the OEM Products and
Foundry will train their phone staff to insure they represent the OEM
Products as HP products when on the phone with HP call center teams.
4. HP and Foundry agree that they will test this service prior to it going
"live" and audit it after it goes "live" to insure needs are being met. If
needs are not being met, then HP and Foundry agree that they will do
required tuning to the process and/or additional training to address those
needs.
5. Foundry will handle calls from HP as they would from any Foundry
customer provided that the response times as defined in "Escalations" are
being met.
6. When an issue can not be resolved during the initial call, HP and
Foundry will set a specific time when HP will get a call back with the
required information.
2.0 Escalations
-----------
1. Hot Site - the HP customer's network is down and/or there is a
confirmed or perceived product safety issue. A Hot Site receives immediate
attention and is Priority #1 for both HP and Foundry until it is resolved.
The WND online team is notified by its call center whenever there is a Hot
Site.
2. Problem Site - the HP customer's network is up but is experiencing
intermittent problems. These calls will usually require involvement by both
HP and Foundry to resolve. A Problem Site is Priority #2 with regard to Hot
Sites. If no Hot Sites exist then the Problem Site is treated as Priority
#1. The WND online team is notified by its call center whenever there is a
Problem Site.
3. Escalated Site - this is anything that is not a Problem or Hot Site.
These calls, after a startup period, are usually handled by the HP call
centers with some assistance from Foundry. The WND Online team is not
usually involved with these types of calls.
4. The WND Online team will only become involved in the above defined
escalations for Hot and Problem Sites. The WND Online teams role is to
manage the relationship with the HP customer and HP field while Foundry is
focused on the technical resolution of the problem.
5. If timely resolution of a Hot or Problem Site necessitates an on-site
visit, both HP and Foundry will identify the team, date, and required
equipment to be on site with the team. HP will handle all logistics with
the customer and will be with the Foundry team when they are on site. HP
and Foundry will be responsible for their respective travel costs in each
of these instances.
3.0 Updates
-------
1. Foundry will supply the assigned HP Technical Marketing Engineer,
between the scheduled new software and hardware release dates, any OEM
Product pre- and post-sales support information that would benefit HP
customers. Such information includes, but is not limited to, known
problems, configuration tips, FAQs (frequently asked questions),
interoperability updates, documentation updates.
2. FAQs will be generated and sent to HP as additional information is
added to the Foundry web server.
3. In the event that HP must ship a later version of SW than it currently
supports to resolve an escalation, Foundry will supply HP with all required
information to support that release.
4.0 Call Flow
---------
The call flow for Phone Support and Escalations is defined in the chart
that follows entitled "Call Flow."
Page 44 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
[CHART OF HP/FOUNDRY PHONE SUPPORT PROCESS APPEARS HERE]
Page 45 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
5.0 "Expected" AFR Rates
-------------------
The following table details the "not to exceed" Annualized Failure Rates
(AFR) for each of the OEM Products as set forth in Section 10.5 of this
Agreement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Product AFR
- -------------------------------------------------------------------------------
<S> <C>
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
[ * ] [ * ]
- -------------------------------------------------------------------------------
</TABLE>
6 Month Annualized Failure Rate % (AFR%) shall mean the sum or the previous
6 month of Customer Service Order (CSO) failures divided by the sum or the
previous 6 month of Units In Warranty, multiplied by 12 and multiplied by 100 to
create an annualized percentage.
6 month rolling AFR% = [Sigma] 6 months of CSO Failures * 12 * 100
-------------------------------------------
[Sigma] 6 months UIW
"Units In Warranty" (UIW) shall mean all Products or Parts currently under
------------------------
warranty.
UIW = [Sigma] 1 year sum of shipments = last 12 month shipments
6.0 Hardware Support Beyond Initial Warranty Period
-----------------------------------------------
OEM Product hardware repair and replacement after the initial Warranty
Period shall be offered to HP on a cost of service basis at costs stated on
Foundry's then current North America Price List, as stated in Exhibit C to this
Agreement, or otherwise as agreed in writing by the parties.
7.0 OEM Product Software Release Process and Requirements
-----------------------------------------------------
This section covers the procedure for OEM Product Software releases to HP
subsequent to the initial release. This includes: release criteria, pro forma
schedule, roles and responsibilities and defect limitations. There are two
types of software releases: hot-site patches and scheduled bi-annual releases.
7.1 Process for Standard Releases
-----------------------------
7.1.1 Before any customization effort begins, there will be a meeting
between Foundry and HP to confirm HP's need for a new version
of code.
7.1.2 The meeting will also be used to determine the version of the
Foundry routing code to be customized. Normally, it will be the
code Foundry is currently shipping at the time the
customization begins.
7.1.3 Releases for HP OEM Product versions of the Software are
scheduled for the 1st of each May and November. Following the
initial OEM Product Release, HP will determine the timeframe
for the first scheduled Software upgrade.
7.1.4 Foundry should have released their version of the code to their
customers at least weeks prior to the start of the
customization of that code for HP.
7.1.5 The code shall not be released until it is free or all critical
and serious
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CONFIDENTIAL
bugs. HP must agree that the number of medium and minor bugs
remaining in the code is permissible.
7.1.6 The HP OEM Product versions or the code shall not be released
until HP verifies that systems with new code have run at least
72 hours without failure.
7.1.7 All version of customization code sent to HP for testing will
contain the word "BETA" in the version label Foundry uses in
their software.
7.1.8 Foundry will deliver to HP:
(a) results from NTC testing of the new Foundry code
(b) number of customers using the new release
(c) the release notes for the new Foundry release
(d) current defect list regarding the routing software
(e) release notes for version to be customized
7.1.9 Foundry will conduct the following testing:
(a) Verify customization changes
(b) Verify that the changes did not have an adverse effect
on other than intended functionality by testing basic
features for the console, WEB interface and the back
door access
(c) Test to verify that all changes to correct critical and
serious defects in the Foundry version or the code work
correctly in the customized code.
(d) Test key user functions associated with software
upgrades: download (new code over old code and old code
over new code) system reboot, changing passwords,
configuration restoration and any other features
customers may perform during the upgrade process.
(e) Test for interoperable compatibility with Cisco 4000 and
7200, Bay ASN and Baystack350T, Extreme Summit 2, and
Proteon GTXl000 products
(f) Test the overall product thoroughly enough to insure it
meets the release criteria
7.l.l0 HP is expected conduct the following testing:
(a) Verify customization changes and version numbers
(b) Test interoperability with HP WND products, both
hardware and software
(c) Test interoperability with 3Com, Lucent and Cabletron
comparable products
(d) Assess overall product quality and compliance to release
criteria
7.2 Pro Forma Schedule for Standard Releases
6 weeks: WND and Foundry agree on version of Foundry code to convert;
Foundry begins WND customization
5 weeks: New code version goes to NTC's in WND and Foundry (2 weeks of
testing)
4 weeks: Code, if suitable, goes to 3 HP Beta Sites which will be
closely monitored
3 weeks: WND and Foundry hold fix/no fix meeting and review the
complete defect list
Foundry fixes remaining defects to be corrected
Foundry removes "BETA" text string from version label
2 weeks: Production code goes to WND NTC for verification (3 days)
1 week: Controlled release of code goes to first HP customer needing
a key feature of that code
HP to update release note for the new customized version
0 week: Code release-code goes into production (hardware units) and
is put on the HP WEB site
7.3 Process for hot-site releases (patch for customers with must fix
problems)
Page 47 of 72
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<PAGE>
CONFIDENTIAL
WND and Foundry will agree on whether or not the problem warrants an official
release which would follow the procedures outlined above for scheduled releases.
The following process is expected to take one week or less:
7.3.1 Foundry is to modify the latest HP code version to fix the
defect encountered by the customer or HP
7.3.2 Foundry is to test the code to:
(a) verify that nothing else has been adversely affected as the
result of the defect fix
(b) verify that the defect has indeed be corrected
7.3.3 Foundry is to place the new code on their server or ship the
code to HP electronically
7.3.4 HP is to verify the correction works and check access to
command line and WEB interface
7.3.5 Foundry and HP test centers to sign-off on patch code release
7.3.6 Depending on the customer and the situation Foundry or HP may
have to "ship" the code
7.3.7 Code image to be archived at Foundry and HP for future access
8.0 Year 2000 Compliance
--------------------
HP Year 2000 Compliance Definition
A "Compliant" product accurately processes date data (including, but not
limited to: calculating, comparing and sequencing dates), from, into and
between the twentieth and twenty-first centuries, the years 1999 and 2000, and
leap year calculations, when used in accordance with its product documentation,
and provided all other products used in combination with the product properly
exchange data with it. For the few products that are Compliant and require
specific customer action, such actions will be clearly detailed.
Products which do no date related processing ("NDRP") are considered to be
Compliant. Any product that is not deemed to have a status of Compliant or NDRP
is assigned a status of Non-Compliant."
Listed below in Table 1 and Table 2 are the mandatory Year 2000 test cases
and checklist items required for all new HP products to validate their Year 2000
compliance.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Table 1: Mandatory Test Cases for a Product to be Compliant
- -----------------------------------------------------------------------------------------------
<S> <C>
Dec 31, 1998 Test for border line (beginning and ending of a year) for year prior to Year
to 2000
Jan 1, 1999
System Rollover in both powered-up and powered-down states.
or
Program rollover in both executing and non-executing states.
- -----------------------------------------------------------------------------------------------
Sept 9, 1999 Tests related to 9-9-99
to
Sept 10, 1999 System rollover in both powered-up and powered-down states.
System date can be set to before date.
System re-initializes from cold start on before date.
or
Program rollover in both executing and non-executing states.
Program retrieves/accepts before date in executing state.
- -----------------------------------------------------------------------------------------------
</TABLE>
Page 48 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Program re-initializes from non-executing state on before date.
- -----------------------------------------------------------------------------------------------
<S> <C>
Dec 31, 1999 Test for critical transition of 1999 to 2000
to
Jan 1, 2000 System rollover in both powered-up and powered-down states.
System date can be set to after date.
System re-initializes from cold start on after date.
or
Program rollover in both executing and non-executing states.
Program retrieves/accepts after date in executing state.
Program re-initializes from non-executing state on after date.
- -----------------------------------------------------------------------------------------------
Feb 28, 2000 Test to verify Year 2000 is identified as a leap year
to
Feb 29, 2000 System rollover in both powered-up and powered-down states.
System date can be set to after date.
System re-initializes from cold start on after date.
or
Program rollover in both executing and non-executing states.
Program retrieves/accepts after date in executing state.
Program re-initializes from non-executing state on after date.
- -----------------------------------------------------------------------------------------------
Feb 29, 2000 Another Year 2000 leap year test
to
Mar 1, 2000 System rollover in both powered-up and powered-down states.
or
Program rollover in both executing and non-executing states.
- -----------------------------------------------------------------------------------------------
Dec 31, 2000 Test for transition from 12-31-00 to 1-1-1
to
Jan 1, 2001 System rollover in both powered-up and powered-down states.
or
Program rollover in both executing and non-executing states.
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Table 2: Mandatory Checklist for a Product to be Compliant
- -----------------------------------------------------------------------------------------------
<S> <C>
Basics 1. Data Structures within the Product
a. Database Structure
b. File System Structure
c. Holding or Working Fields
2. Date Manipulation Routines
3. Called System Intrinsics
4. Date Comparison Routines
5. Date Fields on Report
- -----------------------------------------------------------------------------------------------
Module 6. Data Structures for Interfaces Inbound to each Module
Interfaces 7. Data Structures for Interfaces Outbound from each Module
Internal Date
Data
Exchanges
- -----------------------------------------------------------------------------------------------
Product 8. Data Structures for Interfaces Inbound to the Product
Interfaces 9. Data Structures for Interfaces Outbound from the Product
External Date
Data
Exchanges
- -----------------------------------------------------------------------------------------------
Product 10. Third-Party Utilities or tools used by/with the Product
Environment 11. Date Logic Embedded in the JCL or Run Logic of the Product
- -----------------------------------------------------------------------------------------------
</TABLE>
Page 49 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT E
EQUIPMENT LOAN AGREEMENT
EQUIPMENT LOAN AGREEMENT
THIS EQUIPMENT LOAN AGREEMENT, NO. ____ (the "Agreement") is entered into
between HEWLETT-PACKARD COMPANY, a Delaware corporation ("HP"), and FOUNDRY
NETWORKS, INC. a Delaware company located at 680 W. Maude Avenue, Suite 3,
Sunnyvale, CA 94086 ("Foundry"). This Agreement is effective as of October 28,
1998 (the "Effective Date").
(Foundry and HP are currently parties to an OEM Purchase Agreement (the
"Master Agreement"), dated as of ______________ _____.)
l. Loan of Equipment. Each of the parties (the "Loaning Party") hereby
loans to the other party (the "Receiving Party") , for the applicable Term
defined below, the equipment owned by the Loaning Party (collectively,
"Loaned Equipment"), which may consist of hardware, software and
documentation described in the Loaned Equipment Schedule attached as
Schedule A. The Loaning Party may, from time to time, add, upgrade, or
remove Loaned Equipment from the Receiving Party's site during the Term.
All Loaned Equipment received by the Receiving Party during the Term will
be described in an amended Loaned Equipment Schedule signed by the
Receiving Party and appended to this Equipment Loan Agreement. The
Receiving Party agrees, by its receipt of Loaned Equipment, that all Loaned
Equipment is subject to the provisions of this Agreement.
2. Term. This Agreement will begin as of the Effective Date and run for a
term of forty-two (42) months (the "Term"), unless earlier terminated by HP
or Foundry upon thirty (30) days written notice to the other. The Loaning
Party may in writing extend the Term, or establish a separate Term with
respect to particular items of Loaned Equipment.
3. Use. The Receiving Party may use the Loaned Equipment solely for
purpose of: testing and developing OEM Products in accordance with the
Master Agreement. The Receiving Party may not move any Loaned Equipment
from the location specified in the Loaned Equipment Schedule without the
prior written consent of the Loaning Party. The Receiving Party's right to
use the Loaned Equipment is non-transferable.
4. Software and Documentation. All software provided with the Loaned
Equipment is hereby licensed to the Receiving Party under the Loaning
Party's Software License Terms, a current form of which is attached as
Schedule B. If the Receiving Party requires a license to use any software
other than as stated in the Software License Terms, that license must be
specified in the Loaned Equipment Schedule. Any documentation listed in the
Loaned Equipment Schedule is licensed to the Receiving Party for its use
solely for the purposes stated in Section 3 above. If the Receiving Party
wishes to make copies of any documentation, it must first obtain the
Loaning Party's prior written consent.
5. Ownership. The Loaning Party retains all right, title and ownership to
the Loaned Equipment, unless any such Loaned Equipment is purchased by the
Receiving Party. The Receiving Party hereby nominates and appoints the
Loaning Party as its attorney-in-fact for the sole purpose of executing and
filing, on the Receiving Party's behalf, UCC-l financing statements (and
any appropriate amendments thereto) or a suitable substitute document
(including this Agreement) under the provisions of the Uniform Commercial
Code for the Loaned Equipment loaned to the Receiving Party hereunder. A
form of a UCC-l financing
Page 50 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
statement is attached to this Agreement as Schedule C. If requested by the
Loaning Party, the Receiving Party will affix any label or marking supplied
by the Loaning Party evidencing the Loaning Party's ownership of the Loaned
Equipment. The Loaning Party may, from time to time, inspect the Loaned
Equipment. The Receiving Party may not sell, transfer, assign, pledge, or
in any way encumber or convey the Loaned Equipment or any portion or
component of such equipment.
6. Warranty Disclaimer ALL LOANED EQUIPMENT IS PROVIDED "AS IS", WITHOUT
WARRANTY OF ANY KIND, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. The Receiving Party understands that some newly manufactured
Loaned Equipment may contain remanufactured parts equivalent to new in
performance.
7. Indemnification. The Receiving Party hereby agrees to defend,
indemnify and hold the Loaning Party harmless from any claims or suits
against the Loaning Party arising from the Receiving Party's use of the
Loaned Equipment, including use by its employees, agents or subcontractors.
The Receiving Party will pay all costs, damages, losses and expenses
(including reasonable attorneys' fees) incurred by the Loaning Party and
will pay any award with respect to any such claim or agreed to in any
settlement.
8. Maintenance. During the Term, the Receiving Party will maintain all
Loaned Equipment in good operating order and condition. All maintenance
must be provided by personnel authorized by the Loaning Party. The Loaning
Party will provide standard installation, support and maintenance for the
Loaned Equipment [at no cost] [at the Loaning Party's standard rates] to
the Receiving Party during the Term; however, all maintenance costs and
expenses due to the Receiving Party's negligence will be borne by the
Receiving Party. The Receiving Party will be responsible for providing the
Loaning Party's personnel ready and safe access to the Loaned Equipment for
such maintenance and support.
9. Risk of Loss. The Receiving Party will bear all risk of loss with
respect to the Loaned Equipment from receipt until such Loaned Equipment is
returned to the Loaning Party. All Loaned Equipment returned to the Loaning
Party must include the same components as received by the Receiving Party,
and must be in good operating order and condition. Charges may be imposed
by the Loaning Party if the Receiving Party fails to return the Loaned
Equipment in such condition or within the return timeframe set forth
herein.
l0. Shipping Costs. Unless otherwise agreed in writing by the Loaning
Party, the Receiving Party will be responsible for and pay all delivery,
freight and rigging charges, all taxes and duties, and all other shipping
costs and expenses with respect to the delivery or return of any Loaned
Equipment hereunder.
ll. Limitation of Liability. EACH LOANING PARTY WILL NOT BE LIABLE FOR
ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
BASED ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY, ARISING OUT OF THIS
EQUIPMENT LOAN AGREEMENT OR THE RECEIVING PARTY'S USE OF THE LOANED
EQUIPMENT .
12. Termination. Upon expiration or earlier termination of the Term, the
Receiving Party will return to the Loaning Party all Loaned Equipment
within 10 work days. The Loaning Party may permit the Receiving Party to
purchase certain items of the Loaned Equipment upon termination under the
purchase terms set forth below. In the event that the Receiving Party is
permitted to purchase any of the Loaned Equipment and fails to return that
Equipment to the Loaning Party upon expiration of the Term within such 10-
day period. The Receiving Party will be deemed to have elected to purchase
the Loaned Equipment, and the Loaning Party will invoice the Receiving
Party accordingly.
Page 51 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
13. Purchase Option. If the Loaning Party permits the Receiving Party to
purchase any of the Loaned Equipment, the Receiving Party may elect to
purchase those items of the Loaned Equipment under the Loaning Party's then
current standard terms and conditions, provided that such Loaned Equipment
may not be purchased solely for resale. Upon purchase, such Loaned
Equipment will be provided with the Loaning Party's then current standard
warranty provisions for used equipment. The purchase price for Loaned
Equipment purchased under this Section will be the then current list price
less a discount to be agreed by the parties. No other promotional or
purchase discounts will apply. Such purchase will not qualify for any stock
rotation or price protection under any other agreement which the Receiving
Party may have with the Loaning Party.
14. General Provisions. (a) Notices. All notices to be given under this
Agreement must be in writing and addressed to the location specified in the
Master Agreement or as designated in the opening paragraph of this
Agreement if there is no Master Agreement. Notices are validly given upon
the earlier of confirmed receipt by the Receiving Party or three days after
dispatch by courier or certified mail, postage prepaid, properly addressed
to the Receiving Party. Notices may also be delivered by telefax and will
be validly given upon oral or written confirmation of receipt. Either party
may change its address for purposes of notice by giving notice :0 the other
party n accordance with these provisions. (b) No Assignment. Neither this
Agreement nor any right, privilege, license or obligation set forth herein
may be assigned, transferred or shared by the Receiving Party without the
Loaning Party's prior written consent, and any such attempted assignment or
transfer is void. Any merger, consolidation, reorganization, transfer of
substantially all assets of the Receiving Party or other change in control
or ownership of the Receiving Party will be considered an assignment for
the purposes of this Agreement. (c) Entire Agreement. This Agreement and
the attached Schedules comprise the entire understanding between the
parties with respect to its subject matter and supersede any previous
communications, representations, or agreements, whether oral or written. No
modification of this Agreement will be binding on either party unless in
writing and signed by an authorized representative of each party. (d)
Governing Law. This Agreement will be governed in all respects by the laws
of California without reference to any choice of laws provisions, as though
this Agreement were entered into by residents of that State to be wholly
performed within that State. The parties hereby waive any application of
the United Nations Convention on Contracts for the International Sale of
Goods (as promulgated in 1980 and any successor or subsequent conventions)
with respect to the performance or interpretation of this Agreement.
APPROVED AND AGREED:
FOUNDRY: HEWLETT-PACKARD COMPANY:
By: By:
Print Name: Print Name:
Title: Title:
Page 52 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE A-I
HP EQUIPMENT SCHEDULE
RECEIVING PARTY: FOUNDRY NETWORKS, INC.
HARDWARE
Qty 1 - HP ProCurve 4000 (Product No. J4121A)
Including:
Qty 1 - 1 Port Gigabit Ethernet Card (J4113A)
Qty 5 - 8 Port 10/100 Ethernet Cards (J4111A)
Qty 1 - HP ProCurve 8000 (Product No. J4110A)
Including:
Qty 2 - 1 Port Gigabit Ethernet Card (J4113A)
Qty 1 - 8 Port 10/100 Ethernet Cards (J4111A)
Qty 1 - 4 Port 10/100 Ethernet Fiber Cards
(J4112A)
ACKNOWLEDGED:
FOUNDRY: HEWLETT-PACKARD COMPANY
By: __________________________ By: _____________________________
Print: _______________________ Print: __________________________
Title: _______________________ Title: __________________________
SCHEDULE A-2
FOUNDRY EQUIPMENT SCHEDULE
RECEIVING PARTY: Hewlett-Packard Company
HARDWARE
ACKNOWLEDGED:
FOUNDRY: HEWLETT-PACKARD COMPANY
By: __________________________ By: _____________________________
Print: _______________________ Print: __________________________
Title: _______________________ Title: __________________________
SCHEDULE B
HP SOFTWARE LICENSE TERMS
To be inserted.
SCHEDULE C
Page 53 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
UCC-1 FINANCING STATEMENT
To be inserted.
Page 54 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT F
CONFIDENTIAL DISCLOSURE AGREEMENT
[LOGO OF HEWLETT-PACKARD APPEARS HERE] CONFIDENTIAL DISCLOSURE AGREEMENT
Effective Date:
In order to protect certain confidential information, Hewlett-Packard Company
and corporate affiliates ("HP"), and the "Participant" identified below, agree
that:
1. Disclosing Party: The party disclosing confidential information
----------------
("Discloser") is both parties.
------------
2. Primary Representative: Each party's representative for coordinating
----------------------
disclosure or receipt of confidential information is:
HP:
Participant:
3. Description of Confidential Information: The confidential information
---------------------------------------
disclosed under this Agreement is described as:
HP:
Participant:
4. Use of Confidential Information: The party receiving confidential
-------------------------------
information ("Recipient") shall make use of the confidential information only
for the following purpose (e.g., "evaluation and testing for a make buy decision
on project xyz.")
HP:
Participant:
5. Confidentiality Period: This Agreement and Recipient's duty to hold
----------------------
confidential information in confidence expire on: January 6. 2002
---------------
6. Disclosure Period: This Agreement pertains to confidential information that
-----------------
is disclosed between the Effective Date and January 6. 2002
---------------
7. Standard of Care: Recipient shall protect the disclosed confidential
----------------
information by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized use, dissemination, or publication
of the confidential information as Recipient uses to protect its own
confidential information of a like nature.
8. Marking: Recipient's obligations shall only extend to confidential
-------
information that is described in paragraph 3, and that: (a) comprises specific
materials individually listed in paragraph 3; or, (b) is marked as confidential
at the time of disclosure; or; (c) is unmarked (e.g. orally disclosed) but
treated as confidential at the time of disclosure, and is designated as
confidential in a written memorandum sent to Recipient's primary representative
within thirty days of disclosure, summarizing the confidential information
sufficiently for identification.
9. Exclusions: This Agreement imposes no obligation upon Recipient with
----------
respect to information that: (a) was in Recipient's possession before receipt
from Discloser; (b) is or becomes a matter of public knowledge through no fault
of Recipient; (c) is rightfully received by Recipient from a third party without
a duty of confidentiality; (d) is disclosed by Discloser to a third party
without a duty of confidentiality on the third party; (e) is independently
developed by Recipient; (f) is disclosed under operation of law; or (g) is
disclosed by Recipient with Discloser's prior written approval.
10. Warranty: Each Discloser warrants that it has the right to make the
--------
disclosures under this Agreement. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY
UNDER THIS AGREEMENT. ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED
"AS IS."
11. Rights: Neither party acquires any intellectual property rights under this
------
Agreement except the limited rights necessary to carry out the purposes set
forth in paragraph 4. This Agreement shall not restrict reassignment of
Recipient's employees.
Miscellaneous
- -------------
12. This Agreement imposes no obligation on either party to purchase, sell,
license, transfer or otherwise dispose of any technology, services or products.
13. Both parties shall adhere to all applicable laws, regulations and rules
relating to the export of technical data, and shall not export or reexport any
technical data, any products received from Discloser, or the direct product of
such technical data to any proscribed country listed in such applicable laws,
regulations and rules unless properly authorized.
14. This Agreement does not create any agency or partnership relationship.
15. All additions or modifications to this Agreement must be made in writing
and must be signed by both parties.
16. This Agreement is made under, and shall be construed according to, the laws
of the State of California, U.S.A.
Page 55 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
HEWLETT-PACKARD COMPANY PARTICIPANT
Entity: Company:
Address: Address:
By:____________________________________ By:________________________________
(Functional Manager's Signature) (Authorized Signature)
Name: Name:
Title: Title:
Page 56 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT G
RECIPIENTS FOR RECEIPT OF NOTICES
AND RELATIONSHIP MANAGERS
HP:
Todd Wilson
OEM Business Manager
Workgroup Networks Division
Hewlett-Packard Company
8000 Foothills Blvd. MS 5562
Roseville, CA 95747-5562
Phone: (916) 785-4328
Fax: (916) 785-1749
Email: [email protected]
-------------------
Foundry:
Ken Cheng
VP, Product and Program Management
Foundry Networks
680 W. Maude Avenue, Suite 3
Sunnyvale, CA 94086
Phone: (408) 530-3330
Fax: (408) 731-3899
Email: [email protected]
-------------------
Page 57 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT H
DEPOSIT AGREEMENT
ESCROW AGREEMENT
BY
AND
BETWEEN
HEWLETT-PACKARD COMPANY
AND
FOUNDRY NETWORKS INC.
DATED __________, 19__
Page 58 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
ESCROW AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEPOSIT.............................................................
2. RETENTION OF REPLACED DEPOSIT.......................................
3. VERIFICATION AND DELIVERY...........................................
4. STORAGE OF DEPOSIT..................................................
5. USE AND NONDISCLOSURE...............................................
6. RECORDS AND AUDIT RIGHTS............................................
7. RELEASE OF DEPOSIT..................................................
8. RELEASE PENDING TERMINATION.........................................
9. DISPUTE RESOLUTION PROCESS..........................................
10. JOINT RELEASE.......................................................
11. RIGHTS IN DEPOSIT...................................................
12. TERM AND TERMINATION................................................
13. FEES................................................................
14. MISCELLANEOUS PROVISIONS............................................
14.1 Account Representative........................................
14.2 Authenticity..................................................
14.3 Hold Harmless.................................................
14.4 Merger........................................................
14.5 Assignment....................................................
14.6 Notices.......................................................
14.7 Schedules.....................................................
14.8 Independent Contractors.......................................
14.9 No Waiver.....................................................
14.10 Definition Of Days............................................
14.11 Headings......................................................
14.12 No Publication................................................
14.13 Severability..................................................
</TABLE>
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
<TABLE>
<S> <C>
14.14 Governing Law................................................
14.15 Counterparts.................................................
SCHEDULE H-A - DEPOSIT..................................................
SCHEDULE H-B - RELEASE CONDITIONS.......................................
SCHEDULE H-C - RIGHTS IN DEPOSIT........................................
SCHEDULE H-D - ACCOUNT REPRESENTATIVES..................................
</TABLE>
Page 60 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
ESCROW AGREEMENT
Account: Number: _______________
THIS ESCROW AGREEMENT is entered into by and among ____________________., a
_________________ corporation with offices at _______________________("Holder");
__________________________________ a ___________________ corporation with
offices at ____________________________________________________, referred to as
A__________@ in the Master Agreement ("Licensor"); and HEWLETT-PACKARD COMPANY,
a Delaware corporation with its principal offices at 3000 Hanover Street, Palo
Alto, California 94304 ("HP").
RECITALS
This Escrow Agreement is effective as of _____________________________________.
This Escrow Agreement is entered into in furtherance of the provisions and
objectives of that certain____________________________________________________
Agreement effective as of ____________________ between HP and Licensor
("Master Agreement").
AGREEMENT
The parties hereby agree as follows:
DEPOSIT. Licensor will deposit with Holder those materials specified in
Schedule A (the "Deposit"). Licensor will keep the Deposit at the current
----------
revision level on an annual basis commencing with the effective date of
this Escrow Agreement. In addition, during the initial or any renewal term
of this Escrow Agreement, Licensor will promptly update the Deposit
whenever Licensor issues a new version or release of the product which is
the subject matter of the Deposit, or otherwise makes any revisions or
changes to its manufacturing process relating to the Deposit. Licensor also
agrees to comply with Holder's reasonable requests for the replacement of
Deposit materials likely to physically degrade.
RETENTION OF REPLACED DEPOSIT. Holder will destroy any replaced Deposit
unless HP instructs Holder to retain it within twenty (20) days of notice
from Holder of such replacement. Retention of the replaced Deposit may
incur an additional fee, as specified in Holder's fee schedule.
VERIFICATION AND DELIVERY. The Deposit will be packaged for storage as
reasonably instructed by Holder and accompanied by a cover sheet
identifying the contents as indicated in Schedule A. Risk of loss or damage
----------
to the Deposit during shipment will lie with the party sending it. HP will
have the right to verify, at Licensor's site, each Deposit before shipment.
Licensor will give HP fifteen (15) days advance written notice and
opportunity to inspect, witness compilation, test and otherwise reasonably
assure itself of the contents of the Deposit to be shipped. HP may
authorize a third party to act in its place, provided that the third party
agrees to any confidentially obligations assumed by HP in the Master
Agreement. Licensor hereby grants HP and Holder, free of charge, the right
to use the facilities of Licensor, including its computer Systems, to
verify the Deposit. Licensor will make available technical support
personnel as necessary to verify the Deposit.
Page 61 of 72
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<PAGE>
CONFIDENTIAL
STORAGE OF DEPOSIT. Holder will safekeep the Deposit in a security vault and
exercise the same high standard of care to protect the Deposit which Holder
would use to protect other items of this nature which Holder might hold,
but in no event less than that standard of care customary in the industry.
USE AND NONDISCLOSURE. Except as provided in this Escrow Agreement, Holder will
not disclose or make any use whatsoever of the Deposit, nor will Holder
disclose or make use of any confidential information provided to Holder by
Licensor or HP in connection with this Escrow Agreement without the prior
written consent of Licensor or HP, respectively. These obligations will
continue indefinitely notwithstanding termination of this Escrow Agreement.
RECORDS AND AUDIT RIGHTS. Holder will keep complete written records of the
activities undertaken and materials prepared pursuant to this Escrow
Agreement. Upon reasonable notice to Holder during the term of this Escrow
Agreement, Licensor and HP will be entitled to inspect the records of
Holder with respect to this Escrow Agreement at reasonable times during
normal business hours at Holder's facilities and to inspect the Deposit
required then to be held by Holder.
RELEASE OF DEPOSIT. If HP notifies Holder of the occurrence of a release
condition as defined in Schedule B, Holder will immediately notify
----------
Licensor and provide Licensor with a copy of the notice from HP. Licensor
will have ten business days from the date Holder sends its notice to notify
Holder, with a copy to HP, that the release condition has not occurred or
has been cured. Failing such timely notice, Holder will release a copy of
the Deposit to HP. However, if Holder receives timely notice from Licensor,
Holder will not, unless HP exercises its rights to the procedures as
specified below in Section 8, release a copy of the Deposit but will
instead institute the Dispute Resolution Process below within five (5)
business days of such timely notice from Licensor.
RELEASE PENDING TERMINATION. In the event that HP, despite Licensor's
assertion otherwise, determines in good faith that an uncured release
condition has occurred, then HP will have the right to demand immediate
release of the Deposit, subject to the following. Prior to the release of
the Deposit, HP will be required to post a bond, payable to Licensor, with
Holder in the amount of ______________ Dollars ($_____US). Should the
Dispute Resolution Process ultimately determine that an uncured release
condition has in fact not occurred, then HP will immediately return the
Deposit to Holder and Holder will release the bond to Licensor. HP's
aggregate liability to Licensor and Holder under this Article will be
limited to the value of the bond.
DISPUTE RESOLUTION PROCESS. Holder will first notify Licensor and HP in
writing of contrary instructions from HP and Licensor for release of the
Deposit. Within five (5) business days after the date the notice is sent by
Holder, three referees will be appointed, one each by Licensor, HP and
Holder. Each party will notify the others of its referee's identity within
the five-day (5) period or forfeit its right to appoint one.
On the tenth (10th) business day after the dispute notice from Holder, the
referees will meet at the offices of Holder and will hear testimony and
other evidence that Licensor and HP may wish to present with respect to the
dispute. The meetings will proceed with whatever number of duly appointed
referees attend the meetings, and will be conducted from 8:30 a.m. to 5:30
p.m. on no more than five (5) consecutive business days, national holidays
excluded. HP will present up to two days of evidence followed by up to two
days of presentation from Licensor, followed by a final day reserved for
rebuttal by each party in the morning and afternoon, respectively.
Licensor, HP and Holder agree that the evidence and results of the hearings
will not be disclosed to third parties.
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<PAGE>
CONFIDENTIAL
Within two (2) business days after the close of the presentations, the
referees will resolve the dispute by majority vote. An abstention will be
deemed a vote in favor of release.
The parties agree that this decision will be final binding, not subject to
appeal and enforceable by a court of competent jurisdiction. All costs of
the referees will be borne by the unsuccessful party.
JOINT RELEASE. HP and Licensor may, by joint written instruction to Holder,
authorize the release of the Deposit or a copy of it to the party named in
the instruction.
RIGHTS IN DEPOSIT. Rights in the Deposit are stated in Schedule C.
----------
TERM AND TERMINATION. This Escrow Agreement will have an initial term of one
(1) year, renewable upon receipt by Holder of the specified renewal fee.
If Holder does not receive the renewal fee by the anniversary date of this
Escrow Agreement, Holder will give notice to Licensor and HP. If the fee is
not received from Licensor or HP within thirty (30) days of such notice,
this Escrow Agreement will expire. Upon expiration of this Escrow
Agreement, Holder will, at Licensor's option, either destroy or return the
Deposit to Licensor. All obligations of Holder under this Escrow Agreement
will terminate thereafter, except for those stated in the Use and
Nondisclosure Section of this Escrow Agreement.
FEES. All fees will be due from HP in full upon receipt of Holder's invoice.
Fees will be those specified in Holder's schedule of fees in effect for the
initial term of this Escrow Agreement plus taxes. To be effective, Holder
must notify Licensor and HP at least ninety (90) days prior to exportation
of the initial term (or any renewal term) of this Escrow Agreement of any
scheduled increase for the succeeding renewal term.
MISCELLANEOUS PROVISIONS.
14.1 Account Representative. Licensor, HP and Holder will each designate
----------------------
an authorized individual(s) to receive notices and otherwise act on
behalf of Licensor in connection with this Escrow Agreement, as set
forth in Schedule D. Representatives may be changed by written notice
----------
to the other parties.
14.2 Authenticity. Holder may act in reliance upon any instruction,
------------
instrument or signature believed to be, genuine and may assume that
it has been duly authorized.
14.3 Hold Harmless. Licensor will hold Holder harmless against any action
-------------
regarding the release or refusal to release a copy of the Deposit by
Holder so long as Holder has acted in good faith and in accordance
with this Escrow Agreement.
14.4 Merger. The Master Agreement and this Escrow Agreement, including
------
the Schedules, constitutes the entire agreement between the parties
concerning the subject matter hereof and will supersede all previous
communications, representations, understandings, and agreements, oral
or written, between the parties.
14.5 Assignment. No party may assign any rights or obligations of this
----------
Escrow Agreement without the prior written consent of the others and
any attempt to do so will be deemed void.
14.6 Notices. All notices to be given under this Agreement must be in
-------
writing addressed to the receiving party's designated recipient
specified in Schedule E. Notices are validly given upon the earlier
----------
of confirmed receipt by the receiving party or three days after
dispatch by courier or certified mail,
Page 63 of 72
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<PAGE>
CONFIDENTIAL
postage prepaid, properly addressed to the receiving party. Notices
may also be delivered by telefax and will be validly given upon oral
or written confirmation of receipt. Either party may change its
address for purposes of notice by giving notice to the other party in
accordance with these provisions.
14.7 Schedules. Each Schedule attached to this Agreement is deemed a part
---------
of this Agreement and incorporated herein wherever reference to it is
made. The following Schedules are made a part of this Escrow
Agreement by this reference:
Schedule H-A: Deposit
Schedule H-B: Release Conditions
Schedule H-C: Rights in Deposit
Schedule H-D: Account Representatives
14.8 Independent Contractors. The relationship of the parties established
-----------------------
under this Agreement is that of independent contractors and neither
party is a partner, employee, agent or joint venturer of or with the
other.
14.9 No Waiver. The waiver of any term, condition, or provision of this
---------
Agreement must be in writing and signed by an authorized
representative of the waiving party. Any such waiver will not be
construed as a waiver of any other term, condition, or provision
except as provided in writing, nor as a waiver of any subsequent
breach of the same term, condition, or provision.
14.10 Definition Of Days. All references in this Agreement to "days" will,
------------------
unless otherwise specified herein, mean calendar days.
14.11 Headings. The Section headings used in this Agreement are for
--------
convenience of reference only. They will not limit or extend the
meaning of any provision of this Agreement, and will not be relevant
in interpreting any provision of this Agreement.
14.12 No Publication. Neither party may publicize or disclose to any third
--------------
party, without the written consent of the other party, the terms of
this Agreement. Without limiting the generality of the foregoing
sentence, no press releases may be made without the mutual written
consent of each party.
14.13 Severability. If any provision in this Agreement is held invalid or
------------
unenforceable by a body of competent jurisdiction, such provision
will be construed, limited or, if necessary, severed to the extent
necessary to eliminate such invalidity or unenforceability. The
parties agree to negotiate in good faith a valid, enforceable
substitute provision that most nearly effects the parties' original
intent in entering into this Agreement or to provide an equitable
adjustment in the event no such provision can be added. The other
provisions of this Agreement will remain in full force and effect.
14.14 Governing Law. This Agreement will be governed in all respects by
-------------
the laws of California without reference to any choice of laws
provisions. The parties hereby consent to the exclusive jurisdiction
and venue of the courts located in Santa Clara County. The parties
hereby waive any application of the United Nations Convention on the
Sale of Goods with respect to the performance or interpretation of
this Agreement.
14.15 Counterparts. This Agreement may be executed in counterparts, each
------------
of which will be deemed an original.
Page 64 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
HOLDER:_________________________
By:_____________________________
Print Name:_____________________
Title:__________________________
LICENSOR:_______________________
By:_____________________________
Print Name:_____________________
Title:__________________________
HP: HEWLETT-PACKARD COMPANY
By:_____________________________
Print Name:_____________________
Title:__________________________
Page 65 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-A
DEPOSIT
A. Hardware Manufacturing Materials (if relevant)
----------------------------------------------
1. Theory of operation of the Product.
2. Reproducibles of manufacturing drawings, specifications, schematics,
and other drawings pertinent to manufacture Products and Spare Parts
at the revision level then in effect (including revision history) as
defined in the Master Agreement;
3. Copies of all inspection, manufacturing, test, and quality control
procedures;
4 All associated toolinf designs by or for Licensor;
5. Printed circuit board layouts (film or drawings) in machine readable
form if HP and Licensor have comparable systems;
6. Materials lists, broken down by assembly, including reference
designators:
7. Descriptions. specifications, and sourcing information for any unique
parts or assemblies (e.g., custom ASICs or OEMed power supplies);
8. Descriptions of any unique or unusual assembly or manufacturing
processes required, including equipment descriptions, drawings (such
as special jigs or fixturing), equipment settings, etc.;
9. Source code of and master samples of programmable hardware, such as
ROM/PROM firmware, PALs, etc.;
10. Design information and documentation for all test fixtures; and
11. All engineering change orders and related documentation and materials.
12. All regulatory submissions and approvals with respect to Licensor's
rights to manufacture or distribute the Product in any country in the
world.
(Continued on next page)
Page 66 of 72
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Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-A (cont'd)
DEPOSIT
B. Source Code
-----------
1. A copy of source code and all source documentation. listings and
programmers notes relating to the design, use, operation, and
maintenance of all:
a. Software included in the Master Agreement;
b. Modifications, enhancements, new versions or releases, additions,
code corrections, and workarounds of software included in the
Master Agreement; and
c. Any of the above materials replaced by Licensor and retained by
Holder according to the terms of this Escrow Agreement.
2. All proprietary or special third party tools, compilers, interpreters
and other materials reasonably necessary to create object code and
related documentation for software included in the Master Agreement.
3. A description of the development system, hardware, software, compilers
and the like sufficient for HP to continue development and support of
the software included in the Master Agreement.
4. The Deposit will be in printed format except that the source code will
be in machine-readable form in a mutually agreeable form and media.
5. All regulatory submissions and approvals with respect to Licensor's
right to distribute or use the Products in any country in the world.
(Continued on next page)
Page 67 of 72
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Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-A (cont'd)
DEPOSIT
C. Cover Sheet for Delivery of Deposit
-----------------------------------
Deposit Account Name ___________________________________________________________
Deposit Account Number _________________________________________________________
_____ Deposit _____ Supplement to Deposit _____ Replacement of Deposit
Program Name _________________________________ Version _________________________
Date____________________ CPU/OS_______________________ Compiler _______________
Application_____________________________________________________________________
Utilities needed________________________________________________________________
Special Operating Instructions__________________________________________________
Media _____________________________ Quantity __________________________________
Page 68 of 72
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Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-B
RELEASE CONDITIONS
The Deposit will be released to HP upon the occurrence of any of the following
events:
1. Failure of Licensor within sixty (60) days after HP's giving notice to
Licensor, to fulfill its obligations to update the Deposit as required
under Article I of this Escrow Agreement.
2. HP's exercise of the grant of manufacturing rights under Section 11.2 of
the Master Agreement subject to Sections 11.1 and 18.3(2) of the Master
Agreement, or
3. Failure of Licensor within ninety (90) days after HP's giving notice to
Licensor, to fulfill its material support obligations as required in the
Master Agreement.
Page 69 of 72
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Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-C
RIGHTS IN DEPOSIT
1. Holders Rights. Licensor hereby grants to Holder ownership of and title
--------------
to those physical copies of the Deposit delivered to Holder subject to
Holder's agreement to use, reproduce and release the Deposit only as
necessary to fulfill its obligations under this Escrow Agreement.
2. HP's Rights.
-----------
a. Licensor hereby grants to HP a present license in the intellectual
property content of the Deposit, exercisable upon release of the
Deposit by Holder to HP. HP's license is worldwide, nonexclusive and
fully paid-up. HP's license is limited in duration to the term of the
Master Agreement, as may be renewed. HP's license is restricted to
(the furtherance of HP's rights or fulfillment of Licensor's
obligations as set forth in the Master Agreement, as may be amended or
expended. If the Master Agreement is terminated before, concurrently
with or after the exercise of HP's right to access the Deposit under
this Escrow Agreement, the duration and scope of the foregoing license
will be interpreted as if the Master Agreement was not so terminated.
b. The foregoing license includes the right to reproduce, translate,
modify and distribute copies, translations, derivative works,
compilations and collective works of any Deposit user documentation or
software (in machine-readable form only). For all other intellectual
property content of the Deposit, HP's license includes the right to
make, have made, use, sell, import, offer for sale and distribute
products based on the Deposit under any intellectual property right
including patent, copyright, mask work, trade secret or other similar
right. In all cases, HP's license includes the right to use
subcontractors or sublicensees provided they comply with any
confidentiality obligations assumed by HP in the Master Agreement.
c. In addition, Licensor grants to HP the right to use the materials from
Licensor's vendors and subcontractors reasonably required for the
manufacture, support and distribution of the products to which the
Deposit relates ("Related Materials") or will use its best efforts to
allow HP to procure the Related Materials from Licensor's vendors and
subcontractors.
(Continued on next page)
Page 70 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-C (cont'd)
RIGHTS IN DEPOSIT
d. Any additional or contrary terms of license in the Master Agreement
will take precedence over the terms described in this Schedule C.
e. HP will treat the Deposit and Related Materials as confidential
information according to the terms of the Master Agreement.
f. If permitted by the local agency, Licensor hereby grants to HP the
right to utilize its manufacturing and distribution approvals anywhere
in the world.
Page 71 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
SCHEDULE H-D
ACCOUNT REPRESENTATIVES
LICENSOR: Copy to:
- -------- -------
Name ________________________________
Title________________________________
Address______________________________
______________________________
Phone _______________________________
HP: Copy to:
- -- -------
Name ________________________________
Title________________________________
Address______________________________
______________________________
Phone _______________________________
HOLDER:
- ------
Name ________________________________
Title________________________________
Address______________________________
______________________________
Phone _______________________________
Page 72 of 72
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT 10.6
CONFIDENTIAL
RESELLER AGREEMENT
This Reseller Agreement ("Agreement") is made as of July 1st, 1997
--------
("Effective Date") by and between Foundry Networks, Inc., a Delaware corporation
having its place of business at 680-3 W. Maude Ave., Sunnyvale, CA 94086, USA
("Foundry") and Mitsui & Co., Ltd., a Japanese corporation having its principal
place of business at 2-1 Ohtemachi 1-Chome, Chiyoda-ku, Tokyo, Japan
("Reseller").
WHEREAS, Reseller wishes to resell, itself and through third parties
appointed in accordance with the terms of this Agreement, Foundry Products
together with its or other third party products in the Territory; and
WHEREAS, Foundry wishes to work with Reseller on the terms described below
to allow Reseller to distribute the products in the Territory.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Definitions. As used herein, the following terms shall have the following
meanings respectively:
1.1 End User shall mean a person or entity who acquires the Products
--------
for personal or ordinary business usage and not for resale or transfer to
others.
1.2 Price List shall mean the then current International Foundry
----------
price list for the products, the current Price list is attached hereto as
Exhibit A.
1.3 Products shall mean the products including the Software and all
--------
manuals listed in Exhibit A. Foundry agrees to provide 120 days advance notice
to Reseller prior to making any major changes, major modifications, or deleting
Products from Exhibit A.
1.4 Software shall mean the built in software components of the
--------
Products, or other software products listed in Exhibit A.
1.5 Territory shall mean the territory listed in Exhibit B.
---------
2. Appointment.
2.1 Appointment. Subject to the terms and conditions of this
-----------
Agreement, Foundry hereby appoints Reseller as an exclusive Reseller of the
Products and Reseller accepts such appointment. Reseller shall have the right
to obtain Products from Foundry directly or through its U.S. subsidiaries, and
market and distribute the Products within the Territory. Reseller may appoint
one or more persons to act as sub-resellers in the Territory including VARs and
OEMs. Reseller shall notify Foundry of each sub-reseller appointments, which
notice shall include the sub-reseller's name, address and corporate overview.
2.2 Exclusivity. Reseller's appointment hereunder shall be exclusive
-----------
in the Territory. Notwithstanding the foregoing, or anything contained in this
Agreement, nothing in this Agreement shall be construed as limiting Foundry's
right to negotiate, or otherwise enter into an world-wide OEM agreement for its
Products with any company whose headquarters are located outside of the
Territory. Foundry may terminate the Exclusivity of Reseller if Reseller fails
to achieve the Target Purchases for the Exclusivity set forth in Exhibit C, in
which case Reseller will become a non-exclusive reseller for the Products. In
the event Reseller becomes non-exclusive,
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
Foundry will not directly contact with Reseller's appointed sub-resellers.
Foundry in good faith will maintain the mutually agreed discount level to
Reseller even after the termination of exclusivity, for a period of 90 days.
During this 90-day period a new, non-exclusive discount structure may be
negotiated by both parties.
3. Prices. Prices for the Products shall be those specified in Foundry's
then current Price List as updated from time to time by Foundry less the
applicable discounts specified in Exhibit C. All prices are F.O.B. Foundry's
plant at Sunnyvale CA. Prices for the Products may be increased upon ninety
(90) days prior written notice to Reseller.
4. Orders.
4.1 Order Process. All orders for Products shall be initiated and
-------------
submitted in writing by the Reseller directly or through its U.S. subsidiaries
addressed to Foundry. Foundry shall, within three (3) business days of receipt
of an order from Reseller, communicate in writing its acceptance or rejection of
the said order, provided, however, that any orders not confirmed or rejected
within the said three (3) business day period shall he deemed to have been
accepted, and provided, further that, Foundry shall not unreasonably reject in
part or in whole an order placed by the Reseller. All purchase orders issued
under this Agreement will reference the relevant Agreement number assigned to
this Agreement. The terms and conditions of this Agreement shall prevail
regardless of any conflicting terms on the purchase order.
4.2 Delivery. Foundry will use its reasonable efforts to deliver the
--------
Products on the date requested in Reseller's or its U.S. subsidiaries' purchase
order. Foundry shall use its reasonable efforts to deliver the Products on the
date set forth in Foundry's Order Acknowledgment.
4.3 Taxes. Any withholding tax levied on any payment to be made by
-----
Reseller to Foundry shall be borne by Foundry, provided, however, that all such
tax shall in no event exceed the maximum rate of 10% provided for in Article 14
of the Convention for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income between the Governments of Japan
and the United States. Reseller shall withhold the tax from such payment to
Foundry and pay any such tax to the appropriate governmental authority and
thereafter shall send to Foundry the tax certificate and any other applicable
documentation evidencing the payment of such tax.
4.4 Credit. Payment terms shall be net thirty (30) days from date of
------
invoice. Payment is to be made in United States dollars via interbank transfer
to Foundry's account at a bank designated by Foundry. If Reseller does not
receive credit approval, it must pay as of the date of shipment of the Products.
If at any time Reseller is delinquent in the payment of any invoice or is
otherwise in breach of this Agreement, Foundry may, in its sole discretion,
withhold shipment (including partial shipments) of any order or may, at its
option, require Reseller to pay C.O.D. for further shipments. Accounts unpaid
when due shall accrue late charges of one and one half percent (1.5%) per month
(or if lower, the maximum rate permitted by law).
4.5 Products Returned for Credit. Prior to Reseller returning any
----------------------------
products for credit, Reseller must obtain a Returned Material Authorization
number from Foundry. Foundry reserves the right to charge Reseller up to a
[ * ] restocking charge.
5. Shipping and Delivery.
5.1 Shipping Dates. Foundry will notify Reseller in writing of
--------------
shipment dates for the
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
Products without delay upon acceptance of Reseller's order. Foundry shall use
its reasonable efforts to fill Reseller's order insofar as practical and
consistent with Foundry's lead-time schedule, shipping schedule, access to
supplies on acceptable terms and allocation of available products among Foundry
customers.
5.2 Deferred Shipment. Reseller may defer Product shipment for no
-----------------
more than sixty (60) days from the scheduled shipping date, provided written
notice is received by Foundry at least thirty (30) days before the originally
scheduled shipping date.
5.3 Freight Charges. Reseller shall be responsible for all freight
---------------
handling and insurance charges. Foundry shall select the carrier unless
Reseller or its U.S. subsidiaries provide Foundry such instructions. In no
event shall Foundry have any liability in connection with shipment of Products
hereunder, nor shall the carrier be deemed to be an agent of Foundry.
5.4 Security Interest. Risk of loss shall pass from Foundry to
-----------------
Reseller upon delivery to common carrier or Reseller's representative at the
F.O.B. point. Delivery shall be deemed made upon transfer of possession to the
carrier. Reseller hereby grants to Foundry a security interest and right to
possession in Products purchased under this Agreement until such time the
invoice for said Product(s) are paid in full.
6. Export Licensing.
6.1 Licenses and Approvals. With respect to shipments across
----------------------
international borders, prior to shipping any Products to Reseller, Reseller or
its assignee in the U.S. will obtain all export licenses and approvals where
necessary and desirable to permit the shipment. Reseller will be both the
importer and exporter of record and shall obtain all licenses and approvals
required by the United States or any other government, at the Reseller's
expense. Reseller will comply with all applicable rules, policies and
procedures of all governments in connection with Reseller's import, resale, or
export of the Products.
6.2 Export Law Compliance. Reseller agrees to comply with all export
---------------------
laws and restrictions and regulations of the Department of Commerce or other
United States or foreign agency or authority, and agrees not to knowingly export
or allow the export or re-export of any Product (or technical data or
information related thereto), or derivative of a Product in violation of any
such restrictions, laws or regulations, or without all required licenses and
approvals to Afghanistan, the People's Republic of China or any Group Q, S, W,
Y, or Z country specified in the then current Supplement No.1 to Section 770 of
the U.S. Export Administration Regulations (or any successor supplement or
regulations).
7. Reseller Obligations. Reseller shall, during the term of this Agreement:
-------------------------------------------------
7.1 employ a sales and technical support organization (pre and post
sales) to market, distribute, sell, and install the Products;
7.2 provide, through sub-resellers, first tier hardware and software
support and maintenance to End Users;
7.3 purchase the Products as mutually agreed to by the parties
pursuant to the discount as set forth in Exhibit C. Reseller will place an
initial order within thirty (30) days of the signing of this Agreement. Such
order shall not be less than [ * ];
7.4 prior to providing any end-user with any Software, through its
sub-resellers, use
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
reasonable efforts to ensure that each end-user has read and agreed to the terms
and conditions of Foundry's End User License Agreement, a copy of which is
attached hereto as Exhibit E. Without written authorization from Foundry,
Reseller shall not, and shall not authorize any third party to, duplicate,
modify, alter, reverse engineer, disassemble or decompile the Software, and
Reseller shall not distribute or market any Software or Product containing any
Software electronically, or by interactive cable, remote processing services,
linkups or multi-user local or area networks without Foundry's prior written
consent;
7.5 have a minimum of one full-time sales person per selling location
participate in sales training courses which Foundry may conduct for Reseller's
personnel;
7.6 have a minimum of one full-time technical support person per
support location participate in technical training courses which Foundry may
conduct at Foundry's headquarters in Sunnyvale, CA for Reseller's personnel;
7.7 maintain adequate manpower and facilities to assure prompt
handling of inquiries, orders and shipment for Products;
7.8 maintain adequate spares to assure prompt response to Reseller's
customers;
7.9 keep Foundry informed as to problems encountered with the Product
and to communicate promptly to Foundry all modifications, design changes or
improvements of the Products suggested by any customer, employee or agent.
8. Foundry Obligations. Foundry shall, during the term of this Agreement:
8.1 provide to Reseller or its designated support organization
reasonable telephone and e-mail consultation during Foundry's normal business
hours with respect to use of the Products;
8.2 provide timely and high level technical support to Reseller for
any problem arising from the Japanese market as may be requested by Reseller;
8.3 provide timely information of marketing materials and successful
case studies which would increase Reseller's sales in the Territory;
8.4 refer all leads to Reseller from potential customers and system
integrators in the Territory, who wish to purchase the Products in the
Territory;
8.5 assign a point of contact, who shall, among other things, act as
a contact for communications and inquiries. In case the person does not satisfy
Reseller's requirements, Foundry will assign another program manager responsible
for the above-mentioned deals;
9. Proprietary Rights.
9.1 Title. Foundry and its suppliers shall retain all title to, and,
-----
except as expressly licensed herein, all rights to the Product, all copies
thereof and all related documentation and materials, all copyrights, patent
rights, trade secret rights and other proprietary rights in the Products, and
all of Foundry's service marks, trademarks, trade names or any other
designations. Reseller will have no right to receive any source code with
respect to the Software.
9.2 Government. In the event that Reseller distributes the Product
----------
to a government
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
agency or anyone that may acquire it pursuant to a government contract or with
government funds, Reseller will ensure that Foundry's End User License Agreement
is incorporated into any proposals and contracts and to identify that the
Software has been developed at private expense and is commercially available at
published prices. The United States Government acquires only "restricted rights"
in such Software as defined in clause 252.227-7013(c)(l)(ii) of the DFARS and
clause 52.227-19(c) of the FAR (or any successor regulations). On the Software
and documentation, the following notice is and will be deemed to be affixed:
Copyright (C) 1997 Foundry Networks, Inc.
10. Warranty. Foundry's standard warranty for the Products is as set forth in
Exhibit D. Reseller shall have a warranty in accordance with Foundry's standard
warranty for a period of fifteen (15) months.
11. Marketing Materials and Documentation. Foundry agrees to provide to
Reseller at no charge the quantities of Product literature and sales materials
as set forth in Exhibit F. Reseller shall have the right to translate and
duplicate such materials to the extent necessary. In addition, Foundry shall
provide Reseller with artwork which Reseller may customize for producing sales
literature to be distributed in connection with the Products.
12. Trademark Usage. Reseller may, whether in connection with its own
trademarks, use the then current Product names, logos and other marks ("Marks")
on the Product and all marketing and promotional material therefore as
authorized by Foundry for all proper purposes in the performance of Reseller's
duties hereunder. Reseller's use of such Marks shall be in accordance with
Foundry's policies in effect from time to time, including, but not limited to,
trademark usage and advertising policies. Reseller shall have no claim or right
in such Marks and Reseller shall not make any claim or contest the use of any
such Mark authorized by Foundry. Except as expressly authorized in writing by
Foundry, Reseller shall not file or attempt to register any Mark or any mark
confusingly similar thereto.
13. Confidential Information.
------------------------
13.1 Reseller acknowledges that, in the course of selling the Products
and performing its duties under this Agreement, it may obtain information
relating to the Products and to Foundry which is of a confidential and
proprietary nature ("Proprietary Information"). Such information may include,
but is not limited to, trade secrets, know-how, ideas, invention techniques,
processes, programs, schematics, software source documents, data, customer
lists, financial information, and sales and marketing plans. Reseller shall at
all times, both during the term of this Agreement and for a period of at least
three (3) years after its termination, keep in trust and confidence all such
Proprietary Information, and shall not use such Proprietary Information without
Foundry's prior written consent. Reseller further agrees to turn over to Foundry
as soon as practical all Proprietary Information (including copies thereof) in
Reseller's possession, custody or control upon termination or expiration of this
Agreement, or at any time upon termination of this Agreement, or at any time
upon Foundry's request. Except as required by law or legal process to be
disclosed, neither party shall disclose, advertise or publish the existence nor
the terms or conditions of this Agreement without the express prior written
consent of the other party.
13.2 The above obligations will not apply to information which
Reseller can document was (a) rightfully in Reseller's possession prior to
disclosure by Foundry, (b) is now or hereafter becomes part of the public domain
(and is readily available without substantial effort) through no improper action
or inaction by the Reseller, (c) is rightfully received by Reseller from a third
party without restriction, (d) is demonstrated by clear and convincing evidence
to have been independently developed by Reseller, or (e) is required by law or
legal process to be disclosed.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
14. Intellectual Property Infringement. Foundry will indemnify and hold
----------------------------------
harmless Reseller, its sub-resellers, and any End Users against any loss,
damage, or expense incurred by Reseller, its sub-resellers, and any End Users as
a result of claims, actions, or proceedings brought by a third party alleging
infringement by the Products or the Software of copyright, trademark, patent, or
other proprietary rights. Foundry will indemnify Reseller, its sub-resellers,
and any End Users against their reasonable attorney's fees and any money damages
or costs awarded in respect of any such claim and any suit raising any such
claim. Foundry will have no liability hereunder unless it is notified promptly
of any such claim and given control of the defense and any settlement thereof.
The provisions of this Section 14 shall survive the expiration of the term of
this Agreement.
15. Term and Termination.
15.1 Unless terminated early as provided herein, this Agreement shall
commence on the Effective Date first set forth above and continue until December
31st, 2000. Thereafter, this Agreement shall renew for successive one (1) year
terms, unless a party hereto shall notify the other party in writing at least
thirty (30) days prior to the end of the initial or any renewal terms, of its
intention otherwise.
15.2 In the event that effective control or ownership of a party
hereto passes from the hands of the persons, firms or corporations in whose
hands it is at the date of this Agreement ("Change of Control"), the said party
shall inform the other party in writing forthwith of any such change in control.
Should such change in control pass control of the said party into the hands of
some party which the non-changing party in its sole and entire judgment
considers would not be commercially or otherwise favorably or impartially
disposed towards the business interest of the non-changing party (including the
continued exploitation of sales of the Products under this Agreement), the non-
changing party shall be entitled by notice in writing to terminate this
Agreement forthwith without prejudice to rights already accrued hereunder. In
addition to the foregoing and notwithstanding Section 4.5, Foundry agrees that,
if (i) a Change of Control with respect to Foundry occurs; and (ii) the party
acquiring such control of Foundry (the "Acquiring Party") discontinues the sale,
maintenance or otherwise stops dealing in all or part of the Products, Foundry
shall itself, or cause the Acquiring Party to, buy-back from Reseller, at the
then current fair market value, any Products which may be in the Reseller's
possession at the time of the occurrence of such Change of Control.
15.3 Either party shall have the right to terminate this Agreement
following any material breach or default in performance under this Agreement and
such breach or default continues uncured for a period of thirty (30) days after
the date of written notice thereof; provided, however, that the cure period for
the failure to make any payments under this Agreement shall be fifteen (15)
days.
15.4 Upon termination or expiration of this Agreement, all rights and
licenses of Reseller hereunder shall terminate except that Reseller may continue
to distribute, on a non-exclusive basis, in accordance with normal business
practice and the terms of this Agreement, Products shipped to it by Foundry
prior to the date of termination, or expiration as the case may be. Upon
termination or expiration of this Agreement, the parties hereto expressly agree
to negotiate in good faith, terms and conditions for the continuing support to
be provided to the End Users to whom the Products may have been sold hereunder.
The provisions of Section 9, 10, 12, 13, 14 and 18 shall survive termination or
expiration of this Agreement.
16. LIMITED LIABILITY. FOUNDRY WILL NOT BE LIABLE UNDER ANY SECTION OF
THIS AGREEMENT OR ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING WITHOUT LIMITATION LOST PROFITS),
WHETHER OR NOT FOUNDRY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS IN
ADVANCE. THIS EXCLUSION INCLUDES ANY LIABILITY THAT MAY ARISE OUT OF THIRD PARTY
CLAIMS AGAINST RESELLER.
17. Force Majeure.
17.1 Neither party hereto shall be liable to the other for any delay
or failure in the performance of its obligations under this Agreement if and to
the extent such delay or failure in performance arises from any cause or causes
beyond the reasonable control of the party affected ("Force Majeure"),
including, but not limited to, act of God; acts of government or governmental
authorities; compliance with law, regulation or orders; fire, storm, flood or
earthquake; war (declared or not), rebellion, revolution, or riots; strike or
lockouts.
17.2 On the occurrence of any event of Force Majeure, causing a
failure to perform or a delay in performance, the party so affected shall
immediately provide written notice to the other party of such date and the
nature of such Force Majeure and the anticipated period of time during which the
Force Majeure conditions are expected to persist.
17.3 The parties so affected shall make all reasonable efforts to
reduce the effect of any failure or delay caused by any event of Force Majeure.
17.4 The provisions of this Article shall not relieve either party of
the obligations to make payments when due under this Agreement.
17.5 If the Force Majeure conditions in fact persist for ninety (90)
days or more, either party hereto may terminate this Agreement upon written
notice to the other party.
18. General.
18.1 No waiver of rights under this Agreement by either party shall
constitute a subsequent waiver of this or any other right under this Agreement.
18.2 This Agreement may not be assigned by either party hereto without
the express prior written consent of the other party. Notwithstanding the
foregoing, and subject to the terms of Section 15.2, no such consent shall be
required in connection with the sale or transfer of all of the business assets
of a party hereto to a third party whether by sale, merger, consolidation or
other change of ownership. This Agreement will be binding upon and inure to the
benefit of the respective successors and assigns of the parties to this
Agreement.
18.3 In the event that any of the terms of this Agreement shall be
declared void or unenforceable by a court of competent jurisdiction, the
remaining provisions herein shall remain in full force and effect.
18.4 This Agreement shall be governed by and construed in accordance
with the laws of the state of California, the United States of America. Any
claim, dispute or controversy arising between the parties out of or in relation
to this Agreement, or the breach thereof, which cannot be satisfactorily settled
by the parties, shall be finally settled by arbitration upon the written request
of either party, in accordance with the rules of Conciliation and Arbitration of
the International Chamber of Commerce. The place of arbitration shall be
California U.S.A. in case Foundry is respondent, and Tokyo, Japan in case
Reseller is respondent. The arbitration proceeding
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
shall be conducted in English. The award shall be final and binding upon both
parties. Judgment upon the award may be entered in any court having jurisdiction
thereof. There shall be one arbitrator selected in accordance with the foregoing
rules.
18.5 This Agreement (including Exhibits hereto) constitutes the entire
agreement between the parties hereto and supersedes any prior written or oral
agreements between the parties concerning the subject matter. No modifications
of this Agreement shall be binding unless executed in writing by both parties.
18.6 All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given when delivered in person, or when received
by mail, postage prepaid, registered or certified mail, express courier, or
telefax, addressed as previously set forth herein or such address, and proof of
delivery received by the noticing party.
18.7 This Agreement may be executed in any number of counter parts,
each of which shall be deemed an original, all of which shall constitute one and
the same Agreement.
18.8 The headings and titles to Sections, Articles and Paragraphs of
this Agreement are inserted for convenience only and shall be deemed a part
hereof or affected the construction or interpretation of any provision hereof.
Words denoting the singular will include the plural and vice versa; words
denoting any gender will include all genders; words denoting persons will
include corporations and vice versa.
18.9 Neither party hereto will be deemed to be an agent of the other
party as a result of any transaction under or related to this Agreement, and
will not in any way pledge the other party's credit or incur any obligation on
behalf of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date first above written.
Foundry Networks, Inc. Mitsui & Co., Ltd.
/s/ Bobby R. Johnson, Jr. /s/ Yoshiyuki Izawa
__________________________ ___________________
Signature Signature
Bobby R. Johnson, Jr. Yoshiyuki Izawa
- -------------------------- -------------------
Printed Name Printed Name
July 1, 1997 July 1, 1997
- -------------------------- -------------------
Date Date
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT A
FOUNDRY NETWORKS' INTERNATIONAL PRICE LIST - May 21,1997
This document contains pricing and part number information for the following
Foundry Networks' products and services:
I. FastIron Gigabit Switches and Expansion Modules 1-2
II. NetIron Gigabit Switching Router and Expansion Modules 3
III. TurboIron Gigabit Switches and Switching Router and Expansion Modules 4
IV. IronView Network Management Software 5
V. Documentation 6
VI. Service 7-8
VII. Product Accessories 9
I. FASTIRON GIGABIT SWITCHES
Part Number Description List Price
- ----------- ---------- ----------
FastIronWorkgroup/Server Switch:
FWS16 FastIron Workgroup Switch [ * ]
16 ports copper, 4K CAM,
1 power supply, 1 user manual,
rack mount kit
FastIron Backbone Switches:
FBS88 FastIron Backbone Switch 8 [ * ]
ports copper, 8K CAM,
1 power supply, 1 user manual,
rack mount kit
FBS168 FastIron Backbone Switch [ * ]
16 ports copper, 8K CAM,
1 power supply, I user manual,
rack mount kit
FBS1632 FastIron Backbone Switch [ * ]
16 ports copper, 32K CAM, 1
power supply, I user manual,
rack mount kit
FBS8F8 FastIron Backbone Switch [ * ]
8 ports fiber, 8K CAM, 1
power supply, 1 user manual,
rack mount kit
1
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT A
FBS16F32 FastIron Backbone Switch [ * ]
16 ports fiber, 32K CAM, 1
power supply, 1 user manual,
rack mount kit
FastIron Multilayer Switches:
FMS8 FastIron Multilayer Switch [ * ]
8 ports copper, 16K CAM, 1
power supply, 1 user manual,
rack mount kit
FMS16 FastIron Multilayer Switch [ * ]
16 ports copper, 32K CAM, 1
power supply, 1 user manual,
rack mount kit
FMS8F FastIron Multilayer Switch [ * ]
8 ports fiber, 16K CAM, 1
power supply, I user manual,
rack mount kit
FMS16F FastIron Multilayer Switch [ * ]
16 ports fiber, 32K CAM, 1
power supply, 1 user manual,
rack mount kit
EXPANSION MODULES FOR FASTIRON GIGABIT SWITCHES
Part Number Description List Price
- ----------- ----------- ----------
F2100 2 port copper expansion module [ * ]
for FastIron Workgroup,Backbone
and Multilayer Switches
F2100F 2 port: Fiber Fast Ethernet [ * ]
expansion module for FastIron
Workgroup, Backbone and Multilayer
Switches
F1GE 1 port Fiber Gigabit Ethernet [ * ]
expansion module for FastIron
Workgroup, Backbone and
Multilayer Switches
F2GE 2 port Fiber Gigabit Ethernet [ * ]
expansion module for FastIron
Workgroup, Backbone and
Multilayer Switches
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
CONFIDENTIAL
EXHIBIT A
II. NETIRON GIGABIT SWITCHING ROUTER
Part Number Description List Price
- ----------- ----------- ----------
NSR8 NetIron Switching Router [ * ]
8 ports copper, 16K CAM, 1
power supply, I user manual,
rack mount kit
NSR16 NetIron Switching Router [ * ]
ports copper, 32K CAM, I
power supply, I user manual,
rack mount kit
[ * ]
NSR8F NetIron Switching Router
8 ports fiber, 16K CAM, I
power supply, I user manual,
rack mount kit
[ * ]
NSRI6F NetIron Switching Router
16 ports fiber, 32K CAM, 1
power supply, l user manual,
rack mount kit
[ * ]
EXPANSION OPTIONS FOR NETIRON GIGABIT SWITCHING ROUTER
Part Number Description List Price
- ----------- ----------- ----------
N2100 2 port copper expansion module [ * ]
for NetIron Switching Router
N2100F 2 port Fiber Fast Ethernet [ * ]
expansion module for NetIron
Switching Router
N1GE 1 port Fiber Gigabit Ethernet [ * ]
expansion module for NetIron
Switching Router
N2GE 2 port Fiber Gigabit Ethernet [ * ]
expansion module for NetIron
Switching Router
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
CONFIDENTIAL
EXHIBIT A
III. TURBOIRON GIGABIT SWITCHES AND SWITCHING ROUTERS
Part Number Description List Price
- ----------- ----------- ----------
TurboIron Switch:
TS4F TurboIron Switch 4 ports fiber, [ * ]
8K CAM, 1 power supply, 1 user
manual, rack mount kit
TurboIron Switching Router:
TSR4F TurboIron Switching Router [ * ]
4 ports fiber, 32K CAM, l
power supply,1 user manual,
rack mount kit
EXPANSION OPTIONS FOR TURBOIRON GIGABIT SWITCHES AND SWITCHING ROUTER
Part Number Description List Price
- ----------- ----------- ----------
TurboIron Switch Expansion Modules:
TS2100 2 port copper expansion module [ * ]
for TurboIron Switch
TS2l00F 2 port Fiber Fast Ethernet [ * ]
expansion module for
TurboIron Switch
TSlGE 1 port Fiber Gigabit Ethernet [ * ]
expansion module for
TurboIron Switch
TS2GE 2 port Fiber Gigabit Ethernet [ * ]
expansion module for
TurboIron Switch
TurboIron Switching Router Expansion Modules:
TSR2l00 2 port copper expansion module [ * ]
for TurboIron Switching Router
TSR2100F 2 port Fiber Fast Ethernet [ * ]
expansion module for
TurboIron Switching Router
TSR1GE 1 port Fiber Gigabit Ethernet [ * ]
expansion module for TurboIron
Switching Router
TSR2GE 2 port Fiber Gigabit Ethernet [ * ]
expansion module for TurboIron
Switching Router
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
CONFIDENTIAL
EXHIBIT A
IV. IRONVIEW NETWORK MANAGEMENT SOFTWARE
Part Number System Platform Required List Price
- ----------- ------------------------ ----------
WINNT IronView s/w for Windows/NT [ * ]
HPOVUX IronView 51W for HP OpenView/Unix [ * ]
HPOVNT IronView s/w for HP OpenView Windows/NT [ * ]
IBMNV IronView s/w for IBM NetView/6000 [ * ]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
5
<PAGE>
CONFIDENTIAL
EXHIBIT A
V. DOCUMENTATION
Part Number Description List Price
- ----------- ----------- ----------
FDOC FastIron Installation and Configuration Guide [ * ]
NDOC NetIron Installation and Configuration Guide [ * ]
NMDOC IronView Network Management Users' Guide [ * ]
DSDOC Data Sheets (set of 50) [ * ]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
6
<PAGE>
CONFIDENTIAL
EXHIBIT A
VI. SERVICE
Part Number Description List Price
- ----------- ----------- ----------
Specific Service Agreement terms and conditions will be negotiated with each
Reseller/Distributor.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
7
<PAGE>
CONFIDENTIAL
EXHIBIT A
VII. ACCESSORIES
Part Number Description List Price
- ----------- ----------- ----------
RPS Redundant Power Supply [ * ]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
8
<PAGE>
CONFIDENTIAL
EXHIBIT B
The territory is as follows: The country of Japan.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT C
Evaluation Unit Discount
- ------------------------
Reseller may purchase, for itself, its resellers or its OEMs, up to [ * ] units
per product group, per sales organization for demonstration or evaluation
purposes only (not for resale) at the following discount.
Discount level = [ * ]
Resale Discount
- ---------------
The following discounts apply for purchases of units, subsequent to meeting
targets, off the list prices as set forth in Exhibit A:
Discount level = [ * ]
If product purchases exceed [ * ] CY 1997 an additional [ * ] discount will
apply toward future resale purchases during CY 1998. If combined product
purchases for CY 1997 and CY 1998 equal or exceed [ * ] then Reseller may retain
the [ * ] additional discount (total discount equal to [ * ]) for resale
purchases made in 1999. If product purchases for CY 1999 equal or exceed [ * ]
then Reseller may retain the [ * ] additional discount (total discount equal to
[ * ]) for resale purchases made in 2000. The [ * ] additional discount applies
if Reseller attains the lesser of the sales target or [ * ] of Foundry's Annual
Product Revenue. Foundry, however, is under no obligation to Reseller to provide
actual revenue figures for any period so long as Mitsui remains a non-equity
participant in Foundry. The additional [ * ] discount does not apply to
purchases of evaluation units which are already discounted at [ * ]. If Reseller
does not meet targets as outlined in Target Purchases below, the [ * ]%
additional discount will no longer apply and pricing in the following calendar
year and will revert back to the agreed upon standard discount of [ * ], and no
additional discounts will apply.
Target Purchases for Exclusivity
- --------------------------------
Sales target for products sold to end-users within the Territory as identified
in Exhibit B are as follows:
[ * ] Target for CY 1997 until December 31, 1998
[ * ] Annual target for 1999
[ * ] Annual target for 2000
or [ * ] of Foundry's Annual Product Revenue, whichever is less. Foundry,
however, is under no obligation to Reseller to provide actual revenue figures
for any period so long as Mitsui remains a non-equity participant in Foundry.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
11
<PAGE>
CONFIDENTIAL
EXHIBIT D
All Foundry Products come with a warranty of one year on hardware and (90)
ninety days for software. All technical support during that period is free of
charge.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
CONFIDENTIAL
EXHIBIT E
FOUNDRY NETWORKS END USER SOFTWARE LICENSE AGREEMENT
THIS PRODUCT CONTAINS CERTAIN COMPUTER PROGRAMS AND OTHER PROPRIETARY MATERIAL.
THE USE OF WHICH IS SUBJECT TO THIS END USER SOFTWARE LICENSE AGREEMENT. OPENING
THE SEALED ENVELOPE CONSTITUTES YOUR AND YOUR FIRM'S ASSENT TO AND ACCEPTANCE OF
THIS END USER SOFTWARE LICENSE AGREEMENT. IF YOU DO NOT AGREE WITH ALL THE
TERMS, YOU MUST RETURN THIS PRODUCT (WITH THE ENVELOPE STILL SEALED), ALL
MANUALS AND DOCUMENTATION, AND PROOF OF PAYMENT, TO THE PLACE YOU OBTAINED THEM
FOR A FULL REFUND WITHIN 30 DAYS OF FIRST ACQUIRING THIS PRODUCT. IF YOU HAVE
ORDERED THIS PRODUCT, THE COMPANY'S ACCEPTANCE IS EXPRESSLY CONDITIONAL ON YOUR
ASSENT TO THESE TERMS TO THE EXCLUSION OF ALL OTHER TERMS; IF THESE TERMS ARE
CONSIDERED AN OFFER BY THE COMPANY, ACCEPTANCE IS EXPRESSLY LIMITED TO THESE
TERMS.
1. GRANT OF LICENSE. Subject to the terms of this Software License
----------------
Agreement (the "Agreement"), Foundry Networks ("Company") grants you
("Licensee"), a nonsublicensable, non-exclusive right ("License") to use the
SOFTWARE only in accordance with and on the hardware specified in the applicable
user documentation provided by the Company. Licensee has no right to receive any
source code or design documentation relating to the SOFTWARE. Company retains
ownership of all SOFTWARE copies. "SOFTWARE" means, collectively, the version of
the Company software program enclosed in the sealed envelope, in object code
format, together with documentation provided to Licensee by Company.
2. RESTRICTIONS. Except as reasonably required to use the SOFTWARE
------------
strictly in accordance with the License and this Agreement, except for one copy
solely for back-up purposes, Licensee may not copy any SOFTWARE. License must
reproduce and include the copyright notice and any other notices that appear on
the original SOFTWARE on any copies and any medial therefor. Licensee shall not
(and shall not allow any third party to) (I) decompile, disassemble, or
otherwise reverse engineer or attempt to reconstruct or discover any source code
or underlying ideas or algorithms or file formats or programming or
interoperability interfaces of the SOFTWARE or any files contained or generated
using the SOFTWARE by any means whatsoever (such prohibition is for protection
of Licensee's trade secrets and confidential information), (II) remove any
product identification, copyright or other notices, (III) provide, lease, lend,
use for timesharing or service bureau purposes or otherwise use or allow others
to use the SOFTWARE to or for the benefit of third parties or (IV) modify,
incorporate into or with other software or create a derivative work of any part
of the SOFTWARE.
3. TERMINATION. The License is effective until terminated. The License
-----------
will terminate automatically if Licensee fails to cure any material breach of
this Agreement within thirty (30) days after such breach first occurs (or
immediately in the case of a breach of Section 2). Upon termination, License
shall immediately cease all use of the SOFTWARE and return or destroy all copies
of the SOFTWARE and all portions thereof and so certify to Company. Except for
the License and except as otherwise expressly provided herein, the terms of the
Agreement shall survive termination.
4. WARRANTY DISCLAIMER. THE SOFTWARE IS PROVIDED "AS IS" WITHOUT WARRANTY
-------------------
OF ANY KIND INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. FURTHER, COMPANY DOES NOT
WARRANT, GUARANTEE OR MAKE ANY REPRESENTATIONS REGARDING THE USE, OR THE RESULTS
OF THE USE, OF THE SOFTWARE OR WRITTEN MATERIALS IN TERMS OF CORRECTNESS,
ACCURACY, RELIABILITY, OR OTHERWISE.
5. LIMITATION OR REMEDIES AND DAMAGES. COMPANY SHALL NOT BE RESPONSIBLE
----------------------------------
OR LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS SOFTWARE LICENSE AGREEMENT
OR ANY ATTACHMENT, PRODUCT ORDER, SCHEDULE OR TERMS AND CONDITIONS RELATED
THERETO UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY: (A)
FOR LOSS OR INACCURACY OF DATA OR (EXCEPT FOR RETURN OR AMOUNTS PAID TO COMPANY
THEREFOR) COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY, (b)
FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED
TO LOSS OF PROFITS, OR (C) FOR ANY MATTER BEYOND ITS REASONABLE CONTROL .
6. GOVERNMENT MATTERS. The SOFTWARE has been developed at private expense
------------------
is commercially available at published prices, software supplied to the
Department of Defense ("DOD"), is classified as "Commercial Software," and the
United States Government acquires on " restricted right" in SOFTWARE, as such
right are defined in clause 252.227-7013 (c) (1Kii) of the DFARS (or any
successor regulations). The United States Government acquires only "restricted
rights" in such SOFTWARE, on the SOFTWARE and documentation, the following
notice is to be and will be deemed to be affixed: Copyright (C) 1997 Foundry
Networks, Inc. All rights reserved. The SOFTWARE is licensed only in object code
from pursuant to a license agreement that contains use, reverse engineering and
other restrictions; accordingly, it is "Unpublished -rights reserved under the
copyright laws of the United States" for purposes of the FARs. RESTRICTED RIGHTS
LEGEND: Use, duplication, or disclosure by the Government is subject to the
restrictions as set forth in subparagraph (c)(1)(ii) of the Rights of Technical
Data and Computer SOFTWARE clause of the DFARS 252.227-7013 and FAR 52.227-19
(c) and any successor rules and regulations.
7. MISCELLANEOUS. Neither the License nor the Agreement are assignable or
-------------
transferable by Licensee without the prior written consent of Company; any
attempt to do so shall be void. Any notice, report, approval or consent required
or permitted hereunder shall be in writing. If any provision of this Agreement
shall be adjudged by any court of competent jurisdiction to be unenforceable or
invalid, that provision shall be limited or eliminated to the minimum extent
necessary so this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be construed pursuant to the laws of the State
of California and the United States without regard to conflicts of laws
provisions thereof. The prevailing party in any action to enforce this Agreement
shall be entitled to recover costs and expenses including, without limitation,
attorney's fees. The parties agree that a material breach of this Agreement to
License would cause irreparable injury to Company for which monetary damages
would be an adequate remedy and that the Company shall be entitled to equitable
relief in addition to any remedies if may have hereunder or at law. Any waivers
or amendments shall be effective only if made in writing by non-preprinted
agreement clearly understood by both parties to be an amendment or waiver and
signed by a representative of the respective parties authorized to bind the
parties. Both parties agree that this Agreement is the complete and exclusive
statement of mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communciations relating to the subject
matter of this Agreement.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE>
CONFIDENTIAL
EXHIBIT F
Product Literature and Sales Materials
- --------------------------------------
Foundry agrees to provide [ * ] sets of Product literature and sales materials
per product at no charge. Any quantities beyond the initial [ * ] sets will be
billed at cost plus shipping charges.
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
Exhibit 10.7
STARRIDGE NETWORKS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") is made as of June 6,
1996 by and between StarRidge Networks, Inc., a Delaware corporation (the
"Company"), and Bobby R. Johnson, Jr. (the "Purchaser").
1. Sale of Stock.
-------------
Subject to the terms and conditions of this Agreement, on the date
hereof the Company will issue and sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, 7,850,000 shares of the Company's Common
Stock (the "Shares") in consideration of (i) the assignment to the Company of
certain proprietary information and business concepts relating to the proposed
business of the Company as set forth on the form attached as Exhibit A and (ii)
cancellation of indebtedness of the Company to Purchaser. The Company and the
Purchaser hereby acknowledge that the aggregate fair market value of such
consideration equals $78,500.00 or $0.01 per share of Common Stock. The term
"Shares" refers to the purchased Shares and all securities received in
replacement of Shares or as stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which the Purchaser is entitled by reason of Purchaser's ownership
of the Shares.
2. Closing.
-------
(a) The closing of the purchase and sale of the Shares under this
Agreement (the "Closing") shall be held at the offices of Venture Law Group, A
Professional Corporation, 2800 Sand Hill Road, Menlo Park, California
simultaneously with the execution of this Agreement by the parties or on such
other date as the Company and the Purchaser may agree (the "Closing Date"). At
the Closing, the Company will deliver to the Purchaser a certificate
representing the Shares to be purchased by the Purchaser (which shall be issued
in the Purchaser's name) against payment of the purchase price therefor.
(b) Purchaser shall deliver to the Secretary of the Company, or his
or her designee (hereinafter referred to as the "Pledge Holder"), all
certificates representing the Shares, together with (i) an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit B executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, for
use in transferring all or a portion of said Shares to the Company if, as and
when required under this Section 2(b) or under any other provision of this
Agreement including, without limitation, Section 3. In addition, Purchaser's
spouse, if any, shall execute and deliver to the Company the Consent of Spouse
attached to this Agreement as Exhibit C.
<PAGE>
3. Limitations on Transfer.
-----------------------
In addition to any other limitation on transfer created by applicable
securities laws, the Purchaser shall not assign, encumber or dispose of any
interest in the Shares while the Shares are subject to the Company's repurchase
option, except as provided in Section 3(i) below. After any Shares have been
released from such repurchase option, the Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with this Section
3 and applicable securities laws:
(a) Repurchase Option. In the event of (i) the voluntary termination
-----------------
of Purchaser's employment or consulting relationship with the Company, other
than a Constructive Termination (as defined below) or (ii) the termination of
Purchaser's employment relationship with the Company "for Cause" (as defined
below), the Company shall upon the date of such termination have an irrevocable,
exclusive option for a period of sixty (60) days from such date to repurchase
all or any portion of the Shares held by the Purchaser as of such date which
have not yet been released from the Company's repurchase option, at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like). The option shall be exercised by the Company by
written notice to the Purchaser or the Purchaser's executor and, at the
Company's option, (i) by delivery to the Purchaser or the Purchaser's executor
with such Notice of a check in the amount of the purchase price for the Shares
being purchased, or (ii) in the event the Purchaser is indebted to the Company,
by cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (iii) by a combination of
(i) and (ii) so that the combined payment and cancellation of indebtedness
equals such purchase price. Upon delivery of such notice and payment of the
purchase price in any of the ways described above, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interest therein or related thereto, and the Company shall have the right to
transfer to its own name the number of Shares being repurchased by the Company,
without further action by the Purchaser. One hundred percent (100%) of the
Shares purchased by the Purchaser (the "Unvested Shares") shall initially be
subject to the Company's repurchase option as set forth above. Thereafter, the
Unvested Shares held by the Purchaser shall be released from the Company's
repurchase option under this Section 3(a) as follows (provided in each case that
the Purchaser's employment or consulting relationship with the Company has not
been terminated prior to the date of any such release): twenty-five (25%) of the
Unvested Shares shall be released from the Company's repurchase option
immediately upon the start of the Vesting Commencement Date (as set forth on the
signature page of this Agreement) and then the balance of Unvested Shares shall
be released from the Company's repurchase option in equal successive monthly
installments upon the completion of each of the next forty-eight (48) months
thereafter, until all Shares are released from the Company's repurchase option;
provided, however, that in the event of a sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, and if and only if the shareholders of the Company immediately
prior to such sale or merger do not own a majority of the outstanding voting
securities of the acquiring or surviving company, then all of the then Unvested
Shares held by Purchaser shall be released from the repurchase option.
Fractional shares shall be rounded to the nearest whole share. Upon the
expiration or exercise of the Company's repurchase option described in this
Section 3(a), a new certificate or certificates representing the Shares not
-2-
<PAGE>
repurchased shall be issued, on request, without the legend referred to in
Section 6(b) of this Agreement and delivered to the Purchaser.
(1) For purposes of this Section 3(a), termination "for Cause" shall
mean (i) the willful failure by Purchaser substantially to perform his material
duties after a written demand for substantial performance is delivered to
Purchaser by the Board of Directors which specifically identifies the manner in
which the Board of Directors believes that Purchaser has not substantially
performed his material duties (including without limitation the failure by
Purchaser to follow any reasonable specific directive established by a majority
of the disinterested members of the Company's Board of Directors and of which
Purchaser is given notice), which failure to perform continues for 30 days after
such written notice (or, if longer than 30 days is reasonably required to cure,
where such failure to perform continues beyond the end of the period reasonably
required to cure, provided that such extension of the cure period beyond 30 days
will apply only if Purchaser diligently seeks to cure during such extension
period and further provided that in no event shall the total period to cure
exceed 60 days); (ii) bad faith conduct related to the Company or the
performance of Purchaser's material duties for the Company; or (iii) the
conviction of Purchaser of any crime involving the property or business of the
Company or its affiliates.
(2) For purposes of this Section 3(a), "Constructive Termination"
shall be deemed to occur in the event of (i) a material reduction in base salary
(other than a reduction applicable to all officers), (ii) a material change in
responsibility or authority, (iii) any change in job location outside the San
Francisco Bay Area without Purchaser's consent, (iv) permanent disability,
expected to last longer than 180 days, as certified by a medical professional,
(v) any change in title, or (vi) the Company's breach of any of its material
obligations to Purchaser, including any failure to pay amounts due or provide
benefits to which Purchaser is entitled hereunder or under Company policy.
(b) Right of First Refusal. In the event, at any time after the date of
----------------------
this Agreement, Purchaser or his transferee desires to sell or transfer in any
manner the Shares, he shall first offer such Shares for sale to the Company at
the same price, and upon the same terms (or terms as similar as reasonably
possible) upon which he is proposing to dispose of such Shares. Said right of
first refusal shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by Purchaser of the terms and
conditions of said proposed sale or transfer and the name, address and phone
number of each proposed buyer or transferee. If the Company desires to exercise
such right of first refusal, it shall notify Purchaser in writing within such
thirty day period. In the event the Shares are not disposed of on such terms
within thirty (30) days following the lapse of the period of the right of first
refusal provided to the Company, or if Purchaser proposes to change the price or
other terms to make such terms more favorable to the buyer, the Shares shall
once again be subject to the right of first refusal herein provided.
(c) Restrictions Binding on Transferees. All transferees of Shares or any
-----------------------------------
interest therein will receive and hold such Shares or interest subject to the
provisions of this Agreement, including, insofar as applicable, the Company's
option to repurchase under Section 3.
-3-
<PAGE>
Any sale or transfer of the Company's Shares shall be void unless the provisions
of this Agreement are met.
(d) Involuntary Transfer. In the event, at any time after the date of
--------------------
this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or divorce) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred. Upon such a transfer, the person acquiring the Shares shall
promptly notify the Secretary of the Company of such transfer. The right to
purchase such Shares shall be provided to the Company for a period of thirty
(30) days following receipt by the Company of written notice by the person
acquiring the Shares.
(e) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(d), the price per Share shall be a price set
in good faith by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify the Purchaser or the Purchaser's executor
of the price so determined within thirty (30) days after receipt by it of
written notice of the transfer or proposed transfer of Shares. The decision of
the Board of Directors as to the purchase price shall be final.
(f) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(g) Public Offering Lockup. The Purchaser and the Purchaser's
----------------------
transferees will not, without the prior written consent of the Company, offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
any of the Shares for a period of one hundred eighty (180) days following the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), in connection with the Company's initial public
offering of securities.
(h) Termination of Refusal Right. The right of first refusal granted
----------------------------
the Company by Section 3(b) and the rights with respect to involuntary transfers
set forth in Section 3(d) above shall terminate at such time as a public market
exists for the Company's capital stock (or any other stock issued to purchasers
in exchange for the Shares purchased under this Agreement). For the purpose of
this Agreement, a "public market" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Securities
Exchange Act of 1934) or (ii) such stock is traded on the over-the-counter
market and prices are published daily on business days in a recognized financial
journal.
Subject to Section 3(a) above, upon termination of the right of first
refusal imposed by this Agreement, a new certificate or certificates
representing the Shares not repurchased shall be issued, on request, without the
legend referred to in Section 6(b) hereof and delivered to Purchaser.
-4-
<PAGE>
(i) Exempt Transfers. The restrictions on transfer of this Section 3
----------------
shall not apply to a transfer to the Purchaser's ancestors or descendants or
spouse or to a trustee for their benefit, provided that such transferees shall
agree in writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
4. Escrow.
------
For purposes of facilitating the enforcement of the provisions of
Section 3 above, the Purchaser agrees, immediately upon receipt of the
certificate(s) for the Purchaser's Shares, to deliver such certificate(s)
representing the Unvested Shares with a stock power executed by the Purchaser
and by the Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company or its designee, to hold said certificate(s) and stock
power(s) in escrow and to take all such actions and to effectuate all such
transfers and/or releases as are in accordance with the terms of this Agreement.
The Purchaser hereby acknowledges that the Secretary of the Company (or its
designee) is so appointed as the escrow holder with the foregoing authorities as
a material inducement to make this Agreement and that said appointment is
coupled with an interest and is accordingly irrevocable. The Purchaser agrees
that said escrow holder shall not be liable to any party hereof (or to any other
party) for any actions or omissions unless such escrow holder is grossly
negligent relative thereto. The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine and may
resign at any time. The Secretary of the Company shall act as the escrow holder
with respect to such Shares.
5. Investment Representations.
--------------------------
In connection with the purchase of the Shares, the Purchaser
represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Purchaser is
purchasing these securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the securities. Purchaser understands that the certificate(s)
evidencing the securities will be imprinted with a legend which prohibits the
transfer of the securities unless they are registered or such registration is
not required in the opinion of counsel for the Company.
-5-
<PAGE>
(d) Purchaser is aware of the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain of the conditions specified by
Rule 144, including, among other things: (1) the sale being made through a
broker in an unsolicited "brokers transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable. PURCHASER UNDERSTANDS THAT PAYMENT BY NOTE IS NOT DEEMED TO BE
FULL PAYMENT UNDER RULE 144 UNLESS IT IS SECURED BY ASSETS OTHER THAN THE
SHARES.
In the event that the Company does not qualify under Rule 701, then
the securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires among other things: (1) the resale
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, (2) the availability of certain public information about the
Company, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as such term is
defined under the Securities Exchange Act of 1934), and (4) the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser further understands that at the time Purchaser wishes to
sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the securities under Rule
144 even if the two-year minimum holding period had been satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 and Rule 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A or some other
registration exemption will be required; and that, notwithstanding the fact that
Rule 701 and Rule 144 are not exclusive, the staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 701 and Rule 144 will have a substantial burden of proof
establishing that an exemption from registration is available for such offers or
sales and that such persons and their respective brokers who participate in such
transactions do so at their own risk.
6. Legends.
-------
The certificate or certificates representing the Shares shall bear the
following legends:
-6-
<PAGE>
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
(c) Any legend required to be placed thereon by the California
Commissioner of Corporations.
7. Section 83 (b) Election.
-----------------------
The Purchaser understands that Section 83(a) of the Internal Revenue
Code of 1986, as amended (the "Code") taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the repurchase option set forth in paragraph 3(a) of this Agreement. The
Purchaser understands that the Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the repurchase option expires, by
filing an election under Section 83(b) of the Code with the Internal Revenue
Service within 30 days from the date of purchase. Even if the fair market value
of the Shares at the time of the execution of this Agreement equals the amount
paid for the Shares, the election must be made to avoid tax treatment under
Section 83(a) in the future. The form for making the Purchaser's election is
attached to this Agreement. The Purchaser understands that the failure to file
such an election in a timely manner may result in adverse tax consequences for
the Purchaser. The Purchaser further understands that an additional copy of such
election form should be filed with Purchaser's federal income tax return for the
calendar year in which the date of this Agreement falls.
-7-
<PAGE>
8. Rule 701.
--------
Purchaser and the Company hereby agree and acknowledge that the
issuance of the Shares hereby is in connection with a compensatory benefit plan
for the employees, directors, officers, advisers or consultants of the Company
and is intended to comply with the provisions of Rule 701 promulgated by the
Securities and Exchange Commission under the Securities Act.
9. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (x) such
provision shall be excluded from this Agreement, (y) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (z) the
balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or five (5) days after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to the Purchaser, at the Purchaser's address as
then shown on the stock records of the Company.
(f) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-8-
<PAGE>
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
(i) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of the Purchaser under this Agreement
may only be assigned with the prior written consent of the Company.
* * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
STARRIDGE NETWORKS, INC.
By:______________________________
Title:___________________________
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION
3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT
THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING
IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO
CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR
WITHOUT CAUSE.
/s/ Bobby R. Johnson, Jr.
Vesting Commencement __________________________
Date: May 22, 1996 Bobby R. Johnson, Jr.
-10-
<PAGE>
EXHIBIT A
---------
INSTRUMENT OF ASSIGNMENT
------------------------
KNOW BY THESE PRESENTS THAT:
Bobby R. Johnson, Jr. ("Founder"), FOR GOOD AND VALUABLE CONSIDERATION, the
receipt and sufficiency of which is hereby acknowledged, does hereby grant,
bargain, sell, convey, transfer, assign, set over and deliver unto StarRidge
Networks, Inc., a Delaware corporation (the "Company"), its successors and
assigns, all of the proprietary information and business concepts described on
Schedule I attached hereto (the "Technology"), as now existing.
- ----------
TO HAVE AND TO HOLD, all and singular, of the properties, assets and rights
granted and transferred hereby, with the appurtenances thereof, unto the
Company, its successors and assigns forever, to and their own use and benefit.
For the consideration aforesaid, Founder hereby constitutes and appoints
the Company, its successors and assigns, the true and lawful attorney or
attorneys of Founder, with full power of substitution, for Founder and in its
name and stead, or otherwise, but on behalf and for the benefit of the Company,
its successors and assigns, to demand and receive from time to time, any and all
properties hereby given, granted, bargained, sold, assigned, transferred,
conveyed, set over, confirmed and delivered and give receipts and releases for
and in respect to the same and any part thereof, and from time to time to
institute and prosecute in the name of Founder or otherwise, but for the benefit
of the Company, its successors and assigns, any and all proceedings at law, in
equity or otherwise, which the Company, its successors or assigns, making proper
in order to collect, assert or enforce any claim, right or title of any kind in
and to the properties hereby given, granted, bargained, sold, assigned,
transferred, set over, confirmed, delivered or conveyed, and to defend or
compromise any or all actions, suits or proceedings in respect of any of said
properties and do all such acts and things in relation thereto as the Company,
its successors and assigns, shall deem advisable, Founder hereby declaring that
the appointment made and the powers hereby granted are coupled with an interest
and shall be irrevocable by Founder in any manner and for any reason.
Founder for himself and his successors and assigns, does hereby covenant
with the Company, its successors and assigns, that Founder and his successors
and assigns will do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered all such further acts, deeds, bills of
sale, transfers, assignments, conveyances, powers of attorney, conveying and
confirming unto the Company, its successors and assigns, all and singular, the
properties hereby granted, sold, assigned, transferred, conveyed and delivered
as the Company, its successors or assigns, shall reasonably require, provided,
however, that the Company, its successors and assigns shall prepare all
necessary documentation.
This Assignment is executed and delivered in, and shall be construed and
enforced in accordance with the domestic laws of the State of California, and
shall be binding upon and shall inure to the benefit of the respective
successors and assigns of the parties hereto.
-11-
<PAGE>
IN WITNESS WHEREOF, Bobby R. Johnson, Jr. has signed this instrument in his
name to be effective as of the 6th day of June, 1996.
BOBBY R. JOHNSON, JR.
/s/ Bobby R. Johnson, Jr.
__________________________
(Signature)
-12-
<PAGE>
SCHEDULE I
----------
TECHNOLOGY
----------
"Certain business concepts and proprietary information relating to the
development of next generation high performance campus lan infrastructure
products."
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________ ( ) shares of the Common Stock of StarRidge
Networks, Inc. standing in its name on the books of said corporation represented
by Certificate No. ___ herewith and does hereby irrevocably constitute and
appoint __________________ to transfer said stock on the books of the within-
named corporation with full power of substitution in the premises.
Dated:________________.
/s/ Bobby R. Johnson, Jr.
_____________________________
Bobby R. Johnson, Jr.
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Common Stock Purchase Agreement between the above assignor and
StarRidge Networks, Inc. on June ___, 1996.
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>
EXHIBIT C
---------
CONSENT OF SPOUSE
-----------------
I, Donna V. Johnson, spouse of Bobby R. Johnson, Jr., have read and
hereby approve the foregoing Common Stock Purchase Agreement (the "Agreement").
---------
In consideration of the Company's granting my spouse the right to purchase the
Shares as set forth in the Agreement, I hereby agree to be irrevocably bound by
the Agreement and further agree that any community property or other interest I
may have in the Shares shall be subject to the Agreement. I hereby appoint my
spouse as my attorney-in-fact with respect to any amendment to or exercise of
any rights I may have under the Agreement.
/s/ Donna V. Johnson
__________________________________
Name: Donna V. Johnson
_____________________________
<PAGE>
Exhibit 10.8
PROMISSORY NOTE
---------------
$54,000 Sunnyvale, California
June 25, 1997
For value received, the undersigned promises to pay Foundry Networks, Inc.,
a Delaware corporation (the "Company"), at its principal office the principal
-------
sum of $54,000 together with accrued and unpaid interest from the date hereof at
a rate of 6.68% per annum, compounded quarterly. Interest shall be due and
payable on a quarterly basis measured from June 25, 1997 with the principal sum
due and payable on the earlier of (i) June 25, 1997 or (ii) twelve (12) months
after the closing of the Company's initial public offering.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
/s/ Drusilla Demopoulos
___________________________
Drusilla Demopoulos
<PAGE>
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
25th day of June, 1997 by and between Foundry Networks, Inc., a Delaware
corporation (the "Company") and Drusilla Demopoulos ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
------
Agreement dated June 25, 1997 between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares or the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as an when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect than, or at any time thereafter, to exercise all
rights available to a secured party under the California commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay
all reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to
satisfy any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
6. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
FOUNDRY NETWORKS, INC.
By: /s/ Bobby R. Johnson, Jr.
__________________________________________
Name: Bobby R. Johnson, Jr.
________________________________________
(print)
Title: President and CEO
_______________________________________
PURCHASER:
/s/ Drusilla Demopoulos
_____________________________________________
(Signature)
Drusilla Demopoulos
_____________________________________________
(Print Name)
Address: 491 Redwood Ave.
_____________________________________
Corte Madera, CA 94925
_____________________________________
/s/ Steven Demopoulos
_____________________________________________
Spouse of Purchaser
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Foundry Networks, Inc.,
--------
dated _____________, (the "Agreement"), Purchaser hereby sells, assigns and
---------
transfers unto _______________________________ (________) shares of the Common
Stock of Foundry Networks, Inc., standing in Purchaser's name on the books of
said corporation represented by Certificate No. ___ herewith and hereby
irrevocably appoints _____________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
/s/ Drusilla Demopoulos
_____________________________________________
Drusilla Demopoulos
/s/ Steven Demopoulos
_____________________________________________
Spouse of Drusilla Demopoulos (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
Exhibit 10.9
PROMISSORY NOTE
---------------
$9,600 Sunnyvale, California
April 29, 1998
For value received, the undersigned promises to pay Foundry Networks, Inc.,
a Delaware corporation (the "Company"), at its principal office the principal
-------
sum of $9,600 together with accrued and unpaid interest from the date hereof at
a rate of 5.58% per annum, compounded quarterly. Interest shall be due and
payable on a quarterly basis measured from April 29, 1998 with the principal sum
due and payable on the earlier of (i) April 28, 2003 or (ii) twelve (12) months
after the closing of the Company's initial public offering.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
/s/ Drusilla Demopoulos
___________________________________________
Drusilla Demopoulos
<PAGE>
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
29th day of April, 1998 by and between Foundry Networks, Inc., a Delaware
corporation (the "Company") and Drusilla Demopoulos ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
------
Agreement dated April 29, 1998 between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares or the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as an when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the securities
laws affecting sale of the Shares make a public sale of the Shares commercially
unreasonable. The parties further agree that the repurchasing of such Shares by
the Company, or by any person to whom the Company may have assigned its rights
under this Agreement, is commercially reasonable if made at a price determined
by the Board of Directors in its discretion, fairly exercised, representing what
would be the fair market value of the Shares reduced by any limitation on
transferability, whether due to the size of the block of shares or the
restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect than, or at any time thereafter, to exercise all
rights available to a secured party under the California commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
6. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
FOUNDRY NETWORKS, INC.
By: /s/ Bobby R. Johnson, Jr.
_______________________________________
Name: Bobby R. Johnson, Jr.
_____________________________________
(print)
Title: President and CEO
____________________________________
PURCHASER:
/s/ Drusilla Demopoulos
___________________________________________
(Signature)
Drusilla Demopoulos
___________________________________________
(Print Name)
Address: 491 Redwood Ave.
__________________________________
Corte Madera, CA 94925
__________________________________
Steven Demopoulos
___________________________________________
Spouse of Purchaser
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Foundry Networks, Inc.,
---------
dated _____________, (the "Agreement"), Purchaser hereby sells, assigns and
---------
transfers unto _______________________________ (________) shares of the Common
Stock of Foundry Networks, Inc., standing in Purchaser's name on the books of
said corporation represented by Certificate No. ___ herewith and hereby
irrevocably appoints _____________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
/s/ Drusilla Demopoulos
___________________________________________
Drusilla Demopoulos
/s/ Steven Demopoulos
___________________________________________
Spouse of Drusilla Demopoulos (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
Exhibit 10.10
PROMISSORY NOTE
---------------
$207,458.50 Sunnyvale, California
October 6, 1998
For value received, the undersigned promises to pay Foundry Networks, Inc.,
a Delaware corporation (the "Company"), at its principal office the principal
-------
sum of $207,458.50 together with accrued and unpaid interest from the date
hereof at a rate of 5.03% per annum, compounded quarterly. Interest shall be
due and payable on a quarterly basis measured from October 6, 1998 with the
principal sum due and payable on the earlier of (i) October 5, 2003 or (ii)
twelve (12) months after the closing of the Company's initial public offering.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
/s/ Ken Cheng
____________________________________________
Ken Cheng
<PAGE>
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
6th day of October, 1998 by and between Foundry Networks, Inc., a Delaware
corporation (the "Company") and Ken Cheng ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
------
Agreement dated October 6, 1998 between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "Note") in full or
----
partial payment of the exercise price for the Shares. The company requires that
the Note be secured by a pledge of the Shares or the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as an when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding period set forth in Rule 144(d) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
--------------
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the securities
laws affecting sale of the Shares make a public sale of the Shares commercially
unreasonable. The parties further agree that the repurchasing of such Shares by
the Company, or by any person to whom the Company may have assigned its rights
under this Agreement, is commercially reasonable if made at a price determined
by the Board of Directors in its discretion, fairly exercised, representing what
would be the fair market value of the Shares reduced by any limitation on
transferability, whether due to the size of the block of shares or the
restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect than, or at any time thereafter, to exercise all
rights available to a secured party under the California commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
6. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
FOUNDRY NETWORKS, INC.
By: /s/ Timothy D. Heffner
_____________________________________________
Name: Timothy D. Heffner
___________________________________________
(print)
Title: CFO
__________________________________________
PURCHASER:
/s/ Ken Cheng
_________________________________________________
(Signature)
Ken Cheng
_________________________________________________
(Print Name)
Address: 13891 River Ranch Cir.
________________________________________
Saratoga, CA 95070
________________________________________
/s/ Marisa Cheng
_________________________________________________
Spouse of Purchaser
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Foundry Networks, Inc.,
---------
dated _____________, (the "Agreement"), Purchaser hereby sells, assigns and
---------
transfers unto _______________________________ (________) shares of the Common
Stock of Foundry Networks, Inc., standing in Purchaser's name on the books of
said corporation represented by Certificate No. ___ herewith and hereby
irrevocably appoints _____________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
/s/ Ken Cheng
_________________________________________________
Ken Cheng
/s/ Marisa Cheng
_________________________________________________
Spouse of Ken Cheng (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
[LOGO OF CB COMMERCIAL REAL ESTATE GROUP, INC. APPEARS HERE]
EXHIBIT 10.11
December 3. 1996
Mr. Bobby Johnson
StarRidge Networks, Inc.
680 West Maude Avenue
Sunnyvale, CA 94086
RE: Lease Commencement Date
Dear Mr. Johnson:
This letter is to establish your lease commencement and expiration dates upon
the completion of your tenant improvements.
Based on my walk through of your suite on Friday, November 15, 1996, the tenant
improvement s are substantially complete as of Monday, November 18, 1996.
Therefore your lease will commence on November 18, 1996 and expire November 17,
2001. We received your first month's rent and security deposit. The first
month's rent will be prorated and will appear on your next month's rent
statement. You will begin receiving monthly rent statements from our accounting
department.
I would appreciate it if you would please sign below indicating your acceptance
of the lease commencement and expiration dates and return one copy of this
letter to my attention.
We hope you are pleased with your improvements and look forward to your
occupancy at 680 West Maude Avenue.
Sincerely, Accepted by:
CB Commercial StarRidge Networks, Inc.
Real Estate Group, Inc.
/s/ Gail M. Curry /s/ Bobby Johnson*
---------------------------------
Gail M. Curry, RPA Bobby Johnson, President & CEO
Senior Real Estate Manager
(except as noted on
the attached list)
cc: Rock D'Errico
Todd Robeinette
Sarah Maclntyre
[STAMP APPEARS HERE]
<PAGE>
Attachment to Acceptance Letter
List of Exceptions
Warehouse
. Ceiling insulation between joists is hanging
. Needs VCT where power transformer was located
. None of the electrical outlets in area where raised floor computer
room was located have power
Conference Room
. One light is still not working, probably a ballast. We have never used
this room.
Ladies Rest Room
. Brackets affixing metal stall dividers to wall are bent and pulling
out of the wall
. Fan in shower is noisy
. Shower head leaks badly and clamp holding shower head cannot be
tightened
Men's Rest Room
. Both toilet seats are broken (we replaced already)
. One soap bottle is missing (we replaced already)
. Faucets are old and banged up
Lunch Room
. Closet in lunch room is locked and we have no key
Small Coffee Bar
. Faucet is leaking (we replaced already)
Monument Sign in Front of Building
. StarRidge Networks, Inc. needs to replace Weathernews
Parking Spaces in Front of Building
. We were to have eight parking spaces marked for our guests (we are not
currently using the front entry way but intend to use the front as our
primary entrance sometime in the near future)
Heating Controls
. We need someone to come out and explain the heating and cooling
controls
<PAGE>
INDUSTRIAL SPACE LEASE
(NET)
FOR
680 W. MAUDE AVENUE
SUNNYVALE, CALIFORNIA
DATED: OCTOBER 16, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - BASIC TERMS................................................ 1
Section 1.1 A. Address of Landlord.................................. 1
B. Address of Tenant.................................... 1
C. Land................................................. 1
D. Building............................................. 1
E. Premises............................................. 1
F. Project.............................................. 1
G. Lease Term........................................... 1
H. Rent................................................. 1
I. Base Rent............................................ 2
J. Additional Rent...................................... 2
K. Security Deposit..................................... 2
L. Tenant' s Proportionate Share........................ 2
M. Permitted Use(s)..................................... 2
N. Broker(s)............................................ 2
Section 1.2 Effect of Reference to Basic Terms........................ 2
ARTICLE II - GRANT AND TERM............................................ 2
Section 2.1 Premises.................................................. 2
Section 2.2 Lease Term................................................ 3
Section 2.3 Possession................................................ 3
ARTICLE III - RENT..................................................... 3
Section 3.1 Base Rent................................................. 3
Section 3.2 Real Estate Taxes......................................... 4
Section 3.3 Heating, Ventilation and Air Conditioning
Maintenance............................................... 5
Section 3.4 Insurance................................................. 5
Section 3.5 Common Areas.............................................. 6
Section 3.6 Common Area Expenses...................................... 6
Section 3.7 Late Payment.............................................. 8
Section 3.8 No Decrease in Base Rent.................................. 8
Section 3.9 Payment of Rent........................................... 9
ARTICLE IV - USE....................................................... 9
Section 4.1 Use....................................................... 9
Section 4.2 Prohibition of Use........................................ 9
Section 4.3 Abatement of Rent When Tenant is Prevented
From Using Premises..................................... 9
Section 4.4 Right to Terminate........................................ 10
ARTICLE V - LAWS AND ORDINANCES........................................ 11
Section 5.1 Tenant's Compliance with Laws and Ordinances.............. 11
Section 5.2 Tenant's Right to Contest................................. 11
Section 5.3 Licenses and Permits...................................... 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI - UTILITIES AND SERVICES.................................... 12
ARTICLE VII - QUIET ENJOYMENT........................................... 12
ARTICLE VIII - ASSIGNMENT AND SUBLETTING................................. 12
Section 8.1 Prohibitions................................................ 12
Section 8.2 Recapture................................................... 13
Section 8.3 Consent to Sublease......................................... 14
Section 8.4 Profits..................................................... 15
Section 8.5 No Release.................................................. 16
Section 8.6 Costs....................................................... 16
ARTICLE IX - DAMAGE OR DESTRUCTION..................................... 16
ARTICLE X - LANDLORD'S RIGHTS......................................... 17
ARTICLE XI - HOLDING OVER.............................................. 18
ARTICLE XII - SIGNS AND ADVERTISEMENTS.................................. 18
ARTICLE XIII - MORTGAGE AND TRANSFER..................................... 18
ARTICLE XIV - EMINENT DOMAIN............................................ 19
ARTICLE XV - COMPLETION AND ACCEPTANCE OF PREMISES..................... 19
ARTICLE XVI - MAINTENANCE AND REPAIR.................................... 20
Section 16.1 Tenant's Obligations........................................ 20
Section 16.2 Landlord's Obligations...................................... 20
ARTICLE XVII - ALTERATIONS AND ADDITIONS, MECHANICS' LIENS............... 21
Section 17.1 Alterations and Additions................................... 21
Section 17.2 Mechanics' Liens............................................ 21
ARTICLE XVIII- INSURANCE................................................. 22
Section 18.1 Public Liability and Property Damage Insurance.............. 22
Section 18.2 Fire and Extended Coverage Insurance........................ 22
Section 18.3 Indemnification of Landlord................................. 22
Section 18.4 Waiver of Subrogation....................................... 23
ARTICLE XIX - USE OF COMMON AREAS BY TENANT............................. 23
ARTICLE XX - DEFAULT AND REMEDIES...................................... 23
Section 20.1 Defaults.................................................... 23
Section 20.2 Termination................................................. 24
Section 20.3 No Termination.............................................. 25
Section 20.4 Non-Waiver.................................................. 25
Section 20.5 Tenant Cure Period.......................................... 25
Section 20.6 Rights and Remedies Cumulative.............................. 26
Section 20.7 Rights of Mortgagee......................................... 26
Section 20.8 Curing Tenant's Defaults.................................... 26
Section 20.9 Attorneys' Fees............................................. 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 20.10 Waiver of Jury Trial...................................... 27
ARTICLE XXI - DEFINITION OF LANDLORD.................................. 27
ARTICLE XXII - NOTICES................................................. 27
ARTICLE XXIII - SECURITY DEPOSIT........................................ 28
ARTICLE XXIV - SUBORDINATION OR SUPERIORITY............................ 29
ARTICLE XXV - TENANT'S CERTIFICATE.................................... 30
ARTICLE XXVI - MISCELLANEOUS........................................... 30
Section 26.1 Binding Effect............................................ 30
Section 26.2 Exhibits.................................................. 30
Section 26.3 Entire Agreement.......................................... 30
Section 26.4 Signing................................................... 31
Section 26.5 No Accord................................................. 31
Section 26.6 Broker.................................................... 31
Section 26.7 Force Majeure............................................. 32
Section 26.8 No Waiver................................................. 32
Section 26.9 Captions.................................................. 32
Section 26.10 Applicable Law............................................ 32
Section 26.11 Time...................................................... 32
Section 26.12 Recording................................................. 32
Section 26.13 Severability.............................................. 32
Section 26.14 No Light and Air Easement................................. 33
Section 26.15 Joint and Several Liability............................... 33
Section 26.16 No Construction Against Preparer of Lease................. 33
Section 26.17 Relocation................................................ 33
ARTICLE XXVII - ENVIRONMENTAL PROTECTION................................ 33
Section 27.1 Hazardous Substances...................................... 33
Section 27.2 Environmental Prohibitions................................ 33
Section 27.3 Environmental Compliance.................................. 33
Section 27.4 Environmental Indemnity................................... 34
Section 27.5 Landlord's Disclosure..................................... 34
Section 27.6 Landlord's Environmental Indemnity........................ 35
Section 27.7 Definitions............................................... 35
ARTICLE XXVIII - ADA................................................... 35
</TABLE>
<PAGE>
INDUSTRIAL SPACE LEASE
(NET)
THIS LEASE, made as of the _____ day of October, 1996, by and between
PAINEWEBBER QUALIFIED PLAN PROPERTY FUND FOUR, L.P., a Delaware limited
partnership ("Landlord") , and STARRIDGE NETWORKS INC., a __________ ("Tenant");
ARTICLE I - BASIC TERMS
-----------------------
1.1 A. Address of Landlord: PaineWebber Qualified Plan
-------------------
Property Fund Four, L.P.
c/o PaineWebber Properties
265 Franklin Street
Boston, MA 02110
Attention: Mr. Rock D'Errico
B. Address of Tenant __________________________________
-----------------
__________________________________
__________________________________
__________________________________
C. Land: The parcel of land legally described in Exhibit "B" attached
----
hereto.
D. Building: The Building in which the Premises are located.
--------
E. Premises: Approximately 17,784 square feet of space located in the
--------
Building and shown on Exhibit "A" attached hereto, the common address
of which is 680 West Maude Avenue, Suite 3, Sunnyvale, California.
F. Project: The Land, the Building and all other buildings and
-------
improvements located on the Land.
G. Lease Term: The period commencing on the date that Landlord has
----------
fulfilled its obligations under Article XV of this Agreement but no
earlier than November 1, 1996 expiring on October 31, 2001 unless
sooner terminated as set forth in this Lease.
H. Rent: All sums, moneys or payments required to be paid by Tenant to
----
Landlord pursuant to this Lease whether designated as "Base Rent",
"Additional Rent", or otherwise.
1
<PAGE>
I. Base Rent: $1,227,096.00 for the Lease Term, payable as follows:
---------
1. $18,673.20 per month ($1.05 per square foot during the first
twelve (12) months of the Lease Term;
2. $19,562.40 per month ($1.10 per square foot) during the following
twelve (12) months;
3. $20,451.60 per month ($1.15 per square foot) during the next
twelve (12) months of the Lease Term;
4. $21,340.80 per month ($1.20) during the next twelve (12) months
of the Lease Term;
5. $22,230.00 per month ($1.25 per square foot) during the next
twelve (12) months of the Lease Term.
J. Additional Rent: All sums, money or payments required to be paid by
---------------
Tenant to Landlord pursuant to Sections 3.2, 3.3, 3.4, 3.6, 8.4, 16.1
and 18.2.
K. Security Deposit: $22,230.00
----------------
L. Tenant' s Proportionate Share: 44.89%
-----------------------------
M. Permitted Use(s): General office use, research and development,
----------------
storage, manufacturing and other legal uses approved by Landlord and in
conformity to municipal zoning requirements and any CC&R's applicable
to the Premises as of the date of this Lease or any CC&R's recorded
against the Land after the date hereof to the extent the terms thereof
do not contradict the terms of this Lease.
N. Broker(s): CB Commercial and Cornish & Carey Commercial.
---------
1.2 Effect of Reference to Basic Terms: Each reference in this Lease to any of
----------------------------------
the Basic Terms contained in Section 1.1 shall be construed to incorporate into
such reference all of the definitions set forth in Section 1.1.
ARTICLE II - GRANT AND TERM
---------------------------
2.1 Premises. In consideration of the rents, covenants, agreements and
--------
conditions hereinafter provided to be paid, kept, performed and observed,
Landlord leases to Tenant the Premises described in Section 1.1E (excluding and
reserving unto Landlord the roof and exterior walls of the Building), subject to
all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises and any covenants,
conditions and restrictions of record and
2
<PAGE>
Tenant accepts the Premises subject thereto and to all matters disclosed
thereby.
2.2 Lease Term. Tenant shall have and hold the Premises for and during the
----------
Lease Term described in Section 1.1G, subject to the payment of Rent and to the
full and timely performance by Tenant of the covenants and conditions
hereinafter set forth.
2.3 Possession. Except as otherwise expressly provided herein (or by written
----------
instrument signed by Landlord), Landlord shall deliver possession of the
Premises to Tenant on or before the commencement date of the Lease Term in the
same condition as exists on the date of execution and delivery of this Lease,
reasonable wear and tear excepted. If Landlord allows Tenant to take occupancy
of the Premises prior to the commencement date of the Lease Term for the purpose
of conducting Tenant's customary business therein, such occupancy shall be
subject to all the terms and conditions of this Lease, including without
limitation, payment of Rent at the stated rates (and without abatement). If
Landlord shall be unable to deliver possession of the Premises on the
commencement' date of the Lease Term by reason of the fact that the work, if
any, required to be performed by Landlord under Article XV below has not been
completed for any reason, because a prior tenant has failed to deliver up
possession of the Premises or for any other cause beyond the control of
Landlord, Landlord shall not be subject to any liability for the failure to give
possession on said date, nor shall the validity of this Lease or the obligations
of Tenant hereunder be in any way affected. Under such circumstances, unless the
delay is caused by a Tenant Delay (as hereinafter defined), Rent and other
charges hereunder shall not commence until possession of the Premises is given
to Tenant. The term "Tenant Delay" as used in this Lease shall mean any delay
that Landlord may encounter in the performance of Landlord's obligations under
the Lease because of any act or omission of any nature by Tenant or its agents
or contractors, including any: (1) delay attributable to the postponement of any
Tenant Improvements at the request of Tenant; and (2) delay by Tenant in the
submission of information or the giving of authorizations or approvals within
the time limits set forth in this Lease. No Tenant Delay shall be deemed to have
occurred unless and until Landlord has given written notice to Tenant specifying
the action or inaction which Landlord contends constitutes a Tenant Delay. If
such action or inaction is not cured within one (1) business day after Tenant's
receipt of such notice, then a Tenant Delay, as set forth in such notice, shall
be deemed to have occurred commencing as of the date Tenant received such notice
and continuing for the number of days the substantial completion of the Premises
was in fact delayed as a direct result of such action or inaction.
ARTICLE III - RENT
------------------
3.1 Base Rent. Tenant shall pay to Landlord the Base Rent specified in
---------
Section 1.1I in lawful money of the United States in equal consecutive monthly
installments in advance on the first
3
<PAGE>
day of each and every month during the Lease Term. Tenant shall pay to Landlord
upon execution of this Lease, the Base Rent owing for the first full month of
the Lease Term for which Base Rent is payable.
3.2 Real Estate Taxes. Tenant shall pay to Landlord, as Additional Rent,
-----------------
Tenant's Proportionate Share of all real estate taxes (including, without
limitation, all general and special assessments) which may be levied or
assessed, by any lawful authority against the Project, or any part thereof,
during each tax year or partial tax year occurring within the Lease Term.
Notwithstanding the foregoing, the following shall not constitute Real Estate
Taxes for the purposes of this Lease, and nothing contained herein shall be
deemed to require Tenant to pay any of the following: (i) any state, local,
federal, personal or corporate income tax measured by the income of Landlord;
(ii) any estate or inheritance taxes; (iii) any franchise, succession or
transfer taxes; (iv) interest on taxes or penalties resulting from Landlord's
failure to pay taxes, except to the extent such failure is due to Tenant's
failure to pay such taxes to Landlord when provided under this Lease; or (v) any
environmental tax, surcharge or other fee affecting the Premises due to
Landlord's activities with respect to Hazardous Materials, as opposed to
general, area-wide taxes or surcharges with respect to the remediation or
testing for Hazardous Materials. If any assessments affecting the Premises are
payable in installments and Landlord should prepay such assessments in advance
of the date such installments would become due, Tenant shall be solely
responsible for the portion of such assessment that would have normally come due
as an installment, unless consented to by Tenant in writing. In addition, Tenant
shall pay prior to delinquency, all taxes assessed against the value of any
improvements made by Tenant, or of any machinery, equipment, fixtures, inventory
or other personal property or assets of Tenant contained in the Premises or
related to Tenant's use of the Premises. A tax bill or true copy thereof
submitted by Landlord to Tenant shall be conclusive evidence of the amount of
taxes assessed or levied, as well as of the items taxed. If a tax or excise on
rents or other tax, however described, is levied or assessed against Landlord on
account of or measured by, in whole or in part, the Rent expressly reserved
under this Lease, as a substitute for or addition to, in whole or in part, real
estate taxes assessed or imposed on the Premises, such tax or excise on rents or
other tax shall be included as a part of the real estate taxes covered hereby,
but only to the extent of the amount thereby which is lawfully assessed or
imposed as a direct result of Landlord's ownership of this Lease or of the Rent
accruing under this Lease. The real estate taxes to be paid by Tenant shall be
estimated by Landlord from time to time (and such estimates may be revised by
Landlord at any time), and 1/12th of such estimated real estate taxes for each
tax year shall be paid by Tenant to Landlord monthly on the first day of each
and every month during the Lease Term in addition to Base Rent. An annual
accounting to include a copy of the paid tax bills shall be made promptly after
receipt by Landlord of such tax bills for each tax
4
<PAGE>
year at which time Tenant shall pay any additional real estate taxes due (which
obligation shall survive the expiration or termination of this Lease), or
Landlord shall apply any overpayment made by Tenant as a credit toward the real
estate taxes owed by Tenant for the next tax year, or at the end of the Lease
Term shall return any such overpayments to Tenant provided no Rent is then due
to Landlord, whichever event is applicable. In any event, upon notice by
Landlord, Tenant shall pay any additional real estate taxes due with the next
monthly installment of Base Rent. No interest or penalties shall accrue on any
amounts which Landlord is obligated to credit or Tenant is obligated to pay by
reason of this paragraph (unless such credit or payment itself is delinquent).
Landlord shall have the same rights and remedies for Tenant's failure to pay
real estate taxes as Landlord has for Tenant's failure to pay Base Rent. If some
method or type of taxation shall replace the current method of assessment of
real estate taxes, in whole or part, or the type thereof, or if additional types
of taxes are imposed upon the Premises, the Building, the Project, or any part
thereof, or if Landlord is required to supplement real estate taxes due to legal
limits imposed thereon, Tenant agrees that Tenant shall pay an equitable share
of the same as Additional Rent computed in a manner consistent with the method
of computation herein provided, to the end that Tenant's share thereof shall be,
to the maximum extent practicable, comparable to that which Tenant would bear
under the foregoing provisions. Landlord reserves the right to protest any and
all real estate tax assessments in good faith and all reasonable costs paid or
incurred in connection with such protests (including, without limitation,
attorneys' fees) shall be included in "real estate taxes" as used herein.
If the Lease Term shall commence or end during a tax year (tax year shall
mean each annual period for which real estate taxes are assessed and levied) of
which only part is included in the Lease Term, the amount of the Additional Rent
owing under this Section 3.2 shall be equitably prorated to cover only that
period of such tax year which occurs within the Lease Term. All references
herein to real estate taxes for a particular tax year shall be deemed to refer
to real estate taxes levied, assessed or otherwise imposed for such tax year
without regard to when such real estate taxes are payable.
3.3 Heating, Ventilation and Air Conditioning Maintenance. In the event
-----------------------------------------------------
Landlord elects to enter into service and maintenance agreements for the
heating, ventilation and air conditioning systems as more fully described in
Section 16.1, Tenant shall reimburse Landlord, as Additional Rent, Tenant's
Proportionate Share of all costs and expenses paid by Landlord for such service
and maintenance agreements and repairs to the heating, ventilating and air
conditioning equipment and controls servicing the Building or the Project.
Tenant shall make each such reimbursement to Landlord as Additional Rent.
3.4 Insurance. Tenant shall reimburse Landlord, as Additional Rent, for all
---------
insurance premiums paid by Landlord for fire and
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extended coverage insurance, including earthquake (at a rate not to exceed
twelve cents ($.12) per square foot of the Premises per year) and flood
coverage, for the Building or the Project during the Lease Term as is provided
in Section 18.2. Tenant shall make each such reimbursement to Landlord as
Additional Rent, but no later than thirty (30) days after Tenant's receipt of
each statement therefor from Landlord.
3.5 Common Areas. The term "Common Areas" as used in this Lease shall mean all
------------
the areas of the Building and the Project not intended for renting and, instead,
designed for the common use and benefit of Landlord and all or substantially all
of the tenants, their employees, agents, customers and invitees. The Common
Areas include, but not by way of limitation, parking lots, rail spurs, truck
courts, landscaped and vacant areas, driveways, walks and curbs with facilities
appurtenant to each as such areas may exist from time to time. Landlord shall
operate and maintain the Common Areas, the cost of which shall be reimbursed by
Tenant to Landlord as provided for herein. Landlord hereby grants to Tenant the
non-exclusive use of the Common Areas by Tenant, Tenant's employees, agents,
customers and invitees, which use shall be subject at all times to such
reasonable, uniform and nondiscriminatory rules and regulations as may from time
to time be established by Landlord. It is understood that the existing layout of
the Building, the Project, the Common Areas and any appurtenant walks, roadways,
parking areas, entrances, exits, and other improvements shall not be deemed to
be a warranty, representation or agreement on the part of Landlord that same
will remain exactly as presently built, it being understood and agreed that
Landlord may change the number, dimensions and locations of the walks,
buildings, parking spaces and Common Areas comprising the Project as Landlord
shall deem appropriate; provided, however, that in no event shall such changes
(i) materially interfere with Tenant's business or use of the Premises, (ii)
unreasonably impair customer access to or the visibility of the Premises, or
(iii) in any way alter the character and standards of the Building. The Common
Areas shall at all times be subject to the exclusive control and management of
Landlord.
3.6 Common Area Expenses. Tenant shall pay to Landlord, as Additional Rent,
--------------------
Tenant's Proportionate Share of all Common Area Expenses. For the purpose of
this Section 3.6, the term "Common Area Expenses" means Landlord's total costs
and expenses incurred in owning, operating, maintaining and repairing the Common
Areas, including without limitation, costs for all electricity, gas, water or
fuel used in connection with the operation, maintenance, use and repair of the
Common Areas; the amount paid for all electricity furnished to the Common Areas
to light the parking lots or for any other purpose; the costs of patching,
repairing, repaying or restriping the parking lots; the amount paid for all
labor and/or wages and other payments including costs to Landlord of workers'
compensation and disability insurance, payroll taxes, welfare and fringe
benefits made to janitors, employees, contractors and subcontractors of Landlord
involved in the
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operation and maintenance of the Common Areas; managerial, administrative, and
telephone expenses related to operation and maintenance of the Common Areas; the
total charges of and independent contractors employed in the care, operation,
maintenance, cleaning and landscaping; the amount paid for all supplies, tools,
replacement parts of components, equipment and necessities which are occasioned
by everyday wear and tear; the amount paid for premiums for all insurance
required from time to time by Landlord or Landlord's mortgagees and the pro rata
costs of machinery and equipment purchased or leased by Landlord to perform its
common area maintenance obligations. To the extent that Landlord elects to
provide services which are not separately metered or directly billed to Tenant,
such as water and trash hauling, the costs of such services shall be included in
Common Area Expenses. Common Area Expenses shall not, however, include (i)
interest on debt, capital retirement of debt,(ii) depreciation, (iii) costs
properly chargeable to the capital account, except for capital expenditures
which are intended to reduce other operating expenses or such capital
expenditures that are required by changes in any governmental law or regulation
not in effect as of the date of this Lease; in which case such expenditures,
plus interest on the unamortized principal investment at ten percent (10%) per
annum, shall be amortized over the life of the improvements and included in
Common Area Expenses, (iv) legal fees, brokerage commissions, advertising costs
and other related expenses incurred in connection with the leasing of the
Building; (v) repairs, alterations, additions, improvements or replacements made
to rectify or comply with any requirements of any governmental authority in
effect as of the date of this Lease; (vi) damage and repairs attributable to
condemnation, fire or other casualty if reimbursed by insurance proceeds; (vii)
damage and repairs covered under any warranty or insurance policy carried by
Landlord in connection with the Building or Land if reimbursed to Landlord;
(viii) damage and repairs necessitated by the gross negligence or willful
misconduct of Landlord or Landlord's employees, contractors or agents; (ix)
executive salaries of Landlord; (x) salaries of service personnel to the extent
that such service personnel perform services not solely in connection with the
management, operation, repair or maintenance of the Building or Common Areas;
(xi) Landlord's general overhead expenses not related to the Building; (xii)
payments of principal or interest on any mortgage or other encumbrance including
ground lease payments and points, commissions and legal fees associated with
financing; (xiii) depreciation; (xiv) legal fees, accountants' fees and other
expenses incurred in connection with disputes with Tenant or other tenants or
occupants of the Building or associated with the enforcement of any leases or
defense of Landlord's title to or interest in the Building or any part thereof;
(xv) costs (including permit, license and inspection fees) incurred in
renovating or otherwise improving, decorating, painting or altering space for
other tenants or other occupants or vacant space in the Building; (xvi) costs
incurred due to violation by Landlord or any other tenant in the Building of the
terms and conditions of any lease; (xvii) the cost of any service provided
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to Tenant or other occupants of the Building for which Landlord is entitled to
be reimbursed; (xviii) charitable or political contributions; (xix) any cost or
expense related to the testing for, removal, transportation or storage of
Hazardous Materials from the Land, Building or Premises; (xx) interest,
penalties or other costs arising out of Landlord's failure to make timely
payments of its obligations; (xxi) property management fees of any property
management firm in excess of five percent (5%) of the gross revenues of the
Building or a minimum of $1,500 per month; and (xxii) costs incurred in
advertising and promotional activities for the Building. Suitable adjustments in
Common Area Expenses incurred shall be made in the determination of Tenant's
Proportionate Share for any period during the Lease Term which is less than a
full calendar year. Payments by Tenant on account of Tenant's Proportionate
Share of such Common Area Expenses shall be made monthly and at the time and in
the manner herein provided for the payment of Base Rent. The amounts to be so
paid to Landlord shall be an amount from time to time estimated by Landlord to
be sufficient to cover, in the aggregate, a sum equal to Tenant's Proportionate
Share of such Common Area Expenses for each calendar year during the Lease Term.
Promptly after the end of each calendar year during the Lease Term, Landlord
shall submit to Tenant a reasonably detailed accounting of Common Area Expenses
for such calendar year, and Landlord shall certify to the accuracy thereof. If
payments theretofore made for such calendar year by Tenant exceed Tenant's
Proportionate Share of Common Area Expenses, according to such statement,
Landlord shall credit the amount of overpayment against subsequent obligations
of Tenant (or promptly refund such overpayment, if the Lease Term has ended and
Tenant has no further obligation to Landlord); but, if Tenant's Proportionate
Share of Common Area Expenses is greater than payments theretofore made on
account for such period, Tenant shall make suitable payment to Landlord promptly
after being so advised by Landlord but in no event later than the date on which
the next monthly installment of Base Rent is due. No interest or penalties shall
accrue on any amounts which Landlord is obligated to credit or refund or Tenant
is obligated to pay by reason of this Section 3.6 (unless such credit, refund or
payment itself is delinquent).
3.7 Late Payment. If Tenant shall fail to pay when the same is due and
------------
payable, any installment of Rent required to be paid by Tenant under this Lease,
such unpaid amount shall bear interest from the due date thereof to the date of
payment at the rate of twelve percent (12%) per annum, but in no event at a rate
which is higher than the legal limit. If any installment of Rent is delinquent
by more than fifteen (15) days, Tenant shall also pay to Landlord a late charge
in an amount equal to five percent (5%) of the amount of the delinquent
installment, which late charge shall be immediately due and payable without
notice or demand from Landlord and which itself shall bear interest at the rate
provided above from the date due until paid.
3.8 No Decrease in Base Rent. In no event shall the determination of any
------------------------
Additional Rent owing under this Article III
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result in a decrease in or credit against any Base Rent owing under this Lease.
3.9 Payment of Rent. Rent shall be payable without demand, notice, offset or
---------------
deduction, except as otherwise specifically stated in this Lease. All Rent due
under this Lease shall be paid by checks payable to the order of "PaineWebber
Qualified Plan Property Fund Four, L.P.", which checks shall be mailed or
delivered to Landlord at the address designated in Section 1.1A above, or in
such other manner or at such other place as Landlord may from time to time
designate to Tenant. Rent will be prorated for partial months or partial years
within the Lease Term (and for partial months or partial years within periods
for which same are payable). Tenant's covenant to pay Rent shall be independent
of every other covenant in this Lease.
ARTICLE IV - USE
----------------
4.1 Use. The Premises shall be used only for the non-residential permitted
---
use(s) set forth in Section 1.1M above and for no other' use or purpose. Tenant
shall not use or permit the use of the Premises in any manner that will create
waste or a nuisance, or will unreasonably disturb other tenants of the Building
or owners or occupants of adjoining properties. Tenant shall cause its employees
and all persons visiting or doing business with Tenant in the Premises to
observe the Rules and Regulations attached to this Lease as Exhibit "C", and
such further and other reasonable rules and regulations made hereafter by
Landlord relating to the Project, the Building or the Premises of which notice
in writing shall be given to Tenant, and all such rules and regulations shall be
deemed to be incorporated into and form a part of this Lease.
4.2 Prohibition of Use. Except as otherwise provided herein, if use of the
------------------
Premises should at any time during the Lease Term be prohibited by law or
ordinance or other governmental regulation, or prevented by injunction, this
Lease shall not be thereby terminated, nor shall Tenant be entitled by reason
thereof to surrender the Premises or to any abatement or reduction in Rent, nor
shall the respective obligations of the parties hereto be otherwise affected.
4.3 Abatement of Rent When Tenant is Prevented From Using Premises. In the
--------------------------------------------------------------
event that Tenant is prevented from using, and does not use, the Premises or any
portion thereof, for thirty (30) consecutive business days (the "Eligibility
Period") because the Premises or any portion thereof shall have become
"untenantable" as a result of the active negligence or willful misconduct of
Landlord, or the negligent acts or omissions or willful misconduct of Landlord's
employees or agents, or any material breach of this Lease by Landlord, not
caused by any negligent act or omission of Tenant, or any agent, employee,
contractor, invitee, licensee, visitor or guest of Tenant, then Tenant's rent
shall be abated or reduced, as the case may be, commencing as of the first date
of such untenantability, for such
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time that Tenant continues to be so prevented from using, and does not use, the
Premises or a portion thereof, in the proportion that the rentable area of the
portion of the Premises that Tenant is prevented from using, and does not use,
bears to the total rentable area of the Premises. However, in the event that
Tenant is prevented from conducting, and does not conduct, its business in any
portion of the Premises for a period of time in excess of the Eligibility
Period, and the remaining portion of the Premises is not sufficient to allow
Tenant to conduct its business from such remaining portion, during the pendency
of the period in which Tenant is so prevented from effectively conducting its
business therein, the rent for the entire Premises shall be abated; provided,
however, if Tenant reoccupies and conducts its business from any portion of the
Premises during such period, the rent allocable to such reoccupied total
rentable area of the Premises, shall be payable by Tenant from the date such
business operations commence. To the extent Tenant is entitled to abatement
because of an event covered by Article IX or Article XIV, then the Eligibility
Period shall not be applicable. For the purposes of this Section 4.3 and Section
4.4, the Premises shall be deemed "untenantable" if they cannot be used
(including, without limitation, if they are not readily accessible) for the
specific permitted use to which the Premises were put prior to the event listed
above.
4.4. Right to Terminate. If for one hundred eighty (180) days or more (a) the
------------------
Premises as a whole are "untenantable" or Tenant is prevented from conducting,
and does not conduct, its business in any portion of Premises and the remaining
portion of the Premises is not sufficient to allow Tenant to conduct its
business from such remaining portion, as a result of the active negligence or
willful misconduct of Landlord, or the negligent acts or omissions or willful
misconduct of Landlord's employees or agents, or any material breach of this
Lease by Landlord, not caused by an act or omission of Tenant, or any agent,
employee, contractor, invitee, licensee, visitor or guest of Tenants, provided
that Tenant shall not have used the Premises during such one hundred eighty
(180) day period; and (b) Tenant cannot be given reasonable use of, and access
to, a fully repaired, restored, safe and healthful Premises and Building (except
for minor "punch list" items which will be repaired promptly thereafter) (each
of the events described in Clauses (a) and (b) above being referred to as a
"Trigger Event"), and the utilities and services pertaining to the Building and
the Premises, all suitable for the efficient conduct of Tenant's business
therefrom, then Tenant may elect to exercise an on-going right to terminate this
Lease upon ten (10) days written notice sent to Landlord at any time within
ninety (90) days following the Trigger Event. If Landlord can deliver a fully
repaired, restored, safe and healthful Premises within such one hundred eighty
(180) day period, then such termination shall be deemed rescinded without
prejudice to any future exercise of such termination right.
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ARTICLE V - LAWS AND ORDINANCES
-------------------------------
5.1 Tenant's Compliance with Laws and Ordinances. Tenant, at its expense,
--------------------------------------------
shall promptly comply at all times during the Lease Term with all laws and
ordinances (including, without limitation, all applicable zoning ordinances,
environmental laws, rules, regulations, and ordinances, land use requirements
and the Americans with Disabilities Act of 1990, as amended ("ADA") and the
orders, rules and regulations and requirements of all federal, state and
municipal governments and appropriate departments, commissions, boards, and
officers thereof, and the orders, rules and regulations of the Board of Fire
Underwriters where the Premises are situated, or any other body now or hereafter
constituted exercising similar functions, foreseen or unforeseen, ordinary as
well as extraordinary, and whether or not the same require structural repairs or
alterations, which may be applicable to the Premises, or the use or manner of
use of the Premises. Nothing herein shall alter Landlord's requirements for
providing the Premises to Tenant in compliance with the ADA, however, pursuant
to Article XV. Tenant will likewise observe and comply with the requirements of
all policies of public liability, fire and all other policies of insurance at
any time in force with respect to the Premises, the Building, the Project and
the improvements and equipment comprising same. Nothing in this Section 5.1
shall be deemed to require Tenant to make alterations or improvements to the
Premises that are required by law and are of a structural nature unless such
alterations or improvements are required due to Tenant's specific use of the
Premises (as opposed to office uses generally).
5.2 Tenant's Right to Contest. Tenant shall have the right to contest by
-------------------------
appropriate legal proceedings, without cost or expense to Landlord, the validity
of any law, ordinance, order, rule, regulation or requirement of the nature
herein referred to, and if, by the terms of any such law, ordinance, order,
rule, regulation or requirement, compliance therewith may legally be held in
abeyance without subjecting Tenant or Landlord to any liability for failure so
to comply therewith, Tenant may postpone compliance therewith until the final
determination of any such proceedings, provided that all such proceedings shall
be prosecuted with all due diligence and dispatch.
5.3 Licenses and Permits. Tenant shall obtain and maintain at all times
--------------------
during the Lease Term, all licenses and permits (other than a certificate of
occupancy or its equivalent) required to conduct or operate its business in and
upon the Premises which are required by any applicable governmental body or
agency having jurisdiction over the Premises and shall pay the fee or charge
imposed for issuance of such license or permit. Tenant shall renew any such
licenses and permits in accordance with the rules, codes, statutes or ordinances
requiring such licenses or permits. Tenant agrees to conduct and operate at all
times during the Lease Term only the business for which it is licensed and in
the event of a change in the nature of its business or operation to obtain any
necessary new or additional licenses or permits.
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Tenant, at its expense, shall comply with all requirements and perform all
necessary action required under such rules, codes, statutes or ordinances for
the issuance and continuance of such permits or licenses.
ARTICLE VI - UTILITIES AND SERVICES
-----------------------------------
Tenant shall contract in its own name and timely pay for all charges for
electricity, gas, water, fuel, sewer charges, telephone, trash hauling, and any
other services or utilities used in, servicing or assessed against the Premises,
unless otherwise herein expressly provided, and shall indemnify, defend and save
Landlord harmless against any liability or damages on such account. Landlord
shall have no liability to Tenant nor shall Rent abate in the event of any
interruption or discontinuance of any of the aforesaid utilities or services to
the Premises.
ARTICLE VII - QUIET ENJOYMENT
-----------------------------
Landlord covenants that Tenant, on paying the Rent herein provided and
keeping, performing and observing the covenants, agreements and conditions
herein required of Tenant, shall peaceably and quietly hold and enjoy the
Premises for the Lease Term without hindrance or molestation by anyone claiming
by or through Landlord, subject, however, to the terms and conditions of this
Lease.
ARTICLE VIII - ASSIGNMENT AND SUBLETTING
----------------------------------------
8.1 Prohibitions. Tenant for itself, its successors and assigns, expressly
------------
covenants that it shall not by operation of law or otherwise assign, sublet,
hypothecate, encumber or mortgage this Lease, or any part thereof, or permit the
Premises to be used by others without the prior written consent of Landlord in
each instance, which consent shall not be unreasonably withheld. For purposes of
this Article VIII, "assignment" shall be considered to include a change in the
majority ownership or control of Tenant if Tenant is a partnership or privately
held corporation. Any attempt by Tenant to assign, sublet, encumber or mortgage
this Lease without Landlord's prior written consent shall be null and void. The
consent by Landlord to any assignment, mortgage, hypothecation, encumbrance,
subletting or use of the Premises by others, shall not constitute a waiver of
Landlord's right to withhold its consent to any other or further assignment,
subletting, mortgage, encumbrance or use of the Premises by others. Without the
prior written consent of Landlord, this Lease and the interest therein of any
assignee of Tenant herein, shall not pass by operation of law or otherwise, and
shall not be subject to garnishment or sale under execution in any suit or
proceeding which may be brought against or by Tenant or any assignee of Tenant.
Notwithstanding anything herein to the contrary, Landlord's consent shall not be
required for any assignment or subletting ("Transfer") to an
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Affiliate as defined below, as long as the following conditions are met:
(w) at least ten (10) business days before the Transfer, Landlord receives
written notice of the Transfer, as well as any documents or
information reasonably requested by Landlord regarding the Transfer or
the transferee;
(x) the Transfer is not a subterfuge by Tenant to avoid its obligations
under the Lease;
(y) if the Transfer is an assignment, the transferee assumes in writing
all of Tenant's obligations under the Lease relating to the Premises
or the portion thereof covered by the Transfer; and
(z) the transferee has a tangible net worth, as evidenced by financial
statements delivered to Landlord in accordance with generally accepted
accounting principles that are consistently applied ("Net Worth") at
least equal to Tenant's Net Worth either immediately before the
Transfer or as of the date of this Lease, whichever is greater.
An "Affiliate" means any entity that controls, is controlled by, or is
under common control with Tenant. "Control" means the direct or indirect
ownership of more than fifty percent (50%) of the voting securities of an entity
or the possession of the right to vote more than fifty percent (50%) of the
voting interest in the ordinary direction of the entity's affairs.
Notwithstanding anything herein to the contrary, Tenant may sublease twenty
percent (20%) or less of Premises without the prior written consent of Landlord.
In the event of an assignment to Tenant's Affiliate, Landlord shall release
Tenant from liability under the Lease for obligations accruing after the
Transfer and if Tenant assigns less than all of the space, Tenant's
Proportionate Share shall be recalculated.
8.2 Recapture. If Tenant requests Landlord's consent to an assignment of this
---------
Lease or subletting of all or any part of the Premises exceeding twenty percent
(20%) of the rentable square footage thereof, Tenant shall submit to Landlord a
written notice ("Tenant's Notice") containing (a) the name of the proposed
assignee or subtenant; (b) the terms of the proposed assignment or subletting;
(c) the nature of business of the proposed assignee or subtenant and its
proposed use of the Premises; (d) such information as to the financial
responsibility and general reputation of the proposed assignee or subtenant that
Landlord may require; and (e) a description of all proposed alterations to the
Premises and the Building to result from such proposed assignment or subletting.
Upon the receipt of a Tenant's Notice from Tenant, Landlord shall have the
option, to be exercised in writing within thirty (30) days after such receipt,
to cancel and
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terminate this Lease if the request is to assign this Lease or to sublet all of
the Premises or, if the request is to sublet a portion of the Premises only, to
cancel and terminate this Lease with respect to such portion, in each case as of
the date set forth in Tenant's notice as the effective date of the proposed
assignment of subletting. If Landlord shall cancel this Lease, Tenant shall
surrender possession of the Premises, or the portion of the Premises which is
the subject of the request, as the case may be, on the date set forth in such
Landlord's notice in accordance with the provisions of this Lease relating to
surrender of the Premises. If this Lease shall be canceled as to a portion of
the Premises only, the Base Rent and all Additional Rent payable by Tenant
hereunder shall be abated proportionately according to the ratio that the area
of the portion of the Premises surrendered (as computed by Landlord) bears to
the area of the Premises immediately prior to such surrender. If Landlord shall
cancel this Lease, Landlord may relet the Premises, or the applicable portion of
the Premises, to any third party tenant (including, without limitation, the
proposed assignee or subtenant of Tenant), without any liability to Tenant.
8.3 Consent to Sublease. If Landlord does not exercise its option to cancel
-------------------
this Lease pursuant to Section 8.2 above, Tenant may then enter into the
applicable assignment or sublease, as the case may be, specified in the Tenant's
Notice giving rise to such cancellation option, in accordance with the following
provisions. If Tenant enters into such assignment or sublease it shall submit an
executed copy of the sublease or assignment to Landlord for consent not less
than twenty (20) days prior to the proposed effective date of assignment or the
proposed commencement date of the term of the sublease, as the case may be. In
the case of a sublease, the instrument shall expressly state that it is and
shall remain at all times subject and subordinate to this Lease and all of the
terms, covenants and agreements contained in this Lease. In the case of an
assignment, the instrument shall contain the assumption by the assignee of all
of the duties and obligations of the tenant under this Lease to be performed
after the effective date of assignment. No such assignment or sublease
instrument shall expressly or by implication impose upon Landlord any duties or
obligations or alter the provisions of this Lease. Landlord agrees to give
Tenant written notice within twenty (20) days after receipt by Landlord of
Tenant's proposed assignment or sublease of Landlord's consent to or rejection
of same. Landlord agrees that its consent to any such proposed assignment or
sublease shall not be unreasonably withheld; provided, however, that in addition
to other circumstances under which Landlord's consent may be withheld, Tenant
agrees that the withholding by Landlord of its consent to such proposed
assignment or sublease will not be deemed "unreasonable" if:
(a) the assignee or subtenant does not have a sound financial condition or
is otherwise non-creditworthy as determined by Landlord, or if Landlord has
not received sufficient information to make such determination,
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(b) the assignee or subtenant is disreputable,
(c) the use of the Premises by the assignee or subtenant would, in
Landlord's reasonable judgment, require any alterations to the Building to
comply with applicable building code requirements, or
(d) Tenant is then in default under this Lease beyond the applicable cure
period.
Tenant may not submit to Landlord for consent any assignment or sublease on
terms or conditions materially different or with parties different from those
stated in the applicable Tenant's Notice for such assignment or sublease, nor
may Tenant submit to Landlord for consent any assignment or sublease later than
the date which is sixty (60) days after the expiration of the period for
exercise by Landlord of the cancellation option arising under Section 8.2 above
by reason of such assignment or sublease, without again complying with the
provisions of Section 8.2 above and affording Landlord the right to again
exercise its cancellation option. Notwithstanding anything to the contrary
contained in this Lease, Tenant's sole right and remedy in any dispute as to
whether Landlord's consent to a proposed sublease or assignment has been
unreasonably withheld shall be action for declaratory judgment or specific
performance and Tenant shall not be entitled to any damages if Landlord is
adjudged to have unreasonably withheld such consent.
8.4 Profits. If Landlord shall consent to any assignment or sublease pursuant
-------
to Section 8.3, Tenant shall in consideration therefor pay to Landlord, as
Additional Rent, the following amounts less the actual expenses incurred by
Tenant in connection with such assignment or subletting, including legal fees,
brokerage commissions and costs of making alterations.
(a) In the case of an assignment, an amount equal to fifty percent (50%)
of all sums and other considerations paid to Tenant in excess of Base Rent
and Additional Rent by the assignee for or by reason of such assignment
(excluding fair market value sums paid for the sale of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other personal
property); and
(b) In the case of a sublease, fifty percent (50%) all rents, additional
rents and other consideration payable under the sublease to Tenant by the
subtenant which are in excess of the Base Rent and Additional Rent payable
under this Lease in respect of the subleased space (at the rate per square
foot payable by Tenant hereunder) for the sublease term (excluding fair
market value sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture, furnishings or other personal
property).
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The sums payable as set forth above shall be paid to Landlord as Additional
Rent as and when paid by the assignee or subtenant to Tenant.
8.5 No Release. In no event shall any assignment or subletting to which
----------
Landlord may consent, release or relieve Tenant from its obligations to fully
observe or perform all of the terms, covenants and conditions of this Lease on
its part to be observed or performed (including liability arising during any
renewal term of this Lease).
8.6 Costs. Tenant shall pay Landlord's reasonable costs, charges and expenses,
-----
including, without limitation, reasonable attorney's fees, incurred in
connection with its review of any proposed assignment or sublease, whether or
not Landlord approves such transfer of interest.
ARTICLE IX - DAMAGE OR DESTRUCTION
----------------------------------
If by reason of fire, earthquake or other identifiable event of a sudden,
unexpected or unusual nature ("Casualty"), all or a substantial part of the
Premises is rendered untenantable, Landlord may, by written notice to Tenant
given within thirty (30) days after such Casualty, terminate this Lease as of
the date of such Casualty. If Landlord does not elect to so terminate this Lease
or if Casualty does not render all or a substantial part of the Premises
untenantable, then Landlord shall restore the Premises with reasonable
promptness to the condition in which Landlord furnished the Premises to Tenant
at the commencement of the Lease Term as to those items that were provided at
Landlord's expense without any reimbursement by Tenant. Landlord shall be under
no obligation to restore any alterations, improvements or additions to the
Premises made by Tenant or paid for by Tenant, including, but not limited to,
any of the initial tenant finish done or paid for by Tenant or any subsequent
changes, alterations or additions made by Tenant. If Landlord does not terminate
this Lease as aforesaid and fails within one hundred twenty (120) days after
such Casualty occurs to eliminate substantial interference with Tenant's use of
the Premises or substantially to restore same, Tenant may terminate this Lease
effective as of the expiration of said 120-day period by written notice to
Landlord given not later than five (5) days after the expiration of said 120-day
period. If all or any part of the Premises are rendered untenantable but this
Lease is not terminated, all Rent shall abate from the date of the fire or other
casualty, cause or condition until the Premises are ready for occupancy and
reasonably accessible to Tenant. If a portion of the Premises is untenantable,
Rent shall be prorated on a per diem basis and apportioned in accordance with
the portion of the Premises which is usable by Tenant until the damaged part is
ready for Tenant's occupancy. In all cases, due allowance shall be made for
reasonable delay caused by adjustment of insurance loss, strikes, labor
difficulties or any cause beyond Landlord's reasonable control. For the purposes
of this Lease, a portion of the Premises shall be considered tenantable so long
as and to the
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extent that such portion of the Premises are occupied. In any event, Tenant
shall be responsible for the removal, or restoration, when applicable, of all
its damaged property and debris from the Premises, upon request by Landlord, or
at Landlord's option, reimburse Landlord for the cost of removal. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the California Civil Code.
ARTICLE X - LANDLORD'S RIGHTS
-----------------------------
Landlord reserves the following rights:
(a) To change the name of the Building, or the Project without notice or
liability to Tenant;
(b) If Tenant has abandoned the Premises, to decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy;
(c) To exhibit the Premises to others and to display "For Lease" signs on
the Premises during the last six months of the Lease Term or any renewal or
extension thereof;
(d) To take any and all measures, including making inspections, repairs,
alterations, additions and improvements to the Premises, the Building or
the Project as may be necessary or desirable for the safety, protection or
preservation of the Premises, the Building, the Project or Landlord's
interest therein;
(e) To place, install, maintain, carry through, repair and replace such
utility lines, pipes, wires, appliances, tunneling and the like in, over,
through and upon the Premises as may be reasonably necessary or advisable
for the servicing of the Premises or any other portions of the Building or
the Land; and
(f) To make alterations, changes, and additions to the Building or the
Project; to add additional areas to the Building and/or to exclude areas
therefrom; to construct additional buildings and other improvements on the
Land; to remove or relocate the whole or any part of any building or other
improvement; and to relocate any other tenant in the Building.
Landlord may enter upon the Premises for the purpose of exercising any or
all of the foregoing rights hereby reserved without being deemed guilty of an
eviction or disturbance of Tenant's use or possession and without being liable
in any manner to Tenant. Notwithstanding anything to the contrary herein,
Landlord shall use commercially reasonable efforts to conduct all of Landlord's
activities on the Premises in a manner designed to cause the least possible
interruption to Tenant and Tenant's use of the Premises.
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ARTICLE XI - HOLDING OVER
-------------------------
If Tenant, or any person claiming through Tenant, shall continue to occupy
the Premises after the expiration or earlier termination of the Lease Term
without the consent in writing of Landlord, such occupancy shall be deemed to be
under a month-to-month tenancy under the same terms and conditions set forth in
this Lease; except, however, that the Base Rent for each month during such
continued occupancy shall be one hundred fifty (150%) of the amount in effect as
of the expiration or earlier termination of the Lease Term. Tenant shall
indemnify, defend and hold harmless Landlord from and against all claims,
liabilities, actions, losses, damages and expenses (including, without
limitation, reasonable attorneys' fees) asserted against or sustained by
Landlord and arising from or by reason of such continued occupancy, which
obligation shall survive the expiration or termination of this Lease. Anything
to the contrary notwithstanding, any holding over by Tenant without Landlord's
prior written consent shall constitute a default hereunder and shall be subject
to all the remedies set forth in Article XX hereof.
ARTICLE XII - SIGNS AND ADVERTISEMENTS
--------------------------------------
Except as expressly set forth hereinbelow, Tenant shall not place upon nor
permit to be placed upon any part of the Premises, the Building or the Project,
any signs, billboards or advertisements whatever in any location or any form
without the prior written consent of Landlord which consent shall not be
unreasonably withheld, conditioned or delayed. Subject to Tenant's compliance
with all applicable governmental agency regulations, building standards, and
receipt of all necessary approvals, Tenant shall be permitted to install
appropriate signage on the outside of the Building above the main entrance to
the Building. All costs and expenses related to such signage and display,
including, without limitation, installation costs, maintenance costs, utilities,
repair costs, restoration and removal, shall be paid entirely by Tenant. The
appearance and placement of all such signs shall be subject to Landlord's prior
approval which consent shall not be unreasonably withheld, conditioned or
delayed. Tenant shall remove all of its signs at its sole cost and expense, and
restore the outside of the Building to its condition existing at the
commencement of the Lease Term (reasonable wear and tear excepted) at the
expiration or earlier termination of this Lease.)
ARTICLE XIII - MORTGAGE AND TRANSFER
------------------------------------
Landlord shall have the right to transfer, mortgage, pledge or otherwise
encumber, assign and convey, in whole or in part, the Premises, the Building,
the Project, this Lease and all or any part of the rights now or hereafter
existing and all Rent payable to Landlord under the provisions hereof. Nothing
herein contained shall limit or restrict any such rights.
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ARTICLE XIV - EMINENT DOMAIN
----------------------------
If the Premises or such substantial part thereof as reasonably renders the
remainder unfit for the intended uses shall be taken by any competent authority
under the power of eminent domain or be acquired for any public or quasi-public
use or purpose, the Lease Term shall cease and terminate upon the date when the
possession of the Premises or the part thereof so taken shall be required for
such use or purpose and without apportionment of the award and Tenant shall have
no claim against Landlord for the value of the then unexpired Lease Term. If any
condemnation proceeding shall be instituted in which it is sought to take any
part of the Building or to change the grade of any street or alley adjacent to
the Building or the Project and such taking or change of grade makes it
necessary or desirable to remodel the Building to conform to the changed grade,
Landlord shall have the right to terminate this Lease after having given written
notice of termination to Tenant not less than ninety (90) days prior to the date
of termination designated in the notice. In either of said events, Rent at the
then current rate shall be apportioned as of the date of the termination. No
money or other consideration shall be payable by Landlord to Tenant for the
right of termination and Tenant shall have no right to share in any condemnation
award or in any judgment for damages cause by any taking or the change of grade.
The condemnation award shall be paid to and be the sole property of Landlord
whether the award shall be made as compensation for diminution of the value of
the leasehold estate or the fee of the Premises or otherwise. Nothing in this
Article XIV shall preclude an award being made to Tenant for depreciation to and
cost of removal of Tenant's equipment or fixtures, or Tenant's relocation
expenses. The parties hereto hereby waive any rights they may have pursuant to
sections 1265.120 and 1265.130 of the California Code of Civil Procedure
inconsistent with the provisions of this Article XIV.
ARTICLE XV - COMPLETION AND ACCEPTANCE OF PREMISES
--------------------------------------------------
Prior to the first day of the Lease Term, Landlord, at its sole cost and
expense shall (i) repaint the interior of the Premises, (ii) recarpet the areas
of the Premises that are carpeted, (iii) remove the existing computer room and
restore it to a tiled floor, (iv) make any repairs or replacements necessary to
put the roof, all plumbing, electrical, and HVAC systems in good working
condition and (v) provide the Premises in compliance with all applicable
building codes and with the ADA. Unless Tenant furnishes Landlord with a notice
in writing specifying any defect in the Premises within thirty (30) days after
taking possession, such taking of possession shall be conclusive evidence as
against Tenant that at the time thereof the Premises were in good working order
and satisfactory condition; provided, however, that should any repairs and/or
replacements to the HVAC resulting from age or normal wear and tear become
necessary during the first three (3) months of the Lease Term, Landlord shall,
at Landlord's cost and expense, make such repairs and/or replacements; and
provided, however, that notwithstanding
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anything herein to the contrary, Tenant shall have until the first major
rainstorm of the term in which to notify Landlord of any defect in the roof.
Tenant acknowledges that neither Landlord nor any broker or property manager of
Landlord has made any representation or warranty to Tenant as to the present or
future condition of the Premises or the suitability of the Premises for the
conduct of Tenant's business.
ARTICLE XVI - MAINTENANCE AND REPAIR
------------------------------------
16.1 Tenant's Obligations. Tenant, at its expense, shall be responsible for
--------------------
all maintenance and repair to the Premises of whatsoever kind or nature,
specifically including, without limitation, all plumbing, mechanical, HVAC,
electrical and lighting facilities, lines, pipes, ducts, conduit and equipment
in, upon or serving the Premises, fixtures, interior walls and interior surfaces
of exterior walls, ceilings, windows, doors, glass and sky lights, and all
landscaping, driveways, parking lots, fences and signs located upon or
comprising the Premises and all sidewalks and parkways adjacent to the Premises.
However, in no event shall Tenant's obligation to repair under this subsection
extend to (i) damage and repairs covered under any insurance policy carried by
Landlord in connection with the Building; or (ii) damage caused in whole or in
part by the gross negligence or willful misconduct of Landlord or Landlord's
agents, employees, invitees or licensees. Tenant shall take good care of the
Premises and keep the Premises in good repair and free from filth, overloading,
danger of fire or any pest or nuisance, and repair any damage or breakage done
by Tenant or Tenant's agents, employees or invitees, including damage done to
the Building by Tenant's equipment or installations. Tenant shall furnish and
pay for the upkeep, maintenance, repair and periodic servicing of the heating,
ventilation and air conditioning equipment servicing the Premises, except that
Landlord, at Landlord's option, may elect to enter into a service contract for
the heating, ventilation and air conditioning equipment for periodic inspection
of such equipment and if Landlord so elects, Tenant shall pay to Landlord, as
Additional Rent, Tenant's Proportionate Share of the cost and expense of the
service and inspection provided pursuant to such contract as set forth in
Section 3.3 above. At the end of the Lease Term or any renewal thereof, Tenant
shall quit and surrender the Premises broom clean in as good condition as when
received by Tenant, normal wear and tear and damage due to casualty or the gross
negligence or willful misconduct of Landlord excepted. Landlord warrants that
all building systems including HVAC, plumbing, electrical and roof are in good
operating condition upon the Commencement Date.
16.2 Landlord's Obligations. Except for damage caused by the negligent or
----------------------
intentional acts or omissions of Tenant, or Tenant's agents, contractors,
employees or invitees which are not covered by insurance maintained by Landlord
(in which event Tenant, at its expense shall repair the damage), Landlord, at
its expense, shall keep in good order, condition and repair, the foundations,
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exterior walls and the exterior roof of the Building. Landlord shall not,
however, be obligated to paint such exterior, nor shall Landlord be required to
maintain the interior surface of the exterior walls, windows, doors or plate
glass. Landlord shall have no obligation to make repairs under this Section 16.2
until a reasonable time after Landlord's receipt of a written notice from Tenant
of the need for such repairs; provided, however, Landlord shall repair roof
leaks promptly and shall make emergency repairs on an emergency basis. Tenant
hereby waives all rights under and benefits of, Subsection 1 of Section 1932 and
Section 1941 and 1942 of the California Civil Code and under any similar law,
statute or ordinance now or hereinafter in effect.
ARTICLE XVII - ALTERATIONS AND ADDITIONS,
-----------------------------------------
MECHANICS' LIENS
----------------
17.1 Alterations and Additions. Tenant shall not make any alterations,
-------------------------
improvements, or additions to the Premises without the prior written consent and
approval of same (including, without limitation, all plans and specifications
therefor and all contractors to perform such work) by Landlord, which approval
shall not be unreasonably withheld or delayed. Notwithstanding anything to the
contrary in this Section 17.1, Tenant shall have the right, without the prior
written consent of Landlord, to make certain alterations, additions or
improvements (the "Permitted Alterations") which (i) do not affect the Building
systems or structural components of the Building and (ii) which cost less
annually than Ten Thousand Dollars ($10,000), provided that each such Permitted
Alteration is otherwise performed in accordance with the terms of Section 17 of
the Lease. If Tenant makes any alternations, improvements or additions to the
Premises, the same shall be constructed without cost or expense to Landlord, in
accordance with the requirements of all laws, ordinances, codes, orders, rules
and regulations of all governmental authorities having jurisdiction over the
Premises. Should any work require a building permit, such work shall be done by
a licensed contractor. Alterations, improvements or additions so made by either
of the parties upon the Premises, except Tenant's furniture shelving movable
furniture and equipment placed in the Premises at the expense of Tenant, shall
be and become the property of Landlord and shall remain upon and be surrendered
with the Premises as a part thereof at the termination of this Lease, without
disturbance, molestation, injury or damage, unless Landlord elects to require
Tenant to remove such alterations or improvements from the Premises. In the
event damage to the Premises, the Building or the Project shall be caused by
moving said furniture and equipment in or out of the Premises and the cost
thereof is not covered by insurance maintained by Landlord, said damage shall be
promptly repaired at the cost of Tenant.
17.2 Mechanics' Liens. Tenant shall not cause or permit any mechanics' liens
----------------
or other liens to be placed upon the Premises, the Building or the Project and
in case of the filing of any such lien or claim therefor, Tenant shall promptly
discharge same;
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provided, however, that Tenant shall have the right to contest the validity or
amount of any such lien upon its prior posting of security pursuant to
applicable law, which security, in Landlord's reasonable judgment, must be
adequate to pay and discharge any such lien in full plus Landlord's estimate of
its legal fees and other expenses. Tenant agrees to pay all legal fees and other
costs incurred by Landlord because of any mechanics' or other liens attributable
to Tenant being placed upon the Premises, the Building or the Land. Landlord
reserves the right to post and to require Tenant to post notices of non-
responsibility in or on the Premises as provided by law.
ARTICLE XVIII - INSURANCE
-------------------------
18.1 Public Liability and Property Damage Insurance. Tenant, at its expense,
----------------------------------------------
shall procure from companies reasonably satisfactory to Landlord and maintain at
all times during the Lease Term, or any renewal, extension, or holding over
thereof, a policy or policies of comprehensive public liability and property
damage insurance, insuring Landlord, Landlord' s property manager and Tenant, as
their' respective interests may appear, against all claims for personal injury,
including death, and property damage, including use thereof, with not less than
$3,000,000.00 combined single limit for both bodily injury and property damage
occurring in, on or about the Premises. Such policy or policies of insurance
shall contain a provision requiring not less than thirty (30) days' prior
written notice to Landlord and any mortgagee of Landlord in the event of
cancellation or material modification of the terms and conditions thereof. Such
insurance may be provided under a blanket policy, provided that an endorsement
naming Landlord and Landlord's property manager as named insureds is attached
thereto.
18.2 Fire and Extended Coverage Insurance. Landlord shall procure and
------------------------------------
maintain at all times during the Lease Term, or any renewal, extension, or
holding over thereof, fire and extended coverage insurance, including earthquake
and flood coverage, on the Building and the Project in such amounts and with
such deductibles as Landlord shall reasonably determine. Tenant shall pay to
Landlord, as Additional Rent, Tenant' s Proportionate Share of the cost of all
premiums for such fire and extended coverage insurance. Landlord shall not in
any way or manner insure any property of Tenant or any property that may be in
the Premises but not owned by Landlord.
18.3 Indemnification of Landlord. Tenant shall indemnify and defend Landlord
---------------------------
and save it harmless from and against any and all loss (including, without
limitation, loss of rents payable by Tenant) and against all claims, actions,
damages, liability and expenses in connection with loss of life, bodily and
personal injury or damage to the Building or the Project arising from any
occurrence in, upon or at the Premises or any part thereof, or occasioned wholly
or in part by any act or omission of Tenant, its agents, contractors, employees,
servants, licensees, concessionaires or invitees, or by anyone permitted to be
on the
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Premises by Tenant. Tenant assumes all risks of and Landlord shall not be liable
for injury to person or damage to property resulting from the condition of the
Premises or from the bursting or leaking of any and all pipes, utility lines,
connections, or air conditioning or heating equipment in, on or about the
Premises, or from water or rain which may leak into, issue or flow from any part
of the Building. Tenant agrees, at all times, to defend, indemnify and hold
Landlord harmless against all actions, claims, demands, costs, damages or
expenses of any kind which may be brought or made against Landlord or which
Landlord may pay or incur by reason of Tenant's occupancy of the Premises or its
negligent performance of or failure to perform any of its obligations under this
Lease. Nothing in this Section 11.3 shall be deemed to require Tenant to
indemnify, defend, protect or hold Landlord harmless to the extent such loss,
damage, cost or liability was the result of the gross negligence or willful
misconduct of Landlord or Landlord's agents, employees, contractors or invitees.
In case Landlord shall without fault on its part, be made a party to any
litigation commenced by or against Tenant, then Tenant shall defend, indemnify,
defend and hold Landlord harmless and shall pay all costs, expenses and
reasonable attorneys' fees incurred by or on behalf of Landlord in connection
with such litigation.
18.4 Waiver of Subrogation. Landlord and Tenant each agree that neither
---------------------
Landlord nor Tenant (and their successors and assigns) will have any claim
against the other for any loss, damage or injury which is covered by insurance
carried by either party and for which recovery from such insurer is made,
notwithstanding the negligence of either party in causing the loss. This release
shall be valid only if the insurance policy in question expressly permits waiver
of subrogation or if the insurer agrees in writing that such waiver of
subrogation will not affect coverage under said policy. Each party agrees to
obtain such an agreement from its insurer if the policy does not expressly
permit a waiver of subrogation.
ARTICLE XIX - USE OF COMMON AREAS BY TENANT
-------------------------------------------
Tenant shall not use any part of the Building or the Project exterior to
the Premises or the Land for outside storage. No trash, crates, pallets, or
refuse shall be permitted anywhere outside of the Building by Tenant except in
enclosed metal containers to be located as directed by Landlord. Tenant shall
not park any trucks or trailers, loaded or empty, except in front of the docks
on the concrete apron provided for such purposes. Tenant shall not park or
permit parking of vehicles overnight anywhere on the Project without the prior
written consent of Landlord.
ARTICLE XX - DEFAULT AND REMEDIES
---------------------------------
20.1 Defaults. It shall be an event of default. (a) If Tenant does not pay in
--------
full when due and without demand any and all installments of Base Rent or
Additional Rent or any other charges
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or payments; or (b) If Tenant violates or fails to perform or otherwise breaches
any agreement, term, covenant or condition contained in this Lease; or (c) If
Tenant vacates or abandons any portion of the Premises, or fails to occupy the
Premises for a period of thirty (30) days or if substantially all of Tenant's
assets in or on the Premises or Tenant's interest in this Lease is attached or
levied upon under execution (and Tenant does not discharge same within sixty
(60) days thereafter); or (d) If Tenant becomes insolvent or bankrupt in any
sense or makes an assignment for the benefit of creditors or offers a
composition or settlement to creditors, under any. federal or state law, or if a
petition in bankruptcy or for reorganization or for an arrangement with
creditors under any federal or state law is filed by or against Tenant, or
Tenant is adjudicated insolvent pursuant to the provisions of any present or
future insolvency law of any state having jurisdiction, or a bill in equity or
other proceeding for the appointment of a receiver, trustee, liquidator,
custodian, conservator or similar official for any of Tenant's assets is
commenced, under any federal or state law by reason of Tenant's inability to pay
its debts as they become due or otherwise, or if Tenant's estate by this Lease
or any real or personal property of Tenant shall be levied or executed upon by
any sheriff, marshal or constable; or by other process of law; provided,
however, that any proceeding brought by anyone other than the parties to this
Lease under any bankruptcy, reorganization, arrangement, insolvency,
readjustment, receivership or similar law shall not constitute a default until
such proceeding, decree, judgement or order has continued unstayed for more than
sixty (60) consecutive days. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, or any similar provisions of
any future federal bankruptcy law (the "Bankruptcy Code"), any and all monies or
other considerations payable or otherwise to be delivered in connection with
such assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid to or turned over to Landlord.
20.2 Termination. If an event of default occurs, Landlord shall have the right
-----------
at any time to give a written termination notice to Tenant and, on the date
specified in such notice, Tenant's right to possession shall terminate and this
Lease shall terminate. Upon such termination, Landlord shall have the right to
recover from Tenant:
(a) The worth at the time of award of all unpaid Rent which had been
earned at the time of termination;
(b) The worth at the time of award of the amount by which all unpaid Rent
which would have been earned after termination until the time of award
exceeds the amount of
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such rental loss that Tenant proves could have been reasonably avoided;
(c) The worth at the time of award of the amount by which all unpaid Rent
for the balance of the term of this Lease after the time of award exceeds
the amount of such rental loss that Tenant proves could be reasonably
avoided; and
(d) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The "worth at the time of award" of
the amounts referred to in clauses (a) and (b) above shall be computed by
allowing interest at the maximum annual interest rate allowed by law for
business loans (not primarily for personal, family or household purposes)
not exempt from the usury law at the time of termination or, if there is no
such maximum annual interest rate, at the rate of twelve percent (12%) per
annum. The "worth at the time of award" of the amount referred to in clause
(c) above shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). For the purpose of determining unpaid Rent under clauses (a),
(b) and (c) above, the rent reserved in this Lease shall be deemed to be
the total rent payable by Tenant under this Lease.
20.3 No Termination. Even though Tenant has breached this Lease, this Lease
--------------
shall continue in effect for so long as Landlord does not terminate Tenant's
right to possession, and Landlord shall have the right to enforce all its rights
and remedies under this Lease, including the right to recover all Rent as it
becomes due under this Lease. Acts of maintenance or preservation or efforts to
relet the Premises or the appointment of a receiver upon initiative of Landlord
to protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession unless written notice of termination
is given by Landlord to Tenant.
20.4 Non-waiver. No waiver by Landlord of any breach by Tenant or any of
----------
Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by
Landlord of any rights and remedies with respect to such or any subsequent
breach.
20.5 Tenant Cure Period. Notwithstanding anything hereinabove stated, except
------------------
in the case of emergency, and except in the event of abandonment or vacation of
the Premises by Tenant or any default enumerated in subparagraphs (c), (d) and
(e) of Section 20.1 above, and except if Tenant fails to timely execute and
deliver any instrument, certificate or agreement required under Article XXIV or
Article XXV of this Lease, Landlord will not
25
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exercise any right or remedy provided for in this Lease or allowed by law
unless, with respect to any default by Tenant in the payment of Rent, Tenant
does not cure the default within ten (10) days after written demand for payment
by Landlord or its authorized agent or property manager of such Rent or unless,
with respect to any other default by Tenant in the prompt and full performance
of any other provision of this Lease, Tenant does not cure same within thirty
(30) days after written demand by Landlord or its authorized agent that the
default be cured. Notwithstanding anything to the contrary therein, Tenant shall
not be deemed to be in default under Section 20.5 if such default is incapable
of cure within said period and Tenant has commenced to complete the cure of such
default within said thirty (30) day period and is proceeding diligently.
20.6 Rights and Remedies Cumulative. No right or remedy herein conferred upon
------------------------------
or reserved to Landlord is intended to be exclusive of any other right or remedy
provided herein or by law, but each shall be cumulative and in addition to every
other right or remedy given herein or now or hereafter existing at law or in
equity or by statute.
20.7 Rights of Mortgagee. In the event of any default by act or omission by
-------------------
Landlord which would give Tenant the right to terminate this Lease or to claim a
partial or total eviction, Tenant shall not exercise any such right until it has
notified in writing the holder of any mortgage or deed of trust which at the
time shall be a lien on all or any portion of the Project (if the name and
address of such holder shall previously have been furnished by written notice to
Tenant) of such default, and until a period of time equal to the cure period
provided Landlord hereunder, plus thirty (30) days, shall have elapsed; provided
if the default cannot be cured within such thirty (30) days, until a reasonable
period for curing such default has elapsed provided the holder commences the
cure within such thirty (30) day period and diligently prosecutes the same to
completion.
20.8 Curing Tenant's Defaults. If Tenant shall be in default in the
------------------------
performance of any of its obligations hereunder beyond any applicable cure
period, Landlord, without any obligation to do so, in addition to any other
rights it may have in law or equity, may elect (but shall not be obligated) to
cure such default on behalf of Tenant after written notice (except in the case
of emergency) to Tenant. Tenant shall reimburse Landlord upon demand for all
costs and expenses paid or incurred by Landlord in curing such default,
including interest thereon from the respective dates of Landlord's making the
payments and incurring such costs, at the rate set forth in Section 3.7, which
sums and costs together with interest thereon shall be deemed Additional Rent
payable promptly upon being billed therefor.
20.9 Attorneys' Fees. In the event either party places the enforcement of
---------------
this Lease, or any part of it, or the collection of any rent due, or to become
due, hereunder, or recovery of the possession of the Premises, in the hands of
an attorney, or files
26
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suit upon the same, the prevailing party shall recover its reasonable attorneys'
fees, costs and expenses, including those which may be incurred on appeal. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not suit is filed or any suit that may be filed is pursued to decision or
judgment. The term "prevailing party" shall include, without limitation, a party
who substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
party of its claim or defense. The attorneys' fee award shall not be computed in
accordance with any court fee schedule, but shall be such as to fully reimburse
all attorneys' fees reasonably incurred.
20.10 Waiver of Jury Trial. Landlord and Tenant acknowledge and agree that
--------------------
any controversy which may arise under this Lease would be based upon difficult
and complex issues. Accordingly, the parties agree that any court proceeding
arising out of any such controversy will be tried in a court of competent
jurisdiction by a judge sitting without a jury and each party waives its right
to a jury trial in such proceedings.
ARTICLE XXI - DEFINITION OF LANDLORD
------------------------------------
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners at the time in question of the Project, and in
the event of any transfer or transfers of the title to the Project, Landlord
herein named (and in case of any subsequent transfers or conveyances, the then
grantor) shall be automatically freed and relieved, from and after the date of
such transfer or conveyance, of all liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed; provided that any funds in the hands of such
Landlord or the then grantor at the time of such transfer, in which Tenant has
an interest, shall be turned over to the grantee, and any amount then due and
payable to Tenant by Landlord or the then grantor under any provisions of this
Lease, shall be paid to Tenant. Neither Landlord nor any principal of Landlord
nor any owner of the Land, whether disclosed or undisclosed, shall have any
personal liability with respect to any of the provisions of this Lease or the
Project, and if Landlord is in breach or default with respect to Landlord's
obligations under this Lease or otherwise, Tenant shall look solely to the
equity of Landlord in the Project and any insurance maintained by Landlord for
the satisfaction of Tenant's remedies.
ARTICLE XXII - NOTICES
----------------------
All notices and other communications hereunder (hereinafter collectively
referred to as "notices") required to be given or which may be given hereunder
shall be in writing and shall be sent by (a) certified or registered mail,
return receipt requested, postage prepaid, or (b) national prepaid overnight
27
<PAGE>
delivery service, or (c) telecopy or other facsimile transmissions (followed
with "hard" copy sent by national prepaid overnight delivery service), or (d)
personal delivery with receipt acknowledged in writing, directed as follows:
Landlord: The Address designated in Section 1.1A
With copy to: Steefel, Levitt & Weiss
One Embarcadero Center, 30th Floor
San Francisco, CA 94111
Attention: Janet C. Norris, Esq.
Tenant: The Address designated in Section 1.1B
With copy to: Douglas G. Van Gessel, Esq.
Brobeck, Phleger & Harrison
One Market Plaza, 23rd Floor
San Francisco, CA 94105
Any notice so sent by certified or registered mail shall be deemed given on
the date of receipt or refusal as indicated on the return receipt. Any notice
sent by telecopy or other facsimile transmission shall be deemed given when the
"hard" copy sent by national prepaid overnight delivery service is received or
refused. All other notices shall be deemed given when actually received or
refused by the party to whom the same is directed. A notice may be given either
by a party or by such party's attorney. Either party may designate by notice
given to the other in accordance with the terms of this Article XXII, additional
or substitute parties or addresses to whom notices should be sent hereunder.
ARTICLE XXIII - SECURITY DEPOSIT
--------------------------------
At the time of signing this Lease Tenant shall deposit with Landlord the
sum set forth in Section 1.1K, to be retained by Landlord as a security deposit
for the faithful performance and observance by Tenant of the covenants,
agreements and conditions of this Lease. Tenant grants to Landlord a security
interest in the security deposit to secure the payment of all Rent owing under
this Lease. This Lease shall constitute a security agreement between Landlord
and Tenant for the purpose of creating such security interest. Upon request by
Landlord at any time, Tenant shall execute and deliver to Landlord UCC Financing
Statements to further evidence and perfect the security interest herein granted.
If and to the extent permitted by applicable law, (a) Tenant shall not be
entitled to any interest whatever on the security deposit, (b) Landlord shall
not be obligated to hold the security deposit in trust or in a separate account,
and (c) Landlord shall have the right to commingle the security deposit with its
other funds. Landlord may use, apply or retain the whole or any part of the
security deposit to the extent required for the payment of any Rent payable
hereunder as to which Tenant is in default or to the extent required for the
reimbursement to Landlord of any sum which Landlord may expend or may be
required
28
<PAGE>
to expend by reason of Tenant's default with respect to any of the covenants,
agreements or conditions of this Lease. Upon notice by Landlord of Landlord's
application of all or any portion of the security deposit as aforesaid, Tenant
shall replenish the security deposit in full by promptly paying to Landlord the
amount so applied. If Tenant shall fully and faithfully comply with all of the
covenants, agreements and conditions of this Lease, the security deposit shall
be returned to Tenant within thirty (30) days after the date fixed as the
expiration of the Lease Term and surrender of the Premises to Landlord. If the
Project is sold to a bona fide purchaser, Landlord shall have the right to
transfer the security deposit to such purchaser, by which transfer Landlord
shall be released from all liability for the return thereof, and Tenant shall
look solely to the new landlord for the return thereof.
ARTICLE XXIV - SUBORDINATION OR SUPERIORITY
-------------------------------------------
This Lease is and shall be expressly subject and subordinate at all times
to (a) any present or future ground, underlying or operating lease of the
Building, the Land or the Project, and all amendments, renewals and
modifications to any such lease, and (b) the lien of any present or future
mortgage or deed of trust encumbering fee title to the Building, the Land, the
Project and/or the leasehold estate under any such lease. If any such mortgage
or deed of trust be foreclosed, or if any such lease be terminated, upon request
of the mortgagee, beneficiary or lessor, as the case may be, Tenant will attorn
to the purchaser at the foreclosure sale or to the lessor under such lease, as
the case may be. The effective subordination of this Lease to any existing or
future mortgages, deeds of trust, other security interest or leases shall be
subject to the fulfillment of the condition precedent that the holder of such
mortgage or other lien on the Building or Land shall first have agreed in
writing that so long as Tenant is not in default, the Lease shall not be
terminated by foreclosure or sale pursuant to the terms of such mortgage or
lien. The foregoing provisions are declared to be self-operative and no further
instruments shall be required to effect such subordination and/or attornment;
provided, however, that Tenant agrees upon request by any such mortgagee,
beneficiary, lessor or purchaser at foreclosure, as the case may be, to execute
such subordination and/or attornment instruments as may be required by such
person to confirm such subordination and/or attornment on the form customarily
used by such party. Notwithstanding the foregoing to the contrary, any such
mortgagee, beneficiary or lessor may elect to give the rights and interests of
Tenant under this Lease (excluding rights in and to insurance proceeds and
condemnation awards) priority over the lien of its mortgage or deed of trust or
the estate of its lease, as the case may be. In the event of such election and
upon the mortgagee, beneficiary or lessor notifying Tenant of such election, the
rights and interests of Tenant shall be deemed superior to and to have priority
over the lien of said mortgage or deed of trust or the estate of such lease, as
the case may be, whether this Lease is dated prior to or subsequent to the date
of
29
<PAGE>
such mortgage, deed of trust or lease. In such event, Tenant shall execute and
deliver whatever instruments may be required by such mortgagee, beneficiary or
lessor to confirm such superiority on the form customarily used by such party.
ARTICLE XXV - TENANT'S CERTIFICATE
----------------------------------
Tenant, at any time and from time to time and within ten (10) business days
after Landlord's written request, shall execute, acknowledge and deliver to
Landlord a written instrument in recordable form certifying that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that it is in full force and effect as modified and stating the modifications);
stating that the improvements, if any, required by Article XV hereof have been
completed; certifying that Tenant has accepted possession of the Premises;
stating the date on which the Lease Term commenced and the dates to which Base
Rent, Additional Rent and other charges have been paid in advance, if any;
stating that to the best knowledge of Tenant, Landlord is not in default of this
Lease (or if there are defaults alleged by Tenant, setting forth in detail the
nature of such alleged defaults); stating any other fact or certifying any other
condition reasonably requested by Landlord or required by any mortgagee or
prospective mortgagee or purchaser of the Premises or any interest therein; and
stating that it is understood that such instrument may be relied upon by any
mortgagee or prospective mortgagee or purchaser of the Premises or any interest
therein or by any assignee of Landlord's interest in this Lease or by any
assignee of any mortgagee. The foregoing instrument shall be addressed to
Landlord and to any mortgagee, purchaser or other party specified by Landlord.
ARTICLE XXVI - MISCELLANEOUS
----------------------------
26.1 Binding Effect. This Lease shall be binding upon and inure to the
--------------
benefit of Landlord and Landlord's successors and assigns. This Lease shall be
binding upon and inure to the benefit of Tenant and Tenant' s heirs, legal
representatives, successors and permitted assigns.
26.2 Exhibits. All Exhibits attached to this Lease are made a part of this Lease
--------
and incorporated by this reference into this Lease.
26.3 Entire Agreement. This Lease and the Exhibits and Rider (if any)
----------------
attached to this Lease set forth all the covenants, promises, assurances,
agreements, representations, conditions, warranties, statements and
understandings (the "Representations" collectively) between Landlord and Tenant
concerning the Premises and the Building, and there are no Representations,
either oral or written, between them other than those in this Lease. This Lease
supersedes and revokes all previous negotiations, arrangements, letters of
intent, offers to lease, reservations of space, lease proposals, brochures,
Representations and information conveyed, whether oral or in writing, between
the
30
<PAGE>
parties or their respective representatives or any other person purporting to
represent Landlord or Tenant. Tenant represents and warrants to Landlord that
all financial statements and financial information previously furnished by
Tenant to Landlord accurately reflect the financial condition of Tenant as of
the dates stated in such statements or information. Tenant acknowledges that it
has not been induced to enter into this Lease by any Representations not set
forth in this Lease, it has not relied on any such Representations, no such
Representations shall be used in the interpretation or construction of this
Lease and Landlord shall have no liability for any consequences arising as a
result of any such Representations. In particular, Tenant acknowledges that it
has not been induced to enter into this Lease by any Representation regarding
the current or projected operating costs or real estate taxes for the Project.
No subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless in writing signed by both parties.
26.4 Signing. The signing of this Lease by Tenant and delivery of this Lease to
-------
Landlord or its agent does not constitute a reservation of or option for the
Premises or an agreement to enter into a Lease and this Lease shall become
effective only if and when Landlord signs and delivers same to Tenant. If Tenant
is a corporation, it shall deliver to Landlord concurrently with the delivery to
Landlord of a signed Lease, certified resolutions of Tenant's directors
authorizing the signing and delivery of this Lease and the performance by Tenant
of its obligations under this Lease.
26.5 No Accord. No payment by Tenant or receipt by Landlord of a lesser amount
---------
than any installment or payment of Rent due shall be deemed to be other than on
account of the amount due, and no endorsement or statement on any check or any
letter accompanying any check or payment of Rent shall be considered an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
payment of Rent or pursue any other remedies available to Landlord. No receipt
of money by Landlord from Tenant after the termination of this Lease or Tenant's
right to possession of the Premises shall reinstate, continue or extend the
Lease Term. Landlord may allocate payments received from Tenant to outstanding
account balances of Tenant under this Lease in the manner determined by Landlord
and Landlord shall not be bound by any allocations of such payments made by
Tenant by notation or endorsement on checks or otherwise.
26.6 Broker. Landlord and Tenant each warrants and represents for the benefit
------
of the other that it has had no dealings with any real estate broker or agent in
connection with the negotiation of this Lease, except for any Broker specified
in Section 1.1N, and that it knows of no other real estate broker or agency who
is or might be entitled to a real estate brokerage commission or finder's fee in
connection with this Lease. Landlord shall indemnify and hold harmless Tenant
from and against any claims by
31
<PAGE>
the Broker stated in Section 1.1N. Each party shall indemnify and hold harmless
the other from and against any and all liabilities or expenses arising out of
claims made by any broker (other than the Broker stated in Section 1.1N) or
individual for commissions or fees resulting from the actions of the
indemnifying party in connection with this Lease.
26.7 Force Majeure. Neither party shall be considered in default of any of the
-------------
terms, covenants and conditions of this Lease on its part to be performed, if
such party fails to timely perform same and such failure is due in whole or in
part to any strike, lockout, labor trouble (whether legal or illegal), civil
disorder, inability to procure materials, failure of power, restrictive
governmental laws and regulations, riots, insurrections, war, fuel shortages,
accidents, casualties, Acts of God, acts caused directly or indirectly by the
other party (or the other party's agents, employees or invitees) or any other
cause beyond the reasonable control of the first party. Tenant's obligation to
pay rent, however, is not excused by this Section 26.7.
26.8 No Waiver. The receipt by Landlord of any Rent with knowledge of the
---------
breach of any covenant of this Lease by Tenant shall not be deemed a waiver of
such breach or any subsequent breach of this Lease by Tenant and no provision of
this Lease and no breach of any provision of this Lease shall be deemed to have
been waived by Landlord or Tenant unless such waiver be in writing signed by
Landlord or Tenant, as relevant.
26.9 Captions. Article and Section captions in this Lease are inserted only as
--------
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of such Articles or Sections.
26.10 Applicable Law. This Lease shall be construed in accordance with the laws
--------------
of the State in which the Premises are situated.
26.11 Time. Time is of the essence of this Lease and the performance of all
----
obligations under this Lease.
26.12 Recording. Tenant shall not record this Lease or a memorandum of this
---------
Lease in the Public Records of the County where the Premises are located.
26.13 Severability. If any clause, phrase, provision or portion of this Lease
------------
or the application of same to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease, nor any other
clause, phrase, provision or portion of this Lease, nor shall it affect the
application of any clause, phrase, provision or portion of this Lease to other
persons or circumstances.
32
<PAGE>
26.14 No Light and Air Easement. The reduction or elimination of Tenant's
-------------------------
light, air or view will not affect Tenant's liability under this Lease nor will
it create any liability of Landlord to Tenant.
26.15 Joint and Several Liability. If Tenant is comprised of more than one
---------------------------
signatory, each signatory shall be jointly and severally liable with each other
signatory for payment and performance according to this Lease.
26.16 No Construction Against Preparer of Lease. This Lease has been prepared
-----------------------------------------
by Landlord and its professional advisors and reviewed by Tenant and its
professional advisors. Landlord, Tenant and their separate advisors believe that
this Lease is the product of all of their efforts, that it expresses their
agreement and that it should not be interpreted in favor of either Landlord or
Tenant or against either Landlord or Tenant merely because of their efforts in
preparing it.
ARTICLE XXVII - ENVIRONMENTAL PROTECTION
----------------------------------------
27.1 Hazardous Substances. The term "Hazardous Substances" as used in this
--------------------
Article XXVII, shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyl's (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any governmental
authority.
27.2 Environmental Prohibitions. Tenant shall not cause to occur:
--------------------------
(a) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions
on, under, or about the Premises, or arising from Tenant's use or occupancy
of the Premises, including, but not limited to, soil and ground water
conditions; or
(b) The use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substance on, under, or
about the Premises, or the transportation to or from the Premises of any
Hazardous Substance in violation of applicable law.
27.3 Environmental Compliance.
------------------------
(a) Tenant shall, at Tenant's expense, comply with all laws regulating the
use, generation, storage, transportation, or disposal of Hazardous
Substances (the "Laws").
(b) Tenant shall, at Tenant's expense, make all submissions to, provide
all information required by, and comply with all
33
<PAGE>
requirements of all governmental authorities (the "Authorities") under the
Laws with respect to Tenant's use of Hazardous Substances at the Premises.
(c) If any Authority demands that a clean-up plan be prepared and that a
clean-up be undertaken because of any deposit, spill, discharge, or other
release of Hazardous Substances by reason of any act of Tenant, its agents,
employees or invitees, during the Lease Term, at or from the Premises, or
which arises at any time from Tenant's use or occupancy of the Premises,
then Tenant shall, at Tenant's expense, prepare and submit the required
plans and all related bonds and other financial assurances; and Tenant
shall carry out all work required by such clean-up plans. Tenant shall not
be liable, however, to carry out clean-up work that arises from the use or
ownership of Landlord, its agents, employees, invitees or contractors of
the Premises, and/or any Pre-Lease Date Hazardous Substances.
(d) Tenant shall promptly provide all non-confidential information
regarding the use, generation, storage, transportation or disposal of
Hazardous Substances in Tenant's possession that is requested by Landlord.
If Tenant fails to fulfill any duty imposed under this Section 27.3, within
a reasonable time, Landlord may do so; and in such case, Tenant shall
cooperate with Landlord in order to prepare all documents Landlord deems
necessary or appropriate to determine the applicability of the Laws to the
Premises and Tenant's use thereof, and for compliance therewith, and,
Tenant shall execute all documents promptly upon Landlord's request. No
such action by Landlord and no attempt made by Landlord to mitigate
damages, under any Law shall constitute a waiver of any of Tenant's
obligations under this Section 27.3.
(e) Tenant's obligations and liabilities under this Section 27.3 shall
survive the expiration or termination of this Lease.
27.4 Environmental Indemnity. Tenant shall indemnify, defend, and hold
-----------------------
harmless Landlord and its officers, directors and shareholders from all fines,
suits, procedures, claims, and actions of every kind and all costs associated
therewith (including reasonable attorneys and consultants fees) arising out of
or in any way connected with any Post-Lease Date Hazardous Substance. Tenant's
obligations and liabilities under this Section 27.4 shall survive the expiration
or termination of this Lease.
27.5 Landlord's Disclosure. Landlord hereby discloses to Tenant that Landlord
---------------------
has become aware of one or more potential releases of chemicals in or around the
Land which has contaminated the land and groundwater and which may be related to
the former operations of Signetics Corporation ("Signetics") and Eaton
Corporation ("Eaton") on the property from 1961 to 1985, prior to
34
<PAGE>
the time the current building at 680 W. Maude was constructed. The California
Regional Water Quality Control Board, San Francisco Bay Region has issued an
order (the "Order") designating Eaton and Signetics as the parties primarily
responsible for cleaning up any contamination which may be found in soil and/or
groundwater under the site. Copies of the Order and documents related thereto
may be reviewed by Tenant upon request.
27.6 Landlord's Environmental Indemnity. Landlord shall indemnify, defend, and
----------------------------------
hold harmless Tenant and its officers, directors and shareholders from all
fines, suits, procedures, claims, and actions of every kind and all costs
associated therewith (including attorneys and consultants fees) arising out of
or in any way connected with any Pre-Lease Date Hazardous Substances. Landlord's
obligations and liabilities under this Section 27.6 shall survive the expiration
or termination of this Lease.
27.7 Definitions.
-----------
"Post-Lease Date Hazardous Substances" shall mean any Hazardous Substances
other than Pre-Lease Date Hazardous substances which are released, discharged or
placed in, on, under or about the Property or which migrated therefrom at any
time during the Term by reason of any act of Tenant, its agents, employees, or
invitees.
"Pre-Lease Date Hazardous Substances" shall mean any Hazardous Substances
which are located in, on, under or about the Property on or before the
Lease Term which affect or could affect the Property on or before the Lease
Term or which migrated therefrom prior to such date.
ARTICLE XXVIII - ADA
--------------------
Tenant shall, at Tenant's sole cost and expense, be responsible for any
alterations or modifications to the Premises required under the ADA after
commencement of the Lease- (i) as a result of Tenant (or any subtenant or
assignee) being a Public Accommodation (as currently defined in the ADA); (ii)
as a result of any alterations made to the Premises after the commencement of
the Lease by or on behalf of Tenant (whether or not Landlord shall have caused
such leasehold improvements to be constructed for Tenant, or Landlord's consent
to such leasehold improvements was obtained); or (iii) (as to the configuration
of improvements
35
<PAGE>
placed in the Premises by Tenant only) as a result of the employment by Tenant
(or any subtenant or assignee) of any individual with a disability.
IN WITNESS WHEREOF, the parties have signed triplicate counterparts hereof
as of the date and year hereinabove set forth.
TENANT: LANDLORD.
STARRIDGE NETWORKS INC. PAINEWEBBER QUALIFIED PLAN PROPERTY
FUND FOUR, L.P., a Delaware limited
partnership
By: Fourth Qualified Properties,
Inc.
By: /s/ Bobby R. Johnson, Jr. By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Its: President & CEO Its: Vice President
-------------------------- --------------------------
Attest: /s/ H. Earl Ferguson Attest: /s/ [SIGNATURE ILLEGIBLE]
--------------------------- ---------------------------
Its: Vice President Its: Portfolio Analyst
------------------------------ -----------------------------
36
<PAGE>
EXHIBIT A
---------
[FLOOR PLAN APPEARS HERE]
THE MARTIN COMPANY
1-STORY BUILDING
<PAGE>
EXHIBIT "B"
The land referred to in this Report is situated in the City of Sunnyvale, County
of Santa Clara, State of California, and is described as follows:
PARCEL 1, as shown on the Parcel Map recorded May 16, 1985 in Book 543 of Maps,
at page 20, Santa Clara County Records
<PAGE>
EXHIBIT "C"
-----------
RULES AND REGULATIONS
1. Any sign, lettering, picture, notice or advertisement installed within
or upon the Premises which is visible from the public corridors within the
Building shall be installed in such manner and be of such character and style as
Lessor shall approve in writing. No sign, lettering, .picture, notice or
advertisement shall be placed on any outside window or door or in a position to
be visible from the public corridor or outside the Building.
2. Sidewalks, entrances, passages, courts, corridors, halls, elevators
and stairways in and about the Premises shall not be obstructed nor shall
objects be placed against glass partitions, doors or windows which would be
unsightly from the Building's corridors or from the exterior of the Building.
3. No animals, pets, bicycles or other vehicles shall be brought or
permitted to be in the Building or the Premises.
4. Room to room canvasses to solicit business from other tenants of the
Building are not permitted.
5. All doors to the Premises shall remain closed at all times.
6. No locks or similar devices shall be attached to any door except by
Landlord and Landlord shall have the right to retain a key to all such locks.
7. Tenant assumes full responsibility of protecting the Premises from
theft, robbery and pilferage. Except during Tenant's normal business hours,
Tenant shall keep all doors to the Premises locked and other means of entry to
the Premises closed and secured.
8. Except with the prior approval of Landlord, all cleaning, repairing,
janitorial, decorating, painting or other services and work in and about the
Premises shall be done only by authorized Building personnel.
9. Furniture, equipment, machines and other large or bulky articles shall
be brought to the Building and into and out of the Premises at such times and in
such manner as Landlord shall direct (including the designation of elevator) and
at Tenant's sole risk and cost. Prior to Tenant's removal of such articles from
the Building, Tenant shall obtain written authorization of the office of the
Building and shall present such authorization to a designated employee of
Landlord.
10. Tenant shall not in any manner deface or damage the Building.
<PAGE>
11. Inflammables such as gasoline, kerosene, naphtha and benzene, or
explosives or any other articles of an intrinsically dangerous nature are not
permitted in the Building or the Premises.
12. To the extent permitted by law, Tenant shall not permit picketing or
other union activity involving its employees in the Building, except in those
locations and subject to time and other limitations as to which Landlord may
give prior written consent.
13. Tenant shall not enter into any heating, ventilation, air-
conditioning, mechanical or elevator machinery housing areas.
14. Tenant shall not distribute literature, flyers, handouts or pamphlets
of any type in any of the Common Areas of the Building, without the prior
written consent of Landlord.
15. Tenant shall not cook, otherwise prepare or sell any food or beverages
in or from the Premises.
16. Tenant shall not permit the use of any apparatus for sound production
or transmission in such manner that the sound so transmitted or produced shall
be audible or vibrations therefrom shall be detectable beyond the Premises.
17. Tenant shall keep all electrical and mechanical apparatus free of
vibration, noise and air waves which may be transmitted beyond the Premises.
Tenant shall not open or permit to be opened any windows in the Premises. Tenant
shall not permit the use of any apparatus for sound production or transmission
in such manner that the sound so transmitted or produced shall be audible or
vibrations therefrom shall be detectable beyond the Premises. Tenant shall not
utilize any electronic, radiowave, microwave or other transmitting, receiving or
amplification device which would disturb or interfere with any other tenant of
the Building or the operation of the Building generally. Tenant shall not
utilize any equipment or apparatus in such manner as to create any magnetic
fields or waves which adversely affect or interfere with the operation of any
system or equipment in the Building.
18. Tenant shall not permit objectionable odors or vapors to emanate from
the Premises.
19. Tenant shall not place a load upon any floor of the Premises exceeding
the floor capacity for which such floor was designed or allowed by law to carry.
20. No floor covering shall be affixed to any floor in the Premises by
means of glue or other adhesive without Landlord's prior written consent.
<PAGE>
(Landlord's Acknowledgment)
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this _____ day of ______________________, 19______, before me appeared
______________________________________________________________ and ___________
________________________________________________________ , to me personally
known, who being by me duly sworn, did say that they are the _________________
_____________________________ and _______________________________of THE
TRAVELERS INSURANCE COMPANY, a Connecticut corporation, the corporation that
executed the within and foregoing instrument and that said instrument was signed
and sealed in behalf of said corporation by authority of its Board of Directors,
and that the seal affixed is the corporate seal of said corporation and said
__________________________________ and __________________________________
acknowledged said instrument to be the free act and deed of said corporation.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
(Tenant Corporate Acknowledgment)
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this ______ day of ________________________, 19______, before me
appeared _______________________________________, to me personally known, who
being by me duly sworn, did say that [he] [she] is the ________________________,
of __________________________________, the corporation that executed the within
and foregoing instrument and that said instrument was signed and sealed in
behalf of said corporation by authority of its Board of Directors, and that the
seal affixed is the corporate seal of said corporation and said ________________
______________________________________ acknowledged said instrument to be the
free act and deed of said corporation.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
(Tenant Corporate Acknowledgment)
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this ______ day of ___________________________, 19_____, before me
personally appeared ___________________________________________________, who
being by me duly sworn, did say that [he] [she] is general partner of
________________________________________________________________________________
and that said instrument was signed and sealed in behalf of its Articles of
Agreement, and said partner acknowledged said instrument to be the free act and
deed of said partnership.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
(Tenant Individual Acknowledgment)
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this ______ day of ________________________, 19______, before me
personally appeared ___________________________________________________________,
to me known to be the person(s) that executed the within and foregoing
instrument and acknowledged that [he] [she] [they] executed the same as [his]
[her] [their] free act and deed.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this _______ day of _______________________, 19______, before me
personally appeared ________________________________________________________,
to me known to be the person(s) that executed the within and foregoing
instrument and acknowledged that [he] [she] [they] executed the same as [his]
[her] [their] free act and deed.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
STATE OF ____________________________ )
) SS.
COUNTY OF ___________________________ )
On this _______ day of ________________________, 19______, before me
appeared ________________________________________, to me personally known, who
being by me duly sworn, did say that [he] [she] is the_________________________,
of ______________________________________, the corporation that executed the
within and foregoing instrument and that said instrument was signed and sealed
in behalf of said corporation by authority of its Board of Directors, and that
the seal affixed is the corporate seal of said corporation and said
_________________________________________________ acknowledged said instrument
to be the free act and deed of said corporation.
________________________________________
Notary Public, _________________________
County
My Commission Expires: ________________________________
<PAGE>
EXHIBIT 10.12
SUBLEASE AGREEMENT
SUITE 1,680 WEST MAUDE AVENUE, SUNNYVALE, CALIFORNIA
This Sublease Agreement (the "Sublease"), which is dated for reference
purposes only on March 15 1999 (the "Effective Date") is entered, by and between
PROLIFIX MEDICAL, INC., a Delaware corporation ("Sublandlord") and FOUNDRY
NETWORKS, a Delaware corporation ("Subtenant"). Sublandlord agrees to sublease
to Subtenant, and Subtenant agrees to sublease from Sublandlord, Suite 1 within
the premises situated in the City of Sunnyvale, County of Santa Clara, State of
California consisting of approximately nine thousand five hundred two (9,502)
usable square feet of space on the first floor at 680 West Maude Avenue,
Sunnyvale, California 94086 (the "Subleased Premises").
ARTICLE 1
MASTER LEASE AND OTHER AGREEMENTS
Section 1.1 Applicable Provisions. Except as specifically set forth
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herein, this Sublease is subject to and subordinate to all of the terms and
conditions of that certain STANDARD NNN LEASE - Multi-Tenant Property, dated
July 8, 1998 by and between LIMAR REALTY CORP. #27, a California corporation
("Master Landlord") and Sublandlord as Tenant, (the "Master Lease"). Subtenant
shall not commit or permit to be committed anything to be done which would cause
the Master Lease to be terminated or forfeited by reason of any fight of
termination or forfeiture reserved or vested in Master Landlord under the Master
Lease. In the event of the termination of Sublandlord's interest as Tenant under
the Master Lease for any reason other than for Sublandlord's breach, this
Sublease shall terminate automatically upon such termination without any
liability of Master Landlord or Sublandlord to Subtenant.
Section 1.2 Applicable Provisions. All of the terms and provisions
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contained in the Master Lease as they pertain to the Subleased Premises
(identified as the "Expansion Premises" in the Master Lease) except for Sections
1.a., 1.b., 1.c., 1.e.(1), 1.g., 1.h., 1.i.(1), 1.j.(1), 1.k., 1.1., 1.m., 1.n.,
1.o., 1.p., 1.q., 2.a., 3, 4.a., 4.b., 4.d., 6, 13.a., 17.a., 17.e., 29, 30, 31,
32, 33.d., and those terms and provisions directly contradicted by the terms and
conditions contained in this document are hereby incorporated herein by this
reference, and shall be terms and conditions of this Sublease (with each
reference therein to "Landlord," "Tenant," and "Lease" to be deemed to refer to
Sublandlord, Subtenant, and Sublease, respectively) and, along with all of the
following terms and conditions set forth in this document, shall constitute the
complete terms and conditions of this Sublease.
Section 1.3 No Default of Master Lease. Sublandlord represents and
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warrants to Subtenant, as follows' (i) Sublandlord is not in default of any of
its obligations under the Master Lease, and Sublandlord knows of no event or
present condition, which, with the passing of time or otherwise, could give rise
to an event of default under the Master Lease on the part of Sublandlord; (ii)
Sublandlord is not in default of any of its obligations under the
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Master Lease and Master Landlord knows of no event or present condition, which,
with the passing of time or otherwise, could give rise to an event of default
under the Master Lease on the part of Master Landlord; and (iii) Sublandlord has
not previously assigned any interest in the Master Lease or in the Subleased
Premises to any party, and that by this Sublease, Sublandlord is giving to
Subtenant quiet use and quiet possession of the Subleased Premises.
ARTICLE 2
TERM
Section 2.1 Initial Term of the Sublease. The initial term of this
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Sublease shall be for a period of nine (9) months commencing on June 1, 1999
(the "Commencement Date") and expiring on February 29, 2000 (the "Expiration
Date"), unless sooner terminated pursuant to either: (i) any provision
hereunder, or (ii) the expiration or earlier termination of the Master Lease.
Section 2.2 Subtenant's Option to Extend Term of the Sublease. If
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Subtenant has not been in default of any of its obligations under this Sublease,
and this Sublease has not been terminated, Subtenant shall have one (1) option
to extend the term of this Sublease for an additional period of three (3) months
by giving Sublandlord written notice of its intent to exercise such option to
extend (the "Extension Option Notice") at a time no later than sixty (60) days
prior to the Expiration Date. Upon exercise of the option, the term of this
Sublease shall be extended for an additional period of three (3) months from the
Expiration Date (the "Option Period") until May 31, 2000 (the "Extended
Expiration Date"), upon the same terms and conditions as set forth in this
Sublease, except that the option to extend granted in this section shall be
eliminated. Following the timely and proper exercise of the option to extend
granted to Subtenant herein, all references in this Sublease to the Expiration
Date shall be construed to mean and refer to the Extended Expiration Date, as
defined herein.
ARTICLE 3
RENT
Section 3.1 Rent. During the term of this Sublease, Subtenant shall pay to
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Sublandlord basic rent and additional rent for the use and occupancy of the
Subleased Premises, determined and adjusted in accordance with the provisions of
this Sublease, payable monthly in lawful money of the United States, without any
abatement, deduction or offset whatsoever, and without any prior demand
therefor. Payment for the basic rent due for the first full calendar month of
the term of this Sublease shall be due and payable upon execution of this
Sublease by Subtenant; thereafter, all rents shall be due and payable in advance
on the first day of each and every calendar month during the term of this
Sublease. Notwithstanding the foregoing, Subtenant acknowledges the fight of
Master Landlord to collect the rents directly from Subtenant in the event of a
default by Sublandlord under the Master Lease. Subtenant, upon receipt of
written notice from Master Landlord of the occurrence of such an event of
default under the Master Lease, shall make all rent payments to Master Landlord.
If Subtenant's obligation to pay rent should commence upon a day other
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than the first day of a calendar month or terminate on a day other than the last
day of a calendar month, rents for such partial month(s) shall be prorated on
the basis of a thirty (30) day month. If, after Subtenant shall have prepaid its
first month's rent in full as required herein, the term of this Sublease should
commence on a day other than the first day of a calendar month, Subtenant shall
receive a rent credit against the rent due and payable on the first day of the
second calendar month of the term of this Sublease in an amount equal to the
unused portion of such prepaid rent.
Section 3.2 Basic Rent and Additional Rent. Each month during the term of
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this Sublease Subtenant shall pay to Sublandlord basic rent (the "Basic Rent")
in the amount of eighteen thousand fifty-three dollars and eighty cents
($18,053.80), together with Subtenant's share of "Operating Expenses" (as
defined in Section 5 of the Master Lease) and all other costs and expenses
otherwise payable by Sublandlord under the Master Lease (collectively referred
to herein as "Additional Rent"). Sublandlord shall have the same remedies with
respect to non-payment of Additional Rent as Sublandlord possesses with respect
to non-payment of Basic Rent. (Basic Rent and Additional Rent are sometimes
collectively referred to herein as "Rent" and/or "Rents".)
ARTICLE 4
CONDITION OF THE PREMISES
Section 4.1 Subleased Premises "As-Is". Sublandlord shall deliver the
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Subleased Premises to Subtenant in "as-is" condition, with all faults, and,
except as set forth in Section 4.2 below, Sublandlord makes no warranties of any
nature with respect to the condition or prospective use of the Subleased
Premises. Subtenant accepts the Subleased Premises in its condition existing as
of the Commencement Date subject to all applicable zoning, municipal, county,
and state laws, and ordinances regarding the use of the Subleased Premises.
Subtenant acknowledges that' (i) neither Sublandlord nor Master Landlord have
made any representations or warranties as to the condition of the Subleased
Premises or its suitability for Subtenant's purposes; and (ii) any alterations
or improvements to the Subleased Premises (Section 7.3 of this Sublease) shall
be at Subtenant's sole cost and expense, and Subtenant has no right, claim, or
interest, in or to Landlord's Construction Allowance (as defined in Section
29.A. of the Master Lease), or any portion thereof.
Section 4.2 Hazardous Materials. Sublandlord represents and warrants to
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Subtenant that, to the best of Sublandlord's knowledge, on the date of execution
of this Sublease by Sublandlord, the Subleased Premises are free from any
"Hazardous Materials" (as defined in Section 8.f. of the Master Lease) or spills
requiring notification or reporting to any governmental regulatory agency. As
used herein, the phrase "to the best of Sublandlord's knowledge" shall mean the
actual knowledge of the individuals executing this Sublease on behalf of
Sublandlord at the time of such execution, and shall impose no duty upon such
persons to inquire or investigate.
Section 4.3 Indemnity. Sublandlord and Subtenant (each an "indemnifying
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party") shall each indemnify, defend and hold the other harmless from any and
all actions, claims,
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damages, expenses, liabilities or losses, including, without limitation,
attorneys' fees and costs of suit, arising from the presence of Hazardous
Materials in, on, or about the Subleased Premises as the result of any action
(whether or not otherwise permitted under this Sublease) or wrongful failure to
act on the part of such indemnifying party, or the, agents, employees,
contractors, or invitees of such indemnifying party. The respective fights and
obligations of Sublandlord and Subtenant under this section shall survive the
expiration or earlier termination of this Sublease.
ARTICLE 5
SECURITY DEPOSIT
Concurrently with the execution of this Sublease, Subtenant shall deposit
with Sublandlord the amount of eighteen thousand fifty-three dollars and eighty
cents ($18,053.80) as a security deposit to be held by Sublandlord as security
for the faithful performance by Subtenant of all the terms and conditions of the
Sublease and for those purposes as set forth in, the Security Deposit section of
the Master Lease. If Subtenant fully and faithfully performs all of its
obligations hereunder, then the security deposit shall be returned to Subtenant
(without payment of interest on earnings or earnings thereon) within thirty (30)
days after the expiration or earlier termination of this Sublease.
ARTICLE 6
INSURANCE
Subtenant shall secure and maintain at Subtenant's expense commercial
general liability insurance and personal property damage insurance in the
amounts and pursuant to applicable terms for such insurance in the Master Lease.
Such insurance shall name Sublandlord and Master Landlord as additional
insureds.
ARTICLE 7
USE OF PREMISES; PARKING; IMPROVEMENTS
Section 7.1 Use of Subleased Premises. Subtenant shall use and occupy the
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Subleased Premises for the purpose of office, research, and development, sales,
light assembly and other related legal uses consistent with the terms of the
Master Lease.
Section 7.2 Parking. Subtenant shall have the right to use the parking
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allocated to the Subleased Premises under the Master Lease.
Section 7.3 Alterations and Improvements. Subtenant shall not make any
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alterations, improvements, or modifications to the Subleased Premises without
the express prior written consent of both Sublandlord and Master Landlord, which
consent may be withheld in the sole and absolute determination of Master
Landlord, but shall not be unreasonably withheld by Sublandlord. On termination
of the Sublease, Subtenant shall
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remove any and all such improvements made by Subtenant as directed by
Sublandlord and/or Master Landlord, but shall not be responsible for removal of
any improvements or alterations made by Sublandlord. Subtenant acknowledges that
all such improvements approved by Master Landlord and Sublandlord shall be at
the sole and absolute cost of Subtenant, and that, notwithstanding any provision
of the Master Lease to the contrary, there is no improvement allowance of any
nature available to Subtenant from either Master Landlord or Sublandlord.
Section 7.4 Signage. Subtenant shall have the fight to use the signage
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allocated to the Subleased Premises under the Master Lease.
ARTICLE 8
NOTICE
Any notice, demand, request, consent, approval, submittal or communication
that either party desires or is required to give to the other party shall be
addressed at the addresses set forth below. Either party may change its address
or its copy address by notifying the other party of the change of address.
Sublandlord Subtenant
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Prolifix Medical, Inc. Foundry Networks
680 West Maude Avenue 680 West Maude Avenue
Suite 2 Suite 1
Sunnyvale, CA 94086 Sunnyvale, CA 94086
ARTICLE 9
MISCELLANEOUS
Section 9.1 Entire Agreement. This Sublease constitutes the entire
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agreement between the parties with respect to the matters described or referred
to herein, and Sublandlord has made no representations or warranties to
Subtenant except as expressly set forth herein. This Sublease may only be
amended in writing signed by both parties hereto.
Section 9.2 Counterparts. This Sublease may be executed in two or more
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identical counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.3 Attorneys' Fees. In the event of any suit, action, or
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proceeding brought by either party for the breach of any term hereof, or to
enforce any provisions hereof, the prevailing party shall be entitled to
reasonable attorneys' fees in addition to court costs and other expenses of
litigation in said action or proceeding. For the purpose of this section,
"prevailing party" includes without limitation a party who agrees to dismiss an
action or
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proceeding upon the other's payment of the sums allegedly due or performance of
the covenants allegedly breached, or who obtains substantially the relief
sought.
Section 9.4 Brokers. Sublandlord and Subtenant represent and warrant to
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each other that each has not dealt with any broker, agent, finder, or other such
person with respect to this sublease and each agrees to indemnify and hold the
other harmless from any claim asserted against the other by any broker, agent,
finder, or other such person.
ARTICLE 10
CONSENT TO SUBLEASE
This Sublease shall not be effective unless and until Master Landlord
consents to this Sublease in accordance with the terms of the Master Lease.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed and delivered
this Sublease on the date first set forth above.
SUBLANDLORD. SUBTENANT:
PROLIFIX MEDICAL, INC. FOUNDRY NETWORKS,
a Delaware corporation a Delaware corporation
/s/ Greg R Patterson /s/ Timothy D Heffner
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By: Greg R Patterson By: Timothy D Heffner
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Its:Pres/CEO Its: CHIEF FINANCIAL OFFICER
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________________________ ____________________________
By:_____________________ By:_________________________
Its:____________________ Its:________________________
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
San Jose, California
July 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOUNDRY
NETWORKS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 12,430 4,567
<SECURITIES> 0 0
<RECEIVABLES> 14,455 7,006
<ALLOWANCES> 1,074 399
<INVENTORY> 9,735 7,201
<CURRENT-ASSETS> 36,038 18,742
<PP&E> 1,748 1,603
<DEPRECIATION> 1,413 1,187
<TOTAL-ASSETS> 36,453 19,238
<CURRENT-LIABILITIES> 14,719 0
<BONDS> 0 0
31,085 30,085
0 0
<COMMON> 2 2
<OTHER-SE> (9,353) (18,928)
<TOTAL-LIABILITY-AND-EQUITY> 36,543 19,238
<SALES> 39,487 17,039
<TOTAL-REVENUES> 39,487 17,039
<CGS> 18,341 8,433
<TOTAL-COSTS> 18,341 8,433
<OTHER-EXPENSES> 17,276 18,371
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (24) (413)
<INCOME-PRETAX> 3,894 (9,352)
<INCOME-TAX> 982 0
<INCOME-CONTINUING> 2,912 (9,352)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,912 (9,352)
<EPS-BASIC> 0.24 (1.04)
<EPS-DILUTED> 0.08 (1.04)
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