<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000.
Registration No. 333-33560
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)
----------------
Delaware 94-3177549
(State of incorporation ) (I.R.S. Employer Identification No.)
3535 Monroe Street
Santa Clara, CA 95051
(408) 615-2500
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
----------------
Jen-Hsun Huang
Chief Executive Officer
NVIDIA Corporation
3535 Monroe Street
Santa Clara, CA 95051
(408) 615-2500
(Name, address, including zip code, and telephone number including area code,
of agent for service)
Copies to:
James C. Gaither
Eric C. Jensen
Karyn S. Tucker
Alyssa R. Harvey
Heather L. McCormick
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
(415) 693-2000
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
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 or until the 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 or accept an offer to buy 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 offers to buy these securities in any state where such +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 20, 2000
$400,000,000
NVIDIA CORPORATION
[NVIDIA LOGO]
Common Stock
Debt Securities
-----------
This prospectus relates to offerings from time to time by NVIDIA Corporation of
shares of its common stock and debt securities. Specific terms of these
securities will be provided in supplements to this prospectus. You should read
this prospectus and any supplements carefully before you invest.
-----------
Our common stock is quoted on the Nasdaq National Market under the symbol
"NVDA."
-----------
INVESTING IN THE COMMON STOCK OR DEBT SECURITIES INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------
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.
-----------
If we sell the securities through agents or underwriters, we will include
their names and the fees, commissions and discounts they will receive, as well
as the net proceeds to us, in the applicable prospectus supplement.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
About This Prospectus..................................................... i
Prospectus Summary........................................................ 1
The Securities We May Offer............................................... 3
Risk Factors.............................................................. 4
Forward-Looking Information............................................... 14
Ratio of Earnings to Fixed Charges........................................ 14
Use of Proceeds........................................................... 15
Common Stock Price Range.................................................. 15
Dividend Policy........................................................... 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 23
Management................................................................ 32
Principal Stockholders.................................................... 35
Description Of Capital Stock.............................................. 37
Description of Debt Securities............................................ 39
Plan of Distribution...................................................... 47
Legal Matters............................................................. 48
Experts................................................................... 48
Where You Can Find More Information....................................... 48
Index to Financial Statements............................................. F-1
</TABLE>
----------------
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 representation. This prospectus is an offer
to sell only the securities offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------
"NVIDIA," the NVIDIA logo, "GeForce 256," the GeForce 256 logo, "NVIDIA
Quadro," "NVIDIA Vanta" and "Vanta" are our trademarks. Other brands, names
and trademarks appearing in this prospectus are the property of their
respective owners.
----------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a shelf registration process.
Under this shelf registration process, we may sell the common stock and debt
securities in one or more offerings up to a total dollar amount of
$400,000,000. This prospectus provides you with a general description of the
securities we may offer. Each time we sell common stock and debt securities,
we will provide a prospectus supplement that will contain more specific
information, as set forth below under "The Securities We May Offer." Please
carefully read both this prospectus and any prospectus supplement together
with the additional information described below under "Where You Can Find More
Information."
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it may not
contain all of the information that is important to you. To understand the
terms of the securities, you should read this prospectus with the accompanying
prospectus supplement carefully. Together, these documents describe the
specific terms of the securities we are offering. You should also carefully
read the section titled "Risk Factors" in this prospectus and the accompanying
prospectus supplement and the documents identified under "Where You Can Find
More Information."
Overview
We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, graphics processing units, or GPUs, and related software
that set the standard for performance, quality and features for every type of
desktop personal computer, or PC, user, from professional workstations to low-
cost PCs. Our 3D graphics processors are used in a wide variety of
applications, including games, the Internet, industrial design, e-commerce,
enterprise visualization and education. Our graphics processors were the first
to incorporate a 128-bit multi-texturing graphics architecture designed to
deliver to users of our products a highly immersive, interactive 3D experience
with compelling visual quality, realistic imagery and motion, stunning effects,
and complex object and scene interaction at real-time frame rates. The NVIDIA
TNT2, TNT2 M64 and Vanta graphics processors deliver high performance 3D and 2D
graphics at an affordable price, making them the graphics hardware of choice
for a wide range of applications for both consumer and commercial use. Our
graphics processors are designed to be architecturally compatible backward and
forward, giving our original equipment manufacturer, or OEM, customers and end
users a low cost of ownership. We are recognized for developing the world's
first GPU, our latest generation graphics processor, which incorporates
independent hardware transform and lighting processing units along with a
complete rendering pipeline into a single-chip architecture. Our GPUs, the
GeForce 256 and NVIDIA Quadro, process over 200 billion operations per second
and increase the PC's ability to render high-definition 3D scenes in real-time.
Our GPU family provides superior processing and rendering power at competitive
prices and is architected to deliver the maximum performance from industry
standards such as Microsoft Corporation's Direct3D application programming
interface, or API, and Silicon Graphics Inc.'s, or SGI's, OpenGL API on Windows
98, Windows 2000 and Linux platforms alike. We are also developing an
integrated core logic/graphics chipset called Aladdin TNT2 through a
partnership with Acer Laboratories Inc., or ALi, one of the leading suppliers
of core logic chipsets for the PC. The Aladdin TNT2 chipset is intended to
bring NVIDIA-class industry-leading graphics performance and visual quality to
the value PC segment.
We designed our GPUs and graphics processors to enable PC OEMs and add-in
board manufacturers to build award-winning products by delivering state-of-the-
art interactive 3D graphics capability to end users while maintaining
affordable prices. We believe that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. We believe
that by developing 3D graphics solutions that provide superior performance and
address the key requirements of the PC market, we will accelerate the adoption
of 3D graphics throughout this market. The benefits and performance of the
NVIDIA family of 3D graphics processors have received significant industry
validation and have enabled our customers to win over 400 industry awards. Our
graphics processors, GPUs and related software currently are designed into
products offered by virtually every leading branded PC OEM, including the Acer
Group, Compaq Computer Corporation, Dell Computer Corporation, eMachines, Inc.,
Gateway, Inc., Hewlett-Packard Company, International Business Machines
Corporation, Micron Technology, Inc., Packard Bell NEC, Inc. and Sony
Corporation, as well as leading contract electronics manufacturers, or CEMs,
including Celestica Hong Kong Ltd., Intel Corporation, Mitac International
Corporation, Micro-Star International Co., Ltd., SCI Systems, Inc. and
VisionTek, Inc. and leading add-in board manufacturers, including ASUSTeK
Computer Inc., Canopus Corporation, Creative Technology Ltd., ELSA AG, and
Guillemot Corporation. NVIDIA's products are distributed through a worldwide
channel that includes PC OEM, add-in card and motherboard partners in Europe,
Asia and North America. NVIDIA's products deliver leading-edge performance in
all areas of visual computing including: 3D and 2D graphics, VGA and digital
video.
1
<PAGE>
We were incorporated in California in April 1993 and reincorporated in
Delaware in April 1998. Our executive offices are located at 3535 Monroe
Street, Santa Clara, California 95051, and our telephone number is (408) 615-
2500. Our web site is located at www.nvidia.com. Information contained on our
web site should not be deemed to be part of this prospectus.
Recent Developments
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft up
to $100 million of the prepayment and to convert the remainder into our
preferred stock at a 30% premium to the 30-day average trading price of our
common stock.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December
31, Month Ended Year Ended Year Ended
----------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $1,182 $3,912 $29,071 $13,331 $158,237 $374,505
Operating income (loss). (6,470) (2,993) (3,459) 1,499 4,516 54,412
Net income (loss)....... (6,377) (3,077) (3,589) 1,347 4,130 38,098
Diluted net income
(loss) per share....... (.56) (.27) (.28) .05 .15 1.06
Shares used in diluted
per share
computation(1)......... 11,365 11,383 12,677 26,100 27,393 36,098
Other Data:
Ratio of earnings to
fixed charges.......... -- -- -- 37x 8x 68x
<CAPTION>
December 31, January 31,
----------------------- ----------------------- January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $3,872 $3,133 $ 6,551 $ 7,984 $ 50,257 $ 61,560
Total assets............ 6,793 5,525 25,039 30,172 113,332 202,250
Capital lease
obligations, less
current portion........ 1,137 617 1,891 1,756 1,995 962
Total stockholders'
equity................. 4,013 1,037 6,897 8,610 64,209 124,563
</TABLE>
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(1) See Note 1 to Financial Statements for an explanation of the determination
of the number of shares used in per share computations.
2
<PAGE>
THE SECURITIES WE MAY OFFER
We may offer shares of our common stock and various series of debt
securities, with a total value of up to $400 million, from time to time, under
this prospectus at prices and on terms to be determined by market conditions at
the time of offering. This prospectus provides you with a general description
of the securities we may offer. Each time we offer a type or series of
securities, we will provide a prospectus supplement that will describe the
specific amounts, prices and other important terms of the securities,
including, to the extent applicable:
. designation or classification;
. aggregate principal amount or aggregate offering price;
. maturity, if applicable;
. rates and times of payment of interest or dividends, if any;
. redemption, conversion or sinking fund terms, if any;
. voting or other rights, if any;
. conversion prices, if any; and
. important federal income tax considerations.
The prospectus supplement also may add, update or change information
contained in the prospectus or in documents we have incorporated by reference.
THIS PROSPECTUS MAY NOT BE USED TO COMPLETE ANY SALE OF SECURITIES UNLESS IT IS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We may sell the securities directly to or through agents, underwriters or
dealers. We, and our agents or underwriters, reserve the right to accept or
reject all or part of any proposed purchase of securities. If we do offer
securities through agents or underwriters, we will include in the applicable
prospectus supplement:
. the names of those agents or underwriters;
. applicable fees, discounts and commissions to be paid to them; and
. the net proceeds to us.
Common Stock. We may issue shares of our common stock, from time to time.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders, except those matters that are submitted
solely to a vote of the holders of preferred stock. Subject to any preferences
of outstanding shares of preferred stock, holders of common stock are entitled
to dividends when and if declared by the board of directors.
Debt Securities. We may offer debt securities from time to time, in one or
more series, as either senior or subordinated debt or as senior or subordinated
convertible debt. The senior debt securities will rank equally with all of our
other unsecured and unsubordinated debt. The subordinated debt securities will
be subordinate and junior in right of payment, to the extent and in the manner
described in the instrument governing the debt, to all of our senior
indebtedness. Convertible debt securities will be convertible into our common
stock. Conversion may be mandatory or at your option, and would be at
prescribed conversion rates.
The debt securities will be issued under indentures between us and Chase
Manhattan Bank and Trust Company, N.A., a national banking association. In this
prospectus, we have summarized certain general features of the debt securities.
We urge you, however, to read the prospectus supplements related to the series
of debt securities being offered, as well as the complete indentures, which
contain the terms of the debt securities. The indentures have been filed as
exhibits to the registration statement of which this prospectus is a part or
will be incorporated by reference from reports we file with the SEC.
3
<PAGE>
RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus, including the risk factors listed below. Any of these risks could
materially and adversely affect our business, financial condition and results
of operations, which in turn could materially and adversely affect the price
of the debt securities and the common stock. The prospectus supplement
applicable to each type or series of securities also will contain a discussion
of risks applicable to an investment in our company and to the particular
types of securities that we are offering under that supplement. Prior to
making a decision about investing in our securities, you should carefully
consider the specific factors discussed under the caption "Risk Factors" in
both the prospectus and the applicable prospectus supplement, together with
all of the other information contained in this prospectus and the prospectus
supplement or appearing or incorporated by reference in the registration
statement of which this prospectus is a part.
Keep these risk factors in mind when you read "forward-looking" statements
elsewhere in this prospectus and in the applicable prospectus supplements and
in the documents incorporated by reference. Such statements relate to our
expectations about future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify forward-
looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.
Our operating results are unpredictable and may fluctuate.
Many of our revenue components fluctuate and are difficult to predict, and
our operating expenses are largely independent of revenue in any particular
period. It is therefore difficult for us to accurately forecast revenue and
profits or losses. We believe that our quarterly and annual results of
operations will be affected by a variety of factors that could adversely
affect our revenue, gross profit and results of operations.
Factors that have affected our results of operations in the past, and could
affect our results of operations in the future, include the following:
. demand and market acceptance for our products and/or our customers'
products;
. the successful development and volume production of next-generation
products;
. new product announcements or product introductions by our competitors;
. our ability to introduce new products in accordance with OEM design
requirements and design cycles;
. changes in the timing of product orders due to unexpected delays in the
introduction of our customers' products;
. fluctuations in the availability of manufacturing capacity or
manufacturing yields;
. competitive pressures resulting in lower than expected average selling
prices;
. rates of return in excess of those forecasted or expected;
. the rescheduling or cancellation of customer orders;
. the loss of a key customer or the termination of a strategic
relationship;
. seasonal fluctuations associated with the PC market;
. substantial disruption in our suppliers' operations, either as a result
of a natural disaster, equipment failure or other cause;
. supply constraints for and changes in the cost of the other components
incorporated into our customers' products, including memory devices;
4
<PAGE>
. our ability to reduce the manufacturing costs of our products;
. legal and other costs related to intellectual property matters;
. unexpected inventory write-downs; and
. introductions of enabling technologies to keep pace with faster
generations of processors and controllers.
Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.
Because most operating expenses are relatively fixed in the short term, we
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall. We may be required to reduce prices in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could suffer. Accordingly, we believe that period-to-period
comparisons of our results of operations should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.
Our 3D graphics solution may not continue to be accepted by the PC market.
Our success will depend in part upon continued broad adoption of our 3D
graphics processors for high performance 3D graphics in PC applications. The
market for 3D graphics processors has been characterized by unpredictable and
sometimes rapid shifts in the popularity of products, often caused by the
publication of competitive industry benchmark results, changes in dynamic
random memory devices pricing and other changes in the total system cost of
add-in boards, as well as by severe price competition and by frequent new
technology and product introductions. Only a small number of products have
achieved broad market acceptance and such market acceptance, if achieved, is
difficult to sustain due to intense competition. Since we have no other
product line, our business would suffer if for any reason our current or
future 3D graphics processors do not continue to achieve widespread acceptance
in the PC market. If we are unable to complete the timely development of or
successfully and cost-effectively manufacture and deliver products that meet
the requirements of the PC market, our business would be harmed.
Our integrated graphics product may not be accepted by the PC market.
We expect that integrated graphics chipset products will become an
increasing part of the lower cost segment of the PC graphics market. We have
only recently introduced a 3D graphics processor targeted at this segment. If
this product is not competitive in this segment and the integrated chipset
segment continues to account for an increasing percentage of the units sold in
the PC market, our business may suffer.
We need to develop new products and to manage product transitions in order
to succeed.
Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:
. anticipate the features and functionality that consumers will demand;
. incorporate those features and functionality into products that meet the
exacting design requirements of PC OEMs and add-in board manufacturers
or CEMs;
5
<PAGE>
. price our products competitively; and
. introduce the products to the market within the limited window for PC
OEM and add-in board manufacturer.
As a result, we believe that significant expenditures for research and
development will continue to be required in the future. The success of new
product introductions will depend on several factors, including the following:
. proper new product definition;
. timely completion and introduction of new product designs;
. the ability of Taiwan Semiconductor Manufacturing Co., or TSMC, our
primary manufacturer, WaferTech, a joint venture controlled by TSMC, and
any additional third-party manufacturers to effectively manufacture our
new products;
. the quality of any new products;
. differentiation of new products from those of our competitors; and
. market acceptance of our and our customers' products.
Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes has in the past resulted in initial yield problems. New
products that we introduce may not incorporate the features and functionality
demanded by PC OEMs, add-in board manufacturers and consumers of 3D graphics.
In addition, we may not successfully develop or introduce new products in
sufficient volumes within the appropriate time to meet both the PC OEMs'
design cycles and market demand. We have in the past experienced delays in the
development of some new products. Our failure to successfully develop,
introduce or achieve market acceptance for new 3D graphics products would harm
our business.
Our failure to identify new product opportunities or to develop new products
may result in production delays.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles at the high end will remain short and
average selling prices, or ASPs, will continue to decline. In particular, we
expect ASPs and gross margins for our 3D graphics processors to decline as
each product matures and as unit volume increases. As a result, we will need
to introduce new products and enhancements to existing products to maintain
overall ASPs and gross margins. In order for our 3D graphics processors to
achieve high volumes, leading PC OEMs and add-in board manufacturers must
select our 3D graphics processor for design into their products, and then
successfully complete the designs of their products and sell them. We may be
unable to successfully identify new product opportunities or to develop and
bring to market in a timely fashion any new products. In addition, we cannot
guarantee that any new products we develop will be selected for design into
PC OEMs' and add-in board manufacturers' products, that any new designs will
be successfully completed or that any new products will be sold. As the
complexity of our products and the manufacturing process for products
increases, there is an increasing risk that we will experience problems with
the performance of products and that there will be delays in the development,
introduction or volume shipment of our products. We may experience
difficulties related to the production of current or future products or other
factors may delay the introduction or volume sale of new products we
developed. In addition, we may be unable to successfully manage the production
transition risks with respect to future products. Failure to achieve any of
the foregoing with respect to future products or product enhancements could
result in rapidly declining ASPs, reduced margins, and reduced demand for
products or loss of market share. In addition, technologies developed by
others may render our 3D graphics products non-competitive or obsolete or
result in our holding excess inventory, either of which would harm our
business.
6
<PAGE>
We rely on third-party vendors to supply us tools for the development of
our new products and we may be unable to obtain the tools necessary to develop
these products.
In the design and development of new products and product enhancements, we
rely on third-party software development tools. While we currently are not
dependent on any one vendor for the supply of these tools, some or all of
these tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of
the inability of then available software development tools to fully simulate
the complex features and functionalities of our products. The design
requirements necessary to meet consumer demands for more features and greater
functionality from 3D graphics products in the future may exceed the
capabilities of the software development tools available to us. If the
software development tools we use become unavailable or fail to produce
designs that meet consumer demands, our business could suffer.
Our industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions that could result in substantial
costs to us.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
protracted and expensive litigation. The 3D graphics market in particular has
been characterized recently by the aggressive pursuit of intellectual property
positions, and we expect our competitors to continue to pursue aggressive
intellectual property positions. In addition, from time to time we receive
notices alleging that we have infringed patents or other intellectual property
rights owned by third parties. We expect that, as the number of issued
hardware and software patents increases, and as competition in our markets
intensifies, the volume of intellectual property infringement claims will
increase. If infringement claims are made against us, we may seek licenses
under the claimant's patents or other intellectual property rights. However,
licenses may not be offered at all or on terms acceptable to us. The failure
to obtain a license from a third party for technology used by us could cause
us to incur substantial liabilities and to suspend the manufacture of
products. Furthermore, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. We have agreed to indemnify certain
customers for claims of infringement arising out of sale of our products.
Litigation by or against us or our customers concerning infringement would
likely result in significant expense to us and divert the efforts of our
technical and management personnel, whether or not the litigation results in a
favorable determination for us.
We are subject to a patent infringement lawsuit that could divert our
resources and result in the payment of substantial damages.
On September 21, 1998, 3Dfx Interactive, Inc. filed a patent infringement
suit against us in the United States District Court for the Northern District
of California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx
added a second patent to the suit and on May 24, 1999, 3Dfx added a third
patent to the suit. The amended complaint alleges that our RIVA TNT, RIVA TNT2
and RIVA TNT2 Ultra products infringe the patents in suit and seeks
unspecified compensatory and trebled damages and attorney's fees. Our current
generation of products is not identified as infringing any of the patents in
suit. We have filed an answer and counter-claims asserting that the patents in
suit are invalid and not infringed. These assertions are supported by our
investigations to date and an opinion from our patent counsel in this suit. We
anticipate that the trial date will be set by the District Court after it
rules on claims construction issues. We have and will continue to defend
vigorously this suit. The litigation with 3Dfx has resulted, and we expect
that the 3Dfx litigation will continue to result, in significant legal
expenses, whether or not the litigation results in a favorable determination
for us. In the event of an adverse result in the 3Dfx suit, we might be
required to do one or more of the following:
. pay substantial damages (including treble damages);
. permanently cease the manufacture and sale of any of the infringing
products;
. expend significant resources to develop non-infringing products; or
. obtain a license from 3Dfx for infringing products.
We have in the past been subject to patent infringement suits with SGI and
S3 Incorporated, both of which were settled and resulted in cross-licenses
and, in the case of SGI, payments by us.
7
<PAGE>
We may be unable to adequately protect our intellectual property.
We rely primarily on a combination of patents, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued United
States patents, have 4 United States patent applications allowed, 25 United
States patent applications pending and have 15 United States patent
applications being drafted for filing. Our issued patents have expiration
dates from April 14, 2015 to March 30, 2018. Our issued patents and pending
patent applications relate to technology developed by us in connection with
the development of our 3D graphics processors. Our pending patent applications
and any future applications may not be approved. In addition, any issued
patents may not provide us with competitive advantages or may be challenged by
third parties. The enforcement of patents of others may harm our ability to
conduct our business. Others may independently develop substantially
equivalent intellectual property or otherwise gain access to our trade secrets
or intellectual property, or disclose our intellectual property or trade
secrets. Our failure to effectively protect our intellectual property could
harm our business. We have licensed technology from third parties for
incorporation in our graphics processors, and expect to continue to enter into
license agreements for future products. These licenses may result in royalty
payments to third parties, the cross-license of technology by us or payment of
other consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer.
Our failure to achieve one or more design wins would harm our business.
Our future success will depend in large part on achieving design wins, which
entails having our existing and future products chosen as the 3D graphics
processors for hardware components or subassemblies designed by PC OEMs and
motherboard and add-in board manufacturers. Our add-in board manufacturers and
major OEM customers typically introduce new system configurations as often as
twice per year, generally based on spring and fall design cycles. Accordingly,
our existing products must have competitive performance levels or we must
timely introduce new products with such performance characteristics in order
to be included in new system configurations. Our failure to achieve one or
more design wins would harm our business. The process of being qualified for
inclusion in a PC OEM's product can be lengthy and could cause us to miss a
cycle in the demand of end users for a particular product feature, which also
could harm our business.
Our ability to achieve design wins also depends in part on our ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render our products incompatible with
products developed by major hardware manufacturers and software developers,
including Intel and Microsoft. This would require us to invest significant
time and resources to redesign our products to ensure compliance with relevant
standards. If our products are not in compliance with prevailing industry
standards for a significant period of time, our ability to achieve design wins
could suffer.
We are dependent on the PC market, which may not continue to grow.
In fiscal 2000, we derived all of our revenue from the sale of products for
use in PCs. We expect to continue to derive substantially all of our revenue
from the sale or license of products for use in PCs in the next several years.
The PC market is characterized by rapidly changing technology, evolving
industry standards, frequent new product introductions and significant price
competition. These factors result in short product life cycles and regular
reductions of ASPs over the life of a specific product. Although the PC market
has grown substantially in recent years, this growth may not continue. A
reduction in sales of PCs, or a reduction in the growth rate of PC sales,
would likely reduce demand for our products. Moreover, changes in demand could
be large and sudden. Since PC manufacturers often build inventories during
periods of anticipated growth, they may be left with excess inventories if
growth slows or if they have incorrectly forecast product transitions. In
these cases, PC manufacturers may abruptly suspend substantially all purchases
of additional inventory from suppliers like us until the excess inventory has
been absorbed. Any reduction in the demand for PCs generally, or for a
particular product that incorporates our 3D graphic processors, could harm our
business.
8
<PAGE>
The acceptance of next generation products in business PC 3D graphics may
not continue to develop.
Our success will depend in part upon the demand for performance 3D graphics
for business PC applications. The market for performance 3D graphics on
business PCs has only recently begun to emerge and is dependent on the future
development of, and substantial end-user and OEM demand for, 3D graphics
functionality. As a result, the market for business PC 3D graphics computing
may not continue to develop or may not grow at a rate sufficient to support
our business. The development of the market for performance 3D graphics on
business PCs will in turn depend on the development and availability of a
large number of business PC software applications that support or take
advantage of performance 3D graphics capabilities. Currently there are only a
limited number of software applications like this, most of which are games,
and a broader base of software applications may not develop in the near term
or at all. Consequently, a broad market for full function performance 3D
graphics on business PCs may not develop. Our business prospects will suffer
if the market for business PC 3D graphics fails to develop or develops more
slowly than expected.
We are dependent on a small number of customers and we are subject to order
and shipment uncertainties.
We have only a limited number of customers and our sales are highly
concentrated. We primarily sell our products to add-in board and motherboard
manufacturers and CEMs, which incorporate graphics products in the boards they
sell to PC OEMs. Sales to add-in board manufacturers and CEMs are primarily
dependent on achieving design wins with leading PC OEMs. We believe that a
substantial portion of our revenue in fiscal 2000 was attributable to products
that ultimately were incorporated into PCs sold by Compaq, Dell, Gateway, HP,
IBM and Micron. The number of add-in board manufacturers and CEMs and leading
PC OEMs is limited. We expect that a small number of add-in board
manufacturers and CEMs directly, and a small number of PC OEMs indirectly,
will continue to account for a substantial portion of our revenue for the
foreseeable future. As a result, our business could be harmed by the loss of
business from PC OEMs or add-in board manufacturers and CEMs. In addition,
revenue from add-in board manufacturers, motherboard manufacturers, CEMs and
PC OEMs that have directly or indirectly accounted for significant revenue in
past periods, individually or as a group, may not continue, or may not reach
or exceed historical levels in any future period. In October 1999, S3, a
supplier of graphics processors and a competitor, completed the acquisition of
Diamond Multimedia Systems, Inc., one of our largest customers. In the fourth
quarter of fiscal 2000, following the consummation of the acquisition, our
sales to Diamond declined significantly to only 3% of total revenue from 24%
of total revenue in the second quarter of fiscal 2000. 3Dfx, a 3D graphics
company and a competitor, completed the acquisition of STB Systems, Inc. in
May 1999. Sales to STB, another one of our largest customers, declined
significantly from prior levels following the acquisition and our relationship
with STB terminated in the fourth quarter of fiscal 2000.
We may be unable to manage our growth and, as a result, may be unable to
successfully implement our strategy.
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. As
of January 30, 2000, we had 392 employees as compared to 248 employees as of
January 31, 1999. We expect that the number of our employees will increase
substantially over the next 12 months. Our future growth, if any, will depend
on our ability to continue to implement and improve operational, financial and
management information and control systems on a timely basis, as well as our
ability to maintain effective cost controls. Further, we will be required to
manage multiple relationships with various customers and other third parties.
Our systems, procedures or controls may not be adequate to support our
operations and our management may be unable to achieve the rapid execution
necessary to successfully implement our strategy.
We are dependent on key personnel and the loss of these employees could harm
our business.
Our performance will be substantially dependent on the performance of our
executive officers and key employees. None of our officers or employees is
bound by an employment agreement, and our relationships with
9
<PAGE>
these officers and employees are, therefore, at will. We do not have "key
person" life insurance policies on any of our employees. The loss of the
services of any of our executive officers, technical personnel or other key
employees, particularly Jen-Hsun Huang, our President and Chief Executive
Officer, would harm our business. Our success will depend on our ability to
identify, hire, train and retain highly qualified technical and managerial
personnel. Our failure to attract and retain the necessary technical and
managerial personnel would harm our business.
We depend on third-party fabrications to produce our products.
We do not manufacture the semiconductor wafers used for our products and do
not own or operate a wafer fabrication facility. Our products require wafers
manufactured with state-of-the-art fabrication equipment and techniques. We
utilize TSMC and WaferTech to produce our semiconductor wafers and utilize
independent contractors to perform assembly, test and packaging. We depend on
these suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at
acceptable manufacturing yields, and to deliver those products to us on a
timely basis. These manufacturers may be unable to meet our near-term or long-
term manufacturing requirements. We obtain manufacturing services on a
purchase order basis and TSMC has no obligation to provide us with any
specified minimum quantities of product. TSMC fabricates wafers for other
companies, including certain of our competitors, and could choose to
prioritize capacity for other users or reduce or eliminate deliveries to us on
short notice. Because the lead time needed to establish a strategic
relationship with a new manufacturing partner could be several quarters, there
is no readily available alternative source of supply for any specific product.
We believe that long-term market acceptance for our products will depend on
reliable relationships with TSMC and any other manufacturers used by us to
ensure adequate product supply to respond to customer demand.
In September 1999, the earthquake in Taiwan contributed to a temporary
shortage of graphics processors in the third and fourth quarters of fiscal
2000. Any substantial disruption in our suppliers' operations, either as a
result of a natural disaster, equipment failure or other cause, could harm our
business.
We are dependent primarily on TSMC and we expect in the future to continue
to be dependent upon third-party manufacturers to do the following:
. produce wafers of acceptable quality and with acceptable manufacturing
yields;
. deliver those wafers to us and our independent assembly and testing
subcontractors on a timely basis; and;
. allocate to us a portion of their manufacturing capacity sufficient to
meet our needs.
Our wafer requirements represent a significant portion of the total
production capacity of TSMC. Although our products are designed using TSMC's
process design rules, TSMC may be unable to achieve or maintain acceptable
yields or deliver sufficient quantities of wafers on a timely basis or at an
acceptable cost. Additionally, TSMC may not continue to devote resources to
the production of our products, or to advance the process design technologies
on which the manufacturing of our products are based. Any difficulties like
these would harm our business.
Failure to achieve expected manufacturing yields would reduce our product
supply and harm our business.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by us, and process technology, which typically is
proprietary to the manufacturer. Since low yields may result from either
design or process technology failures, yield problems may not be effectively
determined or resolved until an actual product exists that can be analyzed and
tested to identify process sensitivities relating to the design rules that are
used. As a result, yield problems may not be identified until well into the
production process, and resolution of yield problems would require cooperation
by and communication between us and the manufacturer.
10
<PAGE>
The risk of low yields is compounded by the offshore location of most of our
manufacturers, increasing the effort and time required to identify,
communicate and resolve manufacturing yield problems. Because of our
potentially limited access to wafer fabrication capacity from our
manufacturers, any decrease in manufacturing yields could result in an
increase in our per unit costs and force us to allocate our available product
supply among our customers. This could potentially harm customer relationships
as well as revenue and gross profit. Our wafer manufacturers may be unable to
achieve or maintain acceptable manufacturing yields in the future. Our
inability to achieve planned yields from our wafer manufacturers could harm
our business. We also face the risk of product recalls or product returns
resulting from design or manufacturing defects that are not discovered during
the manufacturing and testing process. In the event of a significant number of
product returns due to a defect or recall, our business could suffer.
Failure to transition to new manufacturing process technologies could affect
our ability to compete effectively.
Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes may have greater risk of initial yield problems.
Manufacturing process technologies are subject to rapid change and require
significant expenditures for research and development. We continuously
evaluate the benefits of migrating to smaller geometry process technologies in
order to improve performance and reduce costs. We have migrated to the .22
micron technology with the RIVA TNT2 and GeForce families of graphics
processors, and we believe that the transition of our products to increasingly
smaller geometries will be important to our competitive position. Other
companies in the industry have experienced difficulty in migrating to new
manufacturing processes and, consequently, have suffered reduced yields,
delays in product deliveries and increased expense levels. We may experience
similar difficulties and the corresponding negative effects. Moreover, we are
dependent on our relationships with our third-party manufacturers to migrate
to smaller geometry processes successfully. We may be unable to migrate to new
manufacturing process technologies successfully or on a timely basis.
The 3D graphics industry is highly competitive and we may be unable to
compete.
The market for 3D graphics processors for PCs in which we compete is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining ASPs. We believe that the principal
competitive factors in this market are performance, breadth of product
offerings, access to customers and distribution channels, backward-forward
software support, conformity to industry standard APIs, manufacturing
capabilities, price of graphics processors and total system costs of add-in
boards and motherboards. We expect competition to increase both from existing
competitors and new market entrants with products that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products. We may be unable to compete
successfully in the emerging PC graphics market.
Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3;
. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., Ltd., SGI, Evans and Sutherland Computer Corporation and
Intergraph Corporation; and
. companies with strength in the video game market, such as 3Dfx and
VideoLogic Group plc.
11
<PAGE>
We may compete with Intel in the integrated low-cost chipset market.
In June 1999, Intel began shipping the Intel 810, a 3D graphics chipset that
is targeted at the low-cost PC market. Intel has significantly greater
resources than we do, and our products may not compete effectively against
future products introduced by Intel. In addition, we may be unable to compete
effectively against Intel or Intel may introduce additional products that are
competitive with our products in either performance or price or both. We
expect Intel to continue to do the following:
. invest heavily in research and development and new manufacturing
facilities;
. maintain its position as the largest manufacturer of PC microprocessors
and one of the largest manufacturers of motherboards;
. increasingly dominate the PC platform; and
. promote its product offerings through advertising campaigns designed to
engender brand loyalty among PC users.
Intel may in the future develop graphics add-in cards or graphics-enabled
motherboards that could directly compete with graphics add-in cards or
graphics-enabled motherboards that our customers may develop. In addition, due
to the widespread industry acceptance of Intel's microprocessor architecture
and interface architecture, including its AGP, and Intel's intellectual
property position with respect to such architecture, Intel exercises
significant influence over the PC industry generally. Any significant
modifications by Intel to the AGP, the microprocessor or core logic components
or other aspects of the PC microprocessor architecture could result in
incompatibility with our technology, which would harm our business. In
addition, any delay in the public release of information relating to
modifications like this could harm our business.
We are dependent on third parties for assembly and testing of our products.
Our graphics processors are assembled and tested by Amkor Technology Inc.,
Siliconware Precision Industries Company Ltd., ChipPAC Incorporated and ASE.
We do not have long-term agreements with any of these subcontractors. As a
result of our dependence on third-party subcontractors for assembly and
testing of our products, we do not directly control product delivery schedules
or product quality. Any product shortages or quality assurance problems could
increase the costs of manufacture, assembly or testing of our products and
could harm our business. Due to the amount of time typically required to
qualify assemblers and testers, we could experience significant delays in the
shipment of our products if we are required to find alternative third parties
to assemble or test our products or components. Any delays in delivery of our
products could harm our business.
We are subject to risks associated with product defects and
incompatibilities.
Products as complex as those offered by us may contain defects or failures
when introduced or when new versions or enhancements to existing products are
released. We have in the past discovered software defects and
incompatibilities with customers' hardware in certain of our products and may
experience delays or lost revenue to correct any new defects in the future.
Errors in new products or releases after commencement of commercial shipments
could result in loss of market share or failure to achieve market acceptance.
Our products typically go through only one verification cycle prior to
beginning volume production and distribution. As a result, our products may
contain defects or flaws that are undetected prior to volume production and
distribution. The widespread production and distribution of defective products
could harm our business.
We are subject to risks associated with international operations.
Our reliance on foreign third-party manufacturing, assembly and testing
operations subjects us to a number of risks associated with conducting
business outside of the United States, including the following:
. unexpected changes in, or impositions of, legislative or regulatory
requirements;
12
<PAGE>
. delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs, quotas and other trade barriers and
restrictions;
. longer payment cycles;
. potentially adverse taxes;
. the burdens of complying with a variety of foreign laws; and
. other factors beyond our control.
We also are subject to general political risks in connection with our
international trade relationships. In addition, the laws of certain foreign
countries in which our products are or may be manufactured or sold, including
various countries in Asia, may not protect our products or intellectual
property rights to the same extent as do the laws of the United States. This
makes the possibility of piracy of our technology and products more likely.
Currently, all of our arrangements with third-party manufacturers provide for
pricing and payment in U.S. dollars, and to date we have not engaged in any
currency hedging activities, although we may do so in the future. Fluctuations
in currency exchange rates could harm our business in the future.
The semiconductor industry is cyclical in nature.
The semiconductor industry historically has been characterized by the
following factors:
. rapid technological change;
. cyclical market patterns;
. significant ASP erosion;
. fluctuating inventory levels;
. alternating periods of overcapacity and capacity constraints; and
. variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development.
In addition, the industry has experienced significant economic downturns at
various times, characterized by diminished product demand and accelerated
erosion of ASPs. We may experience substantial period-to-period fluctuations
in results of operations due to general semiconductor industry conditions.
Failure in implementation of our enterprise resource planning system could
adversely affect our operations.
In December 1999, we began the implementation of an SAP A.G. system as our
enterprise resource planning, or ERP, system to replace our information
systems in business, finance, operations and service. The implementation is
expected to occur in phases throughout fiscal 2001. We are heavily dependent
upon the proper functioning of our internal systems to conduct our business.
There is no assurance that we will be successful in the implementation of our
ERP system. Delays in the implementation, system failure or malfunctioning may
result in disruptions of operations and inability to process transactions. Our
results of operations and financial position could be adversely affected if we
encounter unforeseen problems with respect to this implementation.
13
<PAGE>
FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that are based on our current expectations about our
company and our industry. We use words such as "expect," "anticipate,"
"estimate," "believe," "intend," "plan" and other similar expressions to
identify some forward-looking statements, but not all forward-looking
statements include these words. All our forward-looking statements involve
risks and uncertainties. Our actual results may differ significantly from our
expectations and from the results expressed in or implied by these forward-
looking statements. The section captioned "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk" that appears in our annual report
on Form 10-K for the year ended January 30, 2000, as well as the section
captioned "Risk Factors" in this prospectus and that will appear in prospectus
supplements accompanying this prospectus describe some, but not necessarily
all, of the factors that could cause these differences. We urge you to read
those sections carefully. Except as may be required by law, we undertake no
obligation to publicly update any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
RATIO OF EARNINGS TO FIXED CHARGES
Our earnings were insufficient to cover fixed charges in each of the years
in the three-year period ended December 31, 1997. Additional earnings of $6.4
million, $3.1 million and $3.6 million were necessary to provide a 1:1
coverage ratio for December 31, 1995, 1996 and 1997, respectively. For the
purpose of these calculations, "earnings" consist of income before taxes, plus
fixed charges, and "fixed charges" consist of interest expense incurred and
the portion of rental expense deemed by us to be representative of the
interest factor of rental payments under leases.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, Month Ended -----------------------
-------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------ ------ ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges.......... -- -- -- 37x 8x 68x
</TABLE>
14
<PAGE>
USE OF PROCEEDS
Unless otherwise described in a prospectus supplement, the net proceeds from
the offering of the securities will be used to fund our anticipated growth,
including anticipated increases in inventory and accounts receivable; for
potential acquisitions; for costs associated with our expected move to new
facilities; and for general working capital.
COMMON STOCK PRICE RANGE
Our common stock is traded on the Nasdaq National Market under the symbol
NVDA. Public trading of our stock began on January 22, 1999. Prior to that,
there was no public market for our stock. We have never paid cash dividends on
our capital stock and do not anticipate paying cash dividends for the
foreseeable future. As of January 30, 2000, we had approximately 351
stockholders of record, not including those shares held in street or nominee
name.
The following table sets forth for the periods indicated the high and low
sales price for the common stock as quoted on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended January 31, 1999
Fourth Quarter (beginning January 22, 1999)...................... $23.44 $18.63
Year ended January 30, 2000
First Quarter.................................................... 26.25 16.00
Second Quarter................................................... 23.13 16.38
Third Quarter.................................................... 28.38 16.75
Fourth Quarter................................................... 48.25 21.75
Year ended January 28, 2001
First Quarter (through April 19, 2000)........................... 148.44 35.00
</TABLE>
On April 19, 2000, the last reported bid price of our common stock on the
Nasdaq National Market was $81.25 per share.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not expect
to pay cash dividends for the foreseeable future.
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and the notes thereto, and with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
statement of operations data for the years ended December 31, 1997, the one
month ended January 31, 1998, the year ended January 31, 1999 and the year
ended January 30, 2000 and the balance sheet data as of December 31, 1997,
January 31, 1998 and 1999 and January 30, 2000 have been derived from and
should be read in conjunction with our audited financial statements and the
notes included thereto. The statement of operations data for the years ended
December 31, 1995 and 1996 are derived from audited financial statements and
the notes thereto not included. The balance sheet data as of December 31, 1995
and 1996 are derived from audited financial statements and the notes thereto
not included.
<TABLE>
<CAPTION>
Year Ended December 31, Month Ended Year Ended Year Ended
------------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Product................ $ 1,103 $ 3,710 $27,280 $11,420 $151,413 $374,505
Royalty................ 79 202 1,791 1,911 6,824 --
------- ------- ------- ------- -------- --------
Total revenue......... 1,182 3,912 29,071 13,331 158,237 374,505
Cost of revenue......... 1,549 3,038 21,244 10,071 109,746 235,575
------- ------- ------- ------- -------- --------
Gross profit (loss)..... (367) 874 7,827 3,260 48,491 138,930
Operating expenses:
Research and
development........... 2,426 1,218 7,103 1,121 25,073 47,439
Sales, general and
administrative........ 3,677 2,649 4,183 640 18,902 37,079
------- ------- ------- ------- -------- --------
Total operating
expenses............. 6,103 3,867 11,286 1,761 43,975 84,518
------- ------- ------- ------- -------- --------
Operating income
(loss)............... (6,470) (2,993) (3,459) 1,499 4,516 54,412
Interest and other
income (expense), net.. 93 (84) (130) (18) (29) 1,754
------- ------- ------- ------- -------- --------
Income (loss) before
income tax expense..... (6,377) (3,077) (3,589) 1,481 4,487 56,166
Income tax expense...... -- -- -- 134 357 18,068
------- ------- ------- ------- -------- --------
Net income (loss)..... $(6,377) $(3,077) $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======= ======= ======== ========
Basic net income (loss)
per share.............. $ (.56) $ (.27) $ (.28) $ .10 $ .28 $ 1.28
Diluted net income
(loss) per share....... $ (.56) $ (.27) $ (.28) $ .05 $ .15 $ 1.06
Shares used in basic per
share computation...... 11,365 11,383 12,677 14,141 14,565 29,872
Shares used in diluted
per share
computation(1)......... 11,365 11,383 12,677 26,100 27,393 36,098
<CAPTION>
December 31, January 31,
------------------------- ----------------------- January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 3,872 $ 3,133 $ 6,551 $ 7,984 $ 50,257 $ 61,560
Total assets............ 6,793 5,525 25,039 30,172 113,332 202,250
Capital lease
obligations, less
current portion........ 1,137 617 1,891 1,756 1,995 962
Total stockholders'
equity................. 4,013 1,037 6,897 8,610 64,209 124,563
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share computations.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements and notes thereto. Our fiscal years ended on December 31
from 1993 to 1997. Effective January 31, 1998, we changed our fiscal year-end
financial reporting period to a 52- or 53- week year ending on the last Sunday
in January. We elected not to restate the previous reporting periods ending
December 31. As a result, the first and fourth quarters of fiscal 1999 (year
ended January 31, 1999) are 12- and 14-week periods, respectively, with the
remaining quarters being 13-week periods. All four quarters of fiscal 2000
(year ended January 30, 2000) are 13-week periods.
Overview
We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, GPUs and related software that set the standard for
performance, quality and features for every type of desktop PC user, from
professional workstations to low-cost PCs. In the first quarter of fiscal
2000, we began commercial shipment of the RIVA TNT2 family of graphics
processors. During the third quarter, we launched the NVIDIA GeForce 256 and
NVIDIA Quadro, the industry's first GPUs, which are the first products to
incorporate transform and lighting into a single chip. The GeForce 256 and
Quadro GPUs are graphics processors capable of building a new generation of e-
commerce, e-business, education and entertainment applications. We expect that
a significant portion of our revenue for the foreseeable future will be
derived from the sale of our 3D graphics processors in the PC market. We
recognize product sales revenue upon shipment, net of appropriate allowances.
Our policy on sales to distributors is to defer recognition of sales and
related gross profit until the distributors resell the product. Royalty
revenue is generally recognized upon shipment of product to the licensee's
customers. Currently, all of our product sales and our arrangements with
third-party manufacturers provide for pricing and payment in U.S. dollars. We
have not engaged in any foreign currency hedging activities, although we may
do so in the future. Since we have no other product line, our business would
suffer if for any reason our graphics processors do not achieve widespread
acceptance in the PC market.
A majority of our sales have been to a limited number of customers and sales
are highly concentrated. We sell graphics processors to add-in board and
motherboard manufacturers, primarily ASUSTeK, Canopus, Creative, ELSA and
Guillemot and CEMs, including Celestica, Intel, Mitac, MSI, SCI and VisionTek.
These manufacturers incorporate our processors in the boards they sell to PC
OEMs, retail outlets and systems integrators. The ASPs for our products, as
well as our customers' products, vary by distribution channel. Our four
largest customers accounted for approximately 57% of revenues for fiscal 2000.
Sales to Creative accounted for 17%, sales to Edom Technology Co., Ltd., an
Asian distributor, accounted for 15%, sales to Diamond accounted for 15%, and
sales to ASUSTeK accounted for 10% of our total revenue for fiscal 2000. Sales
to STB accounted for 35%, sales to Diamond accounted for 27%, sales to
Creative accounted for 13% and sales to Intel accounted for 12% of our total
revenue for fiscal 1999. The number of potential customers for our products is
limited, and we expect sales to be concentrated to a few major customers for
the foreseeable future. In October 1999, S3, a supplier of graphics processors
and a competitor, completed the acquisition of Diamond. Our sales to Diamond
declined significantly to only 3% of total revenue in the fourth quarter of
fiscal 2000 from 24% of total revenue in the second quarter of fiscal 2000 and
Diamond is no longer one of our significant customers. 3Dfx, a 3D graphics
company and a competitor, completed the acquisition of STB in May 1999. Sales
to STB declined significantly from prior levels following the merger and our
relationship terminated in the fourth quarter of fiscal 2000. Currently, the
loss of business from Diamond and STB did not have a material impact on our
revenues and profitability due to our ability to expand product sales to other
customers.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles in the high end will remain short and
ASPs will continue to decline. In particular, ASPs and gross margins are
expected to decline as each product matures. Our add-in board manufacturers
and major OEM customers typically introduce new system configurations as often
as twice per year for the high end, typically
17
<PAGE>
based on spring and fall design cycles. Accordingly, our existing products
must have competitive performance levels in order to be included in new system
configurations, or we must timely introduce new products with such performance
characteristics at costs and in sufficient volumes to maintain overall average
selling prices and gross margins. Failure to achieve necessary costs and
volume shipments with respect to future products or product enhancements could
result in rapidly declining ASPs, reduced margins, reduced demand for products
or loss of market share.
We currently utilize TSMC and WaferTech to produce semiconductor wafers, and
utilize independent contractors to perform assembly, test and packaging. We
depend on these suppliers to allocate to us a portion of their manufacturing
capacity sufficient to meet our needs, to produce products of acceptable
quality and at acceptable manufacturing yields, and to deliver those products
to us on a timely basis. These manufacturers may not always be able to meet
our near-term or long-term manufacturing requirements. Yields or product
performance could suffer due to difficulties associated with adapting our
technology and product design to the proprietary process technology and design
rules of a new manufacturer. The level of finished goods inventory we maintain
may fluctuate and therefore a manufacturing disruption experienced by these
manufacturers would impact the production of our products, which could harm
our business. In addition, as the complexity of our products and the
accompanying manufacturing process increases, there is an increasing risk that
we will experience problems with the performance of new products and that
there will be yield problems or other delays in the development or
introduction of these products.
Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
production of products without having received advance purchase commitments
from customers. Any inability to sell products to which we have devoted
significant resources could harm our business. In addition, cancellation or
deferral of product orders could result in our holding excess inventory, which
could adversely affect our profit margins and restrict our ability to fund
operations. Product returns or delays or difficulties in collecting accounts
receivable could result in significant charges against income, which could
harm our business.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
our statements of operations expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product.................... 93.8% 85.7 % 95.7% 100.0%
Royalty.................... 6.2 14.3 4.3 --
----- ----- ----- -----
Total revenue............ 100.0 100.0 100.0 100.0
Cost of revenue.............. 73.1 75.5 69.4 62.9
----- ----- ----- -----
Gross profit................. 26.9 24.5 30.6 37.1
Operating expenses:
Research and development... 24.4 8.4 15.8 12.7
Sales, general and
administrative............ 14.4 4.8 12.0 9.9
----- ----- ----- -----
Total operating
expenses................ 38.8 13.2 27.8 22.6
----- ----- ----- -----
Operating income (loss).. (11.9) 11.3 2.8 14.5
Interest and other income
(expense), net.............. (0.4) (0.1) -- 0.5
----- ----- ----- -----
Income (loss) before income
tax expense................. (12.3) 11.2 2.8 15.0
Income tax expense........... -- 1.0 0.2 4.8
----- ----- ----- -----
Net income (loss)........ (12.3)% 10.2 % 2.6% 10.2%
===== ===== ===== =====
</TABLE>
18
<PAGE>
Calendar Year Ended December 31, 1997 and Fiscal Years Ended January 31,
1999 and January 30, 2000
Revenue
Product Revenue. Product revenue was $27.3 million in 1997, $151.4 million
in fiscal 1999 and $374.5 million in fiscal 2000. Product revenues increased
by 455% from 1997 to fiscal 1999 and by 147% from fiscal 1999 to 2000. The
growth in both periods was primarily the result of increased sales of our
graphics processors and the strong demand for new products at higher unit
ASPs. Revenue derived from the bundling of DDR memories with a portion of our
new GeForce 256 GPU totaled $22.1 million in the second half of fiscal 2000.
Revenue from sales outside of the U.S. accounted for 72% and 24% of total
revenue for fiscal 2000 and 1999, respectively. Our international revenue
increased 623% to $270.9 million in fiscal 2000 from $37.4 million a year ago.
This increase in revenue from sales outside of the U.S. is primarily
attributable to (i) the geographic limitation of the worldwide license
agreement with ST Microelectronics, Inc. with respect to sales of the RIVA 128
and RIVA 128ZX graphics processors, which agreement did not restrict the sales
of the RIVA TNT, RIVA TNT2 and GeForce families of processors in fiscal 2000,
(ii) increased demand for our products in the Asia Pacific and European
regions, and (iii) expanded use of CEMs and add-in board manufacturers located
outside the US. Revenues by geographical region are allocated to individual
countries based on the location to which the products are initially shipped.
The portion of revenue derived from foreign CEMs and add-in board
manufacturers that are attributable to end customers in the U.S is not
separately disclosed. Substantially all of our revenue from product sales in
1997 was derived from sales in the U.S. Although we achieved substantial
growth in product revenue from fiscal 1999 to 2000, we do not expect to
sustain this rate of growth in future periods. In addition, we expect that the
ASPs of our products will decline over the lives of the products. The declines
in ASPs of 3D graphics processors generally may also accelerate as the market
develops and competition increases.
Royalty Revenue. ST has a worldwide license to sell the RIVA 128 and RIVA
128ZX graphics processors. Royalty revenue from sales by ST of the RIVA 128
graphics processor and a derivative of the RIVA 128ZX graphics processor
decreased to zero in fiscal 2000 due primarily to reduced sales of such
products and disputes with ST regarding payment. Royalty revenue from sales by
ST of the RIVA128 graphics processor represented approximately 6% of our total
revenue in 1997, and royalty revenue from sales by ST of the RIVA128 graphics
processor and a derivative of the RIVA128ZX graphics processor represented 4%
of our total revenue in fiscal 1999. We do not expect to record or receive
royalty revenue from ST in the future.
Gross Profit
Gross profit consists of total revenue net of allowances less cost of
revenue. Cost of revenue consists primarily of the costs of semiconductors
purchased from contract manufacturers (including assembly, test and
packaging), manufacturing support costs (labor and overhead associated with
such purchases), inventory provisions and shipping costs. Our gross profit
margin in any period varies depending on the mix of types of graphics
processors sold. Gross profit increased 187% from fiscal 1999 to 2000,
primarily due to significant increases in unit shipments and the favorable
impact of the higher margin RIVA TNT2 and GeForce graphics processors,
partially offset by declining profit margins in our older product families.
From 1997 to fiscal 1999, gross profit grew by 520% primarily due to the sales
of the higher margin RIVA TNT graphics processor and reductions to costs of
the RIVA128 graphics processor. Excluding royalty revenue, gross margin on
product revenue was 22% in 1997, 28% in fiscal 1999 and 37% in fiscal 2000. In
the second half of fiscal 2000, the inclusion of the DDR memories has reduced
the gross margin percentage but has no incremental impact on absolute margin
dollars as they are sold at cost. We expect to continue bundling DDR memories
with some of our high-performance products for at least the next six months.
Although we achieved substantial growth in gross profit and gross profit
margin from fiscal 1999 to 2000, we do not expect to sustain these rates of
growth in future periods.
Operating Expenses
Research and Development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, costs of
prototypes of new products and consultant costs. Research and
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<PAGE>
development expenses increased by 89% from fiscal 1999 to 2000 and by 253%
from 1997 to 1999, primarily due to additional personnel and related
engineering costs to support our next generation products, such as
depreciation charges incurred on capital expenditures and software license and
maintenance fees. We anticipate that we will continue to devote substantial
resources to research and development, and we expect these expenses to
increase in absolute dollars in the foreseeable future. Research and
development expenses are likely to fluctuate from time to time to the extent
we make periodic incremental investments in research and development and our
level of revenue fluctuates.
As part of a strategic collaboration agreement with ST, we received contract
funding in support of research and development and marketing efforts for the
RIVA 128 and RIVA 128ZX graphics processors. Accordingly, we recorded
approximately $2.3 million and $2.3 million in 1997 and fiscal 1999,
respectively, as a reduction primarily to research and development, and to a
lesser extent, sales, general and administrative expenses. We were obligated
to provide continued development and support to ST through the end of calendar
1998.
Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing and administrative personnel, promotional and advertising
expenses, travel and entertainment expenses and legal and accounting expenses.
Sales, general and administrative expenses increased 96% from fiscal 1999 to
2000, primarily due to additional personnel and commissions and bonuses on
sales of the RIVA TNT2 and GeForce 256 graphics processors, legal expenses
associated with patent litigation and costs of being a public company. From
1997 to fiscal 1999, sales, general and administrative expenses grew 352%,
primarily due to increased promotional expenses, additional personnel and
commissions and bonuses on sales of the RIVA128 and RIVA TNT graphics
processors. We expect sales and marketing expenses to continue to increase in
absolute dollars as we expand sales and marketing efforts and increase
promotional activities. While we expect sales, general and administrative
expenses to continue to increase in absolute dollars as we expand our
operations, we do not expect significant changes in these expenses as a
percentage of revenue in future periods.
Interest and Other Income (Expense), Net
Interest income primarily consists of interest earned on cash and cash
equivalents. Interest expense primarily consists of interest incurred as a
result of capital lease obligations, and in fiscal 1999, in part, to interest
on borrowings under our line of credit agreement. Interest expense remained
unchanged and interest and other income increased $1.8 million from fiscal
1999 to 2000 due to higher average cash balances as a result of cash proceeds
received from the initial public offering of our common stock in January 1999.
For fiscal 1999 compared to 1997, interest expense was essentially unchanged,
and interest and other income increased slightly by $0.1 million.
Income Taxes
We recorded no income taxes in 1997. The income taxes for the one month
ended January 31, 1998, consisted entirely of current federal tax expense.
Income taxes for the year ended January 31, 1999 of $357,000 consisted of
$583,000 current federal tax expense and $226,000 deferred federal tax
benefit. We had an effective tax rate of 32% in fiscal 2000. We anticipate our
income tax rates for fiscal 2001 to be relatively constant, depending on the
income tax attributable to foreign operations and availability of research and
experimentation credits. See Note 5 of Notes to Financial Statements.
Stock-Based Compensation
With respect to stock options granted to employees, we recorded deferred
compensation of $4.3 million in 1997 and $361,000 in the one month ended
January 31, 1998. These amounts are being amortized over the vesting period of
the individual options, generally four years. We amortized approximately
$961,000 in 1997, $2.5 million in fiscal 1999 and $662,000 in fiscal 2000. We
anticipate total amortization of approximately $113,000 in fiscal 2001. See
Note 3 of Notes to Financial Statements.
20
<PAGE>
Quarterly Results of Operations
Selected quarterly financial data included in this table has been derived
from the internal quarterly financial reports for the periods shown. Effective
January 31, 1998, we changed our fiscal year-end financial reporting period to
a 52- or 53-week year ending on the last Sunday in January. We elected not to
restate our previous reporting periods ending December 31. Fiscal quarters for
fiscal 1999 ended April 26, 1998, July 26, 1998, October 25, 1998 and January
31, 1999. Fiscal quarters for fiscal 2000 ended on May 2, 1999, August 1,
1999, October 31, 1999 and January 30, 2000. This quarterly information is
unaudited, but has been prepared on the same basis as the audited annual
financial statements, and in the opinion of our management includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The unaudited
quarterly information should be read in conjunction with our audited financial
statements and the notes thereto included elsewhere herein. The growth in
revenue and improvement in results of operations experienced by us in recent
quarters are not necessarily indicative of future results. In addition, in
light of our significant growth in recent quarters, we believe that period-to-
period comparisons of our financial results should not be relied upon as an
indication of future performance.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------
April July Oct. Jan. Oct.
26, 26, 25, 31, May 2, Aug. 1, 31, Jan. 30,
1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................. $28,263 $12,134 $52,303 $65,537 $71,018 $78,017 $97,015 $128,455
Cost of revenue......... 20,873 12,961 33,566 42,346 45,946 49,625 60,195 79,809
------- ------- ------- ------- ------- ------- ------- --------
Gross profit (loss)..... 7,390 (827) 18,737 23,191 25,072 28,392 36,820 48,646
Net income (loss)....... (1,021) (9,652) 7,141 7,662 6,261 6,686 10,564 14,587
Basic net income (loss)
per share.............. $ (.07) $ (.68) $ .50 $ .48 $ .21 $ .23 $ .35 $ .47
Diluted net income
(loss) per share....... $ (.07) $ (.68) $ .26 $ .27 $ .18 $ .19 $ .29 $ .39
</TABLE>
Seasonality
Our quarterly operating results vary significantly depending on factors such
as the timing of new product introductions, adequacy of component supply,
changes in component costs, variations in our product mix, seasonal promotions
by us and our customers and competitive pricing pressures. Because the timing
of these factors may vary, the results of any particular quarter may not be
indicative of results for the entire year or any future period. In addition,
the PC market generally experiences weaker sales during the summer months.
Liquidity and Capital Resources
As of January 30, 2000, we had $61.6 million in cash and cash equivalents,
an increase of $11.3 million over the same balance at the end of fiscal 1999.
We historically have held our cash balances in cash equivalents such as money
market funds or as cash. We place the money market funds with high-quality
financial institutions and limit the amount of exposure with any one financial
institution. We had $124.6 million of noncancelable manufacturing commitments
outstanding at January 30, 2000. See Note 4 of Notes to Financial Statements.
In July 1999, we entered into an amended loan and security agreement with a
bank, which included a $10.0 million revolving loan agreement with a borrowing
base equal to 80% of eligible accounts. Borrowings under the line of credit
bear interest at the prime rate and are due in July 2000. Covenants governing
the loan agreement require the maintenance of certain financial ratios. As of
January 30, 2000, we had no outstanding borrowings against the line of credit.
Operating activities generated cash of $15.9 million during fiscal 2000 and
used cash of $1.9 million and $1.2 million, during fiscal 1999 and 1997,
respectively. The increase from fiscal 1999 to 2000 was due to a substantial
increase in net income, offset by changes in operating assets and liabilities.
Our accounts receivable are highly concentrated. At January 30, 2000, the four
largest customers accounted for approximately 37% of accounts receivable.
Although we have not experienced any significant bad debt write-offs to date,
we may be required to write off bad debt in the future, which could harm our
business. In June 1999, we repurchased 428,572 shares of our common stock from
a major customer in settlement for a portion of then outstanding accounts
receivable in the amount of $7.5 million.
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<PAGE>
To date, our investing activities have consisted primarily of purchases of
property and equipment. Our capital expenditures, including capital leases,
increased from $5.8 million in 1997 to $10.1 million in fiscal 1999, and to
$22.9 million in fiscal 2000. The increase from fiscal 1999 to 2000 was
primarily attributable to a $10.0 million obligation pursuant to a long-term
licensing agreement with a supplier. For fiscal 1999 compared to 1997, the
increase was primarily due to additional capital leases and purchases of
computer equipment, including workstations and servers to support increased
research and development activities. We expect capital expenditures to
increase as we further expand research and development initiatives and as our
employee base grows. The timing and amount of future capital expenditures will
depend primarily on our future growth. We expect to spend approximately $30.0
million for capital expenditures in fiscal 2001, primarily for software
licenses, emulation equipment, purchase of computer and engineering
workstations, and enterprise resource planning system implementation.
Financing activities provided cash of $7.0 million during fiscal 2000,
compared to $52.0 million and $7.3 million during fiscal 1999 and 1997,
respectively, due primarily to proceeds of $37.5 million from the initial
public offering of 3.5 million shares of common stock in January 1999 and
$11.0 million in subordinated non-interest bearing notes issued in July and
August 1998. In March 1999, we used $5.0 million to repay in full amounts
outstanding under a bank line of credit.
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft
up to $100 million of the prepayment and to convert the remainder into
preferred stock of NVIDIA at a 30% premium to the 30-day average trading price
of our common stock.
In April 2000, we entered into leases for our new headquarters complex in
Santa Clara, California. Our new complex will be comprised of four buildings,
representing approximately 500,000 total square feet. We expect the first
phase of two buildings consisting of approximately 250,000 square feet to be
completed in June 2001, the second phase of one building consisting of
approximately 125,000 square feet to be completed in July 2001 and the last
phase to be completed in March 2002. The leases expire in 2012 and include two
seven-year renewals at our option. Future minimum lease payments under these
operating leases total approximately $240 million over the terms of the
leases.
We believe that our existing cash balances, anticipated cash flows from
operations and existing credit facilities, will be sufficient to meet our
operating and capital requirements for at least the next 12 months. However,
there is no assurance that we will not need to raise additional equity or debt
financing within this time frame. Additional financing may not be available on
favorable terms or at all and may be dilutive to our then-current
stockholders. We also may require additional capital for other purposes not
presently contemplated. If we are unable to obtain sufficient capital, we
could be required to curtail capital equipment purchases or research and
development expenditures, which could harm our business.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software like this may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Through the first two months of the year 2000, our operations were fully
functioning and we have not experienced any significant issues associated with
the Year 2000 problem. At our offices worldwide, we have not experienced any
significant Year 2000-related issue that would affect our ability to ship,
sell or service our products and our customers have not reported any
consequential Year 2000 incidents. While we are encouraged by the success of
our Year 2000 efforts and that of our customers and partners, we will continue
to offer Year 2000 support to customers and monitor our own operations.
22
<PAGE>
BUSINESS
Overview
We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, GPUs and related software that set the standard for
performance, quality and features for every type of desktop PC user, from
professional workstations to low-cost PCs. Our 3D graphics processors are used
in a wide variety of applications, including games, the Internet and
industrial design. Our graphics processors were the first to incorporate a
128-bit multi-texturing graphics architecture designed to deliver to users of
our products a highly immersive, interactive 3D experience with compelling
visual quality, realistic imagery and motion, stunning effects, and complex
object and scene interaction at real-time frame rates. The NVIDIA TNT2, TNT2
M64 and Vanta graphics processors deliver high performance 3D and 2D graphics
at an affordable price, making them the graphics hardware of choice for a wide
range of applications for both consumer and commercial use. Our graphics
processors are designed to be architecturally compatible backward and forward,
giving our OEM customers and end users a low cost of ownership. We are
recognized for developing the world's first GPU, our latest generation
graphics processor, which incorporates independent hardware transform and
lighting processing units along with a complete rendering pipeline into a
single-chip architecture. Our GPUs, the GeForce 256 and NVIDIA Quadro, process
over 200 billion operations per second and increase the PC's ability to render
high-definition 3D scenes in real-time. Our GPU family provides superior
processing and rendering power at competitive prices and is architected to
deliver the maximum performance from industry standards such as Microsoft's
Direct3D API and SGI's OpenGL API on Windows 98, Windows 2000 and Linux
platforms alike. We are also developing an integrated core logic/graphics
chipset called Aladdin TNT2 through a partnership with ALi, one of the leading
suppliers of core logic chipsets for the PC. The Aladdin TNT2 chipset is
intended to bring NVIDIA-class graphics performance and quality to the value
PC segment.
Our products currently are designed into products offered by virtually every
leading branded PC OEM, such as Acer, Compaq, Dell, eMachines, Gateway, HP,
IBM, Micron, Packard Bell NEC and Sony, as well as leading CEMs, including
Celestica, Intel, Mitac, MSI, SCI and VisionTek, and leading add-in board
manufacturers, including ASUSTek, Canopus, Creative, ELSA and Guillemot. The
benefits and performance of the NVIDIA family of 3D graphics processors have
received significant industry validation and have enabled our customers to win
over 400 industry awards, including PC Magazine's "Editor's Choice" award,
Edge Magazine's "Hardware Innovation of the Year" and MicroDesign Research's
"1999 Analyst's Choice for Best 3D Processor," all of which were for products
incorporating the GeForce processor.
Industry Background
Interactive 3D graphics technology is emerging as one of the significant new
computing developments since the introduction of the graphical user interface.
3D graphics is a powerful digital medium that enables the communication and
visualization of the simplest information to the most complex, whether it is
professional applications like CAD/CAM and digital content creation,
commercial applications like financial analysis and business-to-business
collaboration or simply surfing the internet or playing games. The visually
engaging and interactive nature of 3D graphics responds to consumers' demands
for a convincing simulation of reality beyond what is possible with
traditional 2D graphics. The fundamental interactive capability of 3D graphics
is expected to make it the visual portal to a digitally connected world.
Interactive 3D graphics is required across various computing and
entertainment platforms, such as workstations, consumer and commercial desktop
PCs, internet appliances, hand held devices and home gaming consoles.
Continuing advancements in semiconductor manufacturing have made available
more powerful and affordable microprocessors and 3D graphics processors, both
of which are essential to deliver interactive 3D graphics to the PC market.
Additionally, the industry has broadly adopted Microsoft's Direct3D API and
SGI's OpenGL API, which serve as a common and standard language between
software applications and 3D graphics processors, allowing the development of
numerous 3D games, which has, in turn, increased strong consumer demand.
We believe that a PC's interactive 3D graphics capability represents one of
the primary means by which users differentiate among various systems. PC users
today can easily differentiate the quality of graphics and
23
<PAGE>
prefer personal computers that provide a superior visual experience. These
factors have dramatically increased demand for 3D graphics processors. Mercury
Research estimates that 3D graphics will be standard in every PC unit shipped
by 2001. Mercury Research also estimates that 126.8 million desktop 3D
graphics processors were sold worldwide in 1999 and 275.8 million will be sold
worldwide in 2004.
The technology required to create interactive and visually engaging 3D
graphics is algorithmically complex and computationally intensive. To deliver
high quality interactive 3D graphics, advanced 3D GPUs require millions of
transistors to process billions of arithmetic operations per second. Current
3D GPUs, like the GeForce 256, are over 100 times more complex than 2D
accelerators and comparable to the complexity of Intel Pentium(R) III
microprocessors. Yet despite these ongoing advances, PC 3D graphics available
today cannot deliver in real time the quality of graphics seen in digitally-
created films like "Toy Story 2." 3D graphics like those required over 1,400
powerful workstations to render 122,699 movie frames, each of which required
10 minutes to 3 days to complete. For PCs to provide this level of 3D graphics
capability, the performance of 3D graphics processors will need to be improved
by several more orders of magnitude, with the ultimate goal being to achieve
"real world" graphics performance even beyond that seen in "Toy Story 2."
We believe that a substantial market opportunity exists for providers of
performance 3D graphics processors for the PC market, particularly as
performance 3D graphics have become an increasingly important requirement and
point of differentiation for PC OEMs. Consumer PC users demand a compelling
visual experience and compatibility with existing and next-generation 3D
graphics applications at an affordable price. Application developers require
high-performance, standards-based 3D architectures with broad market
penetration. Since graphics is a key point of differentiation, PC OEMs
continually seek to incorporate leading-edge cost-effective 3D graphics
solutions to build award-winning products. We believe that providers of
interactive 3D graphics solutions will compete based on their ability to
leverage their technology expertise to simultaneously meet the needs of end
users, application developers and OEMs.
Our Solution
We designed our GPU's and graphics processors to enable PC OEMs and add-in
board manufacturers to build award-winning products by delivering state-of-
the-art interactive 3D graphics capability to end users while maintaining
affordable prices. We believe that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. We
believe that by developing 3D graphics solutions that provide superior
performance and address the key requirements of the PC market, we will
accelerate the adoption of 3D graphics throughout this market. We combine
scalable architectural technology with mass market economies-of-scale to
deliver a complete family of products that span workstations to low-cost value
PCs.
The key features and benefits of our solution are as follows:
Advanced Scalable Single-Chip Graphics Architectures. In each of the past
three years, we have introduced a graphics processor that has subsequently
defined the 3D graphics standard widely adopted by the PC industry. In 1997,
we delivered the industry's first 128-bit graphics processor with the RIVA
128. In 1998, we introduced the industry's first dual pixel pipeline with the
RIVA TNT. In 1999, we introduced the world's first GPU by integrating
transform and lighting into the graphics processor with the GeForce 256. Each
of these generations then serves as a foundation for an architecturally
compatible family that is designed to offer additional products focused on
either enhanced performance and features or lower cost.
High-Performance, Forward-Backward Compatible Software Drivers. NVIDIA
graphics processors include an extensive set of reference drivers that
translate between the software API and hardware. The software driver is
designed to maximize performance of the graphics processor and to maintain
compatibility with each successive generation of our products. The software
drivers have the flexibility to be continually enhanced in order to further
improve the performance of the processors. We believe that the high
performance of our graphics processors provides a competitive advantage to our
OEM customers, enabling them to differentiate their systems from those of
other PC vendors.
24
<PAGE>
We are the only graphics vendor that offers a family of graphics processors
that are binary software compatible, enabling both forward and backward
compatibility and a top-to-bottom product family. This is achieved through an
innovative graphics architecture that virtualizes the software interface
allowing us to innovate below API. This compatibility provides OEMs and end
users with a great degree of flexibility.
Feature-Optimized, Standards-Based. The NVIDIA family of graphics processors
are architected to take full advantage of industry standards such as
Microsoft's Direct3D and SGI's OpenGL. By working closely with Microsoft and
SGI, our family of graphics processors provide the most feature complete,
performance optimized drivers from one generation to the next. The standards-
compliant design of our graphics processors provides OEMs maximum flexibility
in the design and use of the systems. In particular, we believe that our focus
on the industry standard API's positions us well in the PC market as these
standards proliferate and support more advanced 3D visuals. Direct3D and
OpenGL have gained broad developer support, with numerous 3D titles currently
using those APIs.
Our Strategy
Our objective is to ultimately be the leading supplier of performance
graphics processors for PCs, laptops, Internet appliances, handhelds and any
future computing device with a display. Our current focus is on the PC market
and we plan to expand into other segments. Our strategy to achieve this
objective includes the following key elements:
Build Award-Winning, Architecturally-Compatible 3D Graphics Product Families
for the PC Market. Our strategy is to achieve market share leadership in the
PC market by providing award-winning performance at every price point. By
developing 3D graphics solutions that provide superior performance and address
the key requirements of the PC market, we believe that we will accelerate the
adoption of 3D graphics throughout the PC market. As part of our strategy to
broadly address the PC market, we have closely aligned our product development
with Direct3D and OpenGL, which we believe maximizes third-party software
support.
Target Leading OEMs. Our strategy is to enable our leading OEM customers to
differentiate their products in a highly competitive marketplace by using our
3D graphics processors. We believe that design wins with these industry
leaders provide market validation of our products, increase brand awareness
and enhance our ability to penetrate additional leading customer accounts. In
addition, we believe that close relationships with OEMs will allow us to
better anticipate and address customer needs with our future generations of
products. Our products currently are designed into products offered by
virtually every leading branded PC OEM, such as Acer, Compaq, Dell, eMachines,
Gateway, HP, IBM, Micron, Packard Bell NEC and Sony.
Sustain Technology and Roadmap Leadership in 3D Graphics. We are focused on
leveraging our advanced engineering capabilities to accelerate the quality and
performance of 3D graphics in PCs. A fundamental aspect of our strategy is to
actively recruit the best 3D graphics engineers in the industry, and we
believe that we have assembled an exceptionally experienced and talented
engineering team. The number of our employees engaged in research and
development activities increased to 214 at January 30, 2000 from 117 at
January 31, 1999. Our research and development strategy is to focus on
concurrently developing multiple generations of graphics processors using
independent design teams. We have in the past and intend to continue to
leverage this advantage to achieve new levels of graphics features and
performance, enabling our customers to achieve award-winning performance in
their products.
Increase Market Share. We believe that substantial market share will be
important to achieving success in the 3D graphics business. We intend to
achieve a leading share of the market by devoting substantial resources
towards building award-winning families of products for a wide range of
applications.
25
<PAGE>
NVIDIA Architecture, Products and Products Under Development
3D Graphics Processing Architecture
3D graphics processors create two-dimensional images, which can be displayed
on computer monitors or other output devices, from computer specifications of
three-dimensional objects or "models." These two-dimensional images are
typically the perspective view of the objects from an eye-point that changes
with time, and as such are computationally very intensive. The 3D effect
arises from a variety of visual cues, such as perspective, occlusion, surface
shading, shadows, focus and motion. Convincing realism arises from precise
calculation of these and other effects, and these calculations require
dedicated processors, which provide far more power and bandwidth than
microprocessors can deliver.
The 3D graphics process is a series of specialized steps, often referred to
as the 3D graphics pipeline. Typically, the microprocessor chooses an eye-
point and decides which objects should be displayed. These are commonly
communicated to the graphics subsystem via a software interface, such as
Microsoft's Direct3D or SGI's OpenGL. The processing itself occurs in several
steps, as depicted and described below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Model (right Transform and (right Polygon Setup (right Rasterization (right Display
arrow) Lighting arrow) arrow) arrow)
</TABLE>
Model. The model typically is expressed as a set of polygons, such as
triangles, that form the basic shape of a three-dimensional object and have
attributes such as position and color at each vertex.
Transform and Lighting. In the transform and lighting step, the original
position and orientation of the polygons are transformed to their new position
on the screen. Based on their position and orientation, some aspects of their
surface color and lighting can be computed. The 3D visual cues of perspective
and motion are handled during this stage. These calculations require very high
floating-point computation power and are performed either by the host
microprocessor or on a higher performance GPU. Lighting occurs after transform
and provides high visual impact. Lighting effects enhance the realism of a
scene and bring rendered images one step closer to a "real world" perception.
Polygon Setup. Polygon setup calculates the slopes of the polygon sides and
various other derivatives that greatly accelerate the rasterization process.
Although early graphics devices performed these calculations in the host
microprocessor, today's 3D graphics processor perform these calculations,
permitting significantly higher performance.
Rasterization. Rasterization computes the color and other information for
every pixel (dot on the screen) that a transformed polygon touches. A number
of complex algorithms compute the color uniquely for each pixel, as well as
perform the remaining visual cues, such as shading, shadows, focus and
occlusion. This is the most computationally intensive step of the graphics
pipeline and the processors are required to perform up to 1,000 calculations
per pixel, with this number increasing rapidly.
Display. Display consists of sequentially reading out the color of each
pixel at a rate matched to the monitor. Unlike the other stages in the 3D
graphics pipeline, which are purely digital, the signals to the monitor are
analog, and the frequencies are far higher.
The complexity of the different steps in the 3D graphics pipeline requires
billions of floating-point and integer operations in real time to deliver a
realistic and interactive experience. Image quality determines whether 3D
computer representation looks realistic, and 3D performance determines whether
a 3D system conveys a sense of fluid motion in real time. If the performance
is below a certain threshold, a 3D system can in fact reduce the productivity
or the enjoyment of the user, even if the image quality is high. The challenge
with high-quality 3D is to deliver the processing power required to perform
these computations without creating bottlenecks in the 3D graphics pipeline.
26
<PAGE>
Current Products
<TABLE>
<CAPTION>
Key
Architectural Performance Commercial
Product Desktop Segment End User Features Metrics Ship Date
------- --------------- -------- ------------- ----------- ----------
<C> <C> <S> <C> <C> <C>
NVIDIA Enthusiast Home users seeking Hardware 15 million August
GeForce Performance the best graphics transform and triangles per 1999
256 GPU performance and lighting second and
quality for digital engines, 480 million
multimedia and multi- pixels per
entertainment texturing second
applications. rendering
pipelines
designed to
deliver the
maximum
performance
for Direct3D
and OpenGL
applications.
NVIDIA Workstation Professionals 100% 17 million September
Quadro seeking high- hardware- triangles per 1999
GPU precision real-time accelerated second and
3D performance for OpenGL 540 million
CAD/CAM, digital transform and pixels per
content creation, lighting second
scientific analysis engines.
and life sciences
applications.
NVIDIA Mainstream Home and corporate 128-bit dual- 350 million April 1999
TNT2 users seeking pixel pixels per
performance and rendering second
features for pipeline for
business stunning
productivity and multi-textured
management. effects.
NVIDIA Value Home and corporate Low-cost 64- 286 million July 1999
TNT2 users seeking the bit memory pixels per
M64 optimal combination interface and second
of performance and package
features at an delivers good
affordable price. performance
and excellent
quality at a
lower cost.
NVIDIA Low-Cost Home and corporate Low-cost 64- 250 million July 1999
Vanta users seeking a bit memory pixels per
low-cost solution. interface and second
package
delivers good
performance
and excellent
quality at low
cost.
</TABLE>
NVIDIA GeForce 256 GPU
We began commercial shipment of the NVIDIA GeForce 256 GPU in August 1999.
The NVIDIA GeForce 256 is designed for the PC enthusiast and performance
markets, and is our fifth-generation graphics processor.
The world's first GPU, GeForce 256 was the first to incorporate hardware
transform and lighting engines along with four-pixel per clock rendering
pipelines in a single chip. Fabricated on a .22 micron process technology, the
23 million transistors GeForce 256 delivers a significant increase in geometry
processing power and delivers superior performance for interactive content.
The GeForce 256 supports up to 64 megabytes of single data rate, or SDR, or
double data rate, or DDR, frame buffer memory. Increased memory results in a
higher performance solution and the ability to run at very high color depths
and resolution for outstanding quality. Other key performance features include
support for a higher bandwidth connection between the processor and the
graphics processor called accelerated graphics port 4X with fast write
capability. This feature is now standardized on motherboard solutions from
Intel and others.
The GeForce 256 GPU also provides support for digital flat panel displays,
DVD playback and HDTV support, the latest display technology for consumers and
businesses. Additional support for extremely high resolution (and refresh
rate) monitors is also included in the GeForce 256 GPU via a 350 MHz RAMDAC.
The GeForce 256 achieves high performance through a high frequency,
QuadEngine/QuadPipe architecture.
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<PAGE>
NVIDIA Quadro Workstation GPU
We began commercial shipment of the NVIDIA Quadro workstation GPU in
September 1999. The NVIDIA Quadro is designed for the professional
workstation, digital content creation and CAD/CAM markets. The Quadro GPU
integrates our QuadEngine/QuadPipe architecture for optimized transform and
lighting functions, critical for real-time visualization.
The Quadro is capable of processing over 200 billion operations per second,
delivering up to 17 million triangles per second and a peak texture fill rate
of 540 million pixels per second. Critical for supporting traditional
computer-aided design applications, the NVIDIA Quadro provides support for
anti-aliased points and lines and two-sided lighting as well as native support
for the OpenGL 3D API. The Quadro supports up to 128 megabytes of SDR or DDR
frame buffer memory.
NVIDIA TNT2 Graphics Processor
We began commercial shipment of the NVIDIA TNT2 graphics processor in April
1999. The NVIDIA TNT2 is designed for the mainstream PC market. The TNT2
features our fourth-generation, 128-bit multi-texturing 3D architecture. The
TNT2 extends the performance and function of the original RIVA TNT graphics
processor for PC OEMs and graphics card manufacturers. Fabricated on a .22
micron process technology, the TNT2 graphics processor delivers the highest
performance in its class through high frequency clock rates for the 3D
processor and memory. The TNT2 supports 32 megabytes of frame buffer memory.
NVIDIA TNT2 M64 and Vanta Graphics Processors
NVIDIA TNT2 M64 and Vanta graphics processors are designed for the value and
low-cost consumer and commercial desktop PC markets. Based on the award-
winning NVIDIA TNT2 architecture, these processors offer low-cost, highly
integrated choices for entry-level add-in card and motherboard solutions. The
TNT2 M64 and Vanta are manufactured on a .22 micron process technology and
offer good quality and performance at an affordable price. The TNT2 M64 and
Vanta support up to 32 and 16 megabytes of frame buffer memory, respectively.
Future Product and Projects
Aladdin TNT2 Integrated Chipset
The Aladdin TNT2 is a joint development with ALi. It combines the award
winning TNT2 core with ALi's M1631 North Bridge. This chipset is expected to
be sold with an ALi M1535D South Bridge and to bring NVIDIA graphics
performance and quality to the fast growing value PC segment. This chipset is
expected to reduce overall system cost without compromising graphics
performance. ALi will be responsible for the sale of this product. To our
knowledge, a commercial shipment date for this product has not yet been
announced.
Microsoft Product
On March 5, 2000, we entered into an agreement with Microsoft in which we
agreed to develop and sell graphics chips and to license certain technology to
Microsoft and its licensees for use in a product under development by
Microsoft. In April 2000, Microsoft paid us $200 million as an advance against
graphics chip purchases and for licensing our technology. Microsoft may
terminate the agreement at any time and if termination occurs prior to offset
in full of the advance payments, we would be required to return to Microsoft
up to $100 million of the prepayment and to convert the remainder into
preferred stock of NVIDIA at a 30% premium to the 30-day average trading price
of our common stock. In addition, in the event that an individual or
corporation makes an offer to purchase shares equal or greater than thirty
percent (30%) of the outstanding shares of our common stock, Microsoft has
first and last rights of refusal to purchase the stock. The graphics chip
contemplated by the agreement is highly complex and development and release of
the Microsoft product and its commercial success are dependent upon a number
of factors, many of which we cannot control. There can be no assurance that we
will be successful in developing the graphics chip for use by Microsoft or
that the product will be developed or released, or if released, will be
commercially successful.
28
<PAGE>
Sales and Marketing
Our worldwide sales strategy is a key part of our objective to become the
leading supplier of performance 3D graphics processors for PCs. Our sales team
works closely with PC OEMs, add-in board manufacturers and industry
trendsetters to define product features, performance, price and timing of new
products. Members of our sales team have a high level of technical expertise
and product and industry knowledge to support a competitive and complex design
win process. We also employ a highly skilled team of application engineers to
assist PC OEMs and add-in board manufacturers in designing, testing and
qualifying system designs that incorporate our products. We believe that the
depth and quality of our design support are key to improving PC OEMs' and add-
in board manufacturers' time-to-market, maintaining a high level of customer
satisfaction among PC OEMs and add-in board manufacturers and fostering
relationships that encourage customers to use the next generation of our
products.
In the 3D graphics market, the sales process involves influencing leading PC
OEMs' and add-in board manufacturers' graphics processor purchasing decisions,
achieving key design wins and supporting the product design into high volume
production. These design wins in turn influence the retail and system
integrator channel that is serviced by add-in board and motherboard
manufacturers. Our distribution strategy is to work with a number of leading
CEMs and add-in board manufacturers that have relationships with a broad range
of major PC OEMs and/or strong brand name recognition in the retail channel.
Currently, we sell our entire family of graphics processors directly to CEMs
and add-in board manufacturers, which then sell boards with our graphics
processor to leading OEMs, to retail outlets and to a large number of system
integrators.
To encourage software title developers and publishers to develop games
optimized for platforms utilizing our products, we seek to establish and
maintain strong relationships in the software development community.
Engineering and marketing personnel interact with and visit key software
developers to promote and discuss our products, as well as to ascertain
product requirements and solve technical problems. Our developer program makes
products available to partners prior to volume availability to encourage the
development of software titles that are optimized for our products.
Backlog
Our sales are primarily made pursuant to standard purchase orders that are
cancelable without significant penalties. The quantity actually purchased by
the customer as well as shipment schedules are subject to revisions to reflect
changes in the customer's requirements and manufacturing availability. The
semiconductor industry is characterized by short lead time orders and quick
delivery schedules. In light of industry practice and experience, we do not
believe that backlog as of any particular date is indicative of future
results.
Manufacturing
We have a "fabless" manufacturing strategy whereby we employ world class
suppliers for all phases of the manufacturing process, including fabrication,
assembly and testing. This strategy leverages the expertise of industry-
leading, ISO-certified suppliers in such areas as fabrication, assembly,
quality control and assurance, reliability and testing. In addition, we are
able to avoid the significant costs and risks associated with owning and
operating manufacturing operations. These suppliers are also responsible for
procurement of raw materials used in the production of our products. As a
result, we can focus resources on product design, additional quality
assurance, marketing and customer support.
Our graphics processors are fabricated by TSMC and WaferTech and assembled
and tested by Amkor, Siliconware, ChipPAC, and Advanced Semiconductor
Engineering. We receive semiconductor products from our subcontractors,
perform incoming quality assurance, and then ship them to CEMs, motherboard
and add-in board manufacturer customers, from our Santa Clara location in the
U.S. and a third-party warehouse in Singapore. These manufacturers assemble
and test the boards based on our design kit and test specifications, then ship
the products to the retail, system integrator or OEM markets as add-in board
solutions. Our hardware and software
29
<PAGE>
development teams work closely with certification agencies, Microsoft Windows
Hardware Quality Labs, and our OEM customers to ensure both our boards and
software drivers are certified for inclusion in the OEMs' products.
Research and Development
We believe that the continued introduction of new and enhanced products
designed to deliver leading 3D graphics performance and features will be
essential to our future success. Our research and development strategy is to
focus on concurrently developing multiple generations of graphics processors
using independent design teams. Our research and development efforts are
performed within specialized groups consisting of software engineering,
hardware engineering, VLSI design engineering, process engineering, and
architecture and algorithms. These groups act as a pipeline designed to allow
the efficient simultaneous development of multiple generations of products.
A critical component of our product development effort is our partnerships
with leaders in the CAD industry. We have invested significant resources to
develop relationships with industry leaders, including Avant! Corporation,
Cadence Design Systems, Inc., IKOS Systems, Inc. and Synopsys, Inc., often
assisting these companies in the product definition of their new products. We
believe that by forming these relationships, and utilizing next-generation
development tools to design, simulate and verify our products, we will be able
to remain at the forefront of the 3D graphics market and to continue to
develop products on a rapid basis that utilize leading-edge technology. We
believe this approach assists us in meeting the new design schedules of PC
manufacturers.
We have substantially increased our engineering and technical resources as
compared to prior years and have 214 full-time employees engaged in research
and development as of January 30, 2000, compared to 117 employees as of
January 31, 1999. Research and development expenses totaled $7.1 million in
1997, $25.1 million in the year ended January 31, 1999 and $47.4 million in
the year ended January 30, 2000.
Competition
The market for 3D graphics processors for PCs in which we compete is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining ASPs. We believe that the principal
competitive factors in this market are performance, breadth of product
offerings, access to customers and distribution channels, backward-forward
software support, conformity to industry standard APIs, manufacturing
capabilities, price of graphics processors and total system costs of add-in
boards or motherboards. We expect competition to increase both from existing
competitors and new market entrants with products that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products.
Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3;
. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., SGI, Evans and Sutherland Computer Corporation and Intergraph
Corporation; and
. companies with strength in the video game market, such as 3Dfx and
VideoLogic Group plc.
Patents and Proprietary Rights
We rely primarily on a combination of patent, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued patents,
have 4 United States patent applications allowed, have 25 United States patent
applications pending and
30
<PAGE>
have 15 United States patent applications being drafted for filing. Our issued
patents have expiration dates from April 14, 2015 to March 30, 2018. Our
issued patents and pending patent applications relate to technology developed
by us in connection with the development of our 3D graphics processors. We
have no foreign patents or patent applications. We seek patents that have
broad application in the semiconductor industry and that we believe will
provide a competitive advantage. However, our pending patent applications or
any future applications may not be approved, and any issued patents may not
provide us with competitive advantages or may be challenged by third parties.
We have licensed technology from third parties for incorporation in our
graphics processors and expect to continue to enter into agreements like this
for future products. These licenses may result in royalty payments to third
parties, the cross-license of technology by us or payment of other
consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer. We attempt to protect our trade
secrets and other proprietary information through confidentiality agreements
with manufacturers and other partners, proprietary information agreements with
employees and consultants and other security measures. We also rely on
trademarks and trade secret laws to protect our intellectual property.
Employees
As of January 30, 2000 we had 392 employees, 214 of whom were engaged in
research and development and 178 of whom were engaged in sales, marketing,
operations and administrative positions. None of our employees is covered by
collective bargaining agreements, and we believe our relationship with our
employees is good.
Facilities
We lease approximately 117,000 square feet for our headquarters in Santa
Clara, California, under leases expiring in 2002. We also lease a design
center consisting of approximately 2,900 square feet in one building in
Durham, North Carolina, pursuant to a lease that expires in March 2002. In
addition, we lease sales and administrative offices in Texas, Washington,
Arizona, Singapore and the United Kingdom to support our customers. We believe
that we currently have sufficient facilities to conduct our operations for the
next twelve months, although we expect to continue to lease facilities
throughout the world as our business requires. In April 2000, we entered into
leases for our new headquarters complex in Santa Clara, California. Our new
complex will be comprised of four buildings, representing approximately
500,000 total square feet. We expect the first phase of two buildings
consisting of approximately 250,000 square feet to be completed in June 2001,
the second phase of one building consisting of approximately 125,000 square
feet to be completed in July 2001 and the last phase to be completed in March
2002. The leases expire in 2012 and include two seven-year renewals at our
option.
Legal Proceedings
On September 21, 1998, 3Dfx filed a patent infringement lawsuit against us
in the United States District Court for the Northern District of California
alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added a second
patent to the suit and on May 24, 1999, 3Dfx added a third patent to the suit.
The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA TNT2 Ultra
products infringe the patents in suit and seeks unspecified compensatory and
trebled damages and attorney's fees. Our current generation of products is not
identified as infringing any of the patents in suit. We have filed an answer
and counter-claims asserting that the patents in suit are invalid and not
infringed. These assertions are supported by our investigations to date and an
opinion from our patent counsel in this suit. We anticipate that the trial
date will be set by the District Court after it rules on claims construction
issues. We have and will continue to defend vigorously this suit. In the event
of an adverse result in the 3Dfx suit, we might be required to do one or more
of the following:
. pay substantial damages (including treble damages);
. permanently cease the manufacture and sale of any of the infringing
products;
. expend significant resources to develop non-infringing products; or
. obtain a license from 3Dfx for infringing products.
In addition to the above litigation, from time to time we are subject to
claims in the ordinary course of business, none of which in our view would
have a material adverse impact on our business or financial position if
resolved unfavorably.
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<PAGE>
MANAGEMENT
The following table sets forth certain information regarding our executive
officers and directors as of March 20, 2000:
Executive Officers, Key Employees and Directors
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jen-Hsun Huang 37 President, Chief Executive Officer and Director
Jeffrey D. Fisher 41 Executive Vice President, Worldwide Sales
Christine B. Hoberg 44 Chief Financial Officer
Chris A. Malachowsky 40 Vice President, Hardware Engineering
Curtis R. Priem 40 Chief Technical Officer
Tench Coxe (1) 42 Director
James C. Gaither 62 Director
Harvey C. Jones, Jr. (1) 47 Director
William J. Miller 54 Director
A. Brooke Seawell (2) 52 Director
Mark A. Stevens (2) 40 Director
</TABLE>
- --------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
Jen-Hsun Huang co-founded NVIDIA in April 1993 and has served as our
President, Chief Executive Officer and a member of the Board of Directors
since its inception. From 1985 to 1993, Mr. Huang was employed at LSI Logic
Corporation ("LSI"), a computer chip manufacturer, where he held a variety of
positions, most recently as Director of Coreware, the business unit
responsible for LSI's "system-on-a-chip" strategy. From 1983 to 1985, Mr.
Huang was a microprocessor designer for Advanced Micro Devices, a
semiconductor company. Mr. Huang holds a B.S.E.E. degree from Oregon State
University and an M.S.E.E. degree from Stanford University.
Jeffrey D. Fisher has been Executive Vice President, Worldwide Sales for
NVIDIA since July 1994. From September 1988 to July 1994, Mr. Fisher held
various positions at Weitek Corporation, a semiconductor technology company,
where his last position was as Director of Worldwide Sales. Mr. Fisher holds a
B.S.E.E. degree from Purdue University and an M.B.A. degree from Santa Clara
University.
Christine B. Hoberg has been Chief Financial Officer of NVIDIA since
December 1998. From June 1992 to December 1998, Ms. Hoberg held various
positions at Quantum Corporation, a mass storage company, where her last
position was as Vice President, Corporate Controller. Ms. Hoberg holds a B.A.
in German Studies from Stanford University and is a certified public
accountant.
Chris A. Malachowsky co-founded NVIDIA in April 1993 and has been our Vice
President, Hardware Engineering since that time. From 1987 until April 1993,
Mr. Malachowsky was a Senior Staff Engineer for Sun Microsystems, Inc., a
supplier of enterprise network computing products. From 1980 to 1986,
Mr. Malachowsky was a manufacturing design engineer at Hewlett-Packard
Company. Mr. Malachowsky was a co-inventor of Sun Microsystems' GX graphics
architecture and has authored 43 patents, most of which relate to graphics.
Mr. Malachowsky holds a B.S.E.E. degree from the University of Florida and an
M.S.C.S. degree from Santa Clara University.
Curtis R. Priem co-founded our company in April 1993 and has been our Chief
Technical Officer since that time. From 1986 to January 1993, Mr. Priem was
Senior Staff Engineer at Sun Microsystems where he architected the GX graphics
products, including the world's first single chip GUI accelerator. From 1984
to 1986,
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Mr. Priem was a hardware engineer at GenRad, Inc., a supplier of diagnostic
equipment for electronic products. From 1982 to 1984, Mr. Priem was a staff
engineer for Vermont Microsystems, Inc., a personal computer company, where he
architected IBM's Professional Graphics Adapter, the PC industry's first
graphics processor. Mr. Priem has authored 87 U.S. and international patents,
all of which relate to graphics and Input/Output Systems. Mr. Priem holds a
B.S.E.E. degree from Rensselaer Polytechnic Institute.
Tench Coxe has served as a director of NVIDIA since June 1993. Mr. Coxe is a
managing director of Sutter Hill Ventures, a venture capital investment firm.
Prior to joining Sutter Hill Ventures in 1987, Mr. Coxe was Director of
Marketing and MIS at Digital Communication Associates. Mr. Coxe holds a B.A.
degree in Economics from Dartmouth College and an M.B.A. degree from the
Harvard Business School. Mr. Coxe also serves on the Board of Directors of
Edify Corporation, Alteon WebSystems Inc., Copper Mountain Networks Inc., E-
Loyalty Corp., Clarus Corporation, and several privately held companies.
James C. Gaither has served as a director of NVIDIA since December 1998. Mr.
Gaither has been a partner of the law firm of Cooley Godward LLP since 1971.
Prior to beginning his law practice with the firm in 1969, Mr. Gaither served
as a law clerk to The Honorable Earl Warren, Chief Justice of the United
States, Special Assistant to the Assistant Attorney General in the United
States Department of Justice and Staff Assistant to the President of the
United States, Lyndon Johnson. Mr. Gaither is a former president of the Board
of Trustees at Stanford University and is a member of the Board of Trustees of
the Carnegie Endowment for International Peace, RAND, The William and Flora
Hewlett Foundation, and the James Irvine Foundation. Mr. Gaither currently
serves on the Board of Directors of Amylin Pharmaceuticals, Inc., a
biotechnology company, Basic American, Inc., a food processing company, Levi
Strauss & Company, a manufacturer and marketer of brand-name apparel, Blue
Martini, Inc., a customer interaction company, and Siebel Systems, Inc., an
information software systems company. Mr. Gaither received a B.A. in Economics
from Princeton University and a J.D. from Stanford University.
Harvey C. Jones, Jr. has served as a director of NVIDIA since November 1993.
From December 1987 through February 1998, Mr. Jones held various positions at
Synopsys, Inc., a developer of electronic design automation software products,
where he served as President through December 1992, as Chief Executive Officer
until January 1994 and as Executive Chairman of the Board until February 1998.
Prior to joining Synopsys, Mr. Jones served as President and Chief Executive
Officer of Daisy Systems Corporation, a computer-aided engineering company
that Mr. Jones co-founded in 1981. Mr. Jones currently serves on the Board of
Directors of Synopsys, Remedy Corporation, an enterprise software company, and
several privately held companies. Mr. Jones holds a B.S. degree in Mathematics
and Computer Sciences from Georgetown University and an M.S. degree in
Management from the Massachusetts Institute of Technology.
William J. Miller has served as a director of NVIDIA since November 1994.
From April 1996 through October 1999, Mr. Miller was Chief Executive Officer
and Chairman of the Board of Avid Technology, Inc., a provider of digital
tools for multimedia. Mr. Miller also served as President of Avid Technology
from September 1996 through October 1999. From March 1992 to October 1995, Mr.
Miller served as Chief Executive Officer of Quantum Corporation, a mass
storage company. He was a member of the Board of Directors, and Chairman
thereof, from, respectively, May 1992 and September 1993 to August 1995. From
1981 to March 1992, he served in various positions at Control Data
Corporation, a supplier of computer hardware, software and services, most
recently as Executive Vice President and President, Information Services. Mr.
Miller holds a B.A. and a J.D. degree from the University of Minnesota. Mr.
Miller serves on the Board of Directors of Waters Corporation, a scientific
instrument manufacturing company and on the Board of Directors of Innovex
Inc., a manufacturer of flexible circuits.
A. Brooke Seawell has served as a director of NVIDIA since December 1997.
Mr. Seawell has been a general partner of Technology Crossover Ventures since
February 2000. From 1997 to 1998, Mr. Seawell was Executive Vice President of
NetDynamics, Inc., an Internet application server software company. From 1991
to 1997, Mr. Seawell was Senior Vice President and Chief Financial Officer of
Synopsys, Inc., an electronic design automation software company. Mr. Seawell
holds a B.A. degree in economics and an M.B.A. degree in finance from Stanford
University. Mr. Seawell serves on the board of directors of Accrue Software,
Inc., an Internet data
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collection and analysis software company, Informatica Corporation, a data
integration software company, Mediaplex, Inc., a provider of e-business
advertising technology and services, and several privately held companies.
Mark A. Stevens has served as a director of NVIDIA since June 1993. Mr.
Stevens has been a managing member of Sequoia Capital, a venture capital
investment firm, since March 1993. Prior to that time, beginning in July 1989,
he was an associate at Sequoia Capital. Prior to joining Sequoia, he held
technical sales and marketing positions at Intel. Mr. Stevens holds a B.S.E.E.
degree, a B.A. degree in Economics and an M.S. degree in Computer Engineering
from the University of Southern California and an M.B.A. degree from the
Harvard Business School. Mr. Stevens currently serves on the Board of
Directors of Terayon Communication Systems, Inc., a broadband systems company,
MP3.com, Inc., an online music company, MedicaLogic, Inc., an online health
information company, and several privately held companies.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of February 29, 2000 by (1)
each of our executive officers and directors; (2) all of our executive
officers and directors as a group; and (3) each stockholder known by us to be
the beneficial owner of more than 5% of our common stock.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Percentage of Shares
Name Owned(1) Beneficially Owned
---- ------------ --------------------
<S> <C> <C>
Jen-Hsun Huang(2)(3)......................... 2,759,500 8.7
Curtis Priem(2)(4)........................... 3,065,000 9.7
Chris Malachowsky(2)(5)...................... 2,115,490 6.7
Jeffrey D. Fisher(6)......................... 309,464 1.0
Christine B. Hoberg(7)....................... 20,796 *
Tench Coxe(8)................................ 268,459 *
James C. Gaither(9).......................... 108,242 *
Harvey C. Jones, Jr.(10)..................... 292,301 *
William J. Miller(11)........................ 203,094 *
A. Brooke Seawell(12)........................ 66,425 *
Mark A. Stevens(13).......................... 163,218 *
All directors and executive officers as a
group
(11 persons)(14)............................ 9,371,989 29.1
</TABLE>
- --------
* Less than one percent
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, we believe that each of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 31,593,321
shares of common stock outstanding on February 29, 2000. In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held
by that person that are exercisable within 60 days are deemed
outstanding. These shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) The address for Messrs. Huang, Fisher, Malachowsky and Priem is c/o
NVIDIA Corporation, 3535 Monroe Street, Santa Clara, California 95051.
(3) Includes 2,308,900 shares of common stock held by The Jen-Hsun and Lori
Huang Living Trust dated May 1, 1995, of which Mr. Huang is the trustee,
and 250,600 shares held by J. and L. Huang Investments, L.P., of which
Mr. Huang and his wife are general partners. Also includes 200,000 shares
of common stock issuable upon the exercise of vested options within 60
days of February 29, 2000.
(4) Includes 175,000 shares of common stock held by The Priem Family CRT and
1,970,000 shares held by The Priem Family Foundation. Mr. Priem disclaims
beneficial ownership over the shares of common stock held by the Priem
Family Foundation. Also includes 125,000 shares of common stock issuable
upon the exercise of vested options within 60 days of February 29, 2000.
(5) Includes 1,751,990 shares of common stock held by The Chris and Melody
Malachowsky Living Trust dated October 20, 1994, of which Mr. Malachowsky
is the trustee, and 238,500 shares of common stock held by C. and
M. Malachowsky Investments, L.P., of which Mr. Huang and his wife are
general partners. Also includes 125,000 shares of common stock issuable
upon exercise of vested options within 60 days of February 29, 2000.
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<PAGE>
(6) Includes 39,000 shares held by Jeffrey D. Fisher, as custodian for his
three minor children under the Uniform Gifts to Minors Act. Also includes
27,098 shares of common stock issuable upon exercise of vested options
within 60 days of February 29, 2000.
(7) Includes 18,437 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(8) Includes 20,526 shares of common stock held in a retirement trust over
which Mr. Coxe exercises voting and investing power. Also includes 22,500
shares of common stock issuable upon exercise of vested options within 60
days of February 29, 2000.
(9) Includes 37,666 shares of common stock held by Cooley Godward LLP, of
which Mr. Gaither is a partner. Mr. Gaither disclaims beneficial
ownership of such shares held by such entity, except to the extent of his
pecuniary interest therein. Also includes 15,625 shares of common stock
issuable upon exercise of vested options within 60 days of February 29,
2000.
(10) Includes 22,500 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(11) Includes 21,250 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(12) Includes 66,425 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(13) Includes 21,250 shares of common stock issuable upon exercise of vested
options within 60 days of February 29, 2000.
(14) Includes 665,085 shares of common stock issuable upon exercise of
options held by all current directors and executive officers within 60
days of February 29, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock,
$.001 par value and 2,000,000 shares of preferred stock, $.001 par value. As
of February 29, 2000, there were 31,593,321 shares of common stock outstanding
and no shares of preferred stock outstanding.
Common Stock
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 shares of the Preferred
Stock, the 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 therefor. See "Dividend Policy." In the event of our liquidation,
dissolution, or winding up, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders
of common Stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon the
completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Pursuant to our Amended and Restated Certificate of Incorporation, or
Certificate, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 2,000,000 shares of preferred stock in one
or more series and to fix the designations, powers, preferences, privileges,
and relative participating, optional, or special rights and the
qualifications, limitations, or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The Board of Directors, without stockholder approval, can issue
preferred Stock with voting, conversion, or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms calculated to delay or
prevent our having a change in control or make removal of management more
difficult. Additionally, the issuance of preferred Stock may have the effect
of decreasing the market price of the common stock, and may adversely affect
the voting and other rights of the holders of common stock. We have no current
plans to issue any of the authorized preferred stock.
Registration Rights
In addition to the registration rights to be granted to the holder of the
notes, the holders (or their permitted transferees), or Holders of
approximately 786,287 shares of our common stock are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. If we propose to register our common stock, subject to certain
exceptions, under the Securities Act, the Holders are entitled to notice of
the registration and are entitled at our expense to include such shares
therein, provided that the managing underwriters have the right to limit the
number of such shares included in the registration. These registration rights
will not apply to any offering of our common stock under this prospectus. In
addition, certain of the Holders may require us, at our expense, on no more
than one occasion, to file a registration statement under the Securities Act
with respect to their shares of common stock. Further, certain Holders may
require us, once every 12 months and, on no more than two occasions, at our
expense to register the shares on Form S-3, subject to certain conditions and
limitations. These rights expire in January 2004.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Charter Documents
Our Certificate and Bylaws include a number of provisions that may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management. First, the Certificate provides that all
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<PAGE>
stockholder action must be effected at a duly called meeting of holders and
not by a consent in writing. Second, the Bylaws provide that special meetings
of the holders may be called only by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by the Board of Directors. Third, the
Certificate and the Bylaws provide for a classified Board of Directors. The
Certificate includes a provision requiring cumulative voting for directors
only if required by applicable California law. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may
be able to ensure the election of one or more directors. As a result of the
provisions of the Certificate and applicable California and Delaware law, at
any annual meeting whereby we had at least 800 stockholders as of the end of
the fiscal year prior to the record date for the annual meeting, stockholders
will not be able to cumulate votes for directors. Finally, the Bylaws
establish procedures, including advance notice procedures with regard to the
nomination of candidates for election as directors and stockholder proposals.
These provisions of the Certificate and Bylaws could discourage potential
acquisition proposals and could delay or prevent our having a change in
control or management. These provisions also may have the effect of preventing
changes in our management.
Delaware Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with a person
characterized as an "interested stockholder" for a period of three years after
the date of the transaction pursuant to which such person became an interested
stockholder, unless the business combination is approved in a manner
prescribed by Delaware law. For purposes of Section 203, a business
combination includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and 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 company's voting
stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C. Its address is 235 Montgomery Street, 23rd Floor,
San Francisco, California 94104 and its telephone number is (415) 743-1444.
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<PAGE>
DESCRIPTION OF DEBT SECURITIES
We may issue either senior or subordinated debt securities. Senior debt or
senior convertible debt securities and subordinated debt or subordinated
convertible debt securities will be issued in one or more series under either
a senior indenture or a subordinated indenture between us and Chase Manhattan
Bank and Trust Company, N.A., a national banking association, as Trustee. In
the following discussion, we sometimes refer to the two indentures as the
"indentures".
This prospectus briefly outlines the provisions of the indentures. The
indentures are filed as exhibits to the registration statement and you should
read the indentures for provisions that may be important to you. The
indentures are substantially identical except for the subordination and
negative pledge provisions described below.
Issuances in Series
The indentures do not limit the amount of debt we may issue. We may issue
the debt securities in one or more series with the same or various maturities,
at a price of 100% of their principal amount or at a premium or a discount.
The debt securities will not be secured by any of our property or assets.
The prospectus supplement relating to any series of debt securities being
offered will contain the specific terms relating to the offering. These terms
will include some or all of the following:
. whether the debt securities are senior or subordinated;
. the total principal amount of the debt securities;
. the percentage of the principal amount at which the debt securities will
be issued and whether the debt securities will be "original issue
discount" securities for U.S. federal income tax purposes. If we issue
original issue discount debt securities (securities that are issued at a
substantial discount below their principal amount because they pay no
interest or pay interest that is below market rates at the time of
issuance), we will describe the special United States federal income tax
and other considerations of a purchase of original issue discount debt
securities in the prospectus supplement;
. the date or dates on which principal will be payable and whether the
debt securities will be payable on demand by the holders on any date;
. the manner in which we will calculate payments of principal, premium or
interest and whether any payment will be fixed or based on an index or
formula or the value of another security, commodity or other asset;
. the interest payment dates;
. optional or mandatory redemption terms;
. authorized denominations, if other than $1,000 and integral multiples of
$1,000;
. the terms on which holders of the debt securities may convert or
exchange these securities into or for our stock or other securities or
another entity and any specific terms relating to the conversion or
exchange feature;
. the currency in which the debt securities will be denominated or
principal, premium or interest will be payable, if other than U.S.
dollars;
. whether the debt securities are to be issued as individual certificates
to each holder or in the form of global securities held by a depositary
on behalf of holders;
. information describing any book-entry features;
. whether and under what circumstances we will pay additional amounts on
any debt securities held by a person who is not a United States person
for tax purposes and whether we can redeem the debt securities if we
have to pay additional amounts;
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<PAGE>
. the names and duties of any co-trustees, depositories, authenticating
agents, paying agents, transfer agents or registrars for any series; and
. any other terms consistent with the above.
Payment and Transfer
We may issue debt securities as registered securities, which means that the
name of the holder will be entered in a register which will be kept by the
Trustee or another of our agents, or unregistered securities.
Unless we state otherwise in a prospectus supplement, we will make principal
and interest payments at the office of the paying agent or agents we name in
the prospectus supplement or by mailing a check to you at the address we have
for you in the register.
Unless we describe other procedures in a prospectus supplement, you will be
able to transfer registered debt securities at the office of the transfer
agent or agents we name in the prospectus supplement. You may also exchange
registered debt securities at the office of the transfer agent for an equal
aggregate principal amount of registered debt securities of the same series
having the same maturity date, interest rate and other terms as long as the
debt securities are issued in authorized denominations.
Neither we nor the Trustee will impose any service charge for any transfer
or exchange of a debt security; however, we may ask you to pay any taxes or
other governmental charges in connection with a transfer or exchange of debt
securities.
Book Entry System
We may issue debt securities under a book-entry system in the form of one or
more global securities. We will register the global securities in the name of
a depositary or its nominee and deposit the global securities with that
depositary. Unless we state otherwise in the prospectus supplement, The
Depository Trust Company, New York, New York will be the depositary if we use
a depositary.
DTC has advised us as follows:
. DTC is:
. a limited purpose trust company organized under the laws of the
State of New York;
. a "banking organization" within the meaning of the New York banking
law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
. a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of securities transactions among its
participants through electronic book entry changes in accounts of its
participants, eliminating the need for physical movements of securities
certificates.
. DTC's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and others, some of whom own DTC.
. Access to DTC's book-entry system is also available to others that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly.
Following the issuance of a global security in registered form, the
depositary will credit the accounts of its participants with the debt
securities upon our instructions. Only persons who hold directly or indirectly
through financial institutions that are participants in the depositary can
hold beneficial interests in the global securities. Since the laws of some
jurisdictions require certain types of purchasers to take physical delivery of
such securities in definitive form, you may encounter difficulties in your
ability to own, transfer or pledge beneficial interests in a global security.
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<PAGE>
So long as the depositary or its nominee is the registered owner of a global
security, we and the Trustee will treat the depositary as the sole owner or
holder of the debt securities for purposes of the applicable indenture.
Therefore, except as set forth below, you will not be entitled to have debt
securities registered in your name or to receive physical delivery of
certificates representing the debt securities. Accordingly, you will have to
rely on the procedures of the depositary and the participant in the depositary
through whom you hold your beneficial interest in order to exercise any rights
of a holder under the indenture. We understand that under existing practices,
the depositary would act upon the instructions of a participant or authorize
that participant to take any action that a holder is entitled to take.
We will make all payments of principal, premium and interest on the debt
securities to the depositary. We expect that the depositary will then credit
participants' accounts proportionately with these payments on the payment date
and that the participants will in turn credit their customers in accordance
with their customary practices. Neither we nor the Trustee will be responsible
for making any payments to participants or customers of participants or for
maintaining any records relating to the holdings of participants and their
customers and you will have to rely on the procedures of the depositary and
its participants.
Global securities are generally not transferable. We will issue physical
certificates to beneficial owners of a global security if:
. the depositary notifies us that it is unwilling or unable to continue as
depositary and we do not appoint a successor within 90 days;
. the depositary ceases to be a clearing agency registered under the
Exchange Act and we do not appoint a successor within 90 days; or
. we decide in our sole discretion that we do not want to have the debt
securities of that series represented by global securities.
Subordination
Payment on the subordinated debt securities will, to the extent provided in
the subordinated indenture, be subordinated in right of payment to the prior
payment in full of all of our senior indebtedness. The subordinated debt
securities also are effectively subordinated to all debt and other
liabilities, including trade payables and lease obligations, if any, of our
subsidiaries.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, and liquidated damages, if any, on the subordinated debt
securities will be subordinated in right of payment to the prior payment in
full in cash or other payment satisfactory to the holders of senior
indebtedness of all senior indebtedness. In the event of any acceleration of
the subordinated debt securities because of an event of default, the holders
of any outstanding senior indebtedness would be entitled to payment in full in
cash or other payment satisfactory to the holders of senior indebtedness of
all senior indebtedness obligations before the holders of the subordinated
debt securities are entitled to receive any payment or distribution. We are
required under the subordinated indenture to promptly notify holders of senior
indebtedness if payment of the subordinated debt securities is accelerated
because of an event of default.
We may not make any payment on the subordinated debt securities if:
. a default in the payment of designated senior indebtedness occurs and is
continuing beyond any applicable period of grace (called a "payment
default"); or
. a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity, or in the case of a
lease, a default occurs and is continuing that permits the lessor to
either terminate the lease or require us to make an irrevocable offer to
terminate the lease following an event of default under the lease,
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and the trustee receives a notice of such default (called a "payment
blockage notice") from us or any other person permitted to give such
notice under the indenture (called a "non-payment default").
We may resume payments and distributions on the subordinated debt
securities:
. in case of a payment default, upon the date on which such default is
cured or waived or ceases to exist; and
. in case of a non-payment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days
after the date on which the payment blockage notice is received, if the
maturity of the designated senior indebtedness has not been accelerated,
or in the case of any lease, 179 days after notice is received if we
have not received notice that the lessor under such lease has exercised
its right to terminate the lease or require us to make an irrevocable
offer to terminate the lease following an event of default under the
lease.
No non-payment default that existed or was continuing on the date of
delivery of any payment blockage notice shall be the basis for any later
payment blockage notice.
If the trustee or any holder of the subordinated debt securities receives
any payment or distribution of our assets in contravention of the
subordination provisions on the subordinated debt securities before all senior
indebtedness is paid in full in cash or other payment satisfactory to holders
of senior indebtedness then such payment or distribution will be held in trust
for the benefit of holders of senior indebtedness or their representatives to
the extent necessary to make payment in full in cash or payment satisfactory
to the holders of senior indebtedness of all unpaid senior indebtedness.
In the event of our bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of the subordinated
debt securities may receive less, ratably, than our other creditors. This
subordination will not prevent the occurrence of any event of default under
the indenture.
As of January 30, 2000, no senior indebtedness was outstanding. We are not
prohibited from incurring debt, including senior indebtedness, under the
indentures. We may from time to time incur additional debt, including senior
indebtedness.
We are obligated to pay reasonable compensation to the Trustee and to
indemnify the Trustee against certain losses, liabilities or expenses incurred
by the Trustee in connection with its duties relating to the debt securities.
The Trustee's claims for these payments will generally be senior to those of
holders of debt securities in respect of all funds collected or held by the
Trustee.
Conversion Rights
The prospectus supplement will describe, if applicable, the terms on which
the holders may convert debt securities into common stock. The conversion may
be mandatory or may be at the option of the holder of debt securities. The
prospectus supplement will describe how the number of shares of common stock
to be received upon conversion would be calculated.
Certain Definitions
"designated senior indebtedness" shall mean senior indebtedness under the
loan agreement and our obligations under any other particular senior
indebtedness that expressly provides that such senior indebtedness shall be
"designated senior indebtedness" for purposes of the subordinated indenture.
The instrument or agreement for designated senior indebtedness may place
limitations and conditions on the right of senior indebtedness to exercise the
rights of designated senior indebtedness.
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"indebtedness" means:
(1) all indebtedness, obligations and other liabilities for borrowed
money, including overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any
loans or advances from banks, or evidenced by bonds, debentures, notes
or similar instruments, other than any account payable or other
accrued current liability or obligation incurred in the ordinary
course of business in connection with the obtaining of materials or
services;
(2) all reimbursement obligations and other liabilities with respect to
letters of credit, bank guarantees or bankers' acceptances;
(3) all obligations and liabilities in respect of leases required in
conformity with generally accepted accounting principles to be
accounted for as capitalized lease obligations on our balance sheet;
(4) all obligations and other liabilities under any lease or related
document in connection with the lease of real property which provides
that we are contractually obligated to purchase or cause a third party
to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and our
obligations under the lease or related document to purchase or to
cause a third party to purchase the leased property;
(5) all obligations with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement or foreign
currency hedge, exchange, purchase agreement or other similar
instrument or agreement;
(6) all direct or indirect guaranties or similar agreements, our
obligations or liabilities to purchase, acquire or otherwise assure a
creditor against loss in respect of, indebtedness, obligations or
liabilities of others of the type described in (1) through (5) above;
(7) any indebtedness or other obligations described in (1) through (6)
above secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by us; and
(8) any and all refinancings, replacements, deferrals, renewals,
extensions and refundings of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind
described in clauses (1) through (7) above.
"loan agreement" means the loan and security agreement, dated as of
September 3, 1998, as amended by the amendment to loan and security agreement
dated as of July 30, 1999, between NVIDIA and Imperial Bank.
"senior indebtedness" means the principal, premium, if any, interest,
including any interest accruing after bankruptcy and rent or termination
payment on or other amounts due on our current or future indebtedness, whether
created, incurred, assumed, guaranteed or in effect guaranteed by us,
including any refinancings, replacements, deferrals, renewals, extensions,
refundings, amendments, modifications or supplements to the above. However,
senior indebtedness does not include:
. indebtedness that expressly provides that it shall not be senior in
right of payment to the subordinated debt securities or expressly
provides that it is on the same basis or junior to the subordinated debt
securities;
. our indebtedness to any of our majority-owned subsidiaries; and
. the subordinated debt securities.
Negative Pledge
We have agreed in the senior indenture for the benefit of the holders of the
senior debt securities that, with some exceptions, neither we nor our
subsidiaries will create a lien to secure debt that is the same seniority with
or subordinated to the senior debt securities, unless we secure the senior
debt securities equally with the secured debt.
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Consolidation, Merger, Sale or Conveyance
The indentures do not prevent us from any consolidation or merger with any
other person or the sale of all of the property of our property to any other
person. In the event we undertake a consolidation, merger or sale of all of
our property, however, the person with which we consolidate, merge or sell all
of our property must agree:
. to pay the principal, premium and interest on the debt securities; and
. to the due and punctual performance of all of the covenants and
conditions of the indentures to be performed by us.
If the debt securities are convertible for our other securities or other
entities, the person with whom we consolidate, merge or sell all of our
property must make provisions for the conversion of the debt securities into
securities which the holders of the debt securities would have received if
they had converted the debt securities before the consolidation, merger or
sale.
We must deliver to the trustee an officer's certificate and an opinion of
counsel that the consolidation, merger or sale complies with the indentures.
Modification of the Indenture
In general, our rights and obligations and the rights of the holders under
the indenture may be modified if the holders of a majority in aggregate
principal amount of the outstanding debt securities of each series affected by
the modification consent to it. However, under the terms of the indentures,
each indenture provides that, unless each affected holder agrees, we cannot
make any adverse change to any payment term of a debt security such as:
. extending the maturity date;
. extending the date on which we have to pay interest or make a sinking
fund payment;
. reducing the interest rate;
. reducing the amount of principal we have to repay;
. changing the currency in which we have to make any payment of principal,
premium or interest;
. modifying any redemption or repurchase right to the detriment of the
holder;
. modifying any right to convert or exchange the debt securities for
another security to the detriment of the holder;
. impairing any right of a holder to bring suit for payment;
. reduce the percentage of the aggregate principal amount of debt
securities needed to make any amendment to the indenture or to waive any
covenant or default;
. waive any payment default; or
. make any change to such sections of either indenture.
However, if we and the Trustee agree, we can amend the indenture without
notifying any holders or seeking their consent if the amendment does not
materially and adversely affect any holder.
Events of Default
When we use the term "event of default" in the indenture, here are some
examples of what we mean.
Unless otherwise specified in a prospectus supplement, an event of default
with respect to a series of debt securities occurs if:
. we fail to pay the principal or any premium on any debt security of that
series when due;
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. we fail to pay interest when due on any debt security of that series for
30 days;
. we fail to perform any other covenant in the indenture and this failure
continues for 60 days after we receive written notice of it from the
Trustee or from the holders of 25% in principal amount of the
outstanding debt securities of such series;
. a creditor commences involuntary bankruptcy, insolvency or similar
proceedings against us and we are unable to obtain a stay or a dismissal
of that proceeding within 90 days; or
. we voluntarily seek relief under bankruptcy, insolvency or similar laws
or a court enters an order for relief against us under these laws.
The supplemental indenture or the form of security for a particular series
of debt securities may include additional events of default or changes to the
events of default described above. For any additional or different events of
default applicable to a particular series of debt securities, see the
prospectus supplement relating to such series.
The Trustee may withhold notice to the holders of debt securities of any
default (except in the payment of principal or interest) if it considers such
withholding of notice to be in the best interests of the holders. By default
we mean any event which is an event of default described above or would be an
event of default but for the giving of notice or the passage of time.
If an event of default occurs and continues, the Trustee or the holders of
the aggregate principal amount of the debt securities specified below may
require us to repay immediately (or "accelerate"):
. the entire principal of the debt securities of such series; or
. if the debt securities are original issue discount securities, such
portion of the principal as may be described in the applicable
prospectus supplement.
If the event of default occurs because we defaulted in a payment of
principal or interest on the debt securities, then the Trustee or the holders
of at least 25% of the aggregate principal amount of debt securities of that
series can accelerate that series of debt securities. If the event of default
occurs because we failed to perform any other covenant in the Indenture or any
covenant that we agreed to for the benefit of one or more series of debt
securities, then the Trustee or the holders of at least 25% of the aggregate
principal amount of debt securities of all series affected, voting as one
class, can accelerate all of the affected series of debt securities. If the
event of default occurs because we become involved in bankruptcy proceedings
then all of the debt securities under the indenture will be accelerated
automatically. If the event of default occurs because we defaulted on some of
our other indebtedness or because that indebtedness becomes accelerated as
described above, then the Trustee or the holders of at least 25% of the
aggregate principal amount of the debt securities outstanding under the
indenture, voting as one class, can accelerate all of the debt securities
outstanding under the indenture. Therefore, except in the case of a default by
us on a payment of principal or interest on the debt securities of your series
or a default due to our bankruptcy or insolvency, it is possible that you may
not be able to accelerate the debt securities of your series because of the
failure of holders of other series to take action.
The holders of a majority of the aggregate principal amount of the debt
securities of all affected series, voting as one class, can rescind this
accelerated payment requirement or waive any past default or event of default
or allow us to not comply with any provision of the indenture. However, they
cannot waive a default in payment of principal of, premium, if any, or
interest on, any of the debt securities.
Other than its duties in case of a default, the Trustee is not obligated to
exercise any of its rights or powers under the indenture at the request, order
or direction of any holders, unless the holders offer the Trustee reasonable
indemnity. If they provide this reasonable indemnity, the holders of a
majority in principal amount of all affected series of debt securities, voting
as one class, may direct the time, method and place of conducting any
proceeding or any remedy available to the Trustee, or exercising any power
conferred upon the Trustee, for any series of debt securities.
45
<PAGE>
We are not required to provide the Trustee with any certificate or other
document saying that we are in compliance with the indenture or that there are
no defaults.
Defeasance
When we use the term defeasance, we mean discharge from some or all of our
obligations under the indenture. Unless otherwise specified in a prospectus
supplement, if we deposit with the Trustee sufficient cash or U.S. government
securities to pay the principal, interest, any premium and any other sums due
to the stated maturity date or a redemption date of the debt securities of a
particular series, then at our option:
. we will be discharged from our obligations with respect to the debt
securities of such series, except as to any surviving rights of
registration or transfer or exchange or conversion of debt securities of
that series expressly provided for; or
. we will no longer be under any obligation to comply with the negative
pledge contained in the senior indenture, and the Events of Default
relating to failures to comply with covenants will no longer apply to
us.
If we are discharged from our obligations with respect to the debt
securities of a particular series, the holders of the debt securities of the
affected series will not be entitled to the benefits of the indenture except
for registration of transfer and exchange of debt securities and replacement
of lost, stolen or mutilated debt securities. Instead the holders will only be
able to rely on the deposited funds or obligations for payment.
We must deliver to the Trustee an opinion of counsel to the effect that the
deposit and related defeasance would not cause the holders of the debt
securities to recognize income, gain or loss for Federal income tax purposes.
We must also deliver a ruling to such effect received from or published by the
United States Internal Revenue Service if we are discharged from our
obligations with respect to the debt securities.
Concerning the Trustee
We have appointed Chase Manhattan Bank and Trust Company, N.A., a national
banking association, the trustee under the indentures. The trustee or its
affiliates may provide banking and other services to us in the ordinary course
of their business.
Governing Law
The laws of the State of New York will govern the indentures and the debt
securities.
46
<PAGE>
PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus through agents,
underwriters or dealers.
Agents designated by us from time to time may solicit offers to purchase the
securities offered by this prospectus. Any agent involved in the offer or sale
of those securities may be deemed to be an underwriter under the Securities
Act and we will name that agent and describe any commissions payable by us to
that agent in a prospectus supplement. Any agent appointed by us will be
acting on a reasonable efforts basis for the period of its appointment or, if
indicated in the applicable prospectus supplement, on a firm commitment basis.
We may be obligated under agreements with these agents to indemnify them
against civil liabilities, including liabilities under the Securities Act.
These agents may also engage in transactions with or perform services for us
in the ordinary course of business.
If we utilize any underwriters in any sale of the securities in respect of
which this prospectus is delivered, we will enter into an underwriting
agreement with those underwriters at the time of sale to them and the names of
the underwriters and the terms of the transaction will be set forth in the
prospectus supplement. That prospectus supplement will be used by the
underwriters to make resales of the securities in respect of which this
prospectus is delivered to the public. We may be obligated under the
underwriting agreements with these underwriters to indemnify them against
civil liabilities, including liabilities under the Securities Act. These
underwriters may also engage in transactions with or perform services for us
in the ordinary course of business.
If we utilize a dealer in any sale of the securities in respect of which the
prospectus is delivered, we will sell the securities to the dealer, as
principal. The dealer may then resell those securities to the public at
varying prices to be determined by the dealer at the time of resale. We may be
obligated under agreements with these dealers to indemnify them against civil
liabilities, including liabilities under the Securities Act. These dealers may
also engage in transactions with or perform services for us in the ordinary
course of business.
If so indicated in the applicable prospectus supplement, we will authorize
agents, underwriters or dealers to solicit offers from purchasers to purchase
the securities from us at the public offering price set forth in the
prospectus supplement under delayed delivery contracts providing for payment
and delivery of those securities on a specified date in the future. These
delayed delivery contracts will be subject to only those conditions set forth
in the prospectus supplement, and we will set forth the commission payable for
solicitation of these offers in the prospectus supplement.
47
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, San Francisco, California will provide us with an
opinion as to the legality of the securities we are offering.
Mr. Gaither, one of our directors and a partner of Cooley Godward LLP, owns
54,951 shares of our common stock and options to purchase 55,000 shares of our
common stock. In addition, Cooley Godward LLP owns 37,666 shares and attorneys
with Cooley Godward LLP own an aggregate of 72,653 shares of our common stock.
EXPERTS
The financial statements and schedule of NVIDIA Corporation as of January
31, 1999 and January 30, 2000 and for the year ended December 31, 1997, the
one-month period ended January 31, 1998 and each of the years in the two-year
period ended January 30, 2000, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. We have filed with the
SEC a registration statement on Form S-3 under the Securities Act with respect
to the shares of common stock and debt securities we are offering under this
prospectus. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits to the registration statement.
For further information with respect to us and the securities we are offering
under this prospectus, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration statement. You may
read and copy the registration statement, as well as our reports, proxy
statements and other information at the SEC's public reference rooms at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois,
60661, and at Seven World Trade Center, New York, New York 10048. You can
request copies of these documents by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference rooms. Our SEC filings are also
available at the SEC's web site at "http://www.sec.gov." In addition, you can
read and copy our SEC filings at the office of the National Association of
Securities Dealers, Inc at 1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. This prospectus and the information that
we file later with the SEC may update and supersede the information
incorporated by reference. We incorporate by reference the documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934:
. Annual Report on Form 10-K for the year ended January 30, 2000; and
. The description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on January 12, 1999.
You may request of copy of these filings at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
NVIDIA Corporation
3535 Monroe Street
Santa Clara, California 95051
(408) 615-2500
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG LLP, Independent Auditors.................................. F-2
Balance Sheets as of January 31, 1999 and January 30, 2000................ F-3
Statements of Operations for the year ended December 31, 1997, one month
ended January 31, 1998, year ended January 31, 1999 and year ended
January 30, 2000......................................................... F-4
Statements of Stockholders' Equity for the year ended December 31, 1997,
one month ended January 31, 1998, year ended January 31, 1999 and year
ended January 30, 2000................................................... F-5
Statements of Cash Flows for the year ended December 31, 1997, one month
ended January 31, 1998, year ended January 31, 1999 and year ended
January 30, 2000......................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NVIDIA Corporation:
We have audited the accompanying balance sheets of NVIDIA Corporation (the
Company) as of January 31, 1999 and January 30, 2000 and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1997, the one-month period ended January 31, 1998, and each
of the years in the two-year period ended January 30, 2000. In connection with
our audits of the financial statements, we have also audited the accompanying
financial statement schedule. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with 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 NVIDIA Corporation as of
January 31, 1999 and January 30, 2000 and the results of its operations and
its cash flows for the year ended December 31, 1997, the one-month period
ended January 31, 1998, and each of the years in the two-year period ended
January 30, 2000, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Mountain View, California
March 6, 2000
F-2
<PAGE>
NVIDIA CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 50,257 $ 61,560
Accounts receivable, less allowances of $2,627 and
$6,443 in 1999 and 2000, respectively............... 20,633 67,224
Inventory............................................ 28,623 37,631
Prepaid expenses and other current assets............ 1,599 6,760
-------- --------
Total current assets............................... 101,112 173,175
Property and equipment, net............................ 11,650 25,886
Deposits and other assets.............................. 570 3,189
-------- --------
$113,332 $202,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 35,730 $ 64,910
Line of credit....................................... 5,000 --
Accrued liabilities.................................. 5,012 9,529
Current portion of capital lease obligations......... 1,386 1,786
-------- --------
Total current liabilities.......................... 47,128 76,225
Capital lease obligations, less current portion........ 1,995 962
Long-term payable...................................... -- 500
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares
authorized; 28,743,001 and 31,100,157 shares issued
and outstanding in 1999 and 2000, respectively...... 29 31
Additional paid-in capital........................... 74,372 95,964
Deferred compensation................................ (780) (118)
Retained earnings (accumulated deficit).............. (9,412) 28,686
-------- --------
Total stockholders' equity......................... 64,209 124,563
-------- --------
$113,332 $202,250
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product..................... $27,280 $11,420 $151,413 $374,505
Royalty..................... 1,791 1,911 6,824 --
------- ------- -------- --------
Total revenue............. 29,071 13,331 158,237 374,505
Cost of revenue............... 21,244 10,071 109,746 235,575
------- ------- -------- --------
Gross profit.................. 7,827 3,260 48,491 138,930
------- ------- -------- --------
Operating expenses:
Research and development.... 7,103 1,121 25,073 47,439
Sales, general and
administrative............. 4,183 640 18,902 37,079
------- ------- -------- --------
Total operating expenses.. 11,286 1,761 43,975 84,518
------- ------- -------- --------
Operating income (loss)... (3,459) 1,499 4,516 54,412
Interest and other income
(expense), net............... (130) (18) (29) 1,754
------- ------- -------- --------
Income (loss) before tax
expense...................... (3,589) 1,481 4,487 56,166
Income tax expense............ -- 134 357 18,068
------- ------- -------- --------
Net income (loss)......... $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======== ========
Basic net income (loss) per
share........................ $ (.28) $ .10 $ .28 $ 1.28
======= ======= ======== ========
Diluted net income (loss) per
share........................ $ (.28) $ .05 $ .15 $ 1.06
======= ======= ======== ========
Shares used in basic per share
computation.................. 12,677 14,141 14,565 29,872
Shares used in diluted per
share computation............ 12,677 26,100 27,393 36,098
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Retained
Earnings
Preferred Stock Common Stock Additional Deferred (Accumu- Total
------------------ ------------------ Paid-in Compen- lated Stockholders'
Shares Amount Shares Amount Capital sation Deficit) Equity
---------- ------ ---------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 7,888,275 $ 8 11,567,374 $12 $12,317 -- $(11,300) $ 1,037
Issuance of Series D
preferred stock, net of
issuance costs of $30.. 1,438,812 1 -- -- 7,537 -- -- 7,538
Grant of common stock
options for lease
financing and
consulting services.... -- -- -- -- 120 -- -- 120
Issuance of common stock
upon exercise of stock
options................ -- -- 2,573,211 2 828 -- -- 830
Deferred compensation
related to grant of
common stock options... -- -- -- -- 4,277 (4,277) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 961 -- 961
Net loss................ -- -- -- -- -- -- (3,589) (3,589)
---------- --- ---------- --- ------- ------ -------- --------
Balances, December 31,
1997................... 9,327,087 9 14,140,585 14 25,079 (3,316) (14,889) 6,897
Issuance of common stock
upon exercise of stock
options................ -- -- 1,125 -- 6 -- -- 6
Deferred compensation
related to grant of
common stock options... -- -- -- -- 361 (361) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 360 -- 360
Net income.............. -- -- -- -- -- -- 1,347 1,347
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1998................... 9,327,087 9 14,141,710 14 25,446 (3,317) (13,542) 8,610
Issuance of common stock
upon exercise of stock
options................ -- -- 202,775 -- 348 -- -- 348
Tax benefit from stock
options................ -- -- -- -- 45 -- -- 45
Sale of common stock
under public offering,
net of issuance costs
of $4.5 million........ -- -- 3,500,000 4 37,535 -- -- 37,539
Issuance and conversion
of mandatorily
convertible notes into
common stock........... -- -- 1,571,429 2 10,998 -- -- 11,000
Conversion of preferred
stock into common
stock.................. (9,327,087) (9) 9,327,087 9 -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 2,537 -- 2,537
Net income.............. -- -- -- -- -- -- 4,130 4,130
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1999................... -- -- 28,743,001 $29 $74,372 $ (780) $ (9,412) $ 64,209
Sale of common stock
under public offering
(over-allotment), net
of issuance costs of
$0.6 million........... -- -- 525,000 1 5,740 -- -- 5,741
Issuance of common stock
in connection with
long-term software
license................ -- -- 243,902 -- 5,000 -- -- 5,000
Repurchase of common
stock in settlement of
accounts receivable.... -- -- (438,572) -- (7,452) -- -- (7,452)
Issuance of common stock
from stock plans....... -- -- 2,016,826 1 7,676 -- -- 7,677
Tax benefit from stock
plans.................. -- -- -- -- 10,613 -- -- 10,613
Grant of common stock
options for consulting
services............... -- -- -- -- 15 -- -- 15
Amortization of deferred
compensation........... -- -- -- -- -- 662 -- 662
Net income.............. -- -- -- -- -- -- 38,098 38,098
---------- --- ---------- --- ------- ------ -------- --------
Balances, January 30,
2000................... -- -- 31,100,157 $31 $95,964 $ (118) $ 28,686 $124,563
========== === ========== === ======= ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(3,589) $1,347 $ 4,130 $38,098
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................ 1,363 219 4,006 9,006
Stock options granted in
exchange for lease
financing and services...... 120 -- -- 15
Amortization of deferred
compensation................ 961 360 2,537 662
Tax benefit from employee
stock plans................. -- -- 45 10,613
Changes in operating assets
and liabilities:
Accounts receivable......... (11,446) (2,912) (5,234) (54,043)
Inventory................... 38 (496) (28,102) (9,008)
Prepaid expenses and other
current assets............. (237) (316) (1,005) (5,161)
Deposits and other assets... (59) -- (408) (3,008)
Accounts payable............ 11,295 3,740 20,418 24,180
Accrued liabilities......... 373 21 1,746 4,517
------- ------ ------- -------
Net cash provided by (used
in) operating
activities............... (1,181) 1,963 (1,867) 15,871
------- ------ ------- -------
Cash flows used in investing
activities:
Purchase of property and
equipment.................... (2,732) (163) (7,899) (11,589)
------- ------ ------- -------
Cash flows from financing
activities:
Borrowings (payments) under
line of credit............... -- -- 5,000 (5,000)
Common stock issued under
employee stock plans......... 830 6 348 7,677
Sale of common stock under
public offering, net of
issuance costs -- -- 37,539 5,741
Issuance and conversion of
mandatorily convertible
notes into common stock...... -- -- 11,000 --
Long-term payable related to
patent license agreement..... -- -- -- 500
Net proceeds from sale of
preferred stock.............. 7,538 -- -- --
Payments under capital
leases....................... (1,037) (373) (1,848) (1,897)
------- ------ ------- -------
Net cash provided by (used
in) financing
activities............... 7,331 (367) 52,039 7,021
------- ------ ------- -------
Change in cash and cash
equivalents................... 3,418 1,433 42,273 11,303
Cash and cash equivalents at
beginning of period........... 3,133 6,551 7,984 50,257
------- ------ ------- -------
Cash and cash equivalents at
end of period................. $ 6,551 $7,984 $50,257 $61,560
======= ====== ======= =======
Cash paid for interest......... $ 267 $ 31 $ 471 $ 332
======= ====== ======= =======
Cash paid for taxes............ $ -- $ -- $ -- $15,965
======= ====== ======= =======
Noncash financing and investing
activities:
Assets recorded under capital
lease........................ $ 3,023 $ 32 $ 2,245 $ 1,264
======= ====== ======= =======
Deferred compensation related
to grant of common stock
options...................... $ 4,277 $ 361 $ -- $ --
======= ====== ======= =======
Repurchase of common stock in
settlement of accounts
receivable................... $ -- $ -- $ -- $ 7,452
======= ====== ======= =======
Issuance of common stock in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
Liabilities assumed in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Significant Accounting Policies
Organization
NVIDIA Corporation (the "Company") designs, develops and markets 3D graphics
processors for the PC market. The Company operates primarily in one industry
segment in the United States, Asia and Europe. In April 1998, the Company was
reincorporated as a Delaware corporation.
Fiscal Year
Effective January 1, 1998, the Company changed its fiscal year-end financial
reporting period to January 31. The Company elected not to restate its
previous reporting periods ending December 31. In addition, effective February
1, 1998, the Company changed its fiscal year end from January 31 to a 52- or
53-week year ending on the last Sunday in January. As a result, the first and
fourth quarters of fiscal 1999 are 12- and 14-week periods, respectively, with
the remaining quarters being 13-week periods. All four quarters of fiscal 2000
are 13-week periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the time of purchase to be cash
equivalents. Currently, the Company's cash equivalents consist of $54.3
million invested in money market funds.
Inventories
Inventories are stated at the lower of first-in first-out, cost or market.
Write-downs to reduce the carrying value of obsolete, slow moving and non-
usable inventory to net realizable value are charged to cost of revenue.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally three to
four years. Depreciation expense includes the amortization of assets recorded
under capital leases. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the lease term or the estimated
useful life of the asset.
Software Development Costs
Software development costs are expensed as incurred until the technological
feasibility of the related product has been established. After technological
feasibility is established, any additional software development costs would be
capitalized in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards ("SFAS") No. 86, Capitalization of Software
Development Costs. Through January 30, 2000, the Company's process for
developing software was completed concurrently with the establishment of
technological feasibility, and, accordingly, no software costs have been
capitalized to date. Software development costs incurred prior to achieving
technological feasibility are charged to research and development expense as
incurred.
Revenue Recognition
Revenue from product sales to all customers (excluding distributors) is
recognized upon shipment, net of appropriate allowances. The Company's policy
on sales to distributors is to defer recognition of sales and related gross
profit until the distributors resell the product. Royalty revenue is
recognized upon shipment of product by the licensee to its customers. The
Company believes that the software sold with its products is incidental to the
product as a whole.
F-7
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and trade accounts
receivable. The Company invests primarily in money market funds and limits the
amount of exposure to any one financial institution. Four customers accounted
for approximately 37% of the Company's accounts receivable balance at January
30, 2000. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains an allowance for potential credit losses.
Research and Development Arrangements
The Company entered into contractual agreements to provide design,
development and support services on a best efforts basis. All amounts funded
to the Company under these agreements are non-refundable once paid. The
Company recorded reductions to research and development expense after the
services were performed based on the achievement of contractually specified
milestones and the collectability of amounts was assured.
Accounting for Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock-based
employee compensation plans. Deferred compensation arising from stock-based
awards is amortized in accordance with Financial Accounting Standards Board
Interpretation No. 28.
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recorded or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short
maturity of those instruments.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. The Company had no other components of comprehensive income other
than the reported amounts of net income (loss) in all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation. Such
reclassifications had no effect on net income (loss) or stockholders' equity.
F-8
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
New Accounting Pronouncement
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the costs of computer software intended for
internal use. Effective February 1, 1999, the Company adopted SOP 98-1. There
was no material change to the Company's results of operations or financial
position as a result of the adoption of SOP 98-1.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using either
the as-if-converted method for mandatorily convertible notes and convertible
preferred stock or the treasury stock method for options and warrants. The
following is a reconciliation of the numerators and denominators of the basic
and diluted net income (loss) per share computations for the periods
presented:
<TABLE>
<CAPTION>
Income/(Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C> <C>
(in thousands)
Year ended December 31, 1997
Basic and diluted net loss............. $(3,589) 12,677 $(0.28)
======= ====== ======
One month ended January 31, 1998
Basic net income....................... $ 1,347 14,141 $ 0.10
Effect of dilutive securities:
Stock options outstanding........... 2,531
Warrants............................ 101
Convertible preferred stock......... 9,327
------- ------
Diluted net income..................... $ 1,347 26,100 $ 0.05
======= ====== ======
Year ended January 31, 1999
Basic net income....................... $ 4,130 14,565 $ 0.28
Effect of dilutive securities:
Stock options outstanding........... 2,906
Warrants............................ 116
Mandatorily convertible notes....... 717
Convertible preferred stock......... 9,089
------
Diluted net income..................... $ 4,130 27,393 $ 0.15
======= ====== ======
Year ended January 30, 2000
Basic net income....................... $38,098 29,872 $ 1.28
Effect of dilutive securities:
Stock options outstanding........... 6,003
Warrants............................ 71
Common stock issuable in connection
with long-term software license..... 152
------- ------
Diluted net income..................... $38,098 36,098 $ 1.06
======= ====== ======
</TABLE>
As of January 31, 1999 and 1998, options to acquire 642,750 and 149,032
shares of common stock with weighted-average exercise prices of $8.86 and
$5.50, respectively, were not included in the computation of
F-9
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
diluted earnings per share because the options' exercise price was greater
than the average market price of the Company's common shares and, therefore,
the effect would be antidilutive. Options to purchase 3,735,458 shares of
common stock with a weighted-average exercise price of $1.78, warrants to
purchase 158,806 shares of common stock as well as 9,327,087 shares of
convertible preferred stock were outstanding for the year ended December 31,
1997 but were not included in the calculation of diluted earnings per share
because the Company had a net loss for that year and to do so would have been
antidilutive.
(2) Balance Sheet Components
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Inventory:
Work in-process......................................... $15,385 $ 6,446
Finished goods.......................................... 13,238 31,185
------- -------
Total inventory....................................... $28,623 $37,631
======= =======
</TABLE>
At January 30, 2000, the Company had noncancelable inventory purchase
commitments totaling $124.6 million.
<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
<S> <C> <C>
(in thousands)
Property and Equipment:
Purchased engineering software.......................... $ 4,102 $17,013
Test equipment.......................................... 3,625 8,103
Computer equipment...................................... 9,028 14,194
Leasehold improvements.................................. 475 878
Office furniture and equipment.......................... 1,361 1,142
------- -------
18,591 41,330
Accumulated depreciation and amortization............... (6,941) (15,444)
------- -------
Property and equipment, net............................. $11,650 $25,886
======= =======
</TABLE>
Assets recorded under capital leases included in property and equipment were
$6,637,000 and $6,892,000 as of January 31, 1999 and January 30, 2000,
respectively. Accumulated amortization thereon was $3,238,000 and $5,285,000
as of January 31, 1999 and January 30, 2000, respectively.
<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Accrued Liabilities:
Accrued sales and marketing allowances.................. $1,973 $5,377
Other................................................... 3,039 4,152
------ ------
Total accrued liabilities............................. $5,012 $9,529
====== ======
</TABLE>
F-10
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) Stockholders' Equity
Mandatorily Convertible Notes
Convertible subordinated non-interest bearing notes were issued to three
major customers in July and August 1998 for a total of $11.0 million. The
notes were subordinated to certain senior indebtedness. On January 15, 1999,
the outstanding principal balance of these notes automatically converted into
1,571,429 shares of common stock of the Company at a conversion price equal to
$7.00 per share.
Convertible Preferred Stock
On January 22, 1999, 9,327,087 shares of preferred stock were automatically
converted into common stock upon the completion of the initial public offering
of common stock. As of January 31, 2000, there are no shares of preferred
stock outstanding and the Company has no current plans to issue any of the
authorized preferred stock.
1998 Equity Incentive Plan
The Equity Incentive Plan (the "Plan"), as amended and restated on February
17, 1998, provides for the issuance of up to 15,000,000 shares of the
Company's common stock to directors, employees and consultants. The Plan
provides for the issuance of stock bonuses, restricted stock purchase rights,
incentive stock options or nonstatutory stock options. Each year on the last
day of each fiscal year, starting with the year ending January 31, 1999, the
aggregate number of shares of common stock that are available for issuance
will automatically be increased by a number of shares equal to five percent
(5%) of the Company's outstanding common stock on such date, including on an
as-if-converted basis preferred stock and convertible notes, and outstanding
options and warrants, calculated using the treasury stock method. In January
2000, the shares of common stock available for issuance were increased by
1,930,962 shares pursuant to this provision.
Pursuant to the Plan, the exercise price for incentive stock options is at
least 100% of the fair market value on the date of grant or for employees
owning in excess of 10% of the voting power of all classes of stock, 110% of
the fair market value on the date of grant. For nonstatutory stock options,
the exercise price is no less than 85% of the fair market value on the date of
grant.
Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors. However, options generally vest ratably over a four year
period, with 25% becoming vested approximately one year from the date of grant
and the remaining 75% vesting on a quarterly basis over the next three years.
Options granted prior to December 1997 could be exercised prior to full
vesting. Any unvested shares so purchased were subject to a repurchase right
in favor of the Company at a repurchase price per share that was equal to the
original per share purchase price. The right to repurchase at the original
price would lapse at the rate of 25% per year over the four-year period from
the date of grant. As of January 30, 2000, there were 499,611 such shares
subject to repurchase.
The Company accounts for the plan using the intrinsic value method. As such,
compensation expense is recorded if on the date of grant the current fair
value per share of the underlying stock exceeds the exercise price per share.
With respect to certain options granted during 1997 and the one month ended
January 31, 1998, the Company recorded deferred compensation of $4,277,000 and
$361,000, respectively, for the difference at the grant date between the
exercise price per share and the fair value per share, based upon independent
valuations and management's estimate of the fair value of the Company's stock
on the various grant dates of the common stock underlying the options. This
amount is being amortized over the vesting period of the individual options,
generally four years.
F-11
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Non-Employee Directors' Stock Option Plan
In February 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to directors of the Company who are
not employees of or consultants to the Company or an affiliate of the Company
(a "Non-Employee Director"). The Compensation Committee administers the
Directors' Plan. The aggregate number of shares of common stock that may be
issued pursuant to options granted under the Directors' Plan is 300,000
shares.
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards No. 123,
("SFAS 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB 25") and related Interpretations in accounting for stock-
based awards to employees. Compensation cost for the Company's stock-based
compensation plans as determined consistent with SFAS 123, would have
increased net loss and would have decreased net income to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss)--as reported.. $(3,589) $1,347 $4,130 $38,098
Net income (loss)--pro forma.... $(3,694) $1,046 $ (256) $30,697
Basic net income (loss) per
share--as reported............. $ (0.28) $ 0.10 $ 0.28 $ 1.28
Basic net income (loss)--pro
forma.......................... $ (0.29) $ 0.07 $(0.02) $ 1.03
Diluted net income (loss) per
share--as reported............. $ (0.28) $ 0.05 $ 0.15 $ 1.06
Diluted net income (loss)--pro
forma.......................... $ (0.29) $ 0.04 $(0.01) $ 0.85
</TABLE>
The fair value of options granted in fiscal 2000 has been estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividend yield, risk free interest rate of
5.84% , expected life for the option of five years and volatility of 70%. The
fair value of options granted prior to the initial public offering is
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions: no dividend yield; risk free interest
rate of 5.0% to 6.5%; expected life for the option of five years; and
volatility of 0%. The weighted-average per share fair value of options granted
during the year ended 1997, the one month ended January 31, 1998, the years
ended January 31, 1999 and January 30, 2000 was approximately $.08, $1.43,
$1.74, $1.45 and $13.53, respectively.
F-12
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following summarizes the transactions under the equity incentive and
non-employee director plans:
<TABLE>
<CAPTION>
Shares
Number Weighted
Available of Shares Average Price
for Grant Under Option Per Share
---------- ------------ -------------
<S> <C> <C> <C>
Balances, December 31, 1996.............. 3,506,606 2,176,020 0.27
Authorized............................. 2,000,000 -- --
Granted................................ (4,950,857) 5,000,857 1.43
Exercised.............................. -- (2,603,836) 0.32
Cancelled.............................. 868,208 (837,583) 0.29
---------- ----------
Balances, December 31, 1997.............. 1,423,957 3,735,458 1.78
Authorized............................. -- -- --
Granted................................ (605,000) 605,000 5.01
Exercised.............................. -- (1,125) 3.15
---------- ----------
Balances, January 31, 1998............... 818,957 4,339,333 2.23
Authorized............................. 6,878,606 -- --
Granted................................ (6,592,550) 6,612,550 7.22
Exercised.............................. -- (202,775) 1.91
Cancelled.............................. 1,692,688 (1,692,688) 6.35
---------- ----------
Balances, January 31, 1999............... 2,797,701 9,056,420 5.12
Authorized............................. 1,930,962 -- --
Granted................................ (3,394,600) 3,394,600 21.60
Exercised.............................. -- (1,789,469) 3.57
Cancelled.............................. 815,751 (815,751) 6.34
---------- ----------
Balances, January 30, 2000............... 2,149,814 9,845,800 10.97
---------- ----------
</TABLE>
In July 1998, the Board of Directors adopted a resolution allowing employees
to exchange some or all of their existing unvested options to purchase common
stock of the Company for options having an exercise price of $6.30 per share.
The repriced options retain the same vesting schedule as the originally issued
options, but the repriced options did not become exercisable until July 1999.
Options to purchase approximately 1,253,500 shares of common stock were
repriced under this program. Stock options held by executive officers and
directors were not eligible for such repricing.
During 1997 and fiscal 2000, the Company granted common stock options within
the Plan to consultants for services rendered. The fair value of all option
grants to non-employees has been estimated using the Black-Scholes option
pricing model using the following assumptions: dividend yield--none; expected
life--contractual term; risk free interest rates--6.0% to 6.5%; volatility--
60%. The estimated fair value of these options was $120,000 and $22,000 in
1997 and fiscal 2000, respectively.
In 1997, options to purchase 50,000 shares of common stock were granted to
an outside investor during the Series D preferred stock offering. In 1998,
options to purchase 20,000 shares of common stock were granted to an outside
investor. As of January 30, 2000, options to purchase 35,625 shares of common
stock were outstanding, of which 2,500 shares were vested.
F-13
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
as of January 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.18 -- $ 1.30 832,798 7.26 $ 0.80 339,708 $ 0.68
2.64 -- 3.15 955,650 7.85 2.83 349,461 2.87
4.15 -- 6.30 2,006,818 8.45 6.08 537,108 5.98
6.65 -- 9.00 2,720,340 8.52 7.48 838,525 7.60
16.38 -- 20.13 1,820,194 9.43 17.93 45,901 17.01
20.50 -- 23.50 1,023,500 9.75 21.45 38,591 20.50
34.63 -- 37.38 486,500 9.89 35.98 -- --
--------- ---------
$ 0.18 -- $37.38 9,845,800 8.70 $10.97 2,149,294 $ 5.77
--------- ---------
</TABLE>
Employee Stock Purchase Plan
In February 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the "Purchase Plan"), covering an aggregate of 500,000 shares of common
stock. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Purchase Plan,
the Board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan.
Under the Purchase Plan, the offering period for any offering will be no
longer than 27 months. Under the plan offering adopted pursuant to the
Purchase Plan, each offering period has been set at six months. In June 1999,
the plan was amended to increase the number of shares reserved for issuance
automatically each year at the end of the Company's fiscal year for the next
10 years (commencing at the end of fiscal 2000 and ending 10 years later in
2009) by an amount equal to 2% of the outstanding shares of the Company on
each date, including on an as-if-converted basis preferred stock and
convertible notes, and outstanding options and warrants, calculated using the
treasury stock method, up to a maximum aggregate increase of 6 million shares
over the 10-year period. In January 2000, the shares of common stock available
for issuance were increased by 772,385 shares pursuant to this provision.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board. Employees who participate
in an offering generally can have up to 10% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by
the Board, to the purchase of shares of common stock. The Board may increase
this percentage at its discretion, up to 15%. The price of common stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the common stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. At January 30, 2000, 128,827 shares have been issued under the
Purchase Plan and 1,143,558 shares have been reserved for further issuance.
The fair value of options granted under the Purchase Plan in fiscal 2000 has
been estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions: no dividend yield, risk
free interest rate of 5.21% , expected life for the option of 0.5 years and
volatility of 70%. The weighted-average fair value of shares granted under the
Purchase Plan during the year ended January 30, 2000 was approximately $3.92
per share.
F-14
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Financial Arrangements, Commitments and Contingencies
Short-term Borrowings
In July 1999, the Company entered into an amended loan and security
agreement with a bank, which included a $10.0 million revolving loan agreement
with a borrowing base equal to 80% of eligible accounts. Borrowings under the
line of credit bear interest at the prime rate, which was 8.5% at January 30,
2000, and are due in July 2000. Covenants governing the loan agreement require
the maintenance of certain financial ratios. As of January 30, 2000, the
Company had no outstanding borrowings against the line of credit.
Lease Obligations
The Company leases certain office facilities under operating leases expiring
through 2003. Future minimum lease payments under the Company's noncancelable
capital and operating leases as of January 30, 2000, are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending January Operating Capital
------------------- ----------- -----------
<S> <C> <C>
2001............................................... $ 2,614 $2,000
2002............................................... 2,722 705
2003............................................... 2,431 418
------- ------
Total payments..................................... $ 7,767 3,123
=======
Less amount representing interest, at rates ranging
from 8% to 10%.................................... 375
------
Present value of minimum debt payments............. 2,748
Less current portion............................... 1,786
------
Long term portion.................................. $ 962
======
The following is an analysis of the property and equipment under capital
leases by major classes:
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Classes of Property and Equipment:
Computer equipment................................. $ 4,450 $4,192
Test equipment..................................... 1,192 1,915
Software and other................................. 995 785
------- ------
6,637 6,892
Accumulated depreciation and amortization.......... (3,238) (5,285)
------- ------
Leased property and equipment, net................. $ 3,399 $1,607
======= ======
</TABLE>
Rent expense for 1997, one month ended January 31, 1998, the years ended
January 31, 1999 and January 30, 2000 was approximately $425,000, $52,000,
$1,555,000 and $2,501,000, respectively.
Litigation
On April 9, 1998, the Company was notified that SGI had filed a patent
infringement lawsuit against it in the United States District Court for the
District of Delaware. The suit alleged that the sale and use of the Company's
RIVA family of 3D graphics processors infringed a United States patent held by
SGI. The suit sought unspecified damages (including treble damages), an order
permanently enjoining further alleged infringement and attorneys' fees. In
July 1999, the matter settled during trial and it has been dismissed. As part
of the settlement, the Company entered into agreements with SGI to create a
broad strategic alliance to collaborate on future graphics technologies. As
part of the agreements, SGI dismissed its patent infringement suit against the
Company
F-15
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
and the Company licensed SGI's 3D graphics patent portfolio. Additionally, SGI
agreed to incorporate the Company's graphics technology into new desktop
graphics systems and transfer engineering personnel to the Company during the
third quarter of fiscal 2000. The Company agreed to pay SGI a total of $3.0
million in nine quarterly installments with the final payment due in May 2001.
The rights to patents recorded under other assets are amortized using the
straight-line method over five years.
On May 11, 1998, S3 filed a patent infringement suit against the Company in
the United States District Court for the Northern District of California. The
suit alleged that the Company's sale of RIVA 128, 128ZX and TNT graphics
processors infringed three United States patents owned by S3. The suit sought
unspecified damages (including treble damages), an order permanently enjoining
further alleged infringement and attorneys' fees. The Company and S3 agreed to
settle this case on February 1, 2000, on the basis of mutual patent cross-
licenses and on February 7, 2000, the District Court entered a final judgment
in the Company's favor, dismissing all of S3's claims.
On September 21, 1998, 3Dfx filed a patent infringement lawsuit against the
Company in the United States District Court for the Northern District of
California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx
added a second patent to the suit and on May 24, 1999, 3Dfx added a third
patent to the suit. The amended complaint alleges that the Company's RIVA TNT,
RIVA TNT2 and RIVA TNT2 Ultra products infringe the patents in suit and seeks
unspecified compensatory and trebled damages and attorney's fees. The
Company's current generation of products is not identified as infringing any
of the patents in suit. The Company has filed an answer and counter-claims
asserting that the patents in suit are invalid and not infringed. These
assertions are supported by the Company's investigations to date and an
opinion from the Company's patent counsel in this suit. The Company
anticipates that the trial date will be set by the District Court after it
rules on claims construction issues. The Company has and will continue to
defend vigorously this suit. In the event of an adverse result in the 3Dfx
suit, the Company might be required to do one or more of the following: (i)
pay substantial damages (including treble damages); (ii) permanently cease the
manufacture and sale of any of the infringing products; (iii) expend
significant resources to develop non-infringing products; or (iv) obtain a
license from 3Dfx for infringing products.
In addition to the above litigation, from time to time the Company is
subject to claims in the ordinary course of business, none of which in the
Company's view, would have a material adverse impact on the Company's business
or financial position if resolved unfavorably.
(5) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal..................... $-- $134 $538 $11,624
State....................... -- -- -- 824
---- ---- ---- -------
Total current............... -- 134 538 12,448
Deferred:
Federal..................... -- -- (226) (3,923)
State....................... -- -- -- (1,070)
---- ---- ---- -------
Total deferred.............. -- -- (226) (4,993)
Charge in lieu of taxes
attributable to employer
stock option plans........... -- -- 45 10,613
---- ---- ---- -------
Total income taxes.......... $-- $134 $357 $18,068
==== ==== ==== =======
</TABLE>
F-16
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as
follows:
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Tax expense (benefit)
computed at federal
statutory rate............. $(1,256) $518 $ 1,570 $19,658
Loss carryforward........... 1,256 (518) (1,570) --
Alternate Minimum Tax....... -- 134 357 --
State income taxes, net of
federal tax benefit........ -- -- -- 1,531
Research and experimentation
credit..................... -- -- -- (1,389)
Change in valuation
allowance.................. -- -- -- (4,784)
Other....................... -- -- -- 3,052
------- ---- ------- -------
Total income taxes........ $ -- $134 $ 357 $18,068
======= ==== ======= =======
</TABLE>
The tax effect of temporary differences that gives rise to significant
portions of the deferred tax assets are presented below:
<TABLE>
<CAPTION>
January 31, January 31, January 30,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards........ $3,380 $ -- $ --
Accruals and reserves, not currently
taken for tax purposes................. 228 2,323 4,996
Research credit carryforwards........... 1,095 1,775 --
Advances on development contract........ 996 138 --
Other................................... 383 774 223
------ ------ ------
Total gross deferred tax assets......... 6,082 5,010 5,219
Less valuation allowance................ (6,082) (4,784) --
------ ------ ------
Net deferred tax assets................. $ -- $ 226 $5,219
====== ====== ======
</TABLE>
The valuation allowance had decreases of $1,298,000 and $4,784,000 for the
year ended January 31, 1999 and the year ended January 30, 2000, respectively.
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.
(6) Development Agreement
The Company had a strategic collaboration agreement with ST for the
manufacture, marketing, and sale of certain of the Company's products. In
1996, ST paid the Company $2,500,000 for advanced royalty payments and agreed
to partially support the research and development and marketing efforts for
certain of the Company's products. In connection with this agreement, the
Company recorded royalty revenue of $1,791,000, $1,911,000, and $6,824,000, in
1997, the one month ended January 31, 1998, and the year ended January 31,
1999, respectively. Royalty revenue decreased to zero in fiscal 2000 due
primarily to reduced sales of RIVA 128 graphics processor and derivative
products and disputes with ST regarding payment. The Company does not expect
to record or receive royalty revenue from ST in the future. The Company also
recorded a reduction to research and development cost of $1,936,000 and a
reduction to sales, general and administrative expense of $314,000 in 1997. In
January of 1998, ST agreed to forgive the $2,500,000 in advanced royalty
payments in exchange for the Company's obligation to provide ST continued
development and support on certain products developed through December 31,
1998 which was recorded as a reduction to research and development expense in
fiscal 1999. Accordingly, $2,500,000 is included in accrued liabilities at
December 31, 1997. The costs incurred under the development agreement
approximated the amounts recorded as reduction to expenses.
F-17
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Long-term Software Licensing Agreement
On April 12, 1999, the Company entered into a $10.0 million five-year
software licensing agreement with a supplier in the electronic design
automation industry. Under this agreement, the $10.0 million is due in two
installments. The first installment was settled in June 1999 for 243,902
shares of the Company's common stock valued at $5.0 million. The second
installment is due on or before March 31, 2000 and may be settled in cash or
in stock at the option of the Company.
(8) Stock Repurchase Agreement
In June 1999, the Company repurchased 428,572 shares of the Company's common
stock from a major customer in settlement for a portion of then outstanding
accounts receivable, in the amount of $7.5 million.
(9) Segment Information
The Company operates in a single industry segment: the design, development
and marketing of 3D graphics processors for the PC market. The Company's chief
operating decision maker, the Chief Executive Officer, reviews financial
information presented on a consolidated basis for purposes of making operating
decisions and assessing financial performance. The following table summarizes
geographic information on net sales:
<TABLE>
<CAPTION>
Year Ended Year Ended
Year Ended Month Ended January January
December 31, January 31, 31, 30,
1997 1998 1999 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
U.S........................... $29,071 $13,331 $120,788 $103,609
Asia Pacific.................. -- -- 29,649 208,832
Europe........................ -- -- 7,800 62,064
------- ------- -------- --------
Total revenue................. $29,071 $13,331 $158,237 $374,505
======= ======= ======== ========
</TABLE>
Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales
Customer A.................. 63% 59% 35% 3%
Customer B.................. 31% 39% 27% 15%
Customer C.................. -- -- 13% 17%
Customer D.................. -- -- 12% 2%
Customer E.................. -- -- -- 15%
Customer F.................. -- -- 4% 10%
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
January 31, 1998 January 31, 1999 January 30, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Accounts Receivable
Customer A.............. 57% 19% --
Customer B.............. 43% 28% 4%
Customer C.............. -- 18% 15%
Customer D.............. -- 14% --
Customer E.............. -- -- 12%
Customer F.............. -- -- 6%
Customer G.............. -- -- 13%
</TABLE>
F-18
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Quarterly Summary (Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------
April July Oct. Jan. Oct.
26, 26, 25, 31, May 2, Aug. 1, 31, Jan. 30,
1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................. $28,263 $12,134 $52,303 $65,537 $71,018 $78,017 $97,015 $128,455
Cost of revenue......... 20,873 12,961 33,566 42,346 45,946 49,625 60,195 79,809
Gross profit (loss)..... 7,390 (827) 18,737 23,191 25,072 28,392 36,820 48,646
Net income (loss)....... (1,021) (9,652) 7,141 7,662 6,261 6,686 10,564 14,587
Basic net income (loss)
per share.............. $ (.07) $ (.68) $ .50 $ .48 $ .21 $ .23 $ .35 $ .47
Diluted net income
(loss)
per share.............. $ (.07) $ (.68) $ .26 $ .27 $ .18 $ .19 $ .29 $ .39
</TABLE>
(11) Subsequent Events
On March 5, 2000, the Company entered into an agreement with Microsoft in
which the Company agreed to develop and sell graphics chips and to license
certain technology to Microsoft and its licensees for use in a product under
development by Microsoft. The agreement provides that in April 2000, Microsoft
will pay the Company $200 million as an advance against graphics chip
purchases and for licensing the Company's technology. Microsoft may terminate
the agreement at any time and if termination occurs prior to offset in full of
the advance payments, the Company would be required to return to Microsoft up
to $100 million of the prepayment and to convert the remainder into preferred
stock of the Company at a 30% premium to the 30-day average trading price of
the common stock. The graphics chip and the game console contemplated by the
agreement is highly complex and development and release of the Microsoft
product and its commercial success are dependent upon a number of factors,
many of which the Company cannot control. There can be no assurance that the
Company will be successful in developing the graphics chip for use by
Microsoft or that the product will be developed or released, or if released,
will be commercially successful.
F-19
<PAGE>
NVIDIA CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended January 30, 2000
Allowance for sales returns
and allowances............ $2,627 4,546 -- 3,081(1) $4,092
====== ===== ===== ===== ======
Allowance for doubtful
accounts.................. $ -- 2,395 -- 44(2) $2,351
====== ===== ===== ===== ======
Year ended January 31, 1999
Allowance for sales returns
and allowances............ $ 349 6,261 -- 3,983(1) $2,627
====== ===== ===== ===== ======
One month ended January 31,
1998
Allowances for sales
returns and accounts...... $ 100 249 -- -- $ 349
====== ===== ===== ===== ======
Year ended December 31, 1997
Allowances for sales
returns and accounts...... $ -- 100 -- -- $ 100
====== ===== ===== ===== ======
</TABLE>
- --------
(1) Represents amounts written off against the allowance for sales returns.
(2) Uncollectible accounts written off.
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses Of Issuance And Distribution.
The following table sets forth the estimated costs and expenses, other than
the underwriting discounts and commissions, payable by the registrant in
connection with the offering of the Securities being registered. All the
amounts shown are estimates, except for the registration fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $105,600
Accounting fees and expenses....................................... $150,000
Legal fees and expenses............................................ $250,000
Miscellaneous...................................................... $ 85,000
--------
Total............................................................ $590,600
========
</TABLE>
We will pay all fees and expenses associated with filing this registration
statement.
Item 15. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law, or the DGCL, authorizes
a court to award or a corporation's board of directors to grant
indemnification 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. Our Amended and Restated Certificate of Incorporation and our Bylaws
provide for mandatory indemnification of our directors and permissive
indemnification of officers, employees and other agents to the maximum extent
permitted by the DGCL. We have entered into indemnification agreements with
our directors. The indemnification agreements provide the registrant's
directors with further indemnification to the maximum extent permitted by the
DGCL. We also have obtained directors and officers insurance to insure our
directors and officers against certain liabilities, including liabilities
under the securities laws.
The underwriting agreements filed as Exhibit 1.1 and Exhibit 1.2 to the
registration statement provide for indemnification by the underwriters of the
registrant and its officers and directors for certain liabilities under the
Securities Act or otherwise.
Item 16. Exhibits And Financial Statement Schedules.
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement for common stock.
1.2 Form of Underwriting Agreement for debt securities.
4.1 Amended and Restated Certificate of Incorporation. Filed as an exhibit
to our registration statement on Form S-8 filed on March 23, 1999
(Registration No. 333-74905) and incorporated herein by reference.
4.2 Bylaws. Filed as an exhibit to our registration statement on Form S-8
filed on March 23, 1999 (Registration No. 333-74905) and incorporated
herein by reference.
4.3* Form of Senior Debt Indenture to be entered into between NVIDIA and
Chase Manhattan Bank and Trust Company, N.A.
4.4* Form of Subordinated Debt Indenture to be entered between NVIDIA and
Chase Manhattan Bank and Trust Company, N.A.
4.5* Form of Senior Note.
4.6* Form of Subordinated Note.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
5.1 Opinion of Cooley Godward LLP.
10.1 Lease between NVIDIA and Sobrato Interests III for Building A, dated
April 4, 2000.
10.2 Lease between NVIDIA and Sobrato Interests III for Building B, dated
April 4, 2000.
10.3 Lease between NVIDIA and Sobrato Interests III for Building C, dated
April 4, 2000.
10.4 Lease between NVIDIA and Sobrato Interests III for Building D, dated
April 4, 2000.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
25.1 Statement of Eligibility and Qualification on Form T-1 of trustee to
act as trustee under indenture.
</TABLE>
- --------
* Previously filed.
Item 17. Undertakings
The undersigned registrant undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the registration statement
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.
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 provisions described in Item 15 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 Securities 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 Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
The undersigned registrant further undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum
II-2
<PAGE>
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement, and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Forms S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Santa Clara, State
of California, on April 20, 2000.
NVIDIA Corporation
/s/ Jen-Hsun Huang
By: _________________________________
Jen-Hsun Huang
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jen-Hsun Huang President, Chief Executive April 20, 2000
____________________________________ Officer and Director
Jen-Hsun Huang (Principal Executive
Officer)
Christine B. Hoberg* Chief Financial Officer April 20, 2000
____________________________________ (Principal Financial and
Christine B. Hoberg Accounting Officer)
Tench Coxe* Director April 20, 2000
____________________________________
Tench Coxe
Harvey C. Jones, Jr.* Director April 20, 2000
____________________________________
Harvey C. Jones, Jr.
Mark A. Stevens* Director April 20, 2000
____________________________________
Mark A. Stevens
A. Brooke Seawell* Director April 20, 2000
____________________________________
A. Brooke Seawell
James C. Gaither* Director April 20, 2000
____________________________________
James C. Gaither
William J. Miller* Director April 20, 2000
____________________________________
William J. Miller
. /s/ Jen-Hsun Huang
*By: _______________________________
Jen-Hsun Huang
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
NVIDIA CORPORATION
UNDERWRITING AGREEMENT
STANDARD PROVISIONS
(COMMON STOCK)
April _, 2000
From time to time, NVIDIA Corporation, a Delaware corporation (the
"Company"), may enter into one or more underwriting agreements that provide for
the sale of its common stock, par value $0.001 per share (the "Common Stock"),
to the several underwriters named therein. The standard provisions set forth
herein may be incorporated by reference in any such underwriting agreement (an
"Underwriting Agreement"). The Underwriting Agreement, including the provisions
incorporated therein by reference, is herein sometimes referred to as this
Agreement. Terms defined in the Underwriting Agreement are used herein as
therein defined.
Subject to the terms and conditions herein set forth, the Company may
grant, if so provided in any such Underwriting Agreement relating thereto, an
option to the Underwriters, severally and not jointly, to purchase additional
Common Stock to cover over-allotments, if any (the "Option Securities"). If the
Underwriting Agreement so provides, the Underwriters may purchase up to the
amount of Option Securities set forth therein at the same price as is applicable
to the Offered Securities. As used herein, the term "Offered Securities" shall
include Option Securities. Such option, if granted, will expire 30 days after
the date of the Underwriting Agreement, and may be exercised only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Offered Securities upon notice by the Manager
to the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Common Stock and has filed with, or transmitted for filing to, or shall promptly
hereafter file with or transmit for filing to, the Commission a prospectus
supplement (the "Prospectus Supplement") specifically relating to the Offered
Securities pursuant to Rule 424 under the Securities Act of 1933, as amended
(the "Securities Act"). The term "Registration Statement" means the registration
<PAGE>
statement, including the exhibits thereto, as amended to the date of this
Agreement. The term "Basic Prospectus" means the prospectus included in the
Registration Statement. The term "Prospectus" means the Basic Prospectus
together with the Prospectus Supplement. The term "preliminary prospectus" means
a preliminary prospectus supplement specifically relating to the Offered
Securities together with the Basic Prospectus. As used herein, the terms "Basic
Prospectus," "Prospectus" and "preliminary prospectus" shall include in each
case the documents, if any, incorporated by reference therein. The terms
"supplement," "amendment" and "amend" as used herein shall include all documents
deemed to be incorporated by reference in the Prospectus that are filed
subsequent to the date of the Basic Prospectus by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The term "Contract Securities" means the Offered Securities to be
purchased pursuant to the delayed delivery contracts substantially in the form
of Schedule I hereto, with such changes therein as the Company may approve (the
"Delayed Delivery Contracts"). The term "Underwriters' Securities" means the
Offered Securities other than Contract Securities.
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied
or will comply when so filed in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, (ii) each part of the Registration Statement, when such
part became effective, did not contain, and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply,
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading,
2
<PAGE>
except that the representations and warranties set forth in this
paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through the Manager expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock."
(g) The shares of Common Stock outstanding on the date of the
Underwriting Agreement have been duly authorized and are validly
issued, fully paid and non-assessable; except as set forth in the
Prospectus, the Company does not have outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights,
3
<PAGE>
convertible securities or obligations; and all outstanding shares of
capital stock and options and other rights to acquire capital stock of
the Company have been issued in compliance with the registration and
qualification provisions of all applicable securities laws and were not
issued in violation of any preemptive rights, rights of first refusal
or other similar rights.
(h) The Offered Securities have been duly authorized and, when issued
and delivered to and paid for by the Underwriters in accordance with
the terms of the Underwriting Agreement, in the case of the
Underwriters' Securities, or by institutional investors in accordance
with the terms of the Delayed Delivery Contracts, in the case of the
Contract Securities will be validly issued, fully paid and
non-assessable, and the issuance of such Offered Securities will not be
subject to any preemptive rights, rights of first refusal or similar
rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement and the Delayed
Delivery Contracts will not contravene any provision of applicable law
or the certificate of incorporation or by-laws of the Company or any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement or
the Delayed Delivery Contracts, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Offered Securities.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal, regulatory or governmental proceedings pending
or, to the knowledge of the Company, threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and are
not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement
4
<PAGE>
or the Prospectus or to be filed or incorporated by reference as
exhibits to the Registration Statement that are not described, filed or
incorporated as required.
(l) The Company and its subsidiaries have all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and has made all declarations and filings with, all foreign,
federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use its properties and assets and to conduct
its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(n) The Company is not, and after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus will not be, required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(p) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval,
5
<PAGE>
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(q) The Company and its subsidiaries have complied with all provisions
of Section 517.075, Florida Statute relating to issuers doing business
with Cuba.
(r) Subsequent to the date as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor
its subsidiaries have incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction in each
case not in the ordinary course of business; (ii) neither the Company
nor its subsidiaries have purchased any of the Company's outstanding
capital stock other than unvested shares from former employees,
directors or consultants in accordance with the applicable governing
terms of agreements existing as of the date hereof, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company, except
as described in the Prospectus.
(s) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by it that is material to the business of the
Company and its subsidiaries, taken as a whole, in each case free and
clear of any security interest, lien, encumbrance, claim, defect or
adverse interest of any nature except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company or its
subsidiaries is held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, except as described in
the Prospectus.
(t) The Company owns or possesses adequate licenses or other rights to
use all patents, patent rights, inventions, trade secrets, copyrights,
trademarks, service marks, trade names, technology and know-how
necessary to conduct its business in the manner currently employed and
as described in the Prospectus; the Company is not obligated to pay a
royalty, grant a license, or provide other consideration to any third
party in connection with its patents, copyrights, trademarks, service
marks, trade names, or technology other than such royalties, licenses
or consideration
6
<PAGE>
that are not required to be disclosed in the Prospectus pursuant to the
Securities Act and the rules and regulations thereunder and, except as
disclosed in the Prospectus, the Company has not received any notice of
infringement or conflict with (and the Company does not know of any
infringement or conflict with) asserted rights of others with respect
to any patents, patent rights, inventions, trade secrets, copyrights,
trademarks, service marks, trade names or know-how which could result
in any material adverse effect upon the Company and its subsidiaries,
taken as a whole; and, except as disclosed in the Prospectus, the
discoveries, inventions, products or processes of the Company referred
to in the Prospectus do not, to the best knowledge of the Company,
infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a
patent application filed by any third party, known to the Company which
could have a material adverse effect on the Company and its
subsidiaries, taken as a whole. Except as disclosed in the Prospectus,
no third party, including any academic or governmental organization,
possesses rights to the Company's patents, copyrights, trademarks,
service marks, trade names, or technology which, if exercised, could
enable such third party to develop products that could have a material
adverse effect on the ability of the Company and its subsidiaries to
conduct its business in the manner described in the Prospectus.
(u) No material labor dispute with the employees of the Company or its
subsidiaries exists, except as described in the Prospectus or, to the
knowledge of the Company, is imminent; and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that
could have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(v) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which the Company is engaged;
the Company has not been refused any insurance coverage sought or
applied for; and the Company does not have any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(w) The Company has filed a supplemental listing application with the
Nasdaq Stock Market, Inc. to list the Offered Securities, and the
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Nasdaq Stock Market, Inc. has approved the Offered Securities for
listing on the Nasdaq National Market, subject to official notice of
issuance.
(x) Except as disclosed in the Prospectus, all outstanding shares of
Common Stock, and all securities convertible into or exercisable or
exchangeable for Common Stock in each case held by the directors and
executive officers of the Company are subject to valid and binding
agreements (collectively, the "Lock-up Agreements") that, subject to
certain exceptions, restrict the holders thereof from selling, making
any short sale of, granting any option for the purchase of, or
otherwise transferring or disposing of, any of such shares of Common
Stock, or any such securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 90 days after the date
of the Prospectus without the prior written consent of the Company or
the Manager.
2. Delayed Delivery Contracts. If the Prospectus provides for sales of
Offered Securities pursuant to Delayed Delivery Contracts, the Company hereby
authorizes the Underwriters to solicit offers to purchase Contract Securities on
the terms and subject to the conditions set forth in the Prospectus pursuant to
Delayed Delivery Contracts. Delayed Delivery Contracts may be entered into only
with institutional investors approved by the Company of the types set forth in
the Prospectus. On the Closing Date, the Company will pay to the Manager as
compensation for the accounts of the Underwriters the commission set forth in
the Underwriting Agreement in respect of the Contract Securities. The
Underwriters will not have any responsibility in respect of the validity or the
performance of any Delayed Delivery Contracts.
If the Company executes and delivers Delayed Delivery Contracts with
institutional investors, the aggregate amount of Offered Securities to be
purchased by the several Underwriters shall be reduced by the aggregate amount
of Contract Securities; such reduction shall be applied to the commitment of
each Underwriter pro rata in proportion to the amount of Offered Securities set
forth opposite such Underwriter's name in the Underwriting Agreement, except to
the extent that the Manager determines that such reduction shall be applied in
other proportions and so advises the Company; provided, however, that the total
amount of Offered Securities to be purchased by all Underwriters shall be the
aggregate amount set forth above, less the aggregate amount of Contract
Securities.
3. Terms of Public Offering. The Company is advised by the Manager that
the Underwriters propose to make a public offering of their respective portions
of the Underwriters' Securities as soon after this Agreement has been entered
into as in the Manager's judgment is advisable. The terms of the public offering
of the Underwriters' Securities are set forth in the Prospectus.
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4. Payment and Delivery. Except as otherwise provided in this Section
4, payment for the Underwriters' Securities shall be made to the Company in
Federal or other funds immediately available at the time and place set forth in
the Underwriting Agreement, upon delivery to the Manager for the respective
accounts of the several Underwriters of the Underwriters' Securities registered
in such names and in such denominations as the Manager shall request in writing
not less than two full business days prior to the date of delivery, with any
transfer taxes payable in connection with the transfer of the Underwriters'
Securities to the Underwriters duly paid.
5. Conditions to the Underwriters' Obligations. The several obligations
of the Underwriters are subject to the following conditions:
(a) Subsequent to the execution and delivery of the Underwriting
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does
not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in the judgment of the Manager, is
material and adverse and that makes it, in the judgment of the
Manager, impracticable to market the Offered Securities on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company, to the effect
set forth in Section 5(a)(i) and to the effect that the representations
and warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the Closing Date.
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The officers signing and delivering such certificate may rely
upon the best of their knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion
of Cooley Godward LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the state of Delaware, has the corporate power and authority
to own its property and to conduct its business as described
in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business and is duly qualified
to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are
fully paid and non- assessable, and are owned directly by the
Company, free and clear of all liens, encumbrances, equities
or claims.
(iii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital
Stock";
(iv) the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-
assessable; except as set forth in the Prospectus, the Company
has no outstanding options to purchase or any preemptive
rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock
or any such options, rights,
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convertible securities or obligations; and all outstanding
shares of capital stock and options and other rights to
acquire capital stock have been issued in compliance with the
registration and qualification provisions of all applicable
securities laws and were not issued in violation of any
preemptive rights, rights of first refusal or other similar
rights;
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
(vi) the Delayed Delivery Contracts have been duly
authorized, executed and delivered by the Company and are
valid and binding agreements of the Company, enforceable in
accordance with their respective terms except as (A) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (B) the availability of equitable remedies may
be limited by equitable principles of general applicability;
(vii) the Offered Securities have been duly authorized and,
when issued and delivered to and paid for by the Underwriters
in accordance with the terms of the Underwriting Agreement, in
the case of Underwriters' Securities, or by institutional
investors in accordance with the terms of the Delayed Delivery
Contracts, in the case of the Contract Securities will be
validly issued, fully paid and non-assessable, and the
issuance of such Offered Securities will not be subject to any
preemptive rights, rights of first refusal or similar rights.
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement and the Delayed Delivery Contracts will not
contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement or the Delayed Delivery Contracts or,
except such as may be required by the securities or
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Blue Sky laws of the various states in connection with the
offer and sale of the Offered Securities;
(ix) the statements (A) in the Prospectus under the
captions "Risk Factors - Legal Proceedings", "Description of
Debt Securities," "Plan of Distribution", (B) in the
Registration Statement under Item 15, (C) in "Item 3 - Legal
Proceedings" and "Item 11 - Management - Employee Benefit
Plans" of the Company's most recent annual report on Form 10-K
incorporated by reference in the Prospectus and (D) in "Item 1
- Legal Proceedings" of Part II of the Company's quarterly
reports on Form 10-Q, if any, filed since such annual report,
in each case insofar as such statements constitute summaries
of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any
legal, regulatory or governmental proceedings pending or
overtly threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed or incorporated by reference as exhibits to the
Registration Statement that are not described, filed or
incorporated as required;
(xi) the Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
(xii) the statements in the Prospectus under the caption
"Certain Federal Income Tax Considerations," insofar as such
statements constitute a summary of the United States federal
tax laws referred to therein, are accurate and fairly
summarize in all material respects the United States federal
tax laws referred to therein;
(xiii) such counsel (A) is of the opinion that each
document, if any, filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus (except for
financial
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statements and schedules included therein as to which such
counsel need not express any opinion) complied when so filed
as to form in all material respects with the Exchange Act and
the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for
financial statements and schedules as to which such counsel
need not express any belief) each part of the Registration
Statement, when such part became effective, contained and, as
of the date such opinion is delivered, contains any untrue
statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, (C) is of the
opinion that the Registration Statement and Prospectus (except
for financial statements and schedules included therein as to
which such counsel need not express any opinion) comply as to
form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder
and (D) has no reason to believe that (except for financial
statements and schedules as to which such counsel need not
express any belief) the Prospectus as of the date such opinion
is delivered contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an opinion
of Davis Polk & Wardwell, special counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in Sections 5(c)(v),
5(c)(vi), 5(c)(vii) and 5(c)(ix) (but only as to the statements in the
Prospectus under "Description of Debt Securities" and "Plan of
Distribution") and clauses 5(c)(xiii)(B), 5(c)(xiii)(C) and
5(c)(xiii)(D) above.
With respect to Section 5(c)(xiii) above, Cooley Godward LLP
may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and documents
incorporated therein by reference and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified. With respect to clauses 5(c)(xiii)(B),
5(c)(xiii)(C) and 5(c)(xiii)(D) above, Davis Polk & Wardwell may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto (but not including documents
incorporated therein by reference) and review and discussion of the
contents thereof (including documents incorporated therein by
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reference), but are without independent check or verification, except
as specified.
The opinion of Cooley Godward LLP described in Section 5(c)
above shall be rendered to the Underwriters at the request of the
Company and shall so state therein.
(e) The Underwriters shall have received on the Closing Date a letter,
dated the Closing Date, in form and substance satisfactory to the
Underwriters, from the Company's independent public accountants,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus; provided, however, that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date of the
Underwriting Agreement.
(f) The Lock-up Agreements, each in a form acceptable to the Managers,
between the Managers and certain shareholders, officers and directors
of the Company relating to sales and certain other depositions of
shares of Common Stock or certain other securities, delivered to the
Managers on or before the date hereof, shall be in full force and
effect on the Closing Date.
All of the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed in compliance with the
provisions hereof only if Davis Polk & Wardwell, counsel for the Underwriters,
shall be reasonably satisfied that they comply in form and scope.
The several obligations of the Underwriters to purchase Option
Securities hereunder are subject to the delivery to the Manager on the Option
Closing Date of such documents as the Manager may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Option Securities and other matters related to the issuance of the Option
Securities and an opinion or opinions of Cooley Godward LLP in form and
substance reasonably satisfactory to Davis Polk & Wardwell, counsel for the
Underwriters.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish the Manager, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
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<PAGE>
(without exhibits thereto) and, during the period mentioned in Section
6(c) below, as many copies of the Prospectus, any documents
incorporated by reference therein and any supplements and amendments
thereto or to the Registration Statement as the Manager may reasonably
request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus with respect to the Offered Securities, to furnish to the
Manager a copy of each such proposed amendment or supplement and not to
file any such proposed amendment or supplement to which the Manager
reasonably objects, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Offered Securities as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses the Manager will furnish to the
Company) to which Offered Securities may have been sold by the Manager
on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Offered Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the
Manager shall reasonably request and to maintain such qualification for
as long as the Manager shall reasonably request.
(e) To make generally available to the Company's security holders and
to the Manager as soon as practicable an earning statement covering a
twelve month period beginning on the first day of the first full fiscal
quarter after the date of this Agreement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder. If such fiscal
quarter is the last fiscal quarter of the Company's fiscal year, such
earning
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<PAGE>
statement shall be made available not later than 90 days after the
close of the period covered thereby and in all other cases shall be
made available not later than 45 days after the close of the period
covered thereby.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, except as otherwise agreed
with the Manager, the Company agrees to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Offered Securities under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Offered Securities
to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the
Offered Securities under securities law of various states and other
jurisdictions and all expenses in connection with the qualification of
the Offered Securities for offer and sale under state securities laws
as provided in paragraph (d) of Section 6 hereof, including filing fees
and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection
with the Blue Sky or Legal Investment memorandum (iv) all filing fees
and the reasonable fees (in an amount not to exceed $15,000) and
disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Offered
Securities by the NASD (if any), (v) all costs and expenses incident to
listing the Offered Securities on the Nasdaq National Market (if any),
(vi) the cost of printing certificates representing the Offered
Securities, (vii) the costs and charges of any transfer agent,
registrar or depositary, (viii) the costs and expenses of the Company
relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Offered
Securities, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with
the prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants,
and the cost of any aircraft chartered in connection with the road
show, (ix) all expenses in connection with any offer and sale of the
Offered Securities outside of the United States, including filing fees
and the reasonable fees
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and disbursements of counsel for the Underwriters in connection with
offers and sales outside of the United States, and (x) all other costs
and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section 6(f). It is understood, however, that except as otherwise
provided in this Section 6(f), Section 7 entitled "Indemnification and
Contribution", and the last paragraph of Section 9 below, the
Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Offered Securities by them, and any advertising
expenses connected with any offers they may make.
(g) Not to take any action prohibited by Regulation M under the
Exchange Act in connection with the distribution of the Offered
Securities contemplated hereby.
(h) To (i) enforce the terms of each Lock-up Agreement, (ii) issue
stop-transfer instructions to the transfer agent for the Common Stock
with respect to any transaction or contemplated transaction that would
constitute a breach of or default under the applicable Lock-up
Agreement and (iii) upon written request of the Manager, to release
from the Lock-up Agreements those shares of Common Stock held by those
holders set forth in such request. In addition, except with the prior
written consent of the Manager, the Company agrees (i) not to amend or
terminate, or waive any right under, any Lock-up Agreement, or take any
other action that would directly or indirectly have the same effect as
an amendment or termination, or waiver of any right under, any Lock-up
Agreement, that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common
Stock, to sell, make any short sale of, grant any option for the
purchase of, or otherwise transfer or dispose of, any of such shares of
Common Stock or other securities prior to the expiration of 90 days
after the date of the Prospectus, and (ii) not to consent to any sale,
short sale, grant of an option for the purchase of, or other
disposition or transfer of shares of Common Stock, or securities
convertible into or exercisable or exchangeable for Common Stock,
subject to a Lock-up Agreement.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Underwriter or any such
controlling person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in
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the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Manager expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Offered Securities, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Offered Securities to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities,
unless such failure is the result of noncompliance by the Company with Section
6(a) hereof.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made not misleading, but only with reference to information relating
to such Underwriter furnished to the Company in writing by such Underwriter
through the Manager expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either Section 7(a) or 7(b), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
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request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, it directors, its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
the Manager. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
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(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Offered
Securities or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Offered Securities shall be deemed to be
in the same respective proportions as the net proceeds from the offering of such
Offered Securities (before deducting expenses) received by the Company and the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus Supplement,
bear to the aggregate public offering price of the Offered Securities. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective principal amounts of Offered
Securities they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the
20
<PAGE>
total price at which the Offered Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section
7 and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Offered Securities.
8. Termination. This Agreement shall be subject to termination by
notice given by the Manager to the Company, if (a) after the execution and
delivery of the Underwriting Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Manager, is material and adverse
and (b) in the case of any of the events specified in clauses 8(a)(i) through
8(a)(iv), such event, singly or together with any other such event, makes it, in
the judgment of the Manager, impracticable to market the Offered Securities on
the terms and in the manner contemplated in the Prospectus.
9. Defaulting Underwriters. If, on the Closing Date or Option Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Underwriters' Securities that it has or they have agreed to
purchase hereunder on such date, and the aggregate amount of Underwriters'
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate amount of the
Underwriters' Securities to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the amount of Underwriters'
Securities set forth
21
<PAGE>
opposite their respective names in the Underwriting Agreement bears to the
aggregate amount of Underwriters' Securities set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as the Manager
may specify, to purchase the Underwriters' Securities which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the amount of Underwriters' Securities
that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
amount of Underwriters' Securities without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Underwriters' Securities which it or they have agreed to
purchase hereunder on such date and the aggregate amount of Underwriters'
Securities with respect to which such default occurs is more than one-tenth of
the aggregate amount of Underwriters' Securities to be purchased on such date,
and arrangements satisfactory to the Manager and the Company for the purchase of
such Underwriters' Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either the Manager
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Option Securities and the
aggregate principal amount of Option Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Option Securities to be purchased, the non- defaulting Underwriters shall have
the option to (a) terminate their obligation hereunder to purchase Option
Securities or (b) purchase not less than the principal amount of Option
Securities that such non-defaulting Underwriters would have been obligated to
purchase in the absence of such default. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
22
<PAGE>
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
23
<PAGE>
UNDERWRITING AGREEMENT
___________, 200_
NVIDIA Corporation
3535 Monroe Street
Santa Clara, California 95051
Dear Sirs and Mesdames:
We (the "Manager") are acting on behalf of the underwriter or
underwriters (including ourselves) named below (such underwriter or underwriters
being herein called the "Underwriters"), and we understand that NVIDIA
Corporation, a Delaware corporation (the "Company"), proposes to issue and sell
[Number of Shares] shares of its common stock, par value $0.001 per share (the
"Offered Securities").
Subject to the terms and conditions set forth or incorporated by
reference herein, the Company hereby agrees to sell to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company the respective number of firm Offered Securities set forth below
opposite their names at a purchase price of $____ a share (the "Purchase
Price").
Number of Firm Shares
Name to be Purchased
- ------------------------------------------ ---------------------
Morgan Stanley & Co. Incorporated
Morgan Stanley & Co. International Limited
[Insert syndicate list]
------------
Total....................................................
[The number of Offered Securities to be purchased by the several
Underwriters shall be reduced by the aggregate number of Offered Securities sold
pursuant to delayed delivery contracts.]1
The Underwriters will pay for the Offered Securities [(less any Offered
Securities sold pursuant to delayed delivery contracts)] upon delivery thereof
at [office] at ______ a.m. (New York City time) on ___________, 200_, or at such
- --------
/1/ To be added only if delayed delivery contracts are contemplated.
<PAGE>
other time, not later than 5:00 p.m. (New York City time) on __________, 200_,
as shall be designated by the Manager. The time and date of such payment and
delivery are hereinafter referred to as the Closing Date.2
[On the basis of the representations and warranties incorporated by
reference in this Agreement, and subject to its terms and conditions, the
Company agrees to sell to the several Underwriters, the Option Securities, and
the Underwriters shall have a one-time right to purchase, severally and not
jointly, up to an additional __________ shares of Common Stock as Option
Securities at the Purchase Price. If the Manager, on behalf of the several
Underwriters, elects to exercise such option, the Manager shall so notify the
Company in writing not later than 30 days after the date of this Agreement,
which notice shall specify the number of Option Securities to be purchased by
the several Underwriters and the date on which such Option Securities are to be
purchased. Such date may be the same as the Closing Date but not earlier than
the Closing Date nor later than ten business days after the date of such notice.
Option Securities may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Offered Securities.
If any Option Securities are to be purchased, each Underwriter agrees, severally
and not jointly, to purchase the number of Option Securities (subject to such
adjustments to eliminate fractional securities as the Manager may determine)
that bears the same proportion to the total number of firm Offered Securities to
be purchased as the number of firm Offered Securities set forth above opposite
the name of such Underwriter bears to the total number of firm Offered
Securities set forth.
The Underwriters will pay for the Option Securities upon delivery
thereof at [office] at _____ a.m. (New York City time) on the date specified in
the notice delivered pursuant to the above paragraph, or at such other time, not
later than 5:00 p.m. (New York City time) on ________, 200_, as shall be
designated by the Manager. The time and date of such payment and delivery are
hereinafter referred to as the Option Closing Date.]3
The Company hereby agrees that, without the prior written consent of
the Manager on behalf of the Underwriters, it will not, during the period ending
90 days after the date of the Prospectus, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap
- --------
/2/ This paragraph would have to be modified for any Offered Securities that
are to be issued in bearer form.
/3/ Include only if an over-allotment option is provided for.
2
<PAGE>
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the sale of the Offered Securities under this
Agreement, (B) the issuance by the Company of any shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof of which the Underwriters have been advised in writing, (C)
the grant or exercise of options to purchase Common Stock under the Company's
employee benefit plans.
The Offered Securities shall have the terms set forth in the Prospectus
dated ___________, 200_, and the Prospectus Supplement dated ____________, 200_.
[The commission to be paid to the Underwriters in respect of the
Offered Securities purchased pursuant to delayed delivery contracts arranged by
the Underwriters shall be $________ per share.
All provisions contained in the document entitled NVIDIA Corporation
Underwriting Agreement Standard Provisions (Common Stock) dated March _, 2000, a
copy of which is attached hereto, are herein incorporated by reference in their
entirety and shall be deemed to be a part of this Agreement to the same extent
as if such provisions had been set forth in full herein, except that (i) if any
term defined in such document is otherwise defined herein, the definition set
forth herein shall control, (ii) all references in such document to a type of
security that is not an Offered Security shall not be deemed to be a part of
this Agreement, and (iii) all references in such document to a type of agreement
that has not been entered into in connection with the transactions contemplated
hereby shall not be deemed to be a part of this Agreement.
3
<PAGE>
[SIGNATURE PAGE WHERE
MORGAN STANLEY & CO. INCORPORATED
OR MORGAN STANLEY & CO. INTERNATIONAL LIMITED
IS A CO-LEAD MANAGER]
Please confirm your agreement by having an authorized officer sign a
copy of this Agreement in the space set forth below.
Very truly yours,
[MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
[Name of Other Lead Managers]
Acting severally on behalf of themselves and the
several Underwriters named herein
By: [MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
By:
--------------------------------
Name:
Title:
Accepted:
NVIDIA CORPORATION
By:
-------------------------
Name:
Title:
4
<PAGE>
[SIGNATURE PAGE WHERE
MORGAN STANLEY & CO. INCORPORATED
OR MORGAN STANLEY & CO. INTERNATIONAL LIMITED
IS SOLE MANAGER]
Please confirm your agreement by having an authorized officer sign a
copy of this Agreement in the space set forth below.
Very truly yours,
[MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
[Name of Other Lead Managers]
Acting severally on behalf of itself and the several
Underwriters named herein
By:
---------------------------------
Name:
Title:
Accepted:
NVIDIA CORPORATION
By:
-------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
DELAYED DELIVERY CONTRACT
________, 200_
Dear Sirs and Mesdames:
The undersigned hereby agrees to purchase from NVIDIA Corporation, a
Delaware corporation (the "Company"), and the Company agrees to sell to the
undersigned the Company's securities described in Schedule A annexed hereto (the
"Securities"), offered by the Company's Prospectus dated __________________,
200_ and Prospectus Supplement dated ________________, 200_, receipt of copies
of which are hereby acknowledged, at a purchase price stated in Schedule A and
on the further terms and conditions set forth in this Agreement. The undersigned
does not contemplate selling Securities prior to making payment therefor.
The undersigned will purchase from the Company Securities in the
numbers on the delivery dates set forth in Schedule A. Each such date on which
Securities are to be purchased hereunder is hereinafter referred to as a
"Delivery Date."
Payment for the Securities which the undersigned has agreed to purchase
on each Delivery Date shall be made to the Company or its order by certified or
official bank check in New York Clearing House funds at the office of
______________________________, New York, N.Y., at 10:00 a.m. (New York City
time) on the Delivery Date, upon delivery to the undersigned of the Securities
to be purchased by the undersigned on the Delivery Date, in such denominations
and registered in such names as the undersigned may designate by written or
telegraphic communication addressed to the Company not less than five full
business days prior to the Delivery Date.
The obligation of the undersigned to take delivery of and make payment
for the Securities on the Delivery Date shall be subject to the conditions that
(1) the purchase of Securities to be made by the undersigned shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which the
undersigned is subject and (2) the Company shall have sold, and delivery shall
have taken place to the underwriters (the "Underwriters") named in the
Prospectus Supplement referred to above of, such part of the Securities as is to
be sold to them. Promptly after completion of sale and delivery to the
Underwriters, the
<PAGE>
Company will mail or deliver to the undersigned as its address set forth below
notice to such effect, accompanied by a copy of the opinion of counsel for the
Company delivered to the Underwriters in connection therewith.
Failure to take delivery of and make payment for Securities by any
purchaser under any other Delayed Delivery Contract shall not relieve the
undersigned of its obligations under this agreement.
This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors, but will not be assignable by
either party hereto without the written consent of the other.
If this Agreement is acceptable to the Company, it is requested that
the Company sign the form of acceptance below and mail or deliver one of the
counterparts hereof to the undersigned at its address set forth below. This will
become a binding agreement, as of the date first above written, between the
Company and the undersigned when such counterpart is so mailed or delivered.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
--------------------------------
(Purchaser)
By:
-----------------------------
-----------------------------
(Title)
-----------------------------
-----------------------------
(Address)
Accepted:
NVIDIA CORPORATION
By:
-------------------------
Name:
Title:
2
<PAGE>
PURCHASER -- PLEASE COMPLETE AT TIME OF SIGNING
The name and telephone and department of the representative of the
Purchaser with whom details of delivery on the Delivery Date may be discussed is
as follows: (Please print.)
Telephone No.
Name (Including Area Code) Department
- ----------------- --------------------- -----------------
- ----------------- --------------------- -----------------
3
<PAGE>
SCHEDULE A
Securities:
Numbers to be Purchased:
Purchase Price:
Delivery:
<PAGE>
EXHIBIT 1.2
NVIDIA CORPORATION
UNDERWRITING AGREEMENT
STANDARD PROVISIONS
(DEBT SECURITIES)
April _, 2000
From time to time, NVIDIA Corporation, a Delaware corporation (the
"Company"), may enter into one or more underwriting agreements that provide for
the sale of designated securities to the several underwriters named therein. The
standard provisions set forth herein may be incorporated by reference in any
such underwriting agreement (an "Underwriting Agreement"). The Underwriting
Agreement, including the provisions incorporated therein by reference, is herein
sometimes referred to as this Agreement. Terms defined in the Underwriting
Agreement are used herein as therein defined.
Subject to the terms and conditions herein set forth, the Company may
grant, if so provided in any such Underwriting Agreement relating thereto, an
option to the Underwriters, severally and not jointly, to purchase additional
Debt Securities to cover over-allotments, if any (the "Option Securities"). If
the Underwriting Agreement so provides, the Underwriters may purchase up to the
amount of Option Securities set forth therein at the same price as is applicable
to the Offered Securities. As used herein, the term "Offered Securities" shall
include Option Securities. Such option, if granted, will expire 30 days after
the date of the Underwriting Agreement, and may be exercised only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Offered Securities upon notice by the Manager
to the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Debt Securities and has filed with, or transmitted for filing to, or shall
promptly hereafter file with or transmit for filing to, the Commission a
prospectus supplement (the "Prospectus Supplement") specifically relating to the
Offered Securities pursuant to Rule 424 under the Securities Act of 1933, as
amended (the "Securities Act"). The term "Registration Statement" means the
registration statement, including the exhibits thereto, as amended to the date
of this
<PAGE>
Agreement. The term "Basic Prospectus" means the prospectus included in the
Registration Statement. The term "Prospectus" means the Basic Prospectus
together with the Prospectus Supplement. The term "preliminary prospectus" means
a preliminary prospectus supplement specifically relating to the Offered
Securities together with the Basic Prospectus. As used herein, the terms "Basic
Prospectus," "Prospectus" and "preliminary prospectus" shall include in each
case the documents, if any, incorporated by reference therein. The terms
"supplement," "amendment" and "amend" as used herein shall include all documents
deemed to be incorporated by reference in the Prospectus that are filed
subsequent to the date of the Basic Prospectus by the Company with the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The term "Contract Securities" means the Offered Securities to be
purchased pursuant to the delayed delivery contracts substantially in the form
of Schedule I hereto, with such changes therein as the Company may approve (the
"Delayed Delivery Contracts"). The term "Underwriters' Securities" means the
Offered Securities other than Contract Securities.
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied
or will comply when so filed in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, (ii) each part of the Registration Statement, when such
part became effective, did not contain, and each such part, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply,
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do
2
<PAGE>
not apply (A) to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Manager expressly for use therein or (B) to that part of the
Registration Statement that constitutes the Statement of Eligibility
(Form T-1) under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), of the Trustee.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock."
(g) The shares of common stock, par value $0.001 per share, of the
Company (the "Common Stock") outstanding on the date of the
Underwriting Agreement have been duly authorized and are validly
issued, fully paid and non-assessable; except as set forth in the
Prospectus, the Company does not have outstanding any options to
purchase, or any
3
<PAGE>
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations; and all
outstanding shares of capital stock and options and other rights to
acquire capital stock of the Company have been issued in compliance
with the registration and qualification provisions of all applicable
securities laws and were not issued in violation of any preemptive
rights, rights of first refusal or other similar rights.
(h) Each of the Indenture related to the senior debt securities and the
Indenture related to the subordinated debt securities (together, the
"Indentures") has been duly qualified under the Trust Indenture Act and
has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement of the Company, enforceable in accordance
with its terms except as (i) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(i) The Delayed Delivery Contracts have been duly authorized, executed
and delivered by the Company and are valid and binding agreements of
the Company, enforceable in accordance with their respective terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
(j) The Offered Securities have been duly authorized and, when executed
and authenticated in accordance with the provisions of the applicable
Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of the Underwriting Agreement, in the case of
the Underwriters' Securities, or by institutional investors in
accordance with the terms of the Delayed Delivery Contracts, in the
case of the Contract Securities will be entitled to the benefits of the
applicable Indenture and will be valid and binding obligations of the
Company, in each case enforceable in accordance with their respective
terms except as (A) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (B) rights of acceleration, if any, and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
(k) In the event the Offered Securities are convertible into Common
Stock of the Company (the "Underlying Securities"), the Underlying
Securities reserved for issuance upon conversion of the
4
<PAGE>
Offered Securities have been duly authorized and reserved and, when
issued upon conversion of the Offered Securities in accordance with the
terms of the Offered Securities, will be validly issued, fully paid and
non-assessable, and the issuance of the Underlying Securities will not
be subject to any preemptive or similar rights.
(l) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement, the
Indentures, the Offered Securities and the Delayed Delivery Contracts
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, the Indentures, the
Offered Securities or the Delayed Delivery Contracts, except such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Offered Securities.
(m) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(n) There are no legal, regulatory or governmental proceedings pending
or, to the knowledge of the Company, threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and are
not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed or incorporated by reference
as exhibits to the Registration Statement that are not described, filed
or incorporated as required.
(o) The Company and its subsidiaries have all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and has made all declarations and filings with, all foreign,
federal, state, local and other governmental authorities, all
self-regulatory
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organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business
in the manner described in the Prospectus, except to the extent that
the failure to obtain or file would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(q) The Company is not, and after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus will not be, required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(r) The Company and its subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(t) The Company and its subsidiaries have complied with all provisions
of Section 517.075, Florida Statute relating to issuers doing business
with Cuba.
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(u) Subsequent to the date as of which information is given in the
Registration Statement and the Prospectus, (i) neither the Company nor
its subsidiaries have incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction in each
case not in the ordinary course of business; (ii) neither the Company
nor its subsidiaries have purchased any of the Company's outstanding
capital stock other than unvested shares from former employees,
directors or consultants in accordance with the applicable governing
terms of agreements existing as of the date hereof, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company, except
as described in the Prospectus.
(v) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by it that is material to the business of the
Company and its subsidiaries, taken as a whole, in each case free and
clear of any security interest, lien, encumbrance, claim, defect or
adverse interest of any nature except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company or its
subsidiaries is held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, except as described in
the Prospectus.
(w) The Company owns or possesses adequate licenses or other rights to
use all patents, patent rights, inventions, trade secrets, copyrights,
trademarks, service marks, trade names, technology and know-how
necessary to conduct its business in the manner currently employed and
as described in the Prospectus; the Company is not obligated to pay a
royalty, grant a license, or provide other consideration to any third
party in connection with its patents, copyrights, trademarks, service
marks, trade names, or technology other than such royalties, licenses
or consideration that are not required to be disclosed in the
Prospectus pursuant to the Securities Act and the rules and regulations
thereunder and, except as disclosed in the Prospectus, the Company has
not received any notice of infringement or conflict with (and the
Company does not know of any infringement or conflict with) asserted
rights of others with respect to any patents, patent rights,
inventions, trade secrets, copyrights, trademarks, service marks, trade
names or know-how which could result in any material adverse effect
upon the Company and its subsidiaries, taken as a
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<PAGE>
whole; and, except as disclosed in the Prospectus, the discoveries,
inventions, products or processes of the Company referred to in the
Prospectus do not, to the best knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent
application filed by any third party, known to the Company which could
have a material adverse effect on the Company and its subsidiaries,
taken as a whole. Except as disclosed in the Prospectus, no third
party, including any academic or governmental organization, possesses
rights to the Company's patents, copyrights, trademarks, service marks,
trade names, or technology which, if exercised, could enable such third
party to develop products that could have a material adverse effect on
the ability of the Company and its subsidiaries to conduct its business
in the manner described in the Prospectus.
(x) No material labor dispute with the employees of the Company or its
subsidiaries exists, except as described in the Prospectus or, to the
knowledge of the Company, is imminent; and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that
could have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(y) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which the Company is engaged;
the Company has not been refused any insurance coverage sought or
applied for; and the Company does not have any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in the Prospectus.
(z) In the event the Offered Securities are convertible into Underlying
Securities, the Company has filed a supplemental listing application
with the Nasdaq Stock Market, Inc. to list the Underlying Securities,
and the Nasdaq Stock Market, Inc. has approved the Underlying
Securities for listing on the Nasdaq National Market, subject to
official notice of issuance.
(aa) Except as disclosed in the Prospectus, all outstanding shares of
Common Stock, and all securities convertible into or exercisable or
exchangeable for Common Stock in each case held by the directors and
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<PAGE>
executive officers of the Company are subject to valid and binding
agreements (collectively, the "Lock-up Agreements") that, subject to
certain exceptions, restrict the holders thereof from selling, making
any short sale of, granting any option for the purchase of, or
otherwise transferring or disposing of, any of such shares of Common
Stock, or any such securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 90 days after the date
of the Prospectus without the prior written consent of the Company or
the Manager.
2. Delayed Delivery Contracts. If the Prospectus provides for sales of
Offered Securities pursuant to Delayed Delivery Contracts, the Company hereby
authorizes the Underwriters to solicit offers to purchase Contract Securities on
the terms and subject to the conditions set forth in the Prospectus pursuant to
Delayed Delivery Contracts. Delayed Delivery Contracts may be entered into only
with institutional investors approved by the Company of the types set forth in
the Prospectus. On the Closing Date, the Company will pay to the Manager as
compensation for the accounts of the Underwriters the commission set forth in
the Underwriting Agreement in respect of the Contract Securities. The
Underwriters will not have any responsibility in respect of the validity or the
performance of any Delayed Delivery Contracts.
If the Company executes and delivers Delayed Delivery Contracts with
institutional investors, the aggregate amount of Offered Securities to be
purchased by the several Underwriters shall be reduced by the aggregate amount
of Contract Securities; such reduction shall be applied to the commitment of
each Underwriter pro rata in proportion to the amount of Offered Securities set
forth opposite such Underwriter's name in the Underwriting Agreement, except to
the extent that the Manager determines that such reduction shall be applied in
other proportions and so advises the Company; provided, however, that the total
amount of Offered Securities to be purchased by all Underwriters shall be the
aggregate amount set forth above, less the aggregate amount of Contract
Securities.
3. Terms of Public Offering. The Company is advised by the Manager that
the Underwriters propose to make a public offering of their respective portions
of the Underwriters' Securities as soon after this Agreement has been entered
into as in the Manager's judgment is advisable. The terms of the public offering
of the Underwriters' Securities are set forth in the Prospectus.
4. Payment and Delivery. Except as otherwise provided in this Section
4, payment for the Underwriters' Securities shall be made to the Company in
Federal or other funds immediately available at the time and place set forth in
the Underwriting Agreement, upon delivery to the Manager for the respective
accounts of the several Underwriters of the Underwriters' Securities registered
in such names and in such denominations as the Manager shall request in writing
not
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<PAGE>
less than two full business days prior to the date of delivery, with any
transfer taxes payable in connection with the transfer of the Underwriters'
Securities to the Underwriters duly paid.
Delivery on the Closing Date of any Underwriters' Securities that are
Debt Securities in bearer form shall be effected by delivery of a single
temporary global Debt Security without coupons (the "Global Debt Security")
evidencing the Offered Securities that are Debt Securities in bearer form to a
common depositary for Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euro-clear System ("Euro-clear"), and for Clearstream
Banking, societe anonyme ("Clearstream") for credit to the respective accounts
at Euro-clear or Clearstream of each Underwriter or to such other accounts as
such Underwriter may direct. Any Global Debt Security shall be delivered to the
Manager not later than the Closing Date, against payment of funds to the Company
in the net amount due to the Company for such Global Debt Security or by the
method and in the form set forth in the Underwriting Agreement. The Company
shall cause definitive Debt Securities in bearer form to be prepared and
delivered in exchange for such Global Debt Security in such manner and at such
time as may be provided in or pursuant to the applicable Indenture; provided,
however, that the Global Debt Security shall be exchangeable for definitive Debt
Securities in bearer form only on or after the date specified for such purpose
in the Prospectus.
5. Conditions to the Underwriters' Obligations. The several obligations
of the Underwriters are subject to the following conditions:
(a) Subsequent to the execution and delivery of the Underwriting
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does
not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in the judgment of the Manager, is
material and adverse and that
10
<PAGE>
makes it, in the judgment of the Manager, impracticable to
market the Offered Securities on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company, to the effect
set forth in Section 5(a)(i) and to the effect that the representations
and warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely
upon the best of their knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion
of Cooley Godward LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the state of Delaware, has the corporate power and authority
to own its property and to conduct its business as described
in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business and is duly qualified
to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are
fully paid and non-
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<PAGE>
assessable, and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(iii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital
Stock";
(iv) the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-
assessable; except as set forth in the Prospectus, the Company
has no outstanding options to purchase or any preemptive
rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or
obligations; and all outstanding shares of capital stock and
options and other rights to acquire capital stock have been
issued in compliance with the registration and qualification
provisions of all applicable securities laws and were not
issued in violation of any preemptive rights, rights of first
refusal or other similar rights;
(v) this Agreement has been duly authorized, executed
and delivered by the Company;
(vi) each of the Indentures has been duly qualified under
the Trust Indenture Act and has been duly authorized, executed
and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its
terms except as (A) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(vii) the Delayed Delivery Contracts have been duly
authorized, executed and delivered by the Company and are
valid and binding agreements of the Company, enforceable in
accordance with their respective terms except as (A) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (B) the availability of equitable remedies may
be limited by equitable principles of general applicability;
(viii) the Offered Securities have been duly authorized and,
when executed and authenticated in accordance with the
provisions
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<PAGE>
of the applicable Indenture and delivered to and paid for by
the Underwriters in accordance with the terms of the
Underwriting Agreement, in the case of Underwriters'
Securities, or by institutional investors in accordance with
the terms of the Delayed Delivery Contracts, in the case of
the Contract Securities will be entitled to the benefits of
the applicable Indenture and will be valid and binding
obligations of the Company, in each case enforceable in
accordance with their respective terms except as (1) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (2) rights of acceleration, if any, and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(ix) in the event the Offered Securities are convertible
into Underlying Securities, the Underlying Securities reserved
for issuance upon conversion of the Offered Securities have
been duly authorized and reserved and, when issued upon
conversion of the securities in accordance with the terms of
the Offered Securities, will be validly issued, fully paid and
non-assessable and the issuance of the Underlying Securities
will not be subject to any preemptive or similar rights;
(x) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement, the Indentures, the Offered Securities and the
Delayed Delivery Contracts will not contravene any provision
of applicable law or the certificate of incorporation or
by-laws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or, to the
best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the
performance by the Company of its obligations under this
Agreement, the Indentures, the Offered Securities or the
Delayed Delivery Contracts or, except such as may be required
by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Offered Securities;
(xi) the statements (A) in the Prospectus under the
captions "Risk Factors - Legal Proceedings", "Description of
Debt Securities," "Plan of Distribution", (B) in the
Registration
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Statement under Item 15, (C) in "Item 3 - Legal Proceedings"
and "Item 11 - Management - Employee Benefit Plans" of the
Company's most recent annual report on Form 10-K incorporated
by reference in the Prospectus and (D) in "Item 1 - Legal
Proceedings" of Part II of the Company's quarterly reports on
Form 10-Q, if any, filed since such annual report, in each
case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such
legal matters, documents and proceedings and fairly summarize
the matters referred to therein;
(xii) after due inquiry, such counsel does not know of any
legal, regulatory or governmental proceedings pending or
overtly threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed or incorporated by reference as exhibits to the
Registration Statement that are not described, filed or
incorporated as required;
(xiii) the Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
(xiv) the statements in the Prospectus under the caption
"Certain Federal Income Tax Considerations," insofar as such
statements constitute a summary of the United States federal
tax laws referred to therein, are accurate and fairly
summarize in all material respects the United States federal
tax laws referred to therein;
(xv) such counsel (A) is of the opinion that each
document, if any, filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus (except for
financial statements and schedules included therein as to
which such counsel need not express any opinion) complied when
so filed as to form in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for
financial statements and schedules as to which such counsel
need not express any belief and
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<PAGE>
except for that part of the Registration Statement that
constitutes the Form T-1 heretofore referred to) each part of
the Registration Statement, when such part became effective,
contained and, as of the date such opinion is delivered,
contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading,
(C) is of the opinion that the Registration Statement and
Prospectus (except for financial statements and schedules
included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder and (D) has no reason to believe that
(except for financial statements and schedules as to which
such counsel need not express any belief) the Prospectus as of
the date such opinion is delivered contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(d) The Underwriters shall have received on the Closing Date an opinion
of Davis Polk & Wardwell, special counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in Sections 5(c)(v),
5(c)(vi), 5(c)(vii), 5(c)(viii) and 5(c)(xi) (but only as to the
statements in the Prospectus under "Description of Debt Securities" and
"Plan of Distribution") and clauses 5(c)(xv)(B), 5(c)(xv)(C) and
5(c)(xv)(D) above.
With respect to Section 5(c)(xv) above, Cooley Godward LLP may
state that their opinion and belief are based upon their participation
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but are
without independent check or verification, except as specified. With
respect to clauses 5(c)(xv)(B), 5(c)(xv)(C) and 5(c)(xv)(D) above,
Davis Polk & Wardwell may state that their opinion and belief are based
upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto (but
not including documents incorporated therein by reference) and review
and discussion of the contents thereof (including documents
incorporated therein by reference), but are without independent check
or verification, except as specified.
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<PAGE>
The opinion of Cooley Godward LLP described in Section 5(c)
above shall be rendered to the Underwriters at the request of the
Company and shall so state therein.
(e) The Underwriters shall have received on the Closing Date a letter,
dated the Closing Date, in form and substance satisfactory to the
Underwriters, from the Company's independent public accountants,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus; provided, however, that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date of the
Underwriting Agreement.
(f) The Lock-up Agreements, each in a form acceptable to the Managers,
between the Managers and certain shareholders, officers and directors
of the Company relating to sales and certain other depositions of
shares of Common Stock or certain other securities, delivered to the
Managers on or before the date hereof, shall be in full force and
effect on the Closing Date.
All of the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed in compliance with the
provisions hereof only if Davis Polk & Wardwell, counsel for the Underwriters,
shall be reasonably satisfied that they comply in form and scope.
The several obligations of the Underwriters to purchase Option
Securities hereunder are subject to the delivery to the Manager on the Option
Closing Date of such documents as the Manager may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Option Securities and other matters related to the issuance of the Option
Securities and an opinion or opinions of Cooley Godward LLP in form and
substance reasonably satisfactory to Davis Polk & Wardwell, counsel for the
Underwriters.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish the Manager, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and, during the period mentioned in Section
6(c) below, as many copies of the Prospectus, any documents
incorporated by
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<PAGE>
reference therein and any supplements and amendments thereto or to the
Registration Statement as the Manager may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus with respect to the Offered Securities, to furnish to the
Manager a copy of each such proposed amendment or supplement and not to
file any such proposed amendment or supplement to which the Manager
reasonably objects, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Offered Securities as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses the Manager will furnish to the
Company) to which Offered Securities may have been sold by the Manager
on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Offered Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the
Manager shall reasonably request and to maintain such qualification for
as long as the Manager shall reasonably request.
(e) To make generally available to the Company's security holders and
to the Manager as soon as practicable an earning statement covering a
twelve month period beginning on the first day of the first full fiscal
quarter after the date of this Agreement, which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder. If such fiscal
quarter is the last fiscal quarter of the Company's fiscal year, such
earning statement shall be made available not later than 90 days after
the close of
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the period covered thereby and in all other cases shall be made
available not later than 45 days after the close of the period covered
thereby.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, except as otherwise agreed
with the Manager, the Company agrees to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Offered Securities under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Offered Securities
to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the
Offered Securities under securities law of various states and other
jurisdictions and all expenses in connection with the qualification of
the Offered Securities for offer and sale under state securities laws
as provided in paragraph (d) of Section 6 hereof, including filing fees
and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection
with the Blue Sky or Legal Investment memorandum (iv) all filing fees
and the reasonable fees (in an amount not to exceed $15,000) and
disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Offered
Securities by the NASD (if any), (v) all costs and expenses incident to
listing the Underlying Securities on the Nasdaq National Market (if
any), (vi) the cost of printing certificates representing the Offered
Securities, (vii) the costs and charges of any trustee, paying agent,
conversion agent, transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on
any "road show" undertaken in connection with the marketing of the
offering of the Offered Securities, including, without limitation,
expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, (ix) all expenses
in connection with any offer and sale of the Offered Securities outside
of the United States, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in
18
<PAGE>
connection with offers and sales outside of the United States, and (x)
all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not
otherwise made in this Section 6(f). It is understood, however, that
except as otherwise provided in this Section 6(f), Section 7 entitled
"Indemnification and Contribution", and the last paragraph of Section 9
below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes
payable on resale of any of the Offered Securities by them, and any
advertising expenses connected with any offers they may make.
(g) Not to take any action prohibited by Regulation M under the
Exchange Act in connection with the distribution of the Offered
Securities contemplated hereby.
(h) To (i) enforce the terms of each Lock-up Agreement, (ii) issue
stop-transfer instructions to the transfer agent for the Common Stock
with respect to any transaction or contemplated transaction that would
constitute a breach of or default under the applicable Lock-up
Agreement and (iii) upon written request of the Manager, to release
from the Lock-up Agreements those shares of Common Stock held by those
holders set forth in such request. In addition, except with the prior
written consent of the Manager, the Company agrees (i) not to amend or
terminate, or waive any right under, any Lock-up Agreement, or take any
other action that would directly or indirectly have the same effect as
an amendment or termination, or waiver of any right under, any Lock-up
Agreement, that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common
Stock, to sell, make any short sale of, grant any option for the
purchase of, or otherwise transfer or dispose of, any of such shares of
Common Stock or other securities prior to the expiration of 90 days
after the date of the Prospectus, and (ii) not to consent to any sale,
short sale, grant of an option for the purchase of, or other
disposition or transfer of shares of Common Stock, or securities
convertible into or exercisable or exchangeable for Common Stock,
subject to a Lock-up Agreement.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Underwriter or any such
controlling person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in
19
<PAGE>
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Manager expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Offered Securities, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Offered Securities to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities,
unless such failure is the result of noncompliance by the Company with Section
6(a) hereof.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made not misleading, but only with reference to information relating
to such Underwriter furnished to the Company in writing by such Underwriter
through the Manager expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either Section 7(a) or 7(b), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
20
<PAGE>
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, it directors, its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
the Manager. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
21
<PAGE>
(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Offered
Securities or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Offered Securities shall be deemed to be
in the same respective proportions as the net proceeds from the offering of such
Offered Securities (before deducting expenses) received by the Company and the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus Supplement,
bear to the aggregate public offering price of the Offered Securities. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the respective principal amounts of Offered
Securities they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the
22
<PAGE>
total price at which the Offered Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section
7 and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Offered Securities.
8. Termination. This Agreement shall be subject to termination by
notice given by the Manager to the Company, if (a) after the execution and
delivery of the Underwriting Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the Manager, is material and adverse
and (b) in the case of any of the events specified in clauses 8(a)(i) through
8(a)(iv), such event, singly or together with any other such event, makes it, in
the judgment of the Manager, impracticable to market the Offered Securities on
the terms and in the manner contemplated in the Prospectus.
9. Defaulting Underwriters. If, on the Closing Date or Option Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Underwriters' Securities that it has or they have agreed to
purchase hereunder on such date, and the aggregate amount of Underwriters'
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate amount of the
Underwriters' Securities to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the amount of Underwriters'
Securities set forth
23
<PAGE>
opposite their respective names in the Underwriting Agreement bears to the
aggregate amount of Underwriters' Securities set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as the Manager
may specify, to purchase the Underwriters' Securities which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the amount of Underwriters' Securities
that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
amount of Underwriters' Securities without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Underwriters' Securities which it or they have agreed to
purchase hereunder on such date and the aggregate amount of Underwriters'
Securities with respect to which such default occurs is more than one-tenth of
the aggregate amount of Underwriters' Securities to be purchased on such date,
and arrangements satisfactory to the Manager and the Company for the purchase of
such Underwriters' Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either the Manager
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Option Securities and the
aggregate principal amount of Option Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Option Securities to be purchased, the non- defaulting Underwriters shall have
the option to (a) terminate their obligation hereunder to purchase Option
Securities or (b) purchase not less than the principal amount of Option
Securities that such non-defaulting Underwriters would have been obligated to
purchase in the absence of such default. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
24
<PAGE>
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
25
<PAGE>
UNDERWRITING AGREEMENT
___________, 200_
NVIDIA Corporation
3535 Monroe Street
Santa Clara, California 95051
Dear Sirs and Mesdames:
We (the "Manager") are acting on behalf of the underwriter or
underwriters (including ourselves) named below (such underwriter or underwriters
being herein called the "Underwriters"), and we understand that NVIDIA
Corporation, a Delaware corporation (the "Company"), proposes to issue and sell
[Currency and Principal Amount] aggregate initial offering price of [Full title
of Debt Securities] (the "Debt Securities" or the "Offered Securities"). The
Debt Securities will be issued pursuant to the provisions of an Indenture dated
as of March __, 2000 (the "Indenture") between the Company and _, as Trustee
(the "Trustee").
Subject to the terms and conditions set forth or incorporated by
reference herein, the Company hereby agrees to sell to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company the respective principal amounts of Debt Securities set forth below
opposite their names at a purchase price of ____% (the "Purchase Price") of the
principal amount of Debt Securities [, plus accrued interest, if any, from [Date
of Offered Securities] to the date of payment and delivery]1:
Principal Amount of
Name Debt Securities
- -------------------------------------------- --------------------
Morgan Stanley & Co. Incorporated
Morgan Stanley & Co. International Limited
[Insert syndicate list]
--------------------
Total...........................
- --------
/1/ To be added only if the transaction does not close "flat" (i.e., when
the purchaser pays accrued interest on the debt security at closing). Unless
otherwise provided in the Debt Securities, accrued interest, if any, will be
computed on the basis of a 360-day year of twelve 30-day months.
<PAGE>
[The principal amount of Debt Securities to be purchased by the several
Underwriters shall be reduced by the aggregate principal amount of Debt
Securities sold pursuant to delayed delivery contracts.]/2/
The Underwriters will pay for the Offered Securities [(less any Offered
Securities sold pursuant to delayed delivery contracts)] upon delivery thereof
at [office] at ______ a.m. (New York City time) on ___________, 200_, or at such
other time, not later than 5:00 p.m. (New York City time) on __________, 200_,
as shall be designated by the Manager. The time and date of such payment and
delivery are hereinafter referred to as the Closing Date./3/
[On the basis of the representations and warranties incorporated by
reference in this Agreement, and subject to its terms and conditions, the
Company agrees to sell to the several Underwriters, the Option Securities, and
the Underwriters shall have a one-time right to purchase, severally and not
jointly, up to $________ principal amount of Option Securities at the Purchase
Price plus accrued interest, if any, to the date of payment and delivery. If the
Manager, on behalf of the several Underwriters, elects to exercise such option,
the Manager shall so notify the Company in writing not later than 30 days after
the date of this Agreement, which notice shall specify the principal amount of
Option Securities to be purchased by the several Underwriters and the date on
which such Option Securities are to be purchased. Such date may be the same as
the Closing Date but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Option Securities may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Debt Securities. If any Option Securities are to be purchased,
each Underwriter agrees, severally and not jointly, to purchase the principal
amount of Option Securities (subject to such adjustments to eliminate fractional
securities as the Manager may determine) that bears the same proportion to the
total principal amount of Debt Securities to be purchased as the principal
amount of Debt Securities set forth above opposite the name of such Underwriter
bears to the total principal amount of Debt Securities set forth.
The Underwriters will pay for the Option Securities upon delivery
thereof at [office] at _____ a.m. (New York City time) on the date specified in
the notice delivered pursuant to the above paragraph, or at such other time, not
later than 5:00 p.m. (New York City time) on ________, 200_, as shall be
designated by the
- --------
/2/ To be added only if delayed delivery contracts are contemplated.
/3/ This paragraph would have to be modified for any Offered Securities
that are to be issued in bearer form.
2
<PAGE>
Manager. The time and date of such payment and delivery are hereinafter referred
to as the Option Closing Date.]/4/
The Company hereby agrees that, without the prior written consent of
the Manager on behalf of the Underwriters, it will not, during the period ending
90 days after the date of the Prospectus, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the sale of the Offered
Securities under this Agreement or the issuance of any Underlying Securities,
(B) the issuance by the Company of any shares of Common Stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
hereof of which the Underwriters have been advised in writing, (C) the grant or
exercise of options to purchase Common Stock under the Company's employee
benefit plans.
The Offered Securities shall have the terms set forth in the Prospectus
dated ___________, 200_, and the Prospectus Supplement dated ____________, 200_,
including the following:
Terms of Debt Securities
Maturity Date: _____________ ___, _____
Interest Rate: _____________ ___, _____
Redemption Provisions: _____________ ___, _____
Interest Payment Dates: ______________ ___ and
-------------- ---
commencing ______________
---, -----
[(Interest accrues from: ______________ ___, _____)]5
Form and Denomination: ______________
[Other Terms:]
- ------------
/4/ Include only if an over-allotment option is provided for.
/5/ To be added only if the transaction does not close flat.
3
<PAGE>
[The commission to be paid to the Underwriters in respect of the
Offered Securities purchased pursuant to delayed delivery contracts arranged by
the Underwriters shall be ___% of the principal amount of the Debt Securities so
purchased.]/6/
All provisions contained in the document entitled NVIDIA Corporation
Underwriting Agreement Standard Provisions (Debt Securities) dated March _,
2000, a copy of which is attached hereto, are herein incorporated by reference
in their entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions had been set forth in full herein, except that (i)
if any term defined in such document is otherwise defined herein, the definition
set forth herein shall control, (ii) all references in such document to a type
of security that is not an Offered Security shall not be deemed to be a part of
this Agreement, and (iii) all references in such document to a type of agreement
that has not been entered into in connection with the transactions contemplated
hereby shall not be deemed to be a part of this Agreement.
- --------
/6/ To be added only if delayed delivery contracts are contemplated.
4
<PAGE>
[SIGNATURE PAGE WHERE
MORGAN STANLEY & CO. INCORPORATED
OR MORGAN STANLEY & CO. INTERNATIONAL LIMITED
IS A CO-LEAD MANAGER]
Please confirm your agreement by having an authorized officer sign a
copy of this Agreement in the space set forth below.
Very truly yours,
[MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
[Name of Other Lead Managers]
Acting severally on behalf of themselves and the
several Underwriters named herein
By: [MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
By:
--------------------------------
Name:
Title:
Accepted:
NVIDIA CORPORATION
By:
------------------------
Name:
Title:
5
<PAGE>
[SIGNATURE PAGE WHERE
MORGAN STANLEY & CO. INCORPORATED
OR MORGAN STANLEY & CO. INTERNATIONAL LIMITED
IS SOLE MANAGER]
Please confirm your agreement by having an authorized officer sign a
copy of this Agreement in the space set forth below.
Very truly yours,
[MORGAN STANLEY & CO.
INCORPORATED]
[MORGAN STANLEY & CO.
INTERNATIONAL LIMITED]
[Name of Other Lead Managers]
Acting severally on behalf of itself and
the several Underwriters named herein
By:
------------------------
Name:
Title:
Accepted:
NVIDIA CORPORATION
By:
------------------------------
Name:
Title:
6
<PAGE>
SCHEDULE I
DELAYED DELIVERY CONTRACT
________, 200_
Dear Sirs and Mesdames:
The undersigned hereby agrees to purchase from NVIDIA Corporation, a
Delaware corporation (the "Company"), and the Company agrees to sell to the
undersigned the Company's securities described in Schedule A annexed hereto (the
"Securities"), offered by the Company's Prospectus dated __________________,
200_ and Prospectus Supplement dated ________________, 200_, receipt of copies
of which are hereby acknowledged, at a purchase price stated in Schedule A and
on the further terms and conditions set forth in this Agreement. The undersigned
does not contemplate selling Securities prior to making payment therefor.
The undersigned will purchase from the Company Securities in the
principal amount and numbers on the delivery dates set forth in Schedule A. Each
such date on which Securities are to be purchased hereunder is hereinafter
referred to as a "Delivery Date."
Payment for the Securities which the undersigned has agreed to purchase
on each Delivery Date shall be made to the Company or its order by certified or
official bank check in New York Clearing House funds at the office of
______________________________, New York, N.Y., at 10:00 a.m. (New York City
time) on the Delivery Date, upon delivery to the undersigned of the Securities
to be purchased by the undersigned on the Delivery Date, in such denominations
and registered in such names as the undersigned may designate by written or
telegraphic communication addressed to the Company not less than five full
business days prior to the Delivery Date.
The obligation of the undersigned to take delivery of and make payment
for the Securities on the Delivery Date shall be subject to the conditions that
(1) the purchase of Securities to be made by the undersigned shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which the
undersigned is subject and (2) the Company shall have sold, and delivery shall
have taken place to the underwriters (the "Underwriters") named in the
Prospectus Supplement referred to above of, such part of the Securities as is to
be sold to them. Promptly after completion of sale and delivery to the
Underwriters, the
<PAGE>
Company will mail or deliver to the undersigned as its address set forth below
notice to such effect, accompanied by a copy of the opinion of counsel for the
Company delivered to the Underwriters in connection therewith.
Failure to take delivery of and make payment for Securities by any
purchaser under any other Delayed Delivery Contract shall not relieve the
undersigned of its obligations under this agreement.
This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors, but will not be assignable by
either party hereto without the written consent of the other.
If this Agreement is acceptable to the Company, it is requested that
the Company sign the form of acceptance below and mail or deliver one of the
counterparts hereof to the undersigned at its address set forth below. This will
become a binding agreement, as of the date first above written, between the
Company and the undersigned when such counterpart is so mailed or delivered.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
------------------------------
(Purchaser)
By:
----------------------------
----------------------------
(Title)
----------------------------
----------------------------
----------------------------
(Address)
Accepted:
NVIDIA CORPORATION
By:
----------------------------
Name:
Title:
2
<PAGE>
PURCHASER -- PLEASE COMPLETE AT TIME OF SIGNING
The name and telephone and department of the representative of the
Purchaser with whom details of delivery on the Delivery Date may be discussed is
as follows: (Please print.)
Telephone No.
Name (including Area Code) Department
- ------------------- --------------------- -------------------
- ------------------- --------------------- -------------------
3
<PAGE>
SCHEDULE A
Securities:
Principal Amounts or Numbers to be Purchased:
Purchase Price:
Delivery:
<PAGE>
EXHIBIT 5.1
[Letterhead of Cooley Godward LLP]
April 20, 2000
NVIDIA Corporation
3535 Monroe St.
Santa Clara, CA 95051
Ladies and Gentlemen:
We have acted as counsel to NVIDIA Corporation, a Delaware corporation
("NVIDIA"), in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), on Form S-3 (file no. 333-33560) of (i)
senior debt securities (the "Senior Debt Securities") and/or subordinated debt
securities (the "Subordinated Debt Securities" and, together with the Senior
Debt Securities, the "Debt Securities") of NVIDIA, and which Debt Securities
shall be governed pursuant to the terms and conditions set forth in the
respective indentures governing the Senior Debt Securities (the "Senior
Indenture") and the Subordinated Debt Securities (the "Subordinated Indenture")
and (ii) shares of common stock, par value $0.001, of NVIDIA (the "Common
Stock"), to be offered and sold by NVIDIA from time to time pursuant to Rule 415
of the General Rules and Regulations promulgated under the Securities Act (the
"Securities Act Rules"), with aggregate gross proceeds of up to $400,000,000, in
each case pursuant to terms and conditions to be designated by NVIDIA at the
time of offering. The Debt Securities and Common Stock are collectively
referred to as the "Securities."
In connection with this opinion, we have examined and relied upon the originals,
or copies certified to our satisfaction, of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below. As
to certain factual matters, we have relied upon certificates of the officers of
NVIDIA and have not sought to independently verify such matters.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents where authorization, execution and delivery are
prerequisites to the effectiveness of such documents.
In rendering this opinion, we have also assumed that, prior to any offering and
sale of Securities, the Board of Directors (or a special committee thereof
authorized to act on its behalf) of NVIDIA will duly authorize the terms of and
the prices at which (A) the Debt Securities are to be issued and sold in
accordance with the terms of the Senior Indenture or the Subordinated Indenture,
as applicable (and, if Debt Securities are convertible into or exchangeable for
Common Stock, the
<PAGE>
NVIDIA Corporation
Page Two
issuance of such Common Stock upon such conversion or exchange and the terms
thereof) and (B) shares of Common Stock are to be issued and sold.
We express no opinion herein concerning any laws other than the federal laws of
the United States, the laws of the State of California and the Delaware General
Corporation Law, as well as applicable provisions of the Constitution of the
State of Delaware and applicable case law. We express no opinion as to whether
the laws of any jurisdiction other than those identified above are applicable to
the subject matter hereof. We are not rendering any opinion as to compliance
with any antifraud law, rule or regulation relating to securities, or to the
sale or issuance thereof.
On the basis of the foregoing and in reliance thereon, and subject to the
qualifications herein stated, we are of the opinion that:
1. With respect to any offering of any series of Debt Securities (the
"Offered Debt Securities"), when (i) the Registration Statement, as finally
amended (including all necessary post-effective amendments), has become
effective; (ii) an appropriate Prospectus Supplement with respect to the Offered
Debt Securities has been prepared, delivered and filed in compliance with the
Securities Act and the applicable Securities Act Rules thereunder; (iii) if the
Offered Debt Securities are to be sold pursuant to a purchase agreement with
respect to the Offered Debt Securities, such purchase agreement has been duly
authorized, executed and delivered by NVIDIA and the other parties thereto; (iv)
the terms of the Offered Debt Securities and of their issuance and sale have
been duly established in conformity with the Senior Indenture or Subordinated
Indenture, as applicable, if any, so as not to violate any applicable law, the
operative certificate of incorporation or by-laws of NVIDIA, or result in a
default under or breach of any agreement or instrument binding upon NVIDIA, and
so as to comply with any requirement or restriction imposed by any court or
governmental body having jurisdiction over NVIDIA; (v) the Senior Indenture or
Subordinated Indenture, as applicable, has been qualified under the Trust
Indenture Act of 1939, as amended; (vi) each of the Senior Indenture and the
Subordinated Indenture has been duly authorized, executed and delivered by the
relevant Trustee and (vii) the Offered Debt Securities have been duly executed
and manually authenticated by duly authorized officers of the relevant Trustee
in accordance with the provisions of the Senior Indenture or the Subordinated
Indenture, as applicable, and duly delivered to the purchasers thereof upon
payment of the agreed upon consideration therefor; then (1) the Offered Debt
Securities, when issued and sold in accordance with the Senior Indenture or
Subordinated Indenture, as applicable, if any, and a duly authorized, executed
and delivered purchase agreement, if any, will be valid and binding obligations
of NVIDIA, enforceable against NVIDIA in accordance with their respective terms,
subject to (a) general equity principles and the limitations on the availability
of equitable relief, including, without limitation, specific performance; (b)
the effect of applicable bankruptcy, insolvency, fraudulent transfer or
conveyance, reorganization, arrangement, suretyship, dissolution, moratorium,
receivership or other similar laws relating to or affecting creditors' rights
generally; (c) limitations created by or arising under statute or case law on
the enforceability of certain covenants and provisions of
<PAGE>
NVIDIA Corporation
Page Three
agreements where (i) the breach of such covenants or provisions imposes
restrictions or burdens upon the debtor or surety and it cannot be demonstrated
that the enforcement of such restrictions or burdens is reasonably necessary for
the protection of the creditor or (ii) the creditor's enforcement of such
covenants or provisions under the circumstances would violate the creditor's
implied covenant of good faith and fair dealing; (d) limitations on the right of
a lender to impose added charges for late payments or defaults by the borrower,
where it is determined that such charges bear no reasonable relation to the
damage suffered by the lender as a result of such late payments or defaults or
where the requirements of California Civil Code Section 2954.5 are not met; (e)
the effect of California Civil Code Section 1717 on the recovery of attorneys'
fees in contract actions; (f) the effect of California Civil Code Section 3433;
(g) limitations imposed by law and public policy on indemnification and
exculpation; and (h) any other limitations which, in the event of any default by
NVIDIA in its obligations under the Offered Debt Securities, would act as a
limitation on the rights of the creditor in accordance with California law, but
which would not prevent the creditor from exercising legally adequate remedies
for realization of the principal benefits intended to be provided by the Offered
Debt Securities and (2) if shares of Common Stock are issuable upon conversion
or exchange of any convertible Offered Debt Securities, the shares of Common
Stock issuable upon conversion or exchange will be validly issued, fully paid
and nonassessable, assuming the execution, authentication, issuance and delivery
of the Offered Debt Securities and conversion or exchange of the Offered Debt
Securities in accordance with the terms of the Senior Indenture or Subordinated
Indenture, as applicable, if any, relating thereto and that a sufficient number
of shares of Common Stock are authorized or reserved and available for issuance
and that the consideration for the issuance of such shares of Common Stock is
not less than the par value of the Common Stock.
2. With respect to any offering of shares of Common Stock, when (i) the
Registration Statement, as finally amended (including all necessary post-
effective amendments), has become effective; (ii) an appropriate Prospectus
Supplement with respect to the shares of Common Stock has been prepared,
delivered and filed in compliance with the Securities Act and the applicable
Securities Act Rules thereunder; (iii) if the shares of Common Stock are to be
sold pursuant to a purchase agreement with respect to the shares of Common
Stock, such purchase agreement has been duly authorized, executed and delivered
by NVIDIA and the other parties thereto; (iv) the Board of Directors, including
any appropriate committee appointed thereby, and appropriate officers of NVIDIA
have taken all necessary corporate action to approve the issuance and terms of
the shares of Common Stock and related matters; and (v) the terms of the shares
of Common Stock and of their issuance and sale have been duly established in
conformity with the operative certificate of incorporation and by-laws of NVIDIA
so as not to violate any applicable law or the operative certificate of
incorporation or by-laws of NVIDIA or result in a default under or breach of any
agreement or instrument binding upon NVIDIA and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over NVIDIA, the shares of Common Stock, when issued and sold in
accordance with a duly authorized, executed and delivered purchase agreement, if
any, will be duly
<PAGE>
NVIDIA Corporation
Page Four
authorized, validly issued, fully paid and nonassessable, assuming that a
sufficient number of shares of Common Stock are authorized or reserved and
available for issuance and that the consideration for the issuance and sale of
such shares of Common Stock is not less than the par value of the Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Sincerely,
Cooley Godward llp
/s/ Eric C. Jensen
- ---------------------------------------
Eric C. Jensen
<PAGE>
EXHIBIT 10.1
Lease between
Sobrato Interests III and Nvidia Corporation
<TABLE>
<CAPTION>
Section Page #
<S> <C>
Parties.................................................................... 1
Premises................................................................... 1
Definitions............................................................... 1
Description............................................................... 2
Use........................................................................ 2
Permitted Uses............................................................ 2
Uses Prohibited........................................................... 2
Advertisements and Signs.................................................. 3
Covenants, Conditions and Restrictions.................................... 3
Term and Rental............................................................ 3
Base Monthly Rent......................................................... 3
Late Charges.............................................................. 3
Security Deposit.......................................................... 4
Construction............................................................... 5
Building Shell Construction............................................... 5
Tenant Improvement Construction........................................... 5
Pricing................................................................... 6
Change Orders............................................................. 6
Building Shell Costs...................................................... 7
Tenant Improvement Costs.................................................. 7
Force Majeure............................................................. 8
General Contractor Overhead & Profit...................................... 8
Tenant Delays............................................................. 8
Insurance................................................................. 8
Punch List & Warranty..................................................... 8
Other Work by Tenant...................................................... 9
Landlord's Failure to Complete Construction............................... 9
Acceptance of Possession and Covenants to Surrender........................ 9
Delivery and Acceptance................................................... 9
Condition Upon Surrender.................................................. 10
Failure to Surrender...................................................... 10
Alterations and Additions.................................................. 11
Tenant's Alterations...................................................... 11
Free From Liens........................................................... 11
Compliance With Governmental Regulations.................................. 11
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Maintenance of Premises.................................................... 12
Landlord's Obligations.................................................... 12
Tenant's Obligations...................................................... 12
Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs.. 12
Reimbursable Operating Costs.............................................. 12
Tenant's Allocable Share.................................................. 13
Waiver of Liability....................................................... 13
Hazard Insurance........................................................... 13
Tenant's Use.............................................................. 13
Landlord's Insurance...................................................... 13
Tenant's Insurance........................................................ 14
Waiver.................................................................... 14
Taxes...................................................................... 14
Utilities.................................................................. 15
Toxic Waste and Environmental Damage....................................... 15
Tenant's Responsibility................................................... 15
Tenant's Indemnity Regarding Hazardous Materials.......................... 15
Actual Release by Tenant.................................................. 16
Environmental Monitoring.................................................. 17
Tenant's Default........................................................... 17
Remedies.................................................................. 17
Right to Re-enter......................................................... 18
Abandonment............................................................... 18
No Termination............................................................ 18
Non-Waiver................................................................ 18
Performance by Landlord................................................... 19
Habitual Default.......................................................... 19
Landlord's Liability....................................................... 19
Limitation on Landlord's Liability........................................ 19
Limitation on Tenant's Recourse........................................... 19
Indemnification of Landlord............................................... 20
Destruction of Premises.................................................... 20
Landlord's Obligation to Restore.......................................... 20
Limitations on Landlord's Restoration Obligation.......................... 20
Condemnation............................................................... 21
Assignment or Sublease..................................................... 21
Consent by Landlord....................................................... 21
Assignment or Subletting Consideration.................................... 22
No Release................................................................ 22
Reorganization of Tenant.................................................. 22
Permitted Transfers....................................................... 23
Effect of Default......................................................... 23
Effects of Conveyance..................................................... 23
Successors and Assigns.................................................... 23
Option to Extend the Lease Term............................................ 24
</TABLE>
Page ii
<PAGE>
<TABLE>
<S> <C>
Grant and Exercise of Option.............................................. 24
Determination of Fair Market Rental....................................... 24
Resolution of a Disagreement over the Fair Market Rental.................. 25
Personal to Tenant........................................................ 25
General Provisions......................................................... 25
Attorney's Fees........................................................... 25
Authority of Parties...................................................... 25
Brokers................................................................... 25
Choice of Law............................................................. 26
Dispute Resolution........................................................ 26
Entire Agreement.......................................................... 27
Entry by Landlord......................................................... 27
Estoppel Certificates..................................................... 27
Exhibits.................................................................. 28
Interest.................................................................. 28
Modifications Required by Lender.......................................... 28
No Presumption Against Drafter............................................ 28
Notices................................................................... 28
Property Management....................................................... 28
Rent...................................................................... 28
Representations........................................................... 28
Rights and Remedies....................................................... 29
Severability.............................................................. 29
Submission of Lease....................................................... 29
Subordination............................................................. 29
Survival of Indemnities................................................... 29
Time...................................................................... 29
Transportation Demand Management Programs................................. 29
Waiver of Right to Jury Trial............................................. 30
Right of First Offer to Purchase........................................... 30
Grant and Exercise of Option.............................................. 30
Exclusions................................................................ 30
EXHIBIT A - Building and Project........................................... 32
EXHIBIT B - CC&R Declaration............................................... 33
EXHIBIT C - Draft Letter of Credit......................................... 34
EXHIBIT D - Building Shell Definition...................................... 35
EXHIBIT E - Building Shell Plans and Specifications........................ 38
EXHIBIT F - Tenant Improvement Plans and Specifications.................... 39
</TABLE>
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<PAGE>
1. PARTIES: THIS LEASE, is entered into on this 4th day of April, 2000,
("Effective Date") between Sobrato Interests III, a California Limited
Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and Nvidia Corporation, a Delaware Corporation, whose
address is 3535 Monroe Street, Santa Clara, California, 95051, hereinafter
called respectively Landlord and Tenant.
2. PREMISES:
A. Definitions.
i. Building A. The term "Building A" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
and all Tenant Improvements installed therein to be constructed by Landlord and
leased by Tenant pursuant to the terms of this Lease in the location labeled as
Building A on Exhibit "A" attached hereto and commonly known as 2721 San Tomas
-----------
Expressway, Santa Clara, California.
ii. Building B. The term "Building B" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building B on
Exhibit "A" and commonly known as 2731 San Tomas Expressway, Santa Clara,
- -----------
California.
iii. Building C. The term "Building C" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building C on
Exhibit "A" and commonly known as 2711 San Tomas Expressway, Santa Clara,
- -----------
California.
iv. Building D. The term "Building D" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building D on
Exhibit "A" and commonly known as 2701 San Tomas Expressway, Santa Clara,
- -----------
California.
v. Common Area. The term "Common Area" shall initially mean that
certain real property and all improvements thereon surrounding Building A,
Building C and Building D, including surface parking, a multi-level parking
structure to accommodate approximately 550 cars, and all landscaped areas. At
completion of Building B, the term "Common Area" shall mean that certain real
property and all improvements thereon surrounding the Building A, Building B,
Building C, and Building D, including surface parking to accommodate
approximately 1,150 cars, a multi-level parking structure estimated to cost Five
Million Dollars ($5,000,000.00) to accommodate approximately 550 cars, and all
landscaped areas. Tenant shall have the non-exclusive right to utilize the
Common Area as specifically set forth in a Declaration of Covenants, Conditions
and Restrictions (" CC&R Declaration") to be prepared by Landlord and attached
to the Lease as Exhibit "B" within thirty (30) days following Lease execution.
-----------
The CC&R Declaration shall be subject to Tenant's approval, which approval shall
not be unreasonably withheld or delayed.
vi. Project. The term "Project" shall be that certain real
property consisting of approximately 19.2 acres at the corner of San Tomas
Expressway and Walsh Avenue in Santa Clara, California, and all improvements
constructed thereon consisting, at full buildout, of Building A, Building B,
Building C, Building D, and the Common Area as shown in Exhibit "A". Tenant
-----------
shall be responsible to ensure that the total number of vehicles parked in the
Project by employees and invitees of Tenant pursuant to this
Page 1
<PAGE>
Lease does not exceed 425.
vii. Premises. The term "Premises" shall mean Building A, also
referred to herein as "Building", and a non-exclusive right to use the Common
Area. Unless expressly provided otherwise, the term Premises as used herein
shall include the Tenant Improvements (defined in Section 5.B) constructed by
Tenant pursuant to Section 5.B. Tenant acknowledges Landlord's right to and
hereby consents to Landlord's construction of the Project and Common Area.
B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant
hires the Premises from Landlord.
C. Recordation of Parcel Map and Declaration: Tenant consents to
recordation by Landlord of a Parcel Map ("Parcel Map") and CC&R Declaration
provided, however, that Landlord shall not record the Parcel Map and CC&R
Declaration until Tenant has had fifteen (15) business days to review. Landlord
is seeking approval of the Parcel Map and CC&R Declaration to subdivide the
existing parcel into smaller lots to facilitate Landlord's operation,
construction, financing, lease and/or sale of the Project in parts. Landlord's
failure to obtain approval of the Parcel Map or CC&R Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and CC&R Declaration are
recorded by Landlord, the Section 2.A.vi shall be replaced by following: The
term "Premises" shall mean (i) the Building; and (ii) the nonexclusive right to
use the Common Area in accordance with the terms and conditions of the CC&R
Declaration and this Lease. This Lease shall be subject and subordinate in all
respects to the CC&R Declaration, as the same may be amended from time to time.
Tenant covenants and agrees to refrain from doing or causing to be done, or
permitting any thing or act to be done, which would constitute a default under
the CC&R Declaration or which would or might make Landlord liable for any
damages, claims or penalty. All assessments charged to the Premises pursuant to
the CC&R Declaration shall constitute a part of Tenant's Allocable Share of
Reimbursable Operating Costs pursuant to Section 8 of this Lease.
3. USE:
A. Permitted Uses: Tenant shall use the Premises as permitted under
applicable zoning laws only for the following purposes and shall not change the
use of the Premises without the prior written consent of Landlord: Office,
research and development, sales, testing, marketing, production, distribution,
failure analysis, light manufacturing, ancillary storage and other incidental
and similar uses. Tenant shall use only the number of parking spaces allocated
to Tenant under this Lease. All commercial trucks and delivery vehicles shall
(i) be parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the Project,
and (iii) permitted to remain within the Project only so long as is reasonably
necessary to complete the loading and unloading. Landlord makes no
representation or warranty that any specific use of the Premises desired by
Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be committed
on the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls
or columns of the building or set any load on the floor in excess of the load
limits for which such items are designed, or (iii) generate dust, fumes or waste
products which create a fire or health hazard or damage the Premises or any
portion of the Project, including without limitation the soils or ground water
in or around the Project. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature, or any waste
materials, refuse, scrap or debris, shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building without
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<PAGE>
Landlord's prior approval, which approval may be withheld in its sole
discretion.
C. Advertisements and Signs: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city and
other governing authority having jurisdiction. Tenant will not place or permit
to be placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred
twenty nine (129) months, commencing on substantial completion of construction
as determined pursuant to Section 5.B (the "Commencement Date") estimated to
occur on June 1, 2001 and ending one hundred twenty nine (129) months
thereafter, ("Expiration Date"). Notwithstanding the Parties agreement that the
Lease Term begins on the Commencement Date, this Lease and all of the
obligations of Landlord and Tenant shall be binding and in full force and effect
from and after the Effective Date. In addition to all other sums payable by
Tenant under this Lease, Tenant shall pay base monthly rent ("Base Monthly
Rent") for the Premises according to the following schedule:
Months 01 - 12: $375,000.00 ($3.00 p.s.f.)
Months 13 - 24: $388,750.00 ($3.11 p.s.f.)
Months 25 - 36: $401,250.00 ($3.21 p.s.f.)
Months 37 - 48: $416,250.00 ($3.33 p.s.f.)
Months 49 - 60: $430,000.00 ($3.44 p.s.f.)
Months 61 - 72: $445,000.00 ($3.56 p.s.f.)
Months 73 - 84: $461,250.00 ($3.69 p.s.f.)
Months 85 - 96: $477,500.00 ($3.82 p.s.f.)
Months 97 - 108: $493,750.00 ($3.95 p.s.f.)
Months 109 - 120: $511,250.00 ($4.09 p.s.f.)
Months 121 - 129: $528,750.00 ($4.23 p.s.f.)
Upon Substantial Completion of construction, the Building shall be measured by
Tenant's Architect (as defined in Section 5.B) from outside wall/glass to
outside wall/glass of each floor, without deductions, to arrive at the actual
rentable square footage ("Rentable Square Footage"). If the Rentable Square
Footage differs from 125,000 square feet, the Base Monthly Rent for each year of
the Lease Term shall be modified so as to equal the product of (i) the Rentable
Square Footage, and (ii) the price-per-square-foot rate for each year as shown
in the above schedule.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment. Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of One Hundred Eighty Seven Thousand Five Hundred
Dollars ($187,500.00) as prepaid rent for one half of the first month of the
Lease. The remaining half ($187,500.00) shall be paid by Tenant to Landlord no
later than December 20, 2000.
B. Late Charges: Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Monthly Rent and other sums
Page 3
<PAGE>
due hereunder will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which is extremely difficult to ascertain. Such costs
include but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within five (5) days after Tenant has
received written notice from Landlord of non-payment, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
D. Security Deposit: Unless Tenant elects to post a Letter of Credit
as provided below, Tenant shall deposit with Landlord prior to the Commencement
Date the sum of Three Hundred Seventy Five Thousand Dollars ($375,000.00)
("Security "Deposit"). Landlord shall not be deemed a trustee of the Security
Deposit, may use the Security Deposit in business, and shall not be required to
segregate it from its general accounts. Tenant shall not be entitled to interest
on the Security Deposit. If Tenant defaults with respect to any provisions of
the Lease, including but not limited to the provisions relating to payment of
Base Monthly Rent or other charges, Landlord may, to the extent reasonably
necessary to remedy Tenant's default, use any or all of the Security Deposit
towards payment of the following: (i) Base Monthly Rent or other charges in
default; (ii) any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default including, but not limited to Tenant's
failure to restore or clean the Premises following vacation thereof. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord. If Tenant shall be in monetary default more than
three (3) times in any twelve (12) month period, irrespective of whether or not
such default is cured, then the Security Deposit shall, within ten (10) days
after demand by Landlord, be increased by Tenant to an amount equal to three (3)
times the Base Monthly Rent. Tenant may not assign or encumber the Security
Deposit without the consent of Landlord. Any attempt to do so shall be void and
shall not be binding on Landlord. The Security Deposit shall be returned to
Tenant within thirty (30) days after the Expiration Date and surrender of the
Premises to Landlord, less any amount deducted in accordance with this Section,
together with Landlord's written notice itemizing the amounts and purposes for
such deduction. In the event of termination of Landlord's interest in this
Lease, Landlord may deliver or credit the Security Deposit to Landlord's
successor in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Security Deposit.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached hereto
as Exhibit "C". Landlord shall be entitled to draw against the Letter of Credit
-----------
at any time provided only that Landlord certifies to the issuer of the Letter of
Credit that Tenant is in default under the Lease. Tenant shall keep the
Page 4
<PAGE>
letter of credit in effect during the entire Lease Term, as the same may be
extended, plus a period of four (4) weeks after expiration of the Lease Term. At
least thirty (30) days prior to expiration of any Letter of Credit, the term
thereof shall be renewed or extended for a period of at least one (1) year.
Tenant's failure to so renew or extend the Letter of Credit shall be a material
default of this Lease by Tenant. In the event Landlord draws against the Letter
of Credit, Tenant shall replenish the existing Letter of Credit or cause a new
Letter of Credit to be issued such that the aggregate amount of letters of
credit available to Landlord at all times during the Lease Term is the amount of
the Security Deposit originally required.
5. CONSTRUCTION:
A. Building Shell Construction: Landlord shall cause the Building Shell
(as defined on the Building Shell Definition attached as Exhibit "D") and
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certain Building Core Improvements (as defined below) to be constructed by
Landlord's affiliated construction company, Sobrato Construction Corporation
("General Contractor") in accordance with the Building Shell plans and guideline
specifications prepared by Form 4 Associates ("Landlord's Architect") and
attached as Exhibit "E" ("Building Shell Plans and Specifications"). The
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Building Shell Plans and Specifications include certain elements of the Building
core ("Building Core Improvements") which is defined as those items typically
associated in the industry with an office building core including elevators,
restrooms, fire sprinklers, HVAC and electrical systems distributed to each
floor, exiting stair finishes, and a finished building lobby. Although certain
Building Core Improvements have been designed by Landlord's Architect and
incorporated into the Building Shell Plans and Specifications, it is understood
and agreed that Building Core Improvements are classified as part of Tenant
Improvements and all costs associated with the design and construction thereof
shall be paid by Tenant pursuant to Section 5.F. below. The Building Shell and
Building Core Improvements shall be constructed in a good and workmanlike
fashion and in compliance with all codes, laws, rules and regulations of
applicable governmental authority. Landlord shall assign to Tenant any
warranties related to the Building Shell and Building Core Improvements which
would reduce Tenant's maintenance obligations hereunder and shall cooperate with
Tenant to enforce all such warranties.
B. Tenant Improvement Construction: Tenant, at Tenant's sole
cost and expense, shall retain an interior architect ("Tenant's Architect") to
prepare plans and outline specifications to be attached as Exhibit "F" ("Tenant
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Improvement Plans and Specifications") with respect to the construction of the
balance of the improvements to the interior of the Premises ("Tenant
Improvements") necessary for Tenant's use and occupancy of the Building.
Landlord shall cause Tenant Improvements to be constructed by the General
Contractor in accordance with the Tenant Improvement Plans and Specifications.
The Tenant Improvement Plans and Specifications shall be completed for all
aspects of the work by October 31, 2000 with all detail necessary for submittal
to the city for issuance of building permits and for construction and shall
include any information required by the relevant agencies regarding Tenant's use
of Hazardous Materials if applicable. The Tenant Improvements shall consist of
all items not included within the scope of the Building Shell Definition,
including all Building Core Improvements. All Tenant Improvements shall be
subject to Landlord's approval, which shall not be unreasonably withheld,
conditioned or delayed. The Tenant Improvement Plans and Specifications shall
provide for a minimum build-out in all areas of the Premises consisting of: (i)
fire sprinklers, (ii) floor coverings, (iii) t-bar suspended ceiling (iv)
distribution of the HVAC system, (v) 2' x 4' drop-in florescent lighting, and
(vi) any other work required by the City of Santa Clara necessary to obtain a
Certificate of Occupancy. Tenant shall not have the right to delay the
completion of the foregoing minimum Tenant Improvement build-out. The Tenant
Improvement Plans and Specifications shall be prepared in sufficient detail to
allow General Contractor to construct the Tenant Improvements. The Tenant
Improvements shall not be removed or altered by
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Tenant without the prior written consent of Landlord as provided in Section 7
below. Tenant shall have the right to depreciate and claim and collect any
investment tax credits related to the Tenant Improvements. Upon expiration of
the Lease Term or any earlier termination of the Lease, the Tenant Improvements
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises, and title thereto shall automatically vest in Landlord
without any payment therefore.
Landlord shall use its reasonable best efforts to obtain a building permit from
the City of Santa Clara for the Tenant Improvements as soon as possible after
submittal of the Tenant Improvement Plans and Specifications, and thereafter to
cause the General Contractor to Substantially Complete the Tenant Improvements.
The Tenant Improvements shall be deemed substantially complete when: (i) Tenant
Improvements have been substantially completed in accordance with the Tenant
Improvement Plans and Specifications, as evidenced by the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority, and (ii) Tenant's Architect has certified that the Tenant
Improvements have been completed in accordance with the Tenant Improvement Plans
and Specifications. Installation of (i) Tenant's data and phone cabling, (ii)
Tenant's furniture, or (iii) the exterior landscaping shall not be required in
order to deem the Tenant Improvements Substantially Complete.
C. Pricing: Within ten (10) days after completion of the Tenant
Improvements Plans and Specifications, Landlord shall cause the General
Contractor to submit to Tenant competitive bids from at least three (3)
subcontractors for each aspect of the work in excess of Fifty Thousand and
No/100 Dollars ($50,000.00) related to the Tenant Improvements specified on the
Tenant Improvements Plans and Specifications. Landlord shall cause the General
Contractor to utilize the low bid in each case unless Tenant approves General
Contractor's use of another subcontractor. The cost of the Tenant Improvements
shall be based upon construction expenses equal to (i) the bid amounts as
approved by Tenant, (ii) a five percent (5%) contingency to protect the General
Contractor against cost overruns, and (iii) the general contractor fee specified
in Section 5.I. below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and the General Contractor
shall proceed with the construction of the Tenant Improvements in accordance
with the terms of this Section 5. If Tenant does not specifically approve or
disapprove the bids within seven (7) days of submittal to Tenant, Tenant shall
be deemed to have approved the bids.
D. Change Orders: Other than changes in the Building Core
Improvements, Tenant shall have the right to order changes in the manner and
type of construction of the Tenant Improvements. Upon request and prior to
Tenant's submitting any binding change order, Landlord shall cause the General
Contractor to promptly provide Tenant with written statements of the cost to
implement and the time delay and increased construction costs associated with
any proposed change order, which statements shall be binding on General
Contractor. If no time delay or increased construction cost amount is noted on
the written statement, the parties agree that there shall be no adjustment to
the construction cost or the Commencement Date associated with such change
order. If ordered by Tenant, Landlord shall cause the General Contractor to
implement such change order and the cost of constructing the Tenant Improvements
shall be increased or decreased in accordance with the cost statement previously
delivered by General Contractor to Tenant for any such change order.
Notwithstanding the foregoing, Tenant not be liable for time delays or
construction cost increases associated with change orders under this Section
5.D. which are the result of errors on the part of Landlord or General
Contractor.
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E. Building Shell Costs: Landlord shall pay all costs and expenses
associated with construction of the Building Shell. The Building Shell
Definition shall be the governing document in specifying the costs associated
with the Building Shell.
F. Tenant Improvement Costs: Within thirty (30) days of the Lease
Commencement Date, Landlord shall reimburse Tenant up to Eighty Seven Thousand
Five Hundred Dollars ($87,500.00) towards Tenant Improvement costs associated
with: (i) exterior upgrades related to the cafeteria; and (ii) covered walkways
connecting the Buildings. Other than the foregoing, Tenant shall pay all costs
associated with the Tenant Improvements (which includes Building Core
Improvements) including, but not limited to: construction costs, all permit
fees, all fees associated with Tenant's Architect, engineers and consultants,
construction taxes or other costs imposed by governmental authorities related to
the Tenant Improvements, and the General Contractor overhead as described in
Section 5.I. below. During the course of construction of the Tenant
Improvements, Landlord shall cause the General Contractor to deliver to Tenant
not more than once each calendar month a written request for payment ("Progress
Invoice") which shall include and be accompanied by General Contractor's
certified statements setting forth the amount requested, certifying the
percentage of completion of each item for which reimbursement is requested.
Tenant shall have a right of reasonable review and approval of the Progress
Invoice, including the right to review all applicable backup documentation.
Tenant shall pay directly to the General Contractor the amount due pursuant to
the Progress Invoice, within fifteen (15) business days after Tenant's receipt
of the above items. All costs for Tenant Improvements shall be fully documented
to Tenant and subject to verification by Tenant.
G. Letter of Credit to Secure Tenant Improvement Construction: On or
before the date Landlord commences construction of the Building Shell, Tenant
shall deposit with Landlord a letter of credit ("Construction Letter of Credit")
substantially in the form attached hereto as Exhibit "C" in an initial amount of
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Three Million Five Hundred Thousand Dollars ($3,500,000.00), which amount shall
be increased upon commencement of construction of Tenant Improvements by an
additional Three Million Five Hundred Thousand Dollars ($3,500,000.00) (less any
amounts already paid by that date by Tenant to General Contractor for Tenant
Improvements), to secure Tenant's obligation to complete Tenant Improvements
pursuant to this Lease. The Construction Letter of Credit shall thereafter be
reduced upon presentation to Landlord no more than once every sixty (60) days of
evidence reasonably satisfactory to Landlord that a percentage of the Tenant
Improvements equal to the requested reduction has been satisfactorily completed
and paid for including partial lien waivers and architects' certificates. Upon
Landlord's receipt of reasonably satisfactory evidence that the Tenant
Improvements have been completed free of liens and that Tenant has fully paid
for the cost of all of Tenant Improvements, the Construction Letter of Credit
shall be cancelled and returned to Tenant by Landlord. Landlord shall be
entitled to draw against the full amount of the Construction Letter of Credit at
any time provided only that Landlord certifies to the issuer of the Construction
Letter of Credit that Tenant has failed to make a payment for Tenant Improvement
costs as provided in 5.F, that Tenant has failed to timely renew or extend the
Construction Letter of Credit as required by this paragraph, or that Tenant has
failed to amend the Construction Letter of Credit or obtain a new Construction
Letter of Credit as required by this paragraph. Tenant shall keep the
Construction Letter of Credit in effect at all times prior to payment in full
for the Tenant Improvements. At least sixty (60) days prior to expiration of
any Construction Letter of Credit, the term thereof shall be renewed or extended
for a period that extends until Tenant has paid in full for the Tenant
Improvements. Tenant's failure to so renew or extend the Construction Letter of
Credit shall be a material default of this Lease by Tenant entitling Landlord to
draw down on the entire amount of the Construction Letter of Credit. Any
amounts drawn on the Construction Letter of Credit shall be used to pay for the
cost of the Tenant Improvements. In the event the Construction Letter of Credit
is drawn by
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Landlord, and the proceeds used to pay for the completion of the Tenant
Improvements, then promptly following Landlord's completion of the Tenant
Improvements Landlord shall refund to Tenant any excess proceeds from the
Construction Letter of Credit. In the event of termination of Landlord's
interest in this Lease, Landlord may deliver the Construction Letter of Credit
and/or the unused proceeds of any draw against the Construction Letter of Credit
to Landlord's successor in interest in the Premises and thereupon be relieved of
further responsibility with respect to the Construction Letter of Credit.
H. Force Majeure: Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuel or reasonable substitutes therefor, governmental restrictions,
regulations, controls, civil commotion, fire or other act of God, and another
causes beyond the reasonable control of Landlord (except financial inability),
each a "Force Majeure Delay", shall extend the dates contained in Section 4 and
this Section 5 by a period equal to the period of any said prevention, delay or
stoppage. If Landlord cannot obtain building permits or Substantially Complete
construction by the dates set forth herein, this Lease shall not be void or
voidable nor shall Landlord be liable for any loss or damage resulting
therefrom.
I. General Contractor Overhead & Profit: As compensation to General
Contractor for its services related to construction of the Tenant Improvements,
General Contractor shall receive a fee of seven percent (7%) of the cost of
construction to cover all of the following: construction supervision and
administration, temporary on-site facilities, home office administration,
supervision, and coordination and construction profit. Except as provided
therein, Landlord or General Contractor shall not receive any other fee or
payment from Tenant in connection with General Contractor's services.
J. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial
Completion of the Building as a result of any of the following: (i) Tenant's
failure to complete or approve the Tenant Improvement Plans by October 31, 2000;
(ii) Tenant's failure to approve the bids for construction by the dates set
forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay
the progress of the work, unless such changes are a result of Landlord or
General Contractor error, (iv) Tenant's request for materials components, or
finishes which are not available in a commercially reasonable time given the
target Commencement Date, provided Tenant is made aware of such unavailability,
(v) Tenant's failure to make a progress payment for Tenant Improvement costs as
provided in Section 5.F, (vi) Tenant's request for more than one (1) rebidding
of the cost of all or a portion of the work, and (vii) any errors or omissions
in the Tenant Improvement Plans provided by Tenant's architect. Notwithstanding
anything to the contrary set forth in this Lease, and regardless of the actual
date the Premises are Substantially Complete, the Commencement Date shall be
deemed to be the date the Commencement Date would have occurred if no Tenant
Delay had occurred as reasonably determined by Landlord. In addition, if a
Tenant Delay results in an increase in the cost of the labor or materials,
Tenant shall pay the cost of such increases.
K. Insurance: Landlord shall cause the General Contractor to procure
(as a cost of the Building Shell) a "Broad Form" liability insurance policy in
the amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure
(as a cost of the Building Shell) builder's risk insurance for the full
replacement cost of the Building Shell and Tenant Improvements while the
Building Shell and Tenant Improvements are under construction, up until the date
that the casualty insurance policy described in Section 9 is in full force and
effect.
L. Punch List & Warranty: After the Building Shell and Tenant
Improvements are Substantially Complete, Landlord shall cause the General
Contractor to immediately correct any construction defect or other "punch list"
item which Tenant brings to General Contractor's attention. All such work shall
be performed so as to reasonably minimize the interruption to Tenant and its
activities on the Premises. Landlord and General Contractor shall provide a
standard
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contractor's warranty with respect to the Building Shell and the Tenant
Improvements for one (1) year from the Commencement Date. Such warranty shall
exclude routine maintenance, damage caused by Tenant's negligence or misuse, and
acts of God.
M. Other Work by Tenant: All work not described in the Shell Plans and
Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant's cost. Prior to
Substantial Completion, Tenant shall be obligated to (i) providing active phone
lines to any elevators, and (ii) contract with a firm to monitor the fire
system. When the construction of the Tenant Improvements has proceeded to the
point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date (and without any obligation to pay Base
Monthly Rent and other expenses associated with the Lease) for the purpose of
installing Tenant's trade fixtures and equipment. Any such installation work by
Tenant or its authorized representatives and contractor shall be undertaken upon
the following conditions: (i) the entry into the Premises by Tenant or its
representatives or contractors shall not interfere with or delay General
Contractor's work, and (ii) any contractor used by Tenant in connection with
such entry and installation shall use union labor.
N. Landlord's Failure to Complete Construction: If the Building is not
Substantially Complete in accordance with the Building Shell Plans and
Specifications and Tenant Improvements Plans and Specifications by October 31,
2001, then Tenant, upon written notice to Landlord, shall be entitled to
complete construction of the Building and offset the cost of construction for
which Landlord is responsible under this Lease, plus interest at the Agreed
Interest Rate, against Tenant's obligation for the initial Base Monthly Rent due
under this Lease. The completion by Tenant of Landlord's construction
obligations as provided in this Section 5.N. shall be the sole and exclusive
remedy of Tenant with respect to the failure by Landlord to achieve Substantial
Completion of the Building by October 31, 2001. In the event that Tenant shall
be required to complete Landlord's Work, Landlord agrees to promptly assign to
Tenant upon demand all plans and specifications relating to construction for
which Landlord is responsible under this Lease in order to effectuate the
completion thereof, and to cooperate with Tenant in connection with the
completion of such work. Nothing herein shall diminish Landlord's obligation to
act in good faith to promptly commence and diligently prosecute the Landlord's
Work.
The foregoing notwithstanding, the October 31, 2001 date shall be extended one
day for every day of Force Majeure Delay or Tenant Delay as defined in Sections
5.H and 5.J above.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, subject to all Restrictions and without
representation or warranty by Landlord except as provided in Section 5.L. above.
Tenant's taking possession of any part of the Premises shall be deemed to be an
acceptance of any work of improvement done by Landlord in such part as complete
and in accordance with the terms of this Lease except for "Punch List" type
items of which Tenant has given Landlord written notice prior to the time Tenant
takes possession. At the time Landlord delivers possession of the Premises to
Tenant, Landlord and Tenant shall together execute an acceptance agreement.
Landlord shall have no obligation to deliver possession, nor shall Tenant be
entitled to take occupancy, of the Premises until such acceptance
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agreement has been executed, and Tenant's obligation to pay Base Monthly Rent
and Additional Rent shall not be excused or delayed because of Tenant's failure
to execute such acceptance agreement. Within one hundred fifty (150) days after
the Commencement Date, Tenant agrees that it will be in occupancy of at least
fifty percent (50%) of the rentable square footage of the Premises.
B. Condition Upon Surrender: Tenant further agrees on the Expiration
Date or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the best standards for maintenance, repair replacement, and
janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the Expiration Date or sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed
shall be deemed as abandoned by Tenant. At the expiration of the Lease Term,
Landlord shall not have the right to require that Tenant remove from the
Premises any Alterations made with Landlord's consent unless Landlord, at the
time of granting such consent, indicates that the subject Alteration must be
removed upon the expiration of the Lease Term. With respect to Permitted
Alterations as defined in Section 7A. below, Tenant shall ascertain from
Landlord within ninety (90) days before the Expiration Date whether Landlord
desires to have such Permitted Alterations removed. Tenant shall repair any
damage to the Building which results from Tenant's removal of any Alteration or
removal of any improvements and/or Tenant's equipment, fixtures, and components.
Such repair and restoration shall include causing the Premises to be brought
into compliance with all applicable building codes and laws in effect at the
time of the removal to the extent such compliance is necessitated by the repair
and restoration work.
C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay and costs incurred by Landlord in returning the Premises
to the required condition, plus interest at the Agreed Interest Rate. Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after the Expiration Date or sooner termination of this Lease
without Landlord's consent, Tenant's continued possession shall be on the basis
of a tenancy at
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sufferance and Tenant shall pay as rent during the holdover
period an amount equal to one hundred fifty percent (150%) of the Base Monthly
Rent due in the month preceding the termination or Expiration Date, plus all
other amounts payable by Tenant under this Lease. This provision shall survive
the termination or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. Tenant's Alterations: Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent and delivering to Landlord
the proposed architectural and structural plans for all such Alterations at
least fifteen (15) days prior to the start of construction. If such Alterations
affect the structure of the Building, Tenant additionally agrees to reimburse
Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant's
plans. After obtaining Landlord's consent, which consent shall state whether or
not Landlord will require Tenant to remove such Alteration at the expiration or
earlier termination of this Lease, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably approved
by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees
to provide Landlord (i) written notice of the anticipated and actual start-date
of the work, (ii) a complete set of half-size (15" X 21") vellum as-built
drawings, and (iii) a certificate of occupancy for the work upon completion of
the Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense. Notwithstanding the foregoing,
Tenant shall be entitled, without obtaining Landlord's consent, to make
Alterations which do not affect the structure of the Building and which do not
cost more than Fifty Thousand Dollars ($50,000.00) per Alteration ("Permitted
Alterations"); provided, however, that Tenant shall still be required to comply
with all other provisions of this paragraph, and such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6.B.
above at the expiration or earlier termination of the Lease.
B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Laws or
Governmental Regulations shall include all federal, state, county, city or
governmental agency laws, statutes, ordinances, standards, rules, requirements,
or orders now in force or hereafter enacted, promulgated, or issued. The term
also includes government measures regulating or enforcing public access, traffic
mitigation, occupational, health, or safety standards for employers, employees,
landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs,
replacements, alterations, or improvements needed to comply with all
Governmental Regulations. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action or proceeding against Tenant (whether
Landlord be a party thereto or not) that Tenant has violated any such law,
regulation or other requirement in its use of the Premises shall be conclusive
of that fact as between Landlord and Tenant.
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8. MAINTENANCE OF PREMISES:
A. Landlord's Obligations: Landlord at its sole cost and expense,
shall maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and
replace when necessary the Premises and every part thereof through regular
inspections and servicing, including but not limited to: (i) all plumbing and
sewage facilities, (ii) all heating ventilating and air conditioning facilities
and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings,
(iv) all windows, door entrances, plate glass and glazing systems including
caulking, and skylights, (v) all electrical facilities and equipment, (vi) all
automatic fire extinguisher equipment, (vii) the parking lot and all underground
utility facilities servicing the Premises, (viii) all elevator equipment, (ix)
the roof membrane system, and (x) all waterscape, landscaping and shrubbery. All
wall surfaces and floor tile are to be maintained in an as good a condition as
when Tenant took possession free of holes, gouges, or defacements. With respect
to items (ii), (viii) and (ix) above, Tenant shall provide Landlord a copy of a
service contract between Tenant and a licensed service contractor providing for
periodic maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord a copy of such
preventive maintenance contracts and paid invoices for the recommended work if
requested by Landlord.
C. Landlord and Tenant's Obligations Regarding Reimbursable Operating
Costs: In addition to the direct payment by Tenant of expenses as provided in
Sections 8.B, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord
for Tenant's Allocable Share (as defined in Section 8.E below) of Reimbursable
Operating Costs (as defined in Section 8.D below) resulting from Landlord
payment of expenses related to the ownership and operation of the Building or
Project which are not otherwise paid by Tenant directly. Tenant agrees to pay
its Allocable Share of the Reimbursable Operating Costs as additional rental
within thirty (30) days of written invoice from Landlord.
D. Reimbursable Operating Costs: For purposes of calculating Tenant's
Allocable Share of Building and Project Costs, the term "Reimbursable Operating
Costs" is defined as all costs and expenses of the nature hereinafter described
which are incurred by Landlord in connection with ownership and operation of the
Building or the Project in which the Premises are located, together with such
additional facilities as may be determined by Landlord to be reasonably
desirable or necessary to the ownership and operation of the Building and/or
Project. All costs and expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied (with
accruals appropriate to Landlord's business), including but not limited to the
following: (i) common area utilities, including water, power, telephone,
heating, lighting, air conditioning, ventilating, and Building utilities to the
extent not separately metered; (ii) common area maintenance and service
agreements for the Building and/or Project and the equipment therein, including
without limitation, common area janitorial services, alarm and security
services, exterior window cleaning, and maintenance of the sidewalks,
landscaping, waterscape, roof membrane, parking areas, driveways, service areas,
mechanical rooms, elevators, and the building exterior; (iii) insurance premiums
and costs, including without limitation, the premiums and cost of fire, casualty
and liability coverage and rental abatement and, if elected by Landlord,
earthquake insurance applicable to the Building or Project; (iv) repairs,
replacements and general maintenance (excluding repairs and general maintenance
paid by proceeds of insurance or by Tenant or other third parties, and repairs
or alterations attributable solely to tenants of the Building or Project other
than Tenant); and (v) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Building or Project, upon the
occupancy of the Building or Project and including any substitute or additional
charges which may be
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imposed during, or applicable to the Lease Term including real estate tax
increases due to a sale, transfer or other change of ownership of the Building
or Project, as such taxes are levied or appear on the City and County tax bills
and assessment rolls. Landlord shall have no obligation to provide guard
services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to
Landlord absolutely net of all costs and expenses. The provision for payment of
Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable
Share of Building and/or Project Costs is intended to pass on to Tenant and
reimburse Landlord for all costs of operating and managing the Building and/or
Project.
E. Tenant's Allocable Share: For purposes of prorating Reimbursable
Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable
Operating Costs shall be computed by multiplying the Reimbursable Operating
Costs by a fraction, the numerator of which is the rentable square footage of
the Premises and the denominator of which is either the total rentable square
footage of the Building if the service or cost is allocable only to the
Building, or the total square footage of the Project if the service or cost is
allocable to the entire Project. Tenant's obligation to share in Reimbursable
Operating Costs shall be adjusted to reflect the Lease Commencement and
Expiration dates and is subject to recalculation in the event of expansion of
the Building or Project.
F. Waiver of Liability: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to either
person or property, nor be construed as an eviction of Tenant, nor cause an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery utilized in supplying the
services listed herein break down or for any cause cease to function properly,
upon receipt of written notice from Tenant of any deficiency or failure of any
services, Landlord shall use reasonable diligence to repair the same promptly,
but Tenant shall have no right to terminate this Lease and shall have no claim
for rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Tenant waives the provisions of
California Civil Code Sections 1941 and 1942 concerning the Landlord's
obligation of tenantability and Tenant's right to make repairs and deduct the
cost of such repairs from the rent. Landlord shall not be liable for a loss of
or injury to person or property, however occurring, through or in connection
with or incidental to furnishing, or its failure to furnish, any of the
foregoing, unless due to the active negligence or willful misconduct of
Landlord.
9. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any
part thereof, to be used for any purpose other than that for which the Premises
are hereby leased; and no use of the Premises shall be made or permitted, nor
acts done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance
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company's appraisers. At Landlord's election, such fire and property damage
insurance may be endorsed to cover loss caused by such additional perils against
which Landlord may elect to insure, including earthquake and/or flood, and shall
contain reasonable deductibles. Additionally Landlord may maintain a policy of
(i) commercial general liability insurance insuring Landlord (and such others
designated by Landlord) against liability for personal injury, bodily injury,
death and damage to property occurring or resulting from an occurrence in, on or
about the Premises or Project in an amount as Landlord determines is reasonably
necessary for its protection, and (ii) rental lost insurance covering a twelve
(12) month period. Tenant agrees to pay Landlord as additional rent, on demand,
the full cost of said insurance as evidenced by insurance billings to Landlord,
and in the event of damage covered by said insurance, the amount of any
deductible under such policy. Payment shall be due to Landlord within thirty
(30) days after written invoice to Tenant. It is understood and agreed that
Tenant's obligation under this Section will be prorated to reflect the Lease
Commencement and Expiration Dates.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000.00).
Tenant's liability insurance shall be primary insurance containing a cross-
liability endorsement, and shall provide coverage on an "occurrence" rather than
on a "claims made" basis. Tenant shall name Landlord and Landlord's lender as an
additional insured and shall deliver a copy of the policies and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage. Notwithstanding the above, Landlord retains the right to have
Tenant provide other forms of insurance which may be reasonably required to
cover future risks.
D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The Parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental,
prior to delinquency, the following: (i) all taxes and assessments levied
against Tenant's personal property and trade or business fixtures; (ii) all real
estate taxes and assessment installments or other impositions or charges which
may be levied on the Premises or upon the occupancy of the Premises, including
any substitute or additional charges which may be imposed applicable to the
Lease Term; and (iii) real estate tax increases due to an increase in assessed
value resulting from a sale, transfer or other change of ownership of the
Premises as it appears on the City and County tax bills during the Lease Term.
All real estate taxes shall be prorated to reflect the Lease Commencement and
Expiration Dates. If, at any time during the Lease Term a tax, excise on rents,
business license tax or any other tax, however described, is levied or assessed
against Landlord as a substitute or addition, in whole or in part, for taxes
assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro
rata share of such tax or excise on rents or other tax before it becomes
delinquent; except that this provision is not intended to cover net income
taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that
a tax is placed, levied, or assessed against Landlord and the taxing authority
takes the position that Tenant cannot pay and discharge its pro rata share of
such tax on behalf of Landlord, then at Landlord's sole election, Landlord may
increase the Base Monthly Rent by the exact
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amount of such tax and Tenant shall pay such increase. If by virtue of any
application or proceeding brought by Landlord, there results a reduction in the
assessed value of the Premises during the Lease Term, Tenant agrees to pay
Landlord a fee consistent with the fees charged by a third party appeal firm for
such services.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and in such
event Tenant shall not be entitled to abatement or reduction of any portion of
Base Monthly Rent or any other amount payable under this Lease. The foregoing
notwithstanding, if the Premises are not supplied with any or all of the
Utilities and such failure is due to the active negligence or willful misconduct
of Landlord, Tenant shall be entitled to an abatement of rent unless such
utility or utilities are restored within two (2) business days.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Without the prior written consent of
Landlord, Tenant or Tenant's agents, employees, contractors and invitees
("Tenant's Agents") shall not bring, use, or permit upon the Premises, or
generate, create, release, emit, or dispose (nor permit any of the same) from
the Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance having
characteristics of ignitability, corrosivity, reactivity, or toxicity or
substances or materials which are listed on any of the Environmental Protection
Agency's lists of hazardous wastes or which are identified in Division 22 Title
26 of the California Code of Regulations as the same may be amended from time to
time or any wastes, materials or substances which are or may become regulated by
or under the authority of any applicable local, state or federal laws,
judgments, ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials") except for
those substances customary in typical office uses for which no consent shall be
required. In order to obtain consent, Tenant shall deliver to Landlord its
written proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or such
consent is not required, Tenant represents and warrants that it shall comply
with all Governmental Regulations applicable to Hazardous Materials including
doing the following: (i) adhere to all reporting and inspection requirements
imposed by Federal, State, County or Municipal laws, ordinances or regulations
and will provide Landlord a copy of any such reports or agency inspections; (ii)
obtain and provide Landlord copies of all necessary permits required for the use
and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous
Materials handling and disposal practices consistent with industry standards;
(iv) surrender the Premises free from any Hazardous Materials arising from
Tenant's bringing, using, permitting, generating, creating, releasing, emitting
or disposing of Hazardous Materials; and (v) properly close the facility with
regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches which
have come into contact with Hazardous Materials and obtain a closure certificate
from the local administering agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at
its sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the
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bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or Tenant's Agents, employees or invitees through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal
law, ordinance or regulation now or hereafter in effect; (ii) claims,
liabilities, costs or expenses pertaining to the identification, monitoring,
cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water source;
(iii) all costs of defending such claims; (iv) losses attributable to diminution
in the value of the Premises or the Building; (v) loss or restriction of use of
rentable space in the Building; (vi) Adverse effect on the marketing of any
space in the Building; and (vi) all other liabilities, obligations, penalties,
fines, claims, actions (including remedial or enforcement actions of any kind
and administrative or judicial proceedings, orders or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This Section 12.B shall survive the expiration or termination of this
Lease.
Landlord shall indemnify, defend and hold Tenant harmless from losses arising
from Hazardous Materials on, in or under the Premises: (i) prior to the
Commencement Date; or (ii) as a result of Landlord action after the Commencement
Date. In no event, however, shall Landlord be liable for any consequential
damages suffered or incurred by Tenant as a result of any such presence of
Hazardous Materials.
C. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without limiting
the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days
after receipt thereof, any written notices from any governmental agency alleging
a material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which or
failure to comply with poses a foreseeable and material risk of contamination of
the ground water or injury to humans (other than injury solely to Tenant or
Tenant's Agents).
In the event of any release on or into the Premises or into the soil
or ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or Tenant's Agents,
Tenant agrees to comply, at its sole cost, with all laws, regulations,
ordinances and orders of any federal, state or local agency relating to the
monitoring or remediation of such Hazardous Materials. In the event of any such
release of Hazardous Materials Tenant shall immediately give verbal and follow-
up written notice of the release to Landlord, and Tenant agrees to meet and
confer with Landlord and its Lender to attempt to eliminate and mitigate any
financial exposure to such Lender and resultant exposure to Landlord under
California Code of Civil Procedure Section 736(b) as a result of such release,
and promptly to take reasonable monitoring, cleanup and remedial steps given,
inter alia, the historical uses to which the Property has and continues to be
used, the risks to public health posed by the release, the then available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable customary practices for the type and severity of such contamination
and all applicable laws. Nothing in the preceding sentence shall eliminate,
modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify,
defend and hold
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Landlord harmless from any claims liabilities, costs or expenses incurred or
suffered by Landlord. Tenant shall provide Landlord prompt written notice of
Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.
D. Environmental Monitoring: Landlord and its agents shall have the
right to inspect, investigate, sample and monitor the Premises including any
air, soil, water, ground water or other sampling or any other testing, digging,
drilling or analysis to determine whether Tenant is complying with the terms of
this Section 12. If Landlord discovers that Tenant is not in compliance with
the terms of this Section 12, any such costs incurred by Landlord, including
attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord
within five (5) days following Landlord's written demand therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: (i) Tenant's
failure to pay the Base Monthly Rent including additional rent or any other
payment due under this Lease, where such failure continues for ten (10) days
beyond Tenant's receipt of written notice from Landlord that such amount is due,
(ii) the abandonment or vacation of the Premises by Tenant; (iii) Tenant's
failure to observe and perform any other required provision of this Lease, where
such failure continues for thirty (30) days after written notice from Landlord,
provided that if the nature of the default is such that it cannot reasonably be
cured within the 30-day period, Tenant shall not be deemed in default if it
commences within such period to cure, and thereafter diligently prosecutes the
same to completion; (iv) Tenant's making of any general assignment for the
benefit of creditors; (v) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed after the filing); (vi) the appointment of
a trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (vii) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
A. Remedies: In the event of any such default by Tenant, then in
addition to other remedies available to Landlord at law or in equity, Landlord
shall have the immediate option to terminate this Lease and all rights of Tenant
hereunder by giving written notice of such intention to terminate. In the event
Landlord elects to so terminate this Lease, Landlord may recover from Tenant all
the following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as
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taxes, insurance premiums, utilities and security precautions; and (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted by applicable California law. The term "rent", as
used herein, is defined as the minimum monthly installments of Base Monthly Rent
and all other sums required to be paid by Tenant pursuant to this Lease, all
such other sums being deemed as additional rent due hereunder. As used in (i)
and (ii) above, "worth at the time of award" shall be computed by allowing
interest at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at
the time of award" 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
(1%) percent.
B. Right to Re-enter: In the event of any such default by Tenant,
Landlord shall have the right, after terminating this Lease, to re-enter the
Premises and remove all persons and property. Such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Tenant, and disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease
as provided in Section 13.A or 13.B above, then the provisions of California
Civil Code Section 1951.4, (Landlord may continue the lease in effect after
Tenant's breach and abandonment and recover rent as it becomes due if Tenant has
a right to sublet and assign, subject only to reasonable limitations) as amended
from time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received
by Landlord from such reletting shall be applied in the following order to: (i)
the payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if
any, shall be held by Landlord and applied in payment of future Base Monthly
Rent as the same may become due and payable hereunder. Landlord shall the
obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during any
month be less than the rent payable during that month by Tenant hereunder, then
Tenant shall pay such deficiency to Landlord immediately upon demand. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the
Premises pursuant to 13.B or 13.C shall not be construed as an election to
terminate this Lease unless written notice of such intention is given to Tenant
or unless the termination is decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving
any rights under this Lease, including rights under a previously served notice
of default. No payment by Tenant or receipt by Landlord of a lesser amount than
any installment of rent due shall be deemed as other than payment on account of
the amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant
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when the Tenant is holding over without express written consent does not convert
Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No
waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy for the violation of that provision, even if that
violation continues or is repeated. Any waiver by Landlord of any provision of
this Lease must be in writing. Such waiver shall affect only the provision
specified and only for the time and in the manner stated in the writing. No
delay or omission in the exercise of any right or remedy by Landlord shall
impair such right or remedy or be construed as a waiver thereof by Landlord. No
act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute acceptance of the surrender of the
Premises by Tenant before the Expiration Date. Only written notice from Landlord
to Tenant of acceptance shall constitute such acceptance of surrender of the
Premises. Landlord's consent to or approval of any act by Tenant which requires
Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, after ten (10) days prior written notice to Tenant, without
waiving any rights or remedies and without releasing Tenant from its obligations
hereunder, perform such obligation, in which event Tenant shall pay Landlord as
additional rent all sums paid by Landlord in connection with such substitute
performance, including interest at the Agreed Interest Rate (as defined in
Section 19.J) within ten (10) days of Landlord's written notice for such
payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) monetary term or condition of this Lease for four or
more times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose of
this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
14. LANDLORD'S LIABILITY:
A. Limitation on Landlord's Liability: In the event of Landlord's
failure to perform any of its covenants or agreements under this Lease, Tenant
shall give Landlord written notice of such failure and shall give Landlord
thirty (30) days to cure or commence to cure such failure prior to any claim for
breach or resultant damages, provided, however, that if the nature of the
default is such that it cannot reasonably be cured within the 30-day period,
Landlord shall not be deemed in default if it commences within such period to
cure, and thereafter diligently prosecutes the same to completion. In addition,
upon any such failure by Landlord, Tenant shall give notice by registered or
certified mail to any person or entity with a security interest in the Premises
("Mortgagee") that has provided Tenant with notice of its interest in the
Premises, and shall provide Mortgagee a reasonable opportunity to cure such
failure, including such time to obtain possession of the Premises by power of
sale or judicial foreclosure, if such should prove necessary to effectuate a
cure. Tenant agrees that each of the Mortgagees to whom this Lease has been
assigned is an expressed third-party beneficiary hereof. Tenant waives any
right under California Civil Code Section 1950.7 or any other present or future
law to the collection of any payment or deposit from Mortgagee or any purchaser
at a foreclosure sale of Mortgagee's interest unless Mortgagee or such purchaser
shall have actually received and not refunded the applicable payment or deposit.
Tenant further waives any right to terminate this Lease and to vacate the
Premises on Landlord's default under this Lease. Tenant's sole remedy on
Landlord's default is an action for damages or injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint
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venture, unincorporated association or other form of business entity, then (i)
the obligations of Landlord shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals or representatives except to the extent of
their interest in the Premises. Tenant shall have recourse only to the interest
of Landlord in the Premises or for the satisfaction of the obligations of
Landlord and shall not have recourse to any other assets of Landlord for the
satisfaction of such obligations.
C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, except
to the extent caused by the willful misconduct or active negligence of Landlord
or from the failure of Tenant to keep the Premises in good condition and repair
as herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. Landlord's Obligation to Restore: In the event of a destruction of
the Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord and Tenant. In no event shall Landlord be required to replace or
restore Alterations, Tenant Improvements paid for by Tenant from sources other
than the Work Allowance or Tenant's fixtures or personal property. With respect
to a destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section 1932,
and Section 1933, Subdivision 4, of the Civil Code of the State of California,
and any other similarly enacted statute, and the provisions of this Section 15
shall govern in the case of such destruction.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord, (iv)
the damage or destruction occurs in the last twenty four (24) months of the
Lease Term (unless Tenant has exercised or exercises, within five (5) business
days, an option to extend the Lease Term), (v) Tenant is in default pursuant to
the provisions of Section 13, or (vi) Tenant has vacated the Premises for more
than ninety (90) days. In any such event Landlord may elect either to (i)
complete the repair or restoration, or (ii) terminate this Lease by providing
Tenant written notice of its election within sixty (60) days following the
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damage or destruction. In the event of the occurrence of (i) or (iv) above,
Tenant also shall have the right to terminate this Lease by providing Landlord
written notice of its election within sixty (60) days following the damage or
destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any
public or quasi-public use, under any statute or by right of eminent domain or
private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so taken,
terminate as of the day before title vests in the condemnor or purchaser
("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so
that Tenant is required to pay for the remainder of the Lease Term only such
portion of Base Monthly Rent as the value of the part remaining after such
taking bears to the value of the entire Premises prior to such taking. Further,
in the event of such partial taking, Landlord shall have the option to terminate
this Lease as of the Vesting Date to the part of the Premises condemned. If all
of the Premises or such part thereof be taken so that there does not remain a
portion susceptible for occupation hereunder, this Lease shall terminate on the
Vesting Date. If part or all of the Premises be taken, all compensation awarded
upon such taking shall go to Landlord, and Tenant shall have no claim thereto.
Notwithstanding the foregoing, Tenant: (i) shall be entitled to a separate
award for any increased rent Tenant becomes obligated to pay as a result of such
taking for the remainder of the Lease Term, and (ii) shall have the right to
make a separate claim in any condemnation proceeding for the taking of the
unamortized or undepreciated value of the Tenant Improvements and Alterations
owned by Tenant which Tenant may remove at the expiration or earlier termination
of this Lease, reasonable removal and relocation costs for any improvements
Tenant has the right to remove and elects to remove, relocation costs, the claim
for which Tenant may pursue by separate action independent of this Lease and any
other amount that does not reduce the amount of the award payable to Landlord.
Tenant shall have the right to negotiate directly with the condemnor for the
recovery of the portion of the award that Tenant is entitled to under subsection
(ii) above. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue, and the
provisions of this Section 16 shall govern in the case of a taking.
17. ASSIGNMENT OR SUBLEASE:
A. Consent by Landlord: Except as specifically provided in Section 17.E.
below, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord. In the event
Tenant desires to assign this Lease or any interest herein or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years, (iii) the nature of the proposed transferee's
business to be carried on in the Premises, (iv) a statement outlining all
consideration to be given on account of the Transfer, and (v) a current
financial statement of Tenant. Landlord may condition its approval of any
Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have ten (10) business
days following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease for such part of the
Premises (provided, however, that Landlord shall have no such right to terminate
for any sublease or assignment expiring more than two (2) years prior to the
Lease Expiration Date); (ii) permit Tenant to assign or sublet such space to the
named assignee/subtenant on the terms and conditions set forth in the notice; or
(iii) refuse consent. If Landlord should fail to notify Tenant in writing of
such election within the 10 business-day period, Landlord shall be deemed to
have elected option (iii) above. In the event Landlord elects option (i) above,
this Lease shall expire with respect to such part of the Premises on the date
upon which the proposed sublease or transfer was
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to commence, and from such date forward, Base Monthly Rent and Tenant's
Allocable Share of all other costs and charges shall be adjusted based upon the
proportion that the rentable area of the Premises remaining bears to the total
rentable area of the Building. In the event Landlord elects option (ii) above,
Landlord's written consent to the proposed assignment or sublease shall not be
unreasonably withheld, provided and upon the condition that: (i) the proposed
assignee or subtenant is engaged in a business that is limited to the use
expressly permitted under this Lease; (ii) the proposed assignee or subtenant is
a company with sufficient financial worth and management ability to undertake
the financial obligation of this Lease and Landlord has been furnished with
reasonable proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) the amount of the aggregate rent to be
paid by the proposed subtenant is not less than the then current "Fair Market
Rental" as defined in Section 18.A below; (v) Tenant reimburses Landlord on
demand for any costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent; and (vi) Tenant shall not
have advertised or publicized in any way the availability of the Premises
without prior notice to Landlord. In the event all or any one of the foregoing
conditions are not satisfied, Landlord shall be considered to have acted
reasonably if it withholds its consent.
B. Assignment or Subletting Consideration: Landlord and Tenant hereby
agree that fifty percent (50%) of any rent or other economic consideration (i)
realized by Tenant under any sublease or assignment, or (ii) realized by any
subtenant under any sub-sublease of the Premises, in excess of the Base Monthly
Rent payable hereunder and reasonable subletting and assignment costs, and other
costs incurred as a direct result of the sublease or assignment, shall be paid
to Landlord. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The above
provisions relating to Landlord's right to terminate the Lease and relating to
the allocation of excess rent are independently negotiated terms of the Lease
which constitute a material inducement for the Landlord to enter into the Lease,
and are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.
C. No Release: Any assignment or sublease shall be made only if and
shall not be effective until the assignee or subtenant shall execute,
acknowledge, and deliver to Landlord an agreement, in form and substance
satisfactory to Landlord, whereby the assignee or subtenant shall assume all the
obligations of this Lease on the part of Tenant to be performed or observed and
shall be subject to all the covenants, agreements, terms, provisions and
conditions in this Lease. Notwithstanding any such sublease or assignment and
the acceptance of rent by Landlord from any subtenant or assignee, Tenant and
any guarantor shall remain fully liable for the payment of Base Monthly Rent and
additional rent due, and to become due hereunder, for the performance of all the
covenants, agreements, terms, provisions and conditions contained in this Lease
on the part of Tenant to be performed and for all acts and omissions of any
licensee, subtenant, assignee or any other person claiming under or through any
subtenant or assignee that shall be in violation of any of the terms and
conditions of this Lease, and any such violation shall be deemed a violation by
Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and
against all losses, liabilities, damages, costs and expenses (including
reasonable attorney fees) resulting from any claims that may be made against
Landlord by the proposed assignee or subtenant or by any real estate brokers or
other persons claiming compensation in connection with the proposed assignment
or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other
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reorganization of or affecting Tenant, where Tenant is not the surviving
corporation, or (ii) there is a sale or transfer to one person or entity (or to
any group of related persons or entities) of stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors, and after such
sale or transfer of stock Tenant's stock is no longer publicly traded. In a
transaction under clause (i) the surviving corporation shall promptly execute
and deliver to Landlord an agreement in form reasonably satisfactory to Landlord
under which such surviving corporation assumes the obligations of Tenant
hereunder, and in a transaction under clause (ii) the transferee or buyer shall
promptly execute and deliver to Landlord an agreement in form reasonably
satisfactory to Landlord under which such transferee or buyer assumes the
obligations of Tenant under the Lease.
E. Permitted Transfers: Notwithstanding anything contained in this
Section 17, so long as Tenant otherwise complies with the provisions of this
Article, Tenant may enter into any of the following transfers (a "Permitted
Transfer") without Landlord's prior consent, and Landlord shall not be entitled
to terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination if
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon the transferor shall be discharged
from any further liability in reference thereto.
F. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
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18. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Provided Tenant simultaneously
exercises its options for Buildings A, B, C, and D, Landlord grants to Tenant,
subject to the terms and conditions set forth in this Section 18.A, two (2)
options (the "Options") to extend the Lease Term for an additional term (the
"Option Term"). Each Option Term shall be for a period of eighty four (84)
months and shall be exercised, if at all, by written notice to Landlord no
earlier than eighteen (18) months prior to the date the Lease Term would expire
but for such exercise but no later than twelve (12) months prior to the date the
Lease Term would expire but for such exercise, time being of the essence for the
giving of such notice. If Tenant exercises the Option, all of the terms,
covenants and conditions of this Lease except for the grant of additional
Options pursuant to this Section, provided that Base Monthly Rent for the
Premises payable by Tenant during the Option Term shall be the greater of (i)
the Base Monthly Rent applicable to the period immediately prior to the
commencement of the Option Term, and (ii) ninety five percent (95%) of the Fair
Market Rental as hereinafter defined. Notwithstanding anything herein to the
contrary, (i) if Tenant is in monetary or material non-monetary default under
any of the terms, covenants or conditions of this Lease either at the time
Tenant exercises the Option or at any time thereafter prior to the commencement
date of the Option Term, or (ii) if the net worth of Tenant as reported in
Tenant's most recent financial statements is less than the net worth of Tenant
as of the date of execution of this Lease, then Landlord shall have, in addition
to all of Landlord's other rights and remedies provided in this Lease, the right
to terminate the Option upon notice to Tenant, in which event the Lease Term
shall not be extended pursuant to this Section 18.A. As used herein, the term
"Fair Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the same real estate submarket as the Building. The appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to offset
comparable rents that include the following costs which Landlord will not incur
in the event Tenant exercises its option (i) brokerage commissions, (ii) tenant
improvement allowances, (iii) building improvement costs, and (iv) vacancy
costs.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 18.C and
such procedures are not concluded prior to the commencement date of the Option
Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental
as determined by Landlord in the manner provided above. If the Fair Market
Rental as finally determined pursuant to Section 18.C is greater than Landlord's
determination, Tenant shall pay Landlord the difference between the amount paid
by Tenant and the Fair Market Rental as so determined in Section 18.C within
thirty (30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the difference
between the amount paid by Tenant
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and the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of Base Monthly Rent due from Tenant to Landlord
hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a
determination of Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the 30-day consultation
period described above.
3. If only one appraisal is submitted within the requisite time period,
it shall be deemed as Fair Market Rental. If both appraisals are submitted
within such time period and the two appraisals so submitted differ by less than
ten percent (10%), the average of the two shall be deemed as Fair Market Rental.
If the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be members of
the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease
are personal and granted to Nvidia Corporation and are not exercisable by any
third party should Tenant assign or sublet all or a portion of its rights under
this Lease, unless Landlord consents to permit exercise of any option by any
assignee or subtenant, in Landlord's sole and absolute discretion. In the event
Tenant has multiple options to extend this Lease, a later option to extend the
Lease cannot be exercised unless the prior option has been properly exercised.
19. GENERAL PROVISIONS:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real
estate broker or finder
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with respect to this Lease other than CPS Commercial Real Estate and Tenant
agrees to indemnify, defend and hold Landlord harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder claiming
through Tenant.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue
shall be Santa Clara County.
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code (S) 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING
RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE
SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE
ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN
APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES
OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO
PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION
PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CALIFORNIA
ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA
CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
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ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU
ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. Entire Agreement: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the Parties hereto and may not
be modified orally or in any other manner other than by written agreement signed
by all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of Landlord under the Lease
including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (v) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (vi) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within one
hundred eighty (180) days prior to the Expiration Date (or at any time during
the Lease if Tenant is in default hereunder), to place upon the Premises "For
Lease" signs and exhibit the Premises to real estate brokers and prospective
tenants at reasonable hours.
H. Estoppel Certificates: At any time during the Lease Term, Tenant
shall, within ten (10) days following written notice from Landlord, execute and
deliver to Landlord a written statement certifying, if true, the following: (i)
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification); (ii) the date to which rent and other
charges are paid in advance, if any; (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Landlord may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of Landlord's interest
in the Premises. Tenant's failure to deliver such statement within such time
shall be conclusive upon the Tenant that this
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Lease is in full force and effect without modification, except as may be
represented by Landlord, and that there are no uncured defaults in Landlord's
performance. Tenant agrees to provide, within five (5) days of Landlord's
request, Tenant's most recent three (3) years of audited financial statements
for Landlord's use in financing or sale of the Premises or Landlord's interest
therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall
bear interest at the rate of the Reference Rate published by Bank of America,
San Francisco Branch, plus two percent (2%) per annum from that date until paid
in full ("Agreed Interest Rate"). This provision shall survive the expiration
or sooner termination of the Lease. Despite any other provision of this Lease,
the total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.
K. Modifications Required by Lender: If any lender of Landlord or
ground lessor of the Premises requires a modification of this Lease that will
not increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand, agree
and acknowledge that this Lease has been freely negotiated by both Parties; and
that in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. Notices: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section 1161 or any similar or successor statute. When a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) shall replace and satisfy
the statutory service-of-notice procedures, including those required by Code of
Civil Procedure Section 1162 or any similar or successor statute.
N. Property Management: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of two
percent (2%) of the Base Monthly Rent.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties or
promises with
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respect to present or future rents, expenses, operations, tenancies or any other
matter. Except as herein expressly set forth herein, Tenant relied on no
statement of Landlord or its employees or agents for that purpose.
Q. Rights and Remedies: Subject to Section 14 above, All rights and remedies
hereunder are cumulative and not alternative to the extent permitted by law, and
are in addition to all other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held unenforceable
or invalid by a court of competent jurisdiction, the remainder of the Lease
shall not be invalidated thereby but shall be enforceable in accordance with its
terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.
T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrances ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default and continues to pay Base Monthly Rent and
additional rent and observes and performs all required provisions of this Lease.
Within ten (10) days after Landlord's written request, Tenant shall execute any
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance. If Tenant fails to do so, then in addition to such
failure constituting a default by Tenant, it shall be deemed that this Lease is
so subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.
U. Survival of Indemnities: All indemnification, defense, and hold harmless
obligations of Landlord and Tenant under this Lease shall survive the expiration
or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency or
municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by
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Landlord with such costs being included as additional rent and reimbursed to
Landlord by Tenant within thirty (30) days after demand. If TDM facilities and
programs are instituted on a Project wide basis, Tenant shall pay its
proportionate share of such costs in accordance with Section 8 above.
X. Waiver of Right to Jury Trial: Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim, cross-
complaint, or cause of action in any action, proceeding, or hearing brought by
either party against the other on any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, or Tenant's
use or occupancy of the Premises, including any claim of injury or damage or the
enforcement of any remedy under any current or future law, statute, regulation,
code, or ordinance.
21. RIGHT OF FIRST OFFER TO PURCHASE:
A. Grant and Exercise of Option: In the event Landlord elects to sell the
Building either separately or as part of a larger sale including other
building(s) within the Project ("Offered Property"), Landlord (referred
hereinafter in this Section 21 as "Seller") hereby grants Tenant a right of
first offering to purchase. Prior to Seller committing to sell its interest in
the Offered Property to a third party, Seller shall give Tenant written notice
of such desire and the terms and other information under which Seller intends to
sell the Offered Property. Provided at the time of such written notice: (i)
Tenant leases at least two buildings within the Project; and (ii) Tenant is not
in default under the Lease beyond the expiration of any applicable cure period,
Tenant shall have the option, which must be exercised, if at all, by written
notice to Seller within thirty (30) days after Tenant's receipt of Seller's
notice, to purchase its interest in the Offered Property at the sales price and
terms of sale specified in the notice. In the event Tenant timely exercises such
option to purchase its interest in the Offered Property, Seller shall sell its
interest in the Offered Property to Tenant, and Tenant shall purchase its
interest in the Offered Property from Seller in accordance with the price and
terms specified in Seller's notice. Seller and Tenant shall, in good faith,
attempt to reach agreement on the terms of a mutually acceptable purchase
agreement consistent with the terms set forth in Seller's notice within thirty
(30) days of Seller's notice. In the event (i) Seller and Tenant are unable to
reach agreement on a mutually acceptable purchase agreement within such thirty
(30) day period or (ii) Tenant fails to exercise Tenant's option within said
thirty (30) day period, Seller shall have one hundred eighty (180) days
thereafter to sell its interest in the Offered Property at no less than ninety
five percent (95%) of the sales price and upon substantially the same other
terms of sale as specified in the notice to Tenant. In the event Seller fails to
sell its interest in the Offered Property within said one hundred eighty (180)
day period or in the event Seller proposes to sell its interest in the Offered
Property at less than ninety five percent (95%) of the sales price or on other
material terms which are more favorable to the prospective buyer than that
proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in
accordance with this Right of First Offering except that Tenant shall be
required to respond to any resubmission within a seven (7) day period.
B. Exclusions: This Right of First Offering shall automatically terminate,
(i) upon the expiration or sooner termination of the Lease, or (ii) in the event
of a foreclosure or other involuntary transfer of Landlord's interest in the
Building. Further, this Right of First Offering shall not apply to transfers
(but shall survive such transfers ) of all or a portion of the Building or
Project to (i) John A. Sobrato and/or John M. Sobrato (individually and
collectively "Sobrato"), and (ii) any immediate family member of Sobrato, and
(iii) any trust established, in whole or in art, for the benefit of Sobrato
and/or any immediate family member of Sobrato, (iv) any partnership in which
Sobrato or any immediate family member, either directly or indirectly (e.g.,
through a partnership or corporate entity or a trust) retains a general partner
interest, and/or (v) any corporation under the control, either directly or
indirectly, by Sobrato or any immediate family member of Sobrato.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord: Sobrato Interests III, Tenant: Nvidia Corporation,
a California Limited Partnership a Delaware Corporation
By: /s/ John Michael Sobrato *By: /s/ Jen-Hsun Huang
_____________________________ _____________________________
Its: Its:
_____________________________ _____________________________
*By: /s/ Christine B. Hoberg
_____________________________
Its:
_____________________________
* NOTE: This lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president, or a vice president, and the
other being the secretary, an assistant secretary, the chief financial officer
or an assistant treasurer. If one (1) individual is signing in two (2) of the
foregoing capacities, that individual must sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
Page 31
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EXHIBIT "A" - BUILDING AND PROJECT
Page 32
<PAGE>
EXHIBIT "B" - Declaration of Covenants, Codes and Restrictions
(to be attached)
Page 33
<PAGE>
EXHIBIT "C" - Draft Letter of Credit
Page 34
<PAGE>
EXHIBIT "D" - Building Shell Definition
1. Building Structure
(a) Foundations including footings, grade beams, or other building foundation
components required to support the building structure.
(b) Five inch (5") thick concrete slab on grade with welded wire mesh and any
other reinforcing or structural connections that may be necessary or required as
specified by structural engineer.
(c) Complete structural framing system comprised of rolled steel beams, columns,
and braced-frame steel construction with corrugated metal deck and concrete
fill, all members required by code to be fireproofed. Upper floor systems
provide a minimum of 3" concrete over metal deck and are designed for an 80 lb.
live load plus 20 lb. partition load. Structural framing will include
intermediate beams for HVAC units at the roof, and for major shafts on each
floor.
(d) Performance glass with GFRC, stone, aluminum and stainless steel exterior
building skin. All exterior doors, door closer and locking devices as necessary.
(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and
all flashings over a perlite board and corrugated metal deck roof assembly.
Title 24 code required roof insulation is included.
(f) Exterior painting of all non-finished metals and caulking of all exterior
joints.
(g) Concrete pan-filled stairs in the interior core of each building, and two
(2) concrete pan-filled stair sets at the Building perimeter.
(h) Riser for building sprinkler system (no sprinkler grid or drops).
2. Sitework
(a) All work outside the building perimeter walls shall be considered site work
for the Building Shell and
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shall include asphalt concrete paving, parking (including a parking structure),
landscaping, landscape irrigation, storm drainage, utility service laterals,
curbs, gutters, sidewalks, retaining walls, planters, trash enclosures, parking
lot and landscape lighting and other exterior lighting per code.
(b) Paving sections for automobile and truck access shall be according to the
Geologic Soils Report.
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the city storm
system main.
3. Plumbing
(a) Underground sanitary sewer laterals connected to the city sewer main in the
street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street and
stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site storm
drainage system.
(d) Gas lines connected to the city or public utility mains and run to gas
meters adjacent to, and in close proximity to the building. Meter supplied by
utility company.
4. Electrical
(a) A primary and secondary electrical service from the street to the building
electrical room limited to underground conduit, pull-string, and transformer
pad. Transformer supplied by utility company.
(b) Two 4" underground conduit from the street to the building for telephone
trunk lines by Pacific Bell.
(c) An electrically operated landscape irrigation system, with controller, that
is a complete and functioning system.
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(d) Underground conduit with pull-string from the building to the main fire
protection system post indicated valve (PIV) for installation of supervisory
alarm wiring.
6. General
(a) All construction shall conform to State and Local Building Codes, Title 24
Regulations, and shall be ADA Compliant.
All other costs shall be deemed Tenant Improvements.
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EXHIBIT "E" - Building Shell Plans and Specifications
(sheet references to be attached)
Page 38
<PAGE>
EXHIBIT "F" - Tenant Improvement Plans and Specifications
(sheet references to be attached)
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EXHIBIT 10.2
Lease between
Sobrato Interests III and Nvidia Corporation
<TABLE>
<CAPTION>
Section Page #
<S> <C>
Parties.................................................................... 1
Premises................................................................... 1
Definitions............................................................... 1
Description............................................................... 2
Use........................................................................ 2
Permitted Uses............................................................ 2
Uses Prohibited........................................................... 2
Advertisements and Signs.................................................. 3
Covenants, Conditions and Restrictions.................................... 3
Term and Rental............................................................ 3
Base Monthly Rent......................................................... 3
Late Charges.............................................................. 3
Security Deposit.......................................................... 4
Construction............................................................... 5
Building Shell Construction............................................... 5
Tenant Improvement Construction........................................... 5
Pricing................................................................... 6
Change Orders............................................................. 6
Building Shell Costs...................................................... 7
Tenant Improvement Costs.................................................. 7
Force Majeure............................................................. 8
General Contractor Overhead & Profit...................................... 8
Tenant Delays............................................................. 8
Insurance................................................................. 8
Punch List & Warranty..................................................... 8
Other Work by Tenant...................................................... 9
Landlord's Failure to Complete Construction............................... 9
Acceptance of Possession and Covenants to Surrender........................ 9
Delivery and Acceptance................................................... 9
Condition Upon Surrender.................................................. 10
Failure to Surrender...................................................... 10
Alterations and Additions.................................................. 11
Tenant's Alterations...................................................... 11
Free From Liens........................................................... 11
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Compliance With Governmental Regulations.................................. 11
Maintenance of Premises.................................................... 12
Landlord's Obligations.................................................... 12
Tenant's Obligations...................................................... 12
Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs.. 12
Reimbursable Operating Costs.............................................. 12
Tenant's Allocable Share.................................................. 13
Waiver of Liability....................................................... 13
Hazard Insurance........................................................... 13
Tenant's Use.............................................................. 13
Landlord's Insurance...................................................... 13
Tenant's Insurance........................................................ 14
Waiver.................................................................... 14
Taxes...................................................................... 14
Utilities.................................................................. 15
Toxic Waste and Environmental Damage....................................... 15
Tenant's Responsibility................................................... 15
Tenant's Indemnity Regarding Hazardous Materials.......................... 15
Actual Release by Tenant.................................................. 16
Environmental Monitoring.................................................. 17
Tenant's Default........................................................... 17
Remedies.................................................................. 17
Right to Re-enter......................................................... 18
Abandonment............................................................... 18
No Termination............................................................ 18
Non-Waiver................................................................ 18
Performance by Landlord................................................... 19
Habitual Default.......................................................... 19
Landlord's Liability....................................................... 19
Limitation on Landlord's Liability........................................ 19
Limitation on Tenant's Recourse........................................... 19
Indemnification of Landlord............................................... 20
Destruction of Premises.................................................... 20
Landlord's Obligation to Restore.......................................... 20
Limitations on Landlord's Restoration Obligation.......................... 20
Condemnation............................................................... 21
Assignment or Sublease..................................................... 21
Consent by Landlord....................................................... 21
Assignment or Subletting Consideration.................................... 22
No Release................................................................ 22
Reorganization of Tenant.................................................. 22
Permitted Transfers....................................................... 23
Effect of Default......................................................... 23
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Effects of Conveyance..................................................... 23
Successors and Assigns.................................................... 23
Option to Extend the Lease Term............................................ 24
Grant and Exercise of Option.............................................. 24
Determination of Fair Market Rental....................................... 24
Resolution of a Disagreement over the Fair Market Rental.................. 25
Personal to Tenant........................................................ 25
General Provisions......................................................... 25
Attorney's Fees........................................................... 25
Authority of Parties...................................................... 25
Brokers................................................................... 25
Choice of Law............................................................. 26
Dispute Resolution........................................................ 26
Entire Agreement.......................................................... 27
Entry by Landlord......................................................... 27
Estoppel Certificates..................................................... 27
Exhibits.................................................................. 28
Interest.................................................................. 28
Modifications Required by Lender.......................................... 28
No Presumption Against Drafter............................................ 28
Notices................................................................... 28
Property Management....................................................... 28
Rent...................................................................... 28
Representations........................................................... 28
Rights and Remedies....................................................... 29
Severability.............................................................. 29
Submission of Lease....................................................... 29
Subordination............................................................. 29
Survival of Indemnities................................................... 29
Time...................................................................... 29
Transportation Demand Management Programs................................. 29
Waiver of Right to Jury Trial............................................. 30
Right of First Offer to Purchase........................................... 30
Grant and Exercise of Option.............................................. 30
Exclusions................................................................ 30
EXHIBIT A - Building and Project........................................... 32
EXHIBIT B - CC&R Declaration............................................... 33
EXHIBIT C - Draft Letter of Credit......................................... 34
EXHIBIT D - Building Shell Definition...................................... 35
EXHIBIT E - Building Shell Plans and Specifications........................ 38
EXHIBIT F - Tenant Improvement Plans and Specifications.................... 39
</TABLE>
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1. PARTIES: THIS LEASE, is entered into on this 4th day of April, 2000,
("Effective Date") between Sobrato Interests III, a California Limited
Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and Nvidia Corporation, a Delaware Corporation, whose
address is 3535 Monroe Street, Santa Clara, California, 95051, hereinafter
called respectively Landlord and Tenant.
2. PREMISES:
A. Definitions.
i. Building B. The term "Building B" shall mean that three (3) story
steel frame building containing approximately 125,000 rentable square feet and
all Tenant Improvements installed therein to be constructed by Landlord and
leased by Tenant pursuant to the terms of this Lease in the location labeled as
Building B on Exhibit "A" attached hereto and commonly known as 2731 San Tomas
-----------
Expressway, Santa Clara, California.
ii. Building A. The term "Building A" shall mean that three (3) story
steel frame building containing approximately 125,000 rentable square feet which
Landlord intends to construct in the location labeled as Building A on Exhibit
-------
"A" and commonly known as 2721 San Tomas Expressway, Santa Clara, California.
- ---
iii. Building C. The term "Building C" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building C on
Exhibit "A" and commonly known as 2711 San Tomas Expressway, Santa Clara,
- -----------
California.
iv. Building D. The term "Building D" shall mean that three (3) story
steel frame building containing approximately 125,000 rentable square feet which
Landlord intends to construct in the location labeled as Building D on Exhibit
-------
"A" and commonly known as 2701 San Tomas Expressway, Santa Clara, California.
- ---
v. Common Area. The term "Common Area" shall mean that certain real
property and all improvements thereon surrounding Building A, Building B,
Building C, and Building D, including surface parking to accommodate
approximately 1,150 cars, a multi-level parking structure estimated to cost Five
Million Dollars ($5,000,000.00) to accommodate approximately 550 cars, and all
landscaped areas. Tenant shall have the non-exclusive right to utilize the
Common Area as specifically set forth in a Declaration of Covenants, Conditions
and Restrictions (" CC&R Declaration") to be prepared by Landlord and attached
to the Lease as Exhibit "B" within thirty (30) days following Lease execution.
-----------
The CC&R Declaration shall be subject to Tenant's approval, which approval shall
not be unreasonably withheld or delayed.
vi. Project. The term "Project" shall be that certain real property
consisting of approximately 19.2 acres at the corner of San Tomas Expressway and
Walsh Avenue in Santa Clara, California, and all improvements constructed
thereon consisting, at full buildout, of Building A, Building B, Building C,
Building D, and the Common Area as shown in Exhibit "A". Tenant shall be
-----------
responsible to ensure that the total number of vehicles parked in the Project by
employees and invitees of Tenant pursuant to this Lease does not exceed 425.
vii. Premises. The term "Premises" shall mean Building B, also
referred to
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herein as "Building", and a non-exclusive right to use the Common Area. Unless
expressly provided otherwise, the term Premises as used herein shall include the
Tenant Improvements (defined in Section 5.B) constructed by Tenant pursuant to
Section 5.B. Tenant acknowledges Landlord's right to and hereby consents to
Landlord's construction of the Project and Common Area.
B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant hires
the Premises from Landlord.
C. Recordation of Parcel Map and Declaration: Tenant consents to recordation
by Landlord of a Parcel Map ("Parcel Map") and CC&R Declaration provided,
however, that Landlord shall not record the Parcel Map and CC&R Declaration
until Tenant has had fifteen (15) business days to review. Landlord is seeking
approval of the Parcel Map and CC&R Declaration to subdivide the existing parcel
into smaller lots to facilitate Landlord's operation, construction, financing,
lease and/or sale of the Project in parts. Landlord's failure to obtain approval
of the Parcel Map or CC&R Declaration shall in no way invalidate this Lease. In
the event the Parcel Map and CC&R Declaration are recorded by Landlord, the
Section 2.A.vi shall be replaced by following: The term "Premises" shall mean
(i) the Building; and (ii) the nonexclusive right to use the Common Area in
accordance with the terms and conditions of the CC&R Declaration and this Lease.
This Lease shall be subject and subordinate in all respects to the CC&R
Declaration, as the same may be amended from time to time. Tenant covenants and
agrees to refrain from doing or causing to be done, or permitting any thing or
act to be done, which would constitute a default under the CC&R Declaration or
which would or might make Landlord liable for any damages, claims or penalty.
All assessments charged to the Premises pursuant to the CC&R Declaration shall
constitute a part of Tenant's Allocable Share of Reimbursable Operating Costs
pursuant to Section 8 of this Lease.
3. USE:
A. Permitted Uses: Tenant shall use the Premises as permitted under
applicable zoning laws only for the following purposes and shall not change the
use of the Premises without the prior written consent of Landlord: Office,
research and development, sales, testing, marketing, production, distribution,
failure analysis, light manufacturing, ancillary storage and other incidental
and similar uses. Tenant shall use only the number of parking spaces allocated
to Tenant under this Lease. All commercial trucks and delivery vehicles shall
(i) be parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the Project,
and (iii) permitted to remain within the Project only so long as is reasonably
necessary to complete the loading and unloading. Landlord makes no
representation or warranty that any specific use of the Premises desired by
Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be committed on
the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls
or columns of the building or set any load on the floor in excess of the load
limits for which such items are designed, or (iii) generate dust, fumes or waste
products which create a fire or health hazard or damage the Premises or any
portion of the Project, including without limitation the soils or ground water
in or around the Project. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature, or any waste
materials, refuse, scrap or debris, shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building without Landlord's prior
approval, which approval may be withheld in its sole discretion.
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<PAGE>
C. Advertisements and Signs: Tenant will not place or permit to be placed,
in, upon or about the Premises any signs not approved by the city and other
governing authority having jurisdiction. Tenant will not place or permit to be
placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred
twenty (120) months, commencing on substantial completion of construction as
determined pursuant to Section 5.B (the "Commencement Date") estimated to occur
on March 1, 2002 and ending one hundred twenty (120) months thereafter,
("Expiration Date"). Notwithstanding the Parties agreement that the Lease Term
begins on the Commencement Date, this Lease and all of the obligations of
Landlord and Tenant shall be binding and in full force and effect from and after
the Effective Date. In addition to all other sums payable by Tenant under this
Lease, Tenant shall pay base monthly rent ("Base Monthly Rent") for the Premises
according to the following schedule:
Months 01 - 12: $412,500.00 ($3.30 p.s.f.)
Months 13 - 24: $427,500.00 ($3.42 p.s.f.)
Months 25 - 36: $442,500.00 ($3.54 p.s.f.)
Months 37 - 48: $457,500.00 ($3.66 p.s.f.)
Months 49 - 60: $473,750.00 ($3.79 p.s.f.)
Months 61 - 72: $490,000.00 ($3.92 p.s.f.)
Months 73 - 84: $507,500.00 ($4.06 p.s.f.)
Months 85 - 96: $525,000.00 ($4.20 p.s.f.)
Months 97 - 108: $543,750.00 ($4.35 p.s.f.)
Months 109 - 120: $562,500.00 ($4.50 p.s.f.)
Upon Substantial Completion of construction, the Building shall be measured by
Tenant's Architect (as defined in Section 5.B) from outside wall/glass to
outside wall/glass of each floor, without deductions, to arrive at the actual
rentable square footage ("Rentable Square Footage"). If the Rentable Square
Footage differs from 125,000 square feet, the Base Monthly Rent for each year of
the Lease Term shall be modified so as to equal the product of (i) the Rentable
Square Footage, and (ii) the price-per-square-foot rate for each year as shown
in the above schedule.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment. Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of Two Hundred Six Thousand Two Hundred Fifty Dollars
($206,250.00) as prepaid rent for one half of the first month of the Lease. The
remaining half ($206,250.00) shall be paid by Tenant to Landlord no later than
December 20, 2000.
B. Late Charges: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such
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costs include but are not limited to: administrative, processing, accounting,
and late charges which may be imposed on Landlord by the terms of any contract,
revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if
any installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within five (5) days after Tenant has
received written notice from Landlord of non-payment, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
D. Security Deposit: Unless Tenant elects to post a Letter of Credit as
provided below, Tenant shall deposit with Landlord prior to the Commencement
Date the sum of Four Hundred Twelve Thousand Dollars ($412,000.00) ("Security
"Deposit"). Landlord shall not be deemed a trustee of the Security Deposit, may
use the Security Deposit in business, and shall not be required to segregate it
from its general accounts. Tenant shall not be entitled to interest on the
Security Deposit. If Tenant defaults with respect to any provisions of the
Lease, including but not limited to the provisions relating to payment of Base
Monthly Rent or other charges, Landlord may, to the extent reasonably necessary
to remedy Tenant's default, use any or all of the Security Deposit towards
payment of the following: (i) Base Monthly Rent or other charges in default;
(ii) any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default including, but not limited to Tenant's failure to
restore or clean the Premises following vacation thereof. If any portion of the
Security Deposit is so used or applied, Tenant shall, within ten (10) days after
written demand from Landlord, deposit cash with Landlord in an amount sufficient
to restore the Security Deposit to its full original amount, and shall pay to
Landlord such other sums as necessary to reimburse Landlord for any sums paid by
Landlord. If Tenant shall be in monetary default more than three (3) times in
any twelve (12) month period, irrespective of whether or not such default is
cured, then the Security Deposit shall, within ten (10) days after demand by
Landlord, be increased by Tenant to an amount equal to three (3) times the Base
Monthly Rent. Tenant may not assign or encumber the Security Deposit without the
consent of Landlord. Any attempt to do so shall be void and shall not be binding
on Landlord. The Security Deposit shall be returned to Tenant within thirty (30)
days after the Expiration Date and surrender of the Premises to Landlord, less
any amount deducted in accordance with this Section, together with Landlord's
written notice itemizing the amounts and purposes for such deduction. In the
event of termination of Landlord's interest in this Lease, Landlord may deliver
or credit the Security Deposit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to the
Security Deposit.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached hereto
as Exhibit "C". Landlord shall be entitled to draw against the Letter of Credit
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at any time provided only that Landlord certifies to the issuer of the Letter of
Credit that Tenant is in default under the Lease. Tenant shall keep the letter
of credit in effect during the entire Lease Term, as the same may be extended,
plus a period of four (4) weeks after expiration of the Lease
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Term. At least thirty (30) days prior to expiration of any Letter of Credit, the
term thereof shall be renewed or extended for a period of at least one (1) year.
Tenant's failure to so renew or extend the Letter of Credit shall be a material
default of this Lease by Tenant. In the event Landlord draws against the Letter
of Credit, Tenant shall replenish the existing Letter of Credit or cause a new
Letter of Credit to be issued such that the aggregate amount of letters of
credit available to Landlord at all times during the Lease Term is the amount of
the Security Deposit originally required.
5. CONSTRUCTION:
A. Building Shell Construction: Landlord shall cause the Building Shell (as
defined on the Building Shell Definition attached as Exhibit "D") and certain
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Building Core Improvements (as defined below) to be constructed by Landlord's
affiliated construction company, Sobrato Construction Corporation ("General
Contractor") in accordance with the Building Shell plans and guideline
specifications prepared by Form 4 Associates ("Landlord's Architect") to be
attached as Exhibit "E" ("Building Shell Plans and Specifications"). The
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Building Shell Plans and Specifications shall include certain elements of the
Building core ("Building Core Improvements") which is defined as those items
typically associated in the industry with an office building core including
elevators, restrooms, fire sprinklers, HVAC and electrical systems distributed
to each floor, exiting stair finishes, and a finished building lobby. Although
certain Building Core Improvements shall be designed by Landlord's Architect and
incorporated into the Building Shell Plans and Specifications, it is understood
and agreed that Building Core Improvements are classified as part of Tenant
Improvements and all costs associated with the design and construction thereof
shall be paid by Tenant pursuant to Section 5.F. below. The Building Shell and
Building Core Improvements shall be constructed in a good and workmanlike
fashion and in compliance with all codes, laws, rules and regulations of
applicable governmental authority. Landlord shall assign to Tenant any
warranties related to the Building Shell and Building Core Improvements which
would reduce Tenant's maintenance obligations hereunder and shall cooperate with
Tenant to enforce all such warranties.
B. Tenant Improvement Construction: Tenant, at Tenant's sole cost and
expense, shall retain an interior architect ("Tenant's Architect") to prepare
plans and outline specifications to be attached as Exhibit "F" ("Tenant
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Improvement Plans and Specifications") with respect to the construction of the
balance of the improvements to the interior of the Premises ("Tenant
Improvements") necessary for Tenant's use and occupancy of the Building.
Landlord shall cause Tenant Improvements to be constructed by the General
Contractor in accordance with the Tenant Improvement Plans and Specifications.
The Tenant Improvement Plans and Specifications shall be completed for all
aspects of the work by July 31, 2001 with all detail necessary for submittal to
the city for issuance of building permits and for construction and shall include
any information required by the relevant agencies regarding Tenant's use of
Hazardous Materials if applicable. The Tenant Improvements shall consist of all
items not included within the scope of the Building Shell Definition, including
all Building Core Improvements. All Tenant Improvements shall be subject to
Landlord's approval, which shall not be unreasonably withheld, conditioned or
delayed. The Tenant Improvement Plans and Specifications shall provide for a
minimum build-out in all areas of the Premises consisting of: (i) fire
sprinklers, (ii) floor coverings, (iii) t-bar suspended ceiling (iv)
distribution of the HVAC system, (v) 2' x 4' drop-in florescent lighting, and
(vi) any other work required by the City of Santa Clara necessary to obtain a
Certificate of Occupancy. Tenant shall not have the right to delay the
completion of the foregoing minimum Tenant Improvement build-out. The Tenant
Improvement Plans and Specifications shall be prepared in sufficient detail to
allow General Contractor to construct the Tenant Improvements. The Tenant
Improvements shall not be removed or altered by Tenant without the prior written
consent of Landlord as provided in Section 7 below. Tenant shall have the right
to depreciate and claim and collect any investment
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tax credits related to the Tenant Improvements. Upon expiration of the Lease
Term or any earlier termination of the Lease, the Tenant Improvements shall
become the property of Landlord and shall remain upon and be surrendered with
the Premises, and title thereto shall automatically vest in Landlord without any
payment therefore.
Landlord shall use its reasonable best efforts to obtain a building permit from
the City of Santa Clara for the Tenant Improvements as soon as possible after
submittal of the Tenant Improvement Plans and Specifications, and thereafter to
cause the General Contractor to Substantially Complete the Tenant Improvements.
The Tenant Improvements shall be deemed substantially complete when: (i) Tenant
Improvements have been substantially completed in accordance with the Tenant
Improvement Plans and Specifications, as evidenced by the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority, and (ii) Tenant's Architect has certified that the Tenant
Improvements have been completed in accordance with the Tenant Improvement Plans
and Specifications. Installation of (i) Tenant's data and phone cabling, (ii)
Tenant's furniture, or (iii) the exterior landscaping shall not be required in
order to deem the Tenant Improvements Substantially Complete.
C. Pricing: Within ten (10) days after completion of the Tenant
Improvements Plans and Specifications, Landlord shall cause the General
Contractor to submit to Tenant competitive bids from at least three (3)
subcontractors for each aspect of the work in excess of Fifty Thousand and
No/100 Dollars ($50,000.00) related to the Tenant Improvements specified on the
Tenant Improvements Plans and Specifications. Landlord shall cause the General
Contractor to utilize the low bid in each case unless Tenant approves General
Contractor's use of another subcontractor. The cost of the Tenant Improvements
shall be based upon construction expenses equal to (i) the bid amounts as
approved by Tenant, (ii) a five percent (5%) contingency to protect the General
Contractor against cost overruns, and (iii) the general contractor fee specified
in Section 5.I. below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and the General Contractor
shall proceed with the construction of the Tenant Improvements in accordance
with the terms of this Section 5. If Tenant does not specifically approve or
disapprove the bids within seven (7) days of submittal to Tenant, Tenant shall
be deemed to have approved the bids.
D. Change Orders: Other than changes in the Building Core Improvements,
Tenant shall have the right to order changes in the manner and type of
construction of the Tenant Improvements. Upon request and prior to Tenant's
submitting any binding change order, Landlord shall cause the General Contractor
to promptly provide Tenant with written statements of the cost to implement and
the time delay and increased construction costs associated with any proposed
change order, which statements shall be binding on General Contractor. If no
time delay or increased construction cost amount is noted on the written
statement, the parties agree that there shall be no adjustment to the
construction cost or the Commencement Date associated with such change order. If
ordered by Tenant, Landlord shall cause the General Contractor to implement such
change order and the cost of constructing the Tenant Improvements shall be
increased or decreased in accordance with the cost statement previously
delivered by General Contractor to Tenant for any such change order.
Notwithstanding the foregoing, Tenant not be liable for time delays or
construction cost increases associated with change orders under this Section
5.D. which are the result of errors on the part of Landlord or General
Contractor.
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E. Building Shell Costs: Landlord shall pay all costs and expenses
associated with construction of the Building Shell. The Building Shell
Definition shall be the governing document in specifying the costs associated
with the Building Shell.
F. Tenant Improvement Costs: Within thirty (30) days of the Lease
Commencement Date, Landlord shall reimburse Tenant up to Eighty Seven Thousand
Five Hundred Dollars ($87,500.00) towards Tenant Improvement costs associated
with: (i) exterior upgrades related to the cafeteria; and (ii) covered walkways
connecting the Buildings. Other than the foregoing, Tenant shall pay all costs
associated with the Tenant Improvements (which includes Building Core
Improvements) including, but not limited to: construction costs, all permit
fees, all fees associated with Tenant's Architect, engineers and consultants,
construction taxes or other costs imposed by governmental authorities related to
the Tenant Improvements, and the General Contractor overhead as described in
Section 5.I. below. During the course of construction of the Tenant
Improvements, Landlord shall cause the General Contractor to deliver to Tenant
not more than once each calendar month a written request for payment ("Progress
Invoice") which shall include and be accompanied by General Contractor's
certified statements setting forth the amount requested, certifying the
percentage of completion of each item for which reimbursement is requested.
Tenant shall have a right of reasonable review and approval of the Progress
Invoice, including the right to review all applicable backup documentation.
Tenant shall pay directly to the General Contractor the amount due pursuant to
the Progress Invoice, within fifteen (15) business days after Tenant's receipt
of the above items. All costs for Tenant Improvements shall be fully documented
to Tenant and subject to verification by Tenant.
G. Letter of Credit to Secure Tenant Improvement Construction: On or before
the date Landlord commences construction of the Building Shell, Tenant shall
deposit with Landlord a letter of credit ("Construction Letter of Credit")
substantially in the form attached hereto as Exhibit "C" in an initial amount of
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Three Million Five Hundred Thousand Dollars ($3,500,000.00), which amount shall
be increased upon commencement of construction of Tenant Improvements by an
additional Three Million Five Hundred Thousand Dollars ($3,500,000.00) (less any
amounts already paid by that date by Tenant to General Contractor for Tenant
Improvements), to secure Tenant's obligation to complete Tenant Improvements
pursuant to this Lease. The Construction Letter of Credit shall thereafter be
reduced upon presentation to Landlord no more than once every sixty (60) days of
evidence reasonably satisfactory to Landlord that a percentage of the Tenant
Improvements equal to the requested reduction has been satisfactorily completed
and paid for including partial lien waivers and architects' certificates. Upon
Landlord's receipt of reasonably satisfactory evidence that the Tenant
Improvements have been completed free of liens and that Tenant has fully paid
for the cost of all of Tenant Improvements, the Construction Letter of Credit
shall be cancelled and returned to Tenant by Landlord. Landlord shall be
entitled to draw against the full amount of the Construction Letter of Credit at
any time provided only that Landlord certifies to the issuer of the Construction
Letter of Credit that Tenant has failed to make a payment for Tenant Improvement
costs as provided in 5.F, that Tenant has failed to timely renew or extend the
Construction Letter of Credit as required by this paragraph, or that Tenant has
failed to amend the Construction Letter of Credit or obtain a new Construction
Letter of Credit as required by this paragraph. Tenant shall keep the
Construction Letter of Credit in effect at all times prior to payment in full
for the Tenant Improvements. At least sixty (60) days prior to expiration of
any Construction Letter of Credit, the term thereof shall be renewed or extended
for a period that extends until Tenant has paid in full for the Tenant
Improvements. Tenant's failure to so renew or extend the Construction Letter of
Credit shall be a material default of this Lease by Tenant entitling Landlord to
draw down on the entire amount of the Construction Letter of Credit. Any
amounts drawn on the Construction Letter of Credit shall be used to pay for the
cost of the Tenant Improvements. In the event the
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Construction Letter of Credit is drawn by Landlord, and the proceeds used to pay
for the completion of the Tenant Improvements, then promptly following
Landlord's completion of the Tenant Improvements Landlord shall refund to Tenant
any excess proceeds from the Construction Letter of Credit. In the event of
termination of Landlord's interest in this Lease, Landlord may deliver the
Construction Letter of Credit and/or the unused proceeds of any draw against the
Construction Letter of Credit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to the
Construction Letter of Credit.
H. Force Majeure: Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuel or reasonable substitutes therefor, governmental restrictions,
regulations, controls, civil commotion, fire or other act of God, and another
causes beyond the reasonable control of Landlord (except financial inability),
each a "Force Majeure Delay", shall extend the dates contained in Section 4 and
this Section 5 by a period equal to the period of any said prevention, delay or
stoppage. If Landlord cannot obtain building permits or Substantially Complete
construction by the dates set forth herein, this Lease shall not be void or
voidable nor shall Landlord be liable for any loss or damage resulting
therefrom.
I. General Contractor Overhead & Profit: As compensation to General
Contractor for its services related to construction of the Tenant Improvements,
General Contractor shall receive a fee of seven percent (7%) of the cost of
construction to cover all of the following: construction supervision and
administration, temporary on-site facilities, home office administration,
supervision, and coordination and construction profit. Except as provided
therein, Landlord or General Contractor shall not receive any other fee or
payment from Tenant in connection with General Contractor's services.
J. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial
Completion of the Building as a result of any of the following: (i) Tenant's
failure to complete or approve the Tenant Improvement Plans by July 31, 2001;
(ii) Tenant's failure to approve the bids for construction by the dates set
forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay
the progress of the work, unless such changes are a result of Landlord or
General Contractor error, (iv) Tenant's request for materials components, or
finishes which are not available in a commercially reasonable time given the
target Commencement Date, provided Tenant is made aware of such unavailability,
(v) Tenant's failure to make a progress payment for Tenant Improvement costs as
provided in Section 5.F, (vi) Tenant's request for more than one (1) rebidding
of the cost of all or a portion of the work, and (vii) any errors or omissions
in the Tenant Improvement Plans provided by Tenant's architect. Notwithstanding
anything to the contrary set forth in this Lease, and regardless of the actual
date the Premises are Substantially Complete, the Commencement Date shall be
deemed to be the date the Commencement Date would have occurred if no Tenant
Delay had occurred as reasonably determined by Landlord. In addition, if a
Tenant Delay results in an increase in the cost of the labor or materials,
Tenant shall pay the cost of such increases.
K. Insurance: Landlord shall cause the General Contractor to procure (as a
cost of the Building Shell) a "Broad Form" liability insurance policy in the
amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as
a cost of the Building Shell) builder's risk insurance for the full replacement
cost of the Building Shell and Tenant Improvements while the Building Shell and
Tenant Improvements are under construction, up until the date that the casualty
insurance policy described in Section 9 is in full force and effect.
L. Punch List & Warranty: After the Building Shell and Tenant Improvements
are Substantially Complete, Landlord shall cause the General Contractor to
immediately correct any construction defect or other "punch list" item which
Tenant brings to General Contractor's attention. All such work shall be
performed so as to reasonably minimize the interruption to Tenant and its
activities on the Premises. Landlord and
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General Contractor shall provide a standard contractor's warranty with respect
to the Building Shell and the Tenant Improvements for one (1) year from the
Commencement Date. Such warranty shall exclude routine maintenance, damage
caused by Tenant's negligence or misuse, and acts of God.
M. Other Work by Tenant: All work not described in the Shell Plans and
Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant's cost. Prior to
Substantial Completion, Tenant shall be obligated to (i) providing active phone
lines to any elevators, and (ii) contract with a firm to monitor the fire
system. When the construction of the Tenant Improvements has proceeded to the
point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date (and without any obligation to pay Base
Monthly Rent and other expenses associated with the Lease) for the purpose of
installing Tenant's trade fixtures and equipment. Any such installation work by
Tenant or its authorized representatives and contractor shall be undertaken upon
the following conditions: (i) the entry into the Premises by Tenant or its
representatives or contractors shall not interfere with or delay General
Contractor's work, and (ii) any contractor used by Tenant in connection with
such entry and installation shall use union labor.
N. Landlord's Failure to Complete Construction: If the Building is not
Substantially Complete in accordance with the Building Shell Plans and
Specifications and Tenant Improvements Plans and Specifications by July 31,
2002, then Tenant, upon written notice to Landlord, shall be entitled to
complete construction of the Building and offset the cost of construction for
which Landlord is responsible under this Lease, plus interest at the Agreed
Interest Rate, against Tenant's obligation for the initial Base Monthly Rent due
under this Lease. The completion by Tenant of Landlord's construction
obligations as provided in this Section 5.N. shall be the sole and exclusive
remedy of Tenant with respect to the failure by Landlord to achieve Substantial
Completion of the Building by July 31, 2002. In the event that Tenant shall be
required to complete Landlord's Work, Landlord agrees to promptly assign to
Tenant upon demand all plans and specifications relating to construction for
which Landlord is responsible under this Lease in order to effectuate the
completion thereof, and to cooperate with Tenant in connection with the
completion of such work. Nothing herein shall diminish Landlord's obligation to
act in good faith to promptly commence and diligently prosecute the Landlord's
Work.
The foregoing notwithstanding, the July 31, 2002 date shall be extended one day
for every day of Force Majeure Delay or Tenant Delay as defined in Sections 5.H
and 5.J above.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, subject to all Restrictions and without
representation or warranty by Landlord except as provided in Section 5.L. above.
Tenant's taking possession of any part of the Premises shall be deemed to be an
acceptance of any work of improvement done by Landlord in such part as complete
and in accordance with the terms of this Lease except for "Punch List" type
items of which Tenant has given Landlord written notice prior to the time Tenant
takes possession. At the time Landlord delivers possession of the Premises to
Tenant, Landlord and Tenant shall together execute an acceptance agreement.
Landlord shall have no obligation to deliver possession, nor shall Tenant be
entitled to take
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occupancy, of the Premises until such acceptance agreement has been executed,
and Tenant's obligation to pay Base Monthly Rent and Additional Rent shall not
be excused or delayed because of Tenant's failure to execute such acceptance
agreement. Within one hundred fifty (150) days after the Commencement Date,
Tenant agrees that it or its subtenant(s) will be in occupancy of at least fifty
percent (50%) of the rentable square footage of the Premises.
B. Condition Upon Surrender: Tenant further agrees on the Expiration Date
or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the best standards for maintenance, repair replacement, and
janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the Expiration Date or sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed shall
be deemed as abandoned by Tenant. At the expiration of the Lease Term, Landlord
shall not have the right to require that Tenant remove from the Premises any
Alterations made with Landlord's consent unless Landlord, at the time of
granting such consent, indicates that the subject Alteration must be removed
upon the expiration of the Lease Term. With respect to Permitted Alterations as
defined in Section 7A. below, Tenant shall ascertain from Landlord within ninety
(90) days before the Expiration Date whether Landlord desires to have such
Permitted Alterations removed. Tenant shall repair any damage to the Building
which results from Tenant's removal of any Alteration or removal of any
improvements and/or Tenant's equipment, fixtures, and components. Such repair
and restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work.
C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay and costs incurred by Landlord in returning the Premises
to the required condition, plus interest at the Agreed Interest Rate. Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession of
the Premises after the Expiration Date or sooner termination of this Lease
without Landlord's consent, Tenant's continued
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possession shall be on the basis of a tenancy at sufferance and Tenant shall pay
as rent during the holdover period an amount equal to one hundred fifty percent
(150%) of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease.
This provision shall survive the termination or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent and delivering to Landlord
the proposed architectural and structural plans for all such Alterations at
least fifteen (15) days prior to the start of construction. If such Alterations
affect the structure of the Building, Tenant additionally agrees to reimburse
Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant's
plans. After obtaining Landlord's consent, which consent shall state whether or
not Landlord will require Tenant to remove such Alteration at the expiration or
earlier termination of this Lease, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably approved
by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees
to provide Landlord (i) written notice of the anticipated and actual start-date
of the work, (ii) a complete set of half-size (15" X 21") vellum as-built
drawings, and (iii) a certificate of occupancy for the work upon completion of
the Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense. Notwithstanding the foregoing,
Tenant shall be entitled, without obtaining Landlord's consent, to make
Alterations which do not affect the structure of the Building and which do not
cost more than Fifty Thousand Dollars ($50,000.00) per Alteration ("Permitted
Alterations"); provided, however, that Tenant shall still be required to comply
with all other provisions of this paragraph, and such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6.B.
above at the expiration or earlier termination of the Lease.
B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Laws or Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders now
in force or hereafter enacted, promulgated, or issued. The term also includes
government measures regulating or enforcing public access, traffic mitigation,
occupational, health, or safety standards for employers, employees, landlords,
or tenants. Tenant, at Tenant's sole expense shall make all repairs,
replacements, alterations, or improvements needed to comply with all
Governmental Regulations. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action or proceeding against Tenant (whether
Landlord be a party thereto or not) that Tenant has violated any such law,
regulation or other requirement in its use of the Premises shall be conclusive
of that fact as between Landlord and Tenant.
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8. MAINTENANCE OF PREMISES:
A. Landlord's Obligations: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv)
all windows, door entrances, plate glass and glazing systems including caulking,
and skylights, (v) all electrical facilities and equipment, (vi) all automatic
fire extinguisher equipment, (vii) the parking lot and all underground utility
facilities servicing the Premises, (viii) all elevator equipment, (ix) the roof
membrane system, and (x) all waterscape, landscaping and shrubbery. All wall
surfaces and floor tile are to be maintained in an as good a condition as when
Tenant took possession free of holes, gouges, or defacements. With respect to
items (ii), (viii) and (ix) above, Tenant shall provide Landlord a copy of a
service contract between Tenant and a licensed service contractor providing for
periodic maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord a copy of such
preventive maintenance contracts and paid invoices for the recommended work if
requested by Landlord.
C. Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs:
In addition to the direct payment by Tenant of expenses as provided in Sections
8.B, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for
Tenant's Allocable Share (as defined in Section 8.E below) of Reimbursable
Operating Costs (as defined in Section 8.D below) resulting from Landlord
payment of expenses related to the ownership and operation of the Building or
Project which are not otherwise paid by Tenant directly. Tenant agrees to pay
its Allocable Share of the Reimbursable Operating Costs as additional rental
within thirty (30) days of written invoice from Landlord.
D. Reimbursable Operating Costs: For purposes of calculating Tenant's
Allocable Share of Building and Project Costs, the term "Reimbursable Operating
Costs" is defined as all costs and expenses of the nature hereinafter described
which are incurred by Landlord in connection with ownership and operation of the
Building or the Project in which the Premises are located, together with such
additional facilities as may be determined by Landlord to be reasonably
desirable or necessary to the ownership and operation of the Building and/or
Project. All costs and expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied (with
accruals appropriate to Landlord's business), including but not limited to the
following: (i) common area utilities, including water, power, telephone,
heating, lighting, air conditioning, ventilating, and Building utilities to the
extent not separately metered; (ii) common area maintenance and service
agreements for the Building and/or Project and the equipment therein, including
without limitation, common area janitorial services, alarm and security
services, exterior window cleaning, and maintenance of the sidewalks,
landscaping, waterscape, roof membrane, parking areas, driveways, service areas,
mechanical rooms, elevators, and the building exterior; (iii) insurance premiums
and costs, including without limitation, the premiums and cost of fire, casualty
and liability coverage and rental abatement and, if elected by Landlord,
earthquake insurance applicable to the Building or Project; (iv) repairs,
replacements and general maintenance (excluding repairs and general maintenance
paid by proceeds of insurance or by Tenant or other third parties, and repairs
or alterations attributable solely to tenants of the Building or Project other
than Tenant); and (v) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Building or Project, upon the
occupancy of the Building or Project and including any substitute or additional
charges which may be
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imposed during, or applicable to the Lease Term including real estate tax
increases due to a sale, transfer or other change of ownership of the Building
or Project, as such taxes are levied or appear on the City and County tax bills
and assessment rolls. Landlord shall have no obligation to provide guard
services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to
Landlord absolutely net of all costs and expenses. The provision for payment of
Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable
Share of Building and/or Project Costs is intended to pass on to Tenant and
reimburse Landlord for all costs of operating and managing the Building and/or
Project.
E. Tenant's Allocable Share: For purposes of prorating Reimbursable
Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable
Operating Costs shall be computed by multiplying the Reimbursable Operating
Costs by a fraction, the numerator of which is the rentable square footage of
the Premises and the denominator of which is either the total rentable square
footage of the Building if the service or cost is allocable only to the
Building, or the total square footage of the Project if the service or cost is
allocable to the entire Project. Tenant's obligation to share in Reimbursable
Operating Costs shall be adjusted to reflect the Lease Commencement and
Expiration dates and is subject to recalculation in the event of expansion of
the Building or Project.
F. Waiver of Liability: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to either
person or property, nor be construed as an eviction of Tenant, nor cause an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery utilized in supplying the
services listed herein break down or for any cause cease to function properly,
upon receipt of written notice from Tenant of any deficiency or failure of any
services, Landlord shall use reasonable diligence to repair the same promptly,
but Tenant shall have no right to terminate this Lease and shall have no claim
for rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Tenant waives the provisions of
California Civil Code Sections 1941 and 1942 concerning the Landlord's
obligation of tenantability and Tenant's right to make repairs and deduct the
cost of such repairs from the rent. Landlord shall not be liable for a loss of
or injury to person or property, however occurring, through or in connection
with or incidental to furnishing, or its failure to furnish, any of the
foregoing, unless due to the active negligence or willful misconduct of
Landlord.
9. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any purpose other than that for which the Premises are
hereby leased; and no use of the Premises shall be made or permitted, nor acts
done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance
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company's appraisers. At Landlord's election, such fire and property damage
insurance may be endorsed to cover loss caused by such additional perils against
which Landlord may elect to insure, including earthquake and/or flood, and shall
contain reasonable deductibles. Additionally Landlord may maintain a policy of
(i) commercial general liability insurance insuring Landlord (and such others
designated by Landlord) against liability for personal injury, bodily injury,
death and damage to property occurring or resulting from an occurrence in, on or
about the Premises or Project in an amount as Landlord determines is reasonably
necessary for its protection, and (ii) rental lost insurance covering a twelve
(12) month period. Tenant agrees to pay Landlord as additional rent, on demand,
the full cost of said insurance as evidenced by insurance billings to Landlord,
and in the event of damage covered by said insurance, the amount of any
deductible under such policy. Payment shall be due to Landlord within thirty
(30) days after written invoice to Tenant. It is understood and agreed that
Tenant's obligation under this Section will be prorated to reflect the Lease
Commencement and Expiration Dates.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000.00).
Tenant's liability insurance shall be primary insurance containing a cross-
liability endorsement, and shall provide coverage on an "occurrence" rather than
on a "claims made" basis. Tenant shall name Landlord and Landlord's lender as an
additional insured and shall deliver a copy of the policies and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage. Notwithstanding the above, Landlord retains the right to have
Tenant provide other forms of insurance which may be reasonably required to
cover future risks.
D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The Parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental,
prior to delinquency, the following: (i) all taxes and assessments levied
against Tenant's personal property and trade or business fixtures; (ii) all real
estate taxes and assessment installments or other impositions or charges which
may be levied on the Premises or upon the occupancy of the Premises, including
any substitute or additional charges which may be imposed applicable to the
Lease Term; and (iii) real estate tax increases due to an increase in assessed
value resulting from a sale, transfer or other change of ownership of the
Premises as it appears on the City and County tax bills during the Lease Term.
All real estate taxes shall be prorated to reflect the Lease Commencement and
Expiration Dates. If, at any time during the Lease Term a tax, excise on rents,
business license tax or any other tax, however described, is levied or assessed
against Landlord as a substitute or addition, in whole or in part, for taxes
assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro
rata share of such tax or excise on rents or other tax before it becomes
delinquent; except that this provision is not intended to cover net income
taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that
a tax is placed, levied, or assessed against Landlord and the taxing authority
takes the position that Tenant cannot pay and discharge its pro rata share of
such tax on behalf of Landlord, then at Landlord's sole election, Landlord may
increase the Base Monthly Rent by the exact
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amount of such tax and Tenant shall pay such increase. If by virtue of any
application or proceeding brought by Landlord, there results a reduction in the
assessed value of the Premises during the Lease Term, Tenant agrees to pay
Landlord a fee consistent with the fees charged by a third party appeal firm for
such services.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and in such
event Tenant shall not be entitled to abatement or reduction of any portion of
Base Monthly Rent or any other amount payable under this Lease. The foregoing
notwithstanding, if the Premises are not supplied with any or all of the
Utilities and such failure is due to the active negligence or willful misconduct
of Landlord, Tenant shall be entitled to an abatement of rent unless such
utility or utilities are restored within two (2) business days.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Without the prior written consent of Landlord,
Tenant or Tenant's agents, employees, contractors and invitees ("Tenant's
Agents") shall not bring, use, or permit upon the Premises, or generate, create,
release, emit, or dispose (nor permit any of the same) from the Premises any
chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or toxicity or substances or materials
which are listed on any of the Environmental Protection Agency's lists of
hazardous wastes or which are identified in Division 22 Title 26 of the
California Code of Regulations as the same may be amended from time to time or
any wastes, materials or substances which are or may become regulated by or
under the authority of any applicable local, state or federal laws, judgments,
ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials") except for
those substances customary in typical office uses for which no consent shall be
required. In order to obtain consent, Tenant shall deliver to Landlord its
written proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or such
consent is not required, Tenant represents and warrants that it shall comply
with all Governmental Regulations applicable to Hazardous Materials including
doing the following: (i) adhere to all reporting and inspection requirements
imposed by Federal, State, County or Municipal laws, ordinances or regulations
and will provide Landlord a copy of any such reports or agency inspections; (ii)
obtain and provide Landlord copies of all necessary permits required for the use
and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous
Materials handling and disposal practices consistent with industry standards;
(iv) surrender the Premises free from any Hazardous Materials arising from
Tenant's bringing, using, permitting, generating, creating, releasing, emitting
or disposing of Hazardous Materials; and (v) properly close the facility with
regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches which
have come into contact with Hazardous Materials and obtain a closure certificate
from the local administering agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its
sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the
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bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or Tenant's Agents, employees or invitees through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal
law, ordinance or regulation now or hereafter in effect; (ii) claims,
liabilities, costs or expenses pertaining to the identification, monitoring,
cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water source;
(iii) all costs of defending such claims; (iv) losses attributable to diminution
in the value of the Premises or the Building; (v) loss or restriction of use of
rentable space in the Building; (vi) Adverse effect on the marketing of any
space in the Building; and (vi) all other liabilities, obligations, penalties,
fines, claims, actions (including remedial or enforcement actions of any kind
and administrative or judicial proceedings, orders or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This Section 12.B shall survive the expiration or termination of this
Lease.
Landlord shall indemnify, defend and hold Tenant harmless from losses arising
from Hazardous Materials on, in or under the Premises: (i) prior to the
Commencement Date; or (ii) as a result of Landlord action after the Commencement
Date. In no event, however, shall Landlord be liable for any consequential
damages suffered or incurred by Tenant as a result of any such presence of
Hazardous Materials.
C. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without limiting
the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days
after receipt thereof, any written notices from any governmental agency alleging
a material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which or
failure to comply with poses a foreseeable and material risk of contamination of
the ground water or injury to humans (other than injury solely to Tenant or
Tenant's Agents).
In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or Tenant's Agents,
Tenant agrees to comply, at its sole cost, with all laws, regulations,
ordinances and orders of any federal, state or local agency relating to the
monitoring or remediation of such Hazardous Materials. In the event of any such
release of Hazardous Materials Tenant shall immediately give verbal and follow-
up written notice of the release to Landlord, and Tenant agrees to meet and
confer with Landlord and its Lender to attempt to eliminate and mitigate any
financial exposure to such Lender and resultant exposure to Landlord under
California Code of Civil Procedure Section 736(b) as a result of such release,
and promptly to take reasonable monitoring, cleanup and remedial steps given,
inter alia, the historical uses to which the Property has and continues to be
used, the risks to public health posed by the release, the then available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable customary practices for the type and severity of such contamination
and all applicable laws. Nothing in the preceding sentence shall eliminate,
modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify,
defend and hold
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Landlord harmless from any claims liabilities, costs or expenses incurred or
suffered by Landlord. Tenant shall provide Landlord prompt written notice of
Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.
D. Environmental Monitoring: Landlord and its agents shall have the right to
inspect, investigate, sample and monitor the Premises including any air, soil,
water, ground water or other sampling or any other testing, digging, drilling or
analysis to determine whether Tenant is complying with the terms of this Section
12. If Landlord discovers that Tenant is not in compliance with the terms of
this Section 12, any such costs incurred by Landlord, including attorneys' and
consultants' fees, shall be due and payable by Tenant to Landlord within five
(5) days following Landlord's written demand therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute
a material default and breach of this Lease by Tenant: (i) Tenant's failure to
pay the Base Monthly Rent including additional rent or any other payment due
under this Lease, where such failure continues for ten (10) days beyond Tenant's
receipt of written notice from Landlord that such amount is due, (ii) the
abandonment or vacation of the Premises by Tenant; (iii) Tenant's failure to
observe and perform any other required provision of this Lease, where such
failure continues for thirty (30) days after written notice from Landlord,
provided that if the nature of the default is such that it cannot reasonably be
cured within the 30-day period, Tenant shall not be deemed in default if it
commences within such period to cure, and thereafter diligently prosecutes the
same to completion; (iv) Tenant's making of any general assignment for the
benefit of creditors; (v) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed after the filing); (vi) the appointment of
a trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (vii) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
A. Remedies: In the event of any such default by Tenant, then in addition to
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as
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taxes, insurance premiums, utilities and security precautions; and (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted by applicable California law. The term "rent", as
used herein, is defined as the minimum monthly installments of Base Monthly Rent
and all other sums required to be paid by Tenant pursuant to this Lease, all
such other sums being deemed as additional rent due hereunder. As used in (i)
and (ii) above, "worth at the time of award" shall be computed by allowing
interest at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at
the time of award" 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
(1%) percent.
B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if
any, shall be held by Landlord and applied in payment of future Base Monthly
Rent as the same may become due and payable hereunder. Landlord shall the
obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during any
month be less than the rent payable during that month by Tenant hereunder, then
Tenant shall pay such deficiency to Landlord immediately upon demand. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate this
Lease unless written notice of such intention is given to Tenant or unless the
termination is decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant
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when the Tenant is holding over without express written consent does not convert
Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No
waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy for the violation of that provision, even if that
violation continues or is repeated. Any waiver by Landlord of any provision of
this Lease must be in writing. Such waiver shall affect only the provision
specified and only for the time and in the manner stated in the writing. No
delay or omission in the exercise of any right or remedy by Landlord shall
impair such right or remedy or be construed as a waiver thereof by Landlord. No
act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute acceptance of the surrender of the
Premises by Tenant before the Expiration Date. Only written notice from Landlord
to Tenant of acceptance shall constitute such acceptance of surrender of the
Premises. Landlord's consent to or approval of any act by Tenant which requires
Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, after ten (10) days prior written notice to Tenant, without
waiving any rights or remedies and without releasing Tenant from its obligations
hereunder, perform such obligation, in which event Tenant shall pay Landlord as
additional rent all sums paid by Landlord in connection with such substitute
performance, including interest at the Agreed Interest Rate (as defined in
Section 19.J) within ten (10) days of Landlord's written notice for such
payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) monetary term or condition of this Lease for four or
more times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose of
this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
14. LANDLORD'S LIABILITY:
A. Limitation on Landlord's Liability: In the event of Landlord's failure
to perform any of its covenants or agreements under this Lease, Tenant shall
give Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim for breach or
resultant damages, provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with notice of its interest in the Premises, and shall provide
Mortgagee a reasonable opportunity to cure such failure, including such time to
obtain possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been assigned is an expressed third-party
beneficiary hereof. Tenant waives any right under California Civil Code Section
1950.7 or any other present or future law to the collection of any payment or
deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's
interest unless Mortgagee or such purchaser shall have actually received and not
refunded the applicable payment or deposit. Tenant further waives any right to
terminate this Lease and to vacate the Premises on Landlord's default under this
Lease. Tenant's sole remedy on Landlord's default is an action for damages or
injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint
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venture, unincorporated association or other form of business entity, then (i)
the obligations of Landlord shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals or representatives except to the extent of
their interest in the Premises. Tenant shall have recourse only to the interest
of Landlord in the Premises or for the satisfaction of the obligations of
Landlord and shall not have recourse to any other assets of Landlord for the
satisfaction of such obligations.
C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, except
to the extent caused by the willful misconduct or active negligence of Landlord
or from the failure of Tenant to keep the Premises in good condition and repair
as herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord and Tenant. In no event shall Landlord be required to replace or
restore Alterations, Tenant Improvements paid for by Tenant from sources other
than the Work Allowance or Tenant's fixtures or personal property. With respect
to a destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section 1932,
and Section 1933, Subdivision 4, of the Civil Code of the State of California,
and any other similarly enacted statute, and the provisions of this Section 15
shall govern in the case of such destruction.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord, (iv)
the damage or destruction occurs in the last twenty four (24) months of the
Lease Term (unless Tenant has exercised or exercises, within five (5) business
days, an option to extend the Lease Term), (v) Tenant is in default pursuant to
the provisions of Section 13, or (vi) Tenant has vacated the Premises for more
than ninety (90) days. In any such event Landlord may elect either to (i)
complete the repair or restoration, or (ii) terminate this Lease by providing
Tenant written notice of its election within sixty (60) days following the
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damage or destruction. In the event of the occurrence of (i) or (iv) above,
Tenant also shall have the right to terminate this Lease by providing Landlord
written notice of its election within sixty (60) days following the damage or
destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. Further, in the event of such partial
taking, Landlord shall have the option to terminate this Lease as of the Vesting
Date to the part of the Premises condemned. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall terminate on the Vesting Date. If part or
all of the Premises be taken, all compensation awarded upon such taking shall go
to Landlord, and Tenant shall have no claim thereto. Notwithstanding the
foregoing, Tenant: (i) shall be entitled to a separate award for any increased
rent Tenant becomes obligated to pay as a result of such taking for the
remainder of the Lease Term, and (ii) shall have the right to make a separate
claim in any condemnation proceeding for the taking of the unamortized or
undepreciated value of the Tenant Improvements and Alterations owned by Tenant
which Tenant may remove at the expiration or earlier termination of this Lease,
reasonable removal and relocation costs for any improvements Tenant has the
right to remove and elects to remove, relocation costs, the claim for which
Tenant may pursue by separate action independent of this Lease and any other
amount that does not reduce the amount of the award payable to Landlord. Tenant
shall have the right to negotiate directly with the condemnor for the recovery
of the portion of the award that Tenant is entitled to under subsection (ii)
above. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue, and the
provisions of this Section 16 shall govern in the case of a taking.
17. ASSIGNMENT OR SUBLEASE:
A. Consent by Landlord: Except as specifically provided in Section 17.E.
below, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord. In the event
Tenant desires to assign this Lease or any interest herein or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years, (iii) the nature of the proposed transferee's
business to be carried on in the Premises, (iv) a statement outlining all
consideration to be given on account of the Transfer, and (v) a current
financial statement of Tenant. Landlord may condition its approval of any
Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have ten (10) business
days following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease for such part of the
Premises (provided, however, that Landlord shall have no such right to terminate
for any sublease or assignment expiring more than two (2) years prior to the
Lease Expiration Date); (ii) permit Tenant to assign or sublet such space to the
named assignee/subtenant on the terms and conditions set forth in the notice; or
(iii) refuse consent. If Landlord should fail to notify Tenant in writing of
such election within the 10 business-day period, Landlord shall be deemed to
have elected option (iii) above. In the event Landlord elects option (i) above,
this Lease shall expire with respect to such part of the Premises on the date
upon which the proposed sublease or transfer was
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to commence, and from such date forward, Base Monthly Rent and Tenant's
Allocable Share of all other costs and charges shall be adjusted based upon the
proportion that the rentable area of the Premises remaining bears to the total
rentable area of the Building. In the event Landlord elects option (ii) above,
Landlord's written consent to the proposed assignment or sublease shall not be
unreasonably withheld, provided and upon the condition that: (i) the proposed
assignee or subtenant is engaged in a business that is limited to the use
expressly permitted under this Lease; (ii) the proposed assignee or subtenant is
a company with sufficient financial worth and management ability to undertake
the financial obligation of this Lease and Landlord has been furnished with
reasonable proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) the amount of the aggregate rent to be
paid by the proposed subtenant is not less than the then current "Fair Market
Rental" as defined in Section 18.A below; (v) Tenant reimburses Landlord on
demand for any costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent; and (vi) Tenant shall not
have advertised or publicized in any way the availability of the Premises
without prior notice to Landlord. In the event all or any one of the foregoing
conditions are not satisfied, Landlord shall be considered to have acted
reasonably if it withholds its consent.
B. Assignment or Subletting Consideration: Landlord and Tenant hereby agree
that fifty percent (50%) of any rent or other economic consideration (i)
realized by Tenant under any sublease or assignment, or (ii) realized by any
subtenant under any sub-sublease of the Premises, in excess of the Base Monthly
Rent payable hereunder and reasonable subletting and assignment costs, and other
costs incurred as a direct result of the sublease or assignment, shall be paid
to Landlord. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The above
provisions relating to Landlord's right to terminate the Lease and relating to
the allocation of excess rent are independently negotiated terms of the Lease
which constitute a material inducement for the Landlord to enter into the Lease,
and are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.
C. No Release: Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant. Tenant
shall indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other
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reorganization of or affecting Tenant, where Tenant is not the surviving
corporation, or (ii) there is a sale or transfer to one person or entity (or to
any group of related persons or entities) of stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors, and after such
sale or transfer of stock Tenant's stock is no longer publicly traded. In a
transaction under clause (i) the surviving corporation shall promptly execute
and deliver to Landlord an agreement in form reasonably satisfactory to Landlord
under which such surviving corporation assumes the obligations of Tenant
hereunder, and in a transaction under clause (ii) the transferee or buyer shall
promptly execute and deliver to Landlord an agreement in form reasonably
satisfactory to Landlord under which such transferee or buyer assumes the
obligations of Tenant under the Lease.
E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination if
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon the transferor shall be discharged
from any further liability in reference thereto.
F. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
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18. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Provided Tenant simultaneously exercises
its options for Buildings A, B, C, and D, Landlord grants to Tenant, subject to
the terms and conditions set forth in this Section 18.A, two (2) options (the
"Options") to extend the Lease Term for an additional term (the "Option Term").
Each Option Term shall be for a period of eighty four (84) months and shall be
exercised, if at all, by written notice to Landlord no earlier than eighteen
(18) months prior to the date the Lease Term would expire but for such exercise
but no later than twelve (12) months prior to the date the Lease Term would
expire but for such exercise, time being of the essence for the giving of such
notice. If Tenant exercises the Option, all of the terms, covenants and
conditions of this Lease except for the grant of additional Options pursuant to
this Section, provided that Base Monthly Rent for the Premises payable by Tenant
during the Option Term shall be the greater of (i) the Base Monthly Rent
applicable to the period immediately prior to the commencement of the Option
Term, and (ii) ninety five percent (95%) of the Fair Market Rental as
hereinafter defined. Notwithstanding anything herein to the contrary, (i) if
Tenant is in monetary or material non-monetary default under any of the terms,
covenants or conditions of this Lease either at the time Tenant exercises the
Option or at any time thereafter prior to the commencement date of the Option
Term, or (ii) if the net worth of Tenant as reported in Tenant's most recent
financial statements is less than the net worth of Tenant as of the date of
execution of this Lease, then Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the Lease Term shall
not be extended pursuant to this Section 18.A. As used herein, the term "Fair
Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the same real estate submarket as the Building. The appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to offset
comparable rents that include the following costs which Landlord will not incur
in the event Tenant exercises its option (i) brokerage commissions, (ii) tenant
improvement allowances, (iii) building improvement costs, and (iv) vacancy
costs.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 18.C and
such procedures are not concluded prior to the commencement date of the Option
Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental
as determined by Landlord in the manner provided above. If the Fair Market
Rental as finally determined pursuant to Section 18.C is greater than Landlord's
determination, Tenant shall pay Landlord the difference between the amount paid
by Tenant and the Fair Market Rental as so determined in Section 18.C within
thirty (30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the difference
between the amount paid by Tenant
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and the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of Base Monthly Rent due from Tenant to Landlord
hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's
notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at
a determination of Fair Market Rental and submit their conclusions to Landlord
and Tenant within thirty (30) days after the expiration of the 30-day
consultation period described above.
3. If only one appraisal is submitted within the requisite time
period, it shall be deemed as Fair Market Rental. If both appraisals are
submitted within such time period and the two appraisals so submitted differ by
less than ten percent (10%), the average of the two shall be deemed as Fair
Market Rental. If the two appraisals differ by more than 10%, the appraisers
shall immediately select a third appraiser who shall, within thirty (30) days
after his selection, make and submit to Landlord and Tenant a determination of
Fair Market Rental. This third appraisal will then be averaged with the closer
of the two previous appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be members
of the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to Nvidia Corporation and are not exercisable by any third
party should Tenant assign or sublet all or a portion of its rights under this
Lease, unless Landlord consents to permit exercise of any option by any assignee
or subtenant, in Landlord's sole and absolute discretion. In the event Tenant
has multiple options to extend this Lease, a later option to extend the Lease
cannot be exercised unless the prior option has been properly exercised.
19. GENERAL PROVISIONS:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real
estate broker or finder
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with respect to this Lease other than CPS Commercial Real Estate and Tenant
agrees to indemnify, defend and hold Landlord harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder claiming
through Tenant.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code (S) 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING
RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE
SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE
ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN
APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES
OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO
PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION
PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CALIFORNIA
ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA
CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
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ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU
ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. Entire Agreement: This Lease and the exhibits attached hereto contains all
of the agreements and conditions made between the Parties hereto and may not be
modified orally or in any other manner other than by written agreement signed by
all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of Landlord under the Lease
including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (v) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (vi) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within one
hundred eighty (180) days prior to the Expiration Date (or at any time during
the Lease if Tenant is in default hereunder), to place upon the Premises "For
Lease" signs and exhibit the Premises to real estate brokers and prospective
tenants at reasonable hours.
H. Estoppel Certificates: At any time during the Lease Term, Tenant shall,
within ten (10) days following written notice from Landlord, execute and deliver
to Landlord a written statement certifying, if true, the following: (i) that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification); (ii) the date to which rent and other charges
are paid in advance, if any; (iii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on Landlord's part hereunder (or specifying such
defaults if they are claimed); and (iv) such other information as Landlord may
reasonably request. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of Landlord's interest in the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon the Tenant that this
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Lease is in full force and effect without modification, except as may be
represented by Landlord, and that there are no uncured defaults in Landlord's
performance. Tenant agrees to provide, within five (5) days of Landlord's
request, Tenant's most recent three (3) years of audited financial statements
for Landlord's use in financing or sale of the Premises or Landlord's interest
therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.
K. Modifications Required by Lender: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand, agree and
acknowledge that this Lease has been freely negotiated by both Parties; and that
in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. Notices: All notices, demands, requests, or consents required to be given
under this Lease shall be sent in writing by U.S. certified mail, return receipt
requested, or by personal delivery addressed to the party to be notified at the
address for such party specified in Section 1 of this Lease, or to such other
place as the party to be notified may from time to time designate by at least
fifteen (15) days prior notice to the notifying party. When this Lease requires
service of a notice, that notice shall replace rather than supplement any
equivalent or similar statutory notice, including any notices required by Code
of Civil Procedure Section 1161 or any similar or successor statute. When a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) shall replace and satisfy
the statutory service-of-notice procedures, including those required by Code of
Civil Procedure Section 1162 or any similar or successor statute.
N. Property Management: In addition, Tenant agrees to pay Landlord along with
the expenses to be reimbursed by Tenant a monthly fee for management services
rendered by either Landlord or a third party manager engaged by Landlord (which
may be a party affiliated with Landlord), in the amount of two percent (2%) of
the Base Monthly Rent.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of its
employees or agents have made any agreements, representations, warranties or
promises with
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respect to the Premises or with respect to present or future rents, expenses,
operations, tenancies or any other matter. Except as herein expressly set forth
herein, Tenant relied on no statement of Landlord or its employees or agents for
that purpose.
Q. Rights and Remedies: Subject to Section 14 above, All rights and remedies
hereunder are cumulative and not alternative to the extent permitted by law, and
are in addition to all other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held unenforceable
or invalid by a court of competent jurisdiction, the remainder of the Lease
shall not be invalidated thereby but shall be enforceable in accordance with its
terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.
T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrances ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default and continues to pay Base Monthly Rent and
additional rent and observes and performs all required provisions of this Lease.
Within ten (10) days after Landlord's written request, Tenant shall execute any
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance. If Tenant fails to do so, then in addition to such
failure constituting a default by Tenant, it shall be deemed that this Lease is
so subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.
U. Survival of Indemnities: All indemnification, defense, and hold harmless
obligations of Landlord and Tenant under this Lease shall survive the expiration
or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency or
municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by
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Landlord with such costs being included as additional rent and reimbursed to
Landlord by Tenant within thirty (30) days after demand. If TDM facilities and
programs are instituted on a Project wide basis, Tenant shall pay its
proportionate share of such costs in accordance with Section 8 above.
X. Waiver of Right to Jury Trial: Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim, cross-
complaint, or cause of action in any action, proceeding, or hearing brought by
either party against the other on any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, or Tenant's
use or occupancy of the Premises, including any claim of injury or damage or the
enforcement of any remedy under any current or future law, statute, regulation,
code, or ordinance.
21. RIGHT OF FIRST OFFER TO PURCHASE:
A. Grant and Exercise of Option: In the event Landlord elects to sell the
Building either separately or as part of a larger sale including other
building(s) within the Project ("Offered Property"), Landlord (referred
hereinafter in this Section 21 as "Seller") hereby grants Tenant a right of
first offering to purchase. Prior to Seller committing to sell its interest in
the Offered Property to a third party, Seller shall give Tenant written notice
of such desire and the terms and other information under which Seller intends to
sell the Offered Property. Provided at the time of such written notice: (i)
Tenant leases at least two buildings within the Project; and (ii) Tenant is not
in default under the Lease beyond the expiration of any applicable cure period,
Tenant shall have the option, which must be exercised, if at all, by written
notice to Seller within thirty (30) days after Tenant's receipt of Seller's
notice, to purchase its interest in the Offered Property at the sales price and
terms of sale specified in the notice. In the event Tenant timely exercises such
option to purchase its interest in the Offered Property, Seller shall sell its
interest in the Offered Property to Tenant, and Tenant shall purchase its
interest in the Offered Property from Seller in accordance with the price and
terms specified in Seller's notice. Seller and Tenant shall, in good faith,
attempt to reach agreement on the terms of a mutually acceptable purchase
agreement consistent with the terms set forth in Seller's notice within thirty
(30) days of Seller's notice. In the event (i) Seller and Tenant are unable to
reach agreement on a mutually acceptable purchase agreement within such thirty
(30) day period or (ii) Tenant fails to exercise Tenant's option within said
thirty (30) day period, Seller shall have one hundred eighty (180) days
thereafter to sell its interest in the Offered Property at no less than ninety
five percent (95%) of the sales price and upon substantially the same other
terms of sale as specified in the notice to Tenant. In the event Seller fails to
sell its interest in the Offered Property within said one hundred eighty (180)
day period or in the event Seller proposes to sell its interest in the Offered
Property at less than ninety five percent (95%) of the sales price or on other
material terms which are more favorable to the prospective buyer than that
proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in
accordance with this Right of First Offering except that Tenant shall be
required to respond to any resubmission within a seven (7) day period.
B. Exclusions: This Right of First Offering shall automatically
terminate, (i) upon the expiration or sooner termination of the Lease, or (ii)
in the event of a foreclosure or other involuntary transfer of Landlord's
interest in the Building. Further, this Right of First Offering shall not apply
to transfers (but shall survive such transfers ) of all or a portion of the
Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually
and collectively "Sobrato"), and (ii) any immediate family member of Sobrato,
and (iii) any trust established, in whole or in art, for the benefit of Sobrato
and/or any immediate family member of Sobrato, (iv) any partnership in which
Sobrato or any immediate family member, either directly or indirectly (e.g.,
through a partnership or corporate entity or a trust) retains a general partner
interest, and/or (v) any corporation under the control, either directly or
indirectly, by Sobrato or any immediate family member of Sobrato.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord: Sobrato Interests III, Tenant: Nvidia Corporation,
a California Limited Partnership a Delaware Corporation
By: /s/ John Michael Sobrato * By: /s/ Jen-Hsun Huang
_____________________________ __________________________
Its: Its:
_____________________________ __________________________
* By: /s/ Christine B. Hoberg
__________________________
Its:
__________________________
* NOTE: This lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president, or a vice president, and the
other being the secretary, an assistant secretary, the chief financial officer
or an assistant treasurer. If one (1) individual is signing in two (2) of the
foregoing capacities, that individual must sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
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EXHIBIT "A" - BUILDING AND PROJECT
Page 32
<PAGE>
EXHIBIT "B" - Declaration of Covenants, Codes and Restrictions
(to be attached)
Page 33
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EXHIBIT "C" - Draft Letter of Credit
Page 34
<PAGE>
EXHIBIT "D" - Building Shell Definition
1. Building Structure
(a) Foundations including footings, grade beams, or other building foundation
components required to support the building structure.
(b) Five inch (5") thick concrete slab on grade with welded wire mesh and any
other reinforcing or structural connections that may be necessary or required as
specified by structural engineer.
(c) Complete structural framing system comprised of rolled steel beams,
columns, and braced-frame steel construction with corrugated metal deck and
concrete fill, all members required by code to be fireproofed. Upper floor
systems provide a minimum of 3" concrete over metal deck and are designed for an
80 lb. live load plus 20 lb. partition load. Structural framing will include
intermediate beams for HVAC units at the roof, and for major shafts on each
floor.
(d) Performance glass with GFRC, stone, aluminum and stainless steel exterior
building skin. All exterior doors, door closer and locking devices as necessary.
(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and
all flashings over a perlite board and corrugated metal deck roof assembly.
Title 24 code required roof insulation is included.
(f) Exterior painting of all non-finished metals and caulking of all exterior
joints.
(g) Concrete pan-filled stairs in the interior core of each building, and two
(2) concrete pan-filled stair sets at the Building perimeter.
(h) Riser for building sprinkler system (no sprinkler grid or drops).
2. Sitework
(a) All work outside the building perimeter walls shall be considered site work
for the Building Shell and
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shall include asphalt concrete paving, parking (including a parking structure),
landscaping, landscape irrigation, storm drainage, utility service laterals,
curbs, gutters, sidewalks, retaining walls, planters, trash enclosures, parking
lot and landscape lighting and other exterior lighting per code.
(b) Paving sections for automobile and truck access shall be according to the
Geologic Soils Report.
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the city storm
system main.
3. Plumbing
(a) Underground sanitary sewer laterals connected to the city sewer main in the
street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street and
stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site storm
drainage system.
(d) Gas lines connected to the city or public utility mains and run to gas
meters adjacent to, and in close proximity to the building. Meter supplied by
utility company.
4. Electrical
(a) A primary and secondary electrical service from the street to the building
electrical room limited to underground conduit, pull-string, and transformer
pad. Transformer supplied by utility company.
(b) Two 4" underground conduit from the street to the building for telephone
trunk lines by Pacific Bell.
(c) An electrically operated landscape irrigation system, with controller, that
is a complete and functioning system.
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(d) Underground conduit with pull-string from the building to the main fire
protection system post indicated valve (PIV) for installation of supervisory
alarm wiring.
6. General
(a) All construction shall conform to State and Local Building Codes, Title 24
Regulations, and shall be ADA Compliant.
All other costs shall be deemed Tenant Improvements.
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EXHIBIT "E" - Building Shell Plans and Specifications
(sheet references to be attached)
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<PAGE>
EXHIBIT "F" - Tenant Improvement Plans and Specifications
(sheet references to be attached)
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EXHIBIT 10.3
Lease between
Sobrato Interests III and Nvidia Corporation
<TABLE>
<S> <C>
Section......................................................................................................Page #
Parties...........................................................................................................1
Premises..........................................................................................................1
Definitions....................................................................................................1
Description....................................................................................................2
Use...............................................................................................................2
Permitted Uses.................................................................................................2
Uses Prohibited................................................................................................2
Advertisements and Signs.......................................................................................3
Covenants, Conditions and Restrictions.........................................................................3
Term and Rental...................................................................................................3
Base Monthly Rent..............................................................................................3
Late Charges...................................................................................................3
Security Deposit...............................................................................................4
Construction......................................................................................................5
Building Shell Construction....................................................................................5
Tenant Improvement Construction................................................................................5
Pricing........................................................................................................6
Change Orders..................................................................................................6
Building Shell Costs...........................................................................................7
Tenant Improvement Costs.......................................................................................7
Force Majeure..................................................................................................8
General Contractor Overhead & Profit...........................................................................8
Tenant Delays..................................................................................................8
Insurance......................................................................................................8
Punch List & Warranty..........................................................................................8
Other Work by Tenant...........................................................................................9
Landlord's Failure to Complete Construction....................................................................9
Acceptance of Possession and Covenants to Surrender...............................................................9
Delivery and Acceptance........................................................................................9
Condition Upon Surrender......................................................................................10
Failure to Surrender..........................................................................................10
Alterations and Additions........................................................................................11
Tenant's Alterations..........................................................................................11
Free From Liens...............................................................................................11
Compliance With Governmental Regulations......................................................................11
</TABLE>
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<TABLE>
<S> <C>
Maintenance of Premises..........................................................................................12
Landlord's Obligations........................................................................................12
Tenant's Obligations..........................................................................................12
Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs......................................12
Reimbursable Operating Costs..................................................................................12
Tenant's Allocable Share......................................................................................13
Waiver of Liability...........................................................................................13
Hazard Insurance.................................................................................................13
Tenant's Use..................................................................................................13
Landlord's Insurance..........................................................................................13
Tenant's Insurance............................................................................................14
Waiver........................................................................................................14
Taxes............................................................................................................14
Utilities........................................................................................................15
Toxic Waste and Environmental Damage.............................................................................15
Tenant's Responsibility.......................................................................................15
Tenant's Indemnity Regarding Hazardous Materials..............................................................15
Actual Release by Tenant......................................................................................16
Environmental Monitoring......................................................................................17
Tenant's Default.................................................................................................17
Remedies......................................................................................................17
Right to Re-enter.............................................................................................18
Abandonment...................................................................................................18
No Termination................................................................................................18
Non-Waiver....................................................................................................18
Performance by Landlord.......................................................................................19
Habitual Default..............................................................................................19
Landlord's Liability.............................................................................................19
Limitation on Landlord's Liability............................................................................19
Limitation on Tenant's Recourse...............................................................................19
Indemnification of Landlord...................................................................................20
Destruction of Premises..........................................................................................20
Landlord's Obligation to Restore..............................................................................20
Limitations on Landlord's Restoration Obligation..............................................................20
Condemnation.....................................................................................................21
Assignment or Sublease...........................................................................................21
Consent by Landlord...........................................................................................21
Assignment or Subletting Consideration........................................................................22
No Release....................................................................................................22
Reorganization of Tenant......................................................................................22
Permitted Transfers...........................................................................................23
Effect of Default.............................................................................................23
Effects of Conveyance.........................................................................................23
Successors and Assigns........................................................................................23
</TABLE>
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<TABLE>
<S> <C>
Option to Extend the Lease Term..................................................................................24
Grant and Exercise of Option..................................................................................24
Determination of Fair Market Rental...........................................................................24
Resolution of a Disagreement over the Fair Market Rental......................................................25
Personal to Tenant............................................................................................25
General Provisions...............................................................................................25
Attorney's Fees...............................................................................................25
Authority of Parties..........................................................................................25
Brokers.......................................................................................................25
Choice of Law.................................................................................................26
Dispute Resolution............................................................................................26
Entire Agreement..............................................................................................27
Entry by Landlord.............................................................................................27
Estoppel Certificates.........................................................................................27
Exhibits......................................................................................................28
Interest......................................................................................................28
Modifications Required by Lender..............................................................................28
No Presumption Against Drafter................................................................................28
Notices.......................................................................................................28
Property Management...........................................................................................28
Rent..........................................................................................................28
Representations...............................................................................................28
Rights and Remedies...........................................................................................29
Severability..................................................................................................29
Submission of Lease...........................................................................................29
Subordination.................................................................................................29
Survival of Indemnities.......................................................................................29
Time..........................................................................................................29
Transportation Demand Management Programs.....................................................................29
Waiver of Right to Jury Trial.................................................................................30
Right of First Offer to Purchase.................................................................................30
Grant and Exercise of Option..................................................................................30
Exclusions....................................................................................................30
EXHIBIT A - Building and Project.................................................................................32
EXHIBIT B - CC&R Declaration.....................................................................................33
EXHIBIT C - Draft Letter of Credit...............................................................................34
EXHIBIT D - Building Shell Definition............................................................................35
EXHIBIT E - Building Shell Plans and Specifications..............................................................38
EXHIBIT F - Tenant Improvement Plans and Specifications..........................................................39
</TABLE>
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1. Parties: THIS LEASE, is entered into on this 4th day of April, 2000,
("Effective Date") between Sobrato Interests III, a California Limited
Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and Nvidia Corporation, a Delaware Corporation, whose
address is 3535 Monroe Street, Santa Clara, California, 95051, hereinafter
called respectively Landlord and Tenant.
2. PREMISES:
A. Definitions.
i. Building C. The term "Building C" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
and all Tenant Improvements installed therein to be constructed by Landlord and
leased by Tenant pursuant to the terms of this Lease in the location labeled as
Building C on Exhibit "A" attached hereto and commonly known as 2711 San Tomas
-----------
Expressway, Santa Clara, California.
ii. Building B. The term "Building B" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building B on
Exhibit "A" and commonly known as 2731 San Tomas Expressway, Santa Clara,
- -----------
California.
iii. Building A. The term "Building A" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building A on
Exhibit "A" and commonly known as 2721 San Tomas Expressway, Santa Clara,
- -----------
California.
iv. Building D. The term "Building D" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building D on
Exhibit "A" and commonly known as 2701 San Tomas Expressway, Santa Clara,
- -----------
California.
v. Common Area. The term "Common Area" shall initially mean
that certain real property and all improvements thereon surrounding Building A,
Building C and Building D, including surface parking, a multi-level parking
structure to accommodate approximately 550 cars, and all landscaped areas. At
completion of Building B, the term "Common Area" shall mean that certain real
property and all improvements thereon surrounding the Building A, Building B,
Building C, and Building D, including surface parking to accommodate
approximately 1,150 cars, a multi-level parking structure estimated to cost Five
Million Dollars ($5,000,000.00) to accommodate approximately 550 cars, and all
landscaped areas. Tenant shall have the non-exclusive right to utilize the
Common Area as specifically set forth in a Declaration of Covenants, Conditions
and Restrictions (" CC&R Declaration") to be prepared by Landlord and attached
to the Lease as Exhibit "B" within thirty (30) days following Lease execution.
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The CC&R Declaration shall be subject to Tenant's approval, which approval shall
not be unreasonably withheld or delayed.
vi. Project. The term "Project" shall be that certain real
property consisting of approximately 19.2 acres at the corner of San Tomas
Expressway and Walsh Avenue in Santa Clara, California, and all improvements
constructed thereon consisting, at full buildout, of Building A, Building B,
Building C, Building D, and the Common Area as shown in Exhibit "A". Tenant
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shall be responsible to ensure that the total number of vehicles parked in the
Project by employees and invitees of Tenant pursuant to this
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Lease does not exceed 425.
vii. Premises. The term "Premises" shall mean Building C, also
referred to herein as "Building", and a non-exclusive right to use the Common
Area. Unless expressly provided otherwise, the term Premises as used herein
shall include the Tenant Improvements (defined in Section 5.B) constructed by
Tenant pursuant to Section 5.B. Tenant acknowledges Landlord's right to and
hereby consents to Landlord's construction of the Project and Common Area.
B. Grant: Landlord hereby leases the Premises to Tenant, and
Tenant hires the Premises from Landlord.
C. Recordation of Parcel Map and Declaration: Tenant consents to
recordation by Landlord of a Parcel Map ("Parcel Map") and CC&R Declaration
provided, however, that Landlord shall not record the Parcel Map and CC&R
Declaration until Tenant has had fifteen (15) business days to review. Landlord
is seeking approval of the Parcel Map and CC&R Declaration to subdivide the
existing parcel into smaller lots to facilitate Landlord's operation,
construction, financing, lease and/or sale of the Project in parts. Landlord's
failure to obtain approval of the Parcel Map or CC&R Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and CC&R Declaration are
recorded by Landlord, the Section 2.A.vi shall be replaced by following: The
term "Premises" shall mean (i) the Building; and (ii) the nonexclusive right to
use the Common Area in accordance with the terms and conditions of the CC&R
Declaration and this Lease. This Lease shall be subject and subordinate in all
respects to the CC&R Declaration, as the same may be amended from time to time.
Tenant covenants and agrees to refrain from doing or causing to be done, or
permitting any thing or act to be done, which would constitute a default under
the CC&R Declaration or which would or might make Landlord liable for any
damages, claims or penalty. All assessments charged to the Premises pursuant to
the CC&R Declaration shall constitute a part of Tenant's Allocable Share of
Reimbursable Operating Costs pursuant to Section 8 of this Lease.
3. USE:
A. Permitted Uses: Tenant shall use the Premises as permitted under
applicable zoning laws only for the following purposes and shall not change the
use of the Premises without the prior written consent of Landlord: Office,
research and development, sales, testing, marketing, production, distribution,
failure analysis, light manufacturing, ancillary storage and other incidental
and similar uses. Tenant shall use only the number of parking spaces allocated
to Tenant under this Lease. All commercial trucks and delivery vehicles shall
(i) be parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the Project,
and (iii) permitted to remain within the Project only so long as is reasonably
necessary to complete the loading and unloading. Landlord makes no
representation or warranty that any specific use of the Premises desired by
Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be committed on
the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls
or columns of the building or set any load on the floor in excess of the load
limits for which such items are designed, or (iii) generate dust, fumes or waste
products which create a fire or health hazard or damage the Premises or any
portion of the Project, including without limitation the soils or ground water
in or around the Project. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature, or any waste
materials, refuse, scrap or debris, shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building without
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Landlord's prior approval, which approval may be withheld in its sole
discretion.
C. Advertisements and Signs: Tenant will not place or permit to be placed,
in, upon or about the Premises any signs not approved by the city and other
governing authority having jurisdiction. Tenant will not place or permit to be
placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred
twenty eight (128) months, commencing on substantial completion of construction
as determined pursuant to Section 5.B (the "Commencement Date") estimated to
occur on July 1, 2001 and ending one hundred twenty eight (128) months
thereafter, ("Expiration Date"). Notwithstanding the Parties agreement that the
Lease Term begins on the Commencement Date, this Lease and all of the
obligations of Landlord and Tenant shall be binding and in full force and effect
from and after the Effective Date. In addition to all other sums payable by
Tenant under this Lease, Tenant shall pay base monthly rent ("Base Monthly
Rent") for the Premises according to the following schedule:
Months 01 - 12: $393,750.00 ($3.15 p.s.f.)
Months 13 - 24: $407,500.00 ($3.26 p.s.f.)
Months 25 - 36: $421,250.00 ($3.37 p.s.f.)
Months 37 - 48: $436,250.00 ($3.49 p.s.f.)
Months 49 - 60: $451,250.00 ($3.61 p.s.f.)
Months 61 - 72: $467,500.00 ($3.74 p.s.f.)
Months 73 - 84: $483,750.00 ($3.87 p.s.f.)
Months 85 - 96: $501,250.00 ($4.01 p.s.f.)
Months 97 - 108: $518,750.00 ($4.15 p.s.f.)
Months 109 - 120: $536,250.00 ($4.29 p.s.f.)
Months 121 - 128: $555,000.00 ($4.44 p.s.f.)
Upon Substantial Completion of construction, the Building shall be measured by
Tenant's Architect (as defined in Section 5.B) from outside wall/glass to
outside wall/glass of each floor, without deductions, to arrive at the actual
rentable square footage ("Rentable Square Footage"). If the Rentable Square
Footage differs from 125,000 square feet, the Base Monthly Rent for each year of
the Lease Term shall be modified so as to equal the product of (i) the Rentable
Square Footage, and (ii) the price-per-square-foot rate for each year as shown
in the above schedule.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment. Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of One Hundred Ninety Six Thousand Eight Hundred Seventy
Five Dollars ($196,875.00) as prepaid rent for one half of the first month of
the Lease. The remaining half ($196,875.00) shall be paid by Tenant to Landlord
no later than December 20, 2000.
B. Late Charges: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums
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due hereunder will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which is extremely difficult to ascertain. Such costs
include but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within five (5) days after Tenant has
received written notice from Landlord of non-payment, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
D. Security Deposit: Unless Tenant elects to post a Letter of Credit as
provided below, Tenant shall deposit with Landlord prior to the Commencement
Date the sum of Three Hundred Ninety Four Thousand Dollars ($394,000.00)
("Security "Deposit"). Landlord shall not be deemed a trustee of the Security
Deposit, may use the Security Deposit in business, and shall not be required to
segregate it from its general accounts. Tenant shall not be entitled to interest
on the Security Deposit. If Tenant defaults with respect to any provisions of
the Lease, including but not limited to the provisions relating to payment of
Base Monthly Rent or other charges, Landlord may, to the extent reasonably
necessary to remedy Tenant's default, use any or all of the Security Deposit
towards payment of the following: (i) Base Monthly Rent or other charges in
default; (ii) any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default including, but not limited to Tenant's
failure to restore or clean the Premises following vacation thereof. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord. If Tenant shall be in monetary default more than
three (3) times in any twelve (12) month period, irrespective of whether or not
such default is cured, then the Security Deposit shall, within ten (10) days
after demand by Landlord, be increased by Tenant to an amount equal to three (3)
times the Base Monthly Rent. Tenant may not assign or encumber the Security
Deposit without the consent of Landlord. Any attempt to do so shall be void and
shall not be binding on Landlord. The Security Deposit shall be returned to
Tenant within thirty (30) days after the Expiration Date and surrender of the
Premises to Landlord, less any amount deducted in accordance with this Section,
together with Landlord's written notice itemizing the amounts and purposes for
such deduction. In the event of termination of Landlord's interest in this
Lease, Landlord may deliver or credit the Security Deposit to Landlord's
successor in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Security Deposit.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached hereto
as Exhibit "C". Landlord shall be entitled to draw against the Letter of Credit
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at any time provided only that Landlord certifies to the issuer of the Letter of
Credit that Tenant is in default under the Lease. Tenant shall keep the
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letter of credit in effect during the entire Lease Term, as the same may be
extended, plus a period of four (4) weeks after expiration of the Lease Term. At
least thirty (30) days prior to expiration of any Letter of Credit, the term
thereof shall be renewed or extended for a period of at least one (1) year.
Tenant's failure to so renew or extend the Letter of Credit shall be a material
default of this Lease by Tenant. In the event Landlord draws against the Letter
of Credit, Tenant shall replenish the existing Letter of Credit or cause a new
Letter of Credit to be issued such that the aggregate amount of letters of
credit available to Landlord at all times during the Lease Term is the amount of
the Security Deposit originally required.
5. CONSTRUCTION:
A. Building Shell Construction: Landlord shall cause the Building Shell (as
defined on the Building Shell Definition attached as Exhibit "D") and certain
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Building Core Improvements (as defined below) to be constructed by Landlord's
affiliated construction company, Sobrato Construction Corporation ("General
Contractor") in accordance with the Building Shell plans and guideline
specifications prepared by Form 4 Associates ("Landlord's Architect") and
attached as Exhibit "E" ("Building Shell Plans and Specifications"). The
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Building Shell Plans and Specifications include certain elements of the Building
core ("Building Core Improvements") which is defined as those items typically
associated in the industry with an office building core including elevators,
restrooms, fire sprinklers, HVAC and electrical systems distributed to each
floor, exiting stair finishes, and a finished building lobby. Although certain
Building Core Improvements have been designed by Landlord's Architect and
incorporated into the Building Shell Plans and Specifications, it is understood
and agreed that Building Core Improvements are classified as part of Tenant
Improvements and all costs associated with the design and construction thereof
shall be paid by Tenant pursuant to Section 5.F. below. The Building Shell and
Building Core Improvements shall be constructed in a good and workmanlike
fashion and in compliance with all codes, laws, rules and regulations of
applicable governmental authority. Landlord shall assign to Tenant any
warranties related to the Building Shell and Building Core Improvements which
would reduce Tenant's maintenance obligations hereunder and shall cooperate with
Tenant to enforce all such warranties.
B. Tenant Improvement Construction: Tenant, at Tenant's sole cost and
expense, shall retain an interior architect ("Tenant's Architect") to prepare
plans and outline specifications to be attached as Exhibit "F" ("Tenant
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Improvement Plans and Specifications") with respect to the construction of the
balance of the improvements to the interior of the Premises ("Tenant
Improvements") necessary for Tenant's use and occupancy of the Building.
Landlord shall cause Tenant Improvements to be constructed by the General
Contractor in accordance with the Tenant Improvement Plans and Specifications.
The Tenant Improvement Plans and Specifications shall be completed for all
aspects of the work by November 30, 2000 with all detail necessary for submittal
to the city for issuance of building permits and for construction and shall
include any information required by the relevant agencies regarding Tenant's use
of Hazardous Materials if applicable. The Tenant Improvements shall consist of
all items not included within the scope of the Building Shell Definition,
including all Building Core Improvements. All Tenant Improvements shall be
subject to Landlord's approval, which shall not be unreasonably withheld,
conditioned or delayed. The Tenant Improvement Plans and Specifications shall
provide for a minimum build-out in all areas of the Premises consisting of: (i)
fire sprinklers, (ii) floor coverings, (iii) t-bar suspended ceiling (iv)
distribution of the HVAC system, (v) 2' x 4' drop-in florescent lighting, and
(vi) any other work required by the City of Santa Clara necessary to obtain a
Certificate of Occupancy. Tenant shall not have the right to delay the
completion of the foregoing minimum Tenant Improvement build-out. The Tenant
Improvement Plans and Specifications shall be prepared in sufficient detail to
allow General Contractor to construct the Tenant Improvements. The Tenant
Improvements shall not be removed or altered by
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Tenant without the prior written consent of Landlord as provided in Section 7
below. Tenant shall have the right to depreciate and claim and collect any
investment tax credits related to the Tenant Improvements. Upon expiration of
the Lease Term or any earlier termination of the Lease, the Tenant Improvements
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises, and title thereto shall automatically vest in Landlord
without any payment therefore.
Landlord shall use its reasonable best efforts to obtain a building permit from
the City of Santa Clara for the Tenant Improvements as soon as possible after
submittal of the Tenant Improvement Plans and Specifications, and thereafter to
cause the General Contractor to Substantially Complete the Tenant Improvements.
The Tenant Improvements shall be deemed substantially complete when: (i) Tenant
Improvements have been substantially completed in accordance with the Tenant
Improvement Plans and Specifications, as evidenced by the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority, and (ii) Tenant's Architect has certified that the Tenant
Improvements have been completed in accordance with the Tenant Improvement Plans
and Specifications. Installation of (i) Tenant's data and phone cabling, (ii)
Tenant's furniture, or (iii) the exterior landscaping shall not be required in
order to deem the Tenant Improvements Substantially Complete.
C. Pricing: Within ten (10) days after completion of the Tenant
Improvements Plans and Specifications, Landlord shall cause the General
Contractor to submit to Tenant competitive bids from at least three (3)
subcontractors for each aspect of the work in excess of Fifty Thousand and
No/100 Dollars ($50,000.00) related to the Tenant Improvements specified on the
Tenant Improvements Plans and Specifications. Landlord shall cause the General
Contractor to utilize the low bid in each case unless Tenant approves General
Contractor's use of another subcontractor. The cost of the Tenant Improvements
shall be based upon construction expenses equal to (i) the bid amounts as
approved by Tenant, (ii) a five percent (5%) contingency to protect the General
Contractor against cost overruns, and (iii) the general contractor fee specified
in Section 5.I. below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and the General Contractor
shall proceed with the construction of the Tenant Improvements in accordance
with the terms of this Section 5. If Tenant does not specifically approve or
disapprove the bids within seven (7) days of submittal to Tenant, Tenant shall
be deemed to have approved the bids.
D. Change Orders: Other than changes in the Building Core Improvements,
Tenant shall have the right to order changes in the manner and type of
construction of the Tenant Improvements. Upon request and prior to Tenant's
submitting any binding change order, Landlord shall cause the General Contractor
to promptly provide Tenant with written statements of the cost to implement and
the time delay and increased construction costs associated with any proposed
change order, which statements shall be binding on General Contractor. If no
time delay or increased construction cost amount is noted on the written
statement, the parties agree that there shall be no adjustment to the
construction cost or the Commencement Date associated with such change order. If
ordered by Tenant, Landlord shall cause the General Contractor to implement such
change order and the cost of constructing the Tenant Improvements shall be
increased or decreased in accordance with the cost statement previously
delivered by General Contractor to Tenant for any such change order.
Notwithstanding the foregoing, Tenant not be liable for time delays or
construction cost increases associated with change orders under this Section
5.D. which are the result of errors on the part of Landlord or General
Contractor.
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E. Building Shell Costs: Landlord shall pay all costs and expenses
associated with construction of the Building Shell. The Building Shell
Definition shall be the governing document in specifying the costs associated
with the Building Shell.
F. Tenant Improvement Costs: Within thirty (30) days of the Lease
Commencement Date, Landlord shall reimburse Tenant up to Eighty Seven Thousand
Five Hundred Dollars ($87,500.00) towards Tenant Improvement costs associated
with: (i) exterior upgrades related to the cafeteria; and (ii) covered walkways
connecting the Buildings. Other than the foregoing, Tenant shall pay all costs
associated with the Tenant Improvements (which includes Building Core
Improvements) including, but not limited to: construction costs, all permit
fees, all fees associated with Tenant's Architect, engineers and consultants,
construction taxes or other costs imposed by governmental authorities related to
the Tenant Improvements, and the General Contractor overhead as described in
Section 5.I. below. During the course of construction of the Tenant
Improvements, Landlord shall cause the General Contractor to deliver to Tenant
not more than once each calendar month a written request for payment ("Progress
Invoice") which shall include and be accompanied by General Contractor's
certified statements setting forth the amount requested, certifying the
percentage of completion of each item for which reimbursement is requested.
Tenant shall have a right of reasonable review and approval of the Progress
Invoice, including the right to review all applicable backup documentation.
Tenant shall pay directly to the General Contractor the amount due pursuant to
the Progress Invoice, within fifteen (15) business days after Tenant's receipt
of the above items. All costs for Tenant Improvements shall be fully documented
to Tenant and subject to verification by Tenant.
G. Letter of Credit to Secure Tenant Improvement Construction: On or
before the date Landlord commences construction of the Building Shell, Tenant
shall deposit with Landlord a letter of credit ("Construction Letter of Credit")
substantially in the form attached hereto as Exhibit "C" in an initial amount of
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Three Million Five Hundred Thousand Dollars ($3,500,000.00), which amount shall
be increased upon commencement of construction of Tenant Improvements by an
additional Three Million Five Hundred Thousand Dollars ($3,500,000.00) (less any
amounts already paid by that date by Tenant to General Contractor for Tenant
Improvements), to secure Tenant's obligation to complete Tenant Improvements
pursuant to this Lease. The Construction Letter of Credit shall thereafter be
reduced upon presentation to Landlord no more than once every sixty (60) days of
evidence reasonably satisfactory to Landlord that a percentage of the Tenant
Improvements equal to the requested reduction has been satisfactorily completed
and paid for including partial lien waivers and architects' certificates. Upon
Landlord's receipt of reasonably satisfactory evidence that the Tenant
Improvements have been completed free of liens and that Tenant has fully paid
for the cost of all of Tenant Improvements, the Construction Letter of Credit
shall be cancelled and returned to Tenant by Landlord. Landlord shall be
entitled to draw against the full amount of the Construction Letter of Credit at
any time provided only that Landlord certifies to the issuer of the Construction
Letter of Credit that Tenant has failed to make a payment for Tenant Improvement
costs as provided in 5.F, that Tenant has failed to timely renew or extend the
Construction Letter of Credit as required by this paragraph, or that Tenant has
failed to amend the Construction Letter of Credit or obtain a new Construction
Letter of Credit as required by this paragraph. Tenant shall keep the
Construction Letter of Credit in effect at all times prior to payment in full
for the Tenant Improvements. At least sixty (60) days prior to expiration of any
Construction Letter of Credit, the term thereof shall be renewed or extended for
a period that extends until Tenant has paid in full for the Tenant Improvements.
Tenant's failure to so renew or extend the Construction Letter of Credit shall
be a material default of this Lease by Tenant entitling Landlord to draw down on
the entire amount of the Construction Letter of Credit. Any amounts drawn on the
Construction Letter of Credit shall be used to pay for the cost of the Tenant
Improvements. In the event the
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Construction Letter of Credit is drawn by Landlord, and the proceeds used to pay
for the completion of the Tenant Improvements, then promptly following
Landlord's completion of the Tenant Improvements Landlord shall refund to Tenant
any excess proceeds from the Construction Letter of Credit. In the event of
termination of Landlord's interest in this Lease, Landlord may deliver the
Construction Letter of Credit and/or the unused proceeds of any draw against the
Construction Letter of Credit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to the
Construction Letter of Credit.
H. Force Majeure: Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuel or reasonable substitutes therefor, governmental restrictions,
regulations, controls, civil commotion, fire or other act of God, and another
causes beyond the reasonable control of Landlord (except financial inability),
each a "Force Majeure Delay", shall extend the dates contained in Section 4 and
this Section 5 by a period equal to the period of any said prevention, delay or
stoppage. If Landlord cannot obtain building permits or Substantially Complete
construction by the dates set forth herein, this Lease shall not be void or
voidable nor shall Landlord be liable for any loss or damage resulting
therefrom.
I. General Contractor Overhead & Profit: As compensation to General
Contractor for its services related to construction of the Tenant Improvements,
General Contractor shall receive a fee of seven percent (7%) of the cost of
construction to cover all of the following: construction supervision and
administration, temporary on-site facilities, home office administration,
supervision, and coordination and construction profit. Except as provided
therein, Landlord or General Contractor shall not receive any other fee or
payment from Tenant in connection with General Contractor's services.
J. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial
Completion of the Building as a result of any of the following: (i) Tenant's
failure to complete or approve the Tenant Improvement Plans by November 30,
2000; (ii) Tenant's failure to approve the bids for construction by the dates
set forth in Section 5.C, (iii) changes to the plans requested by Tenant which
delay the progress of the work, unless such changes are a result of Landlord or
General Contractor error, (iv) Tenant's request for materials components, or
finishes which are not available in a commercially reasonable time given the
target Commencement Date, provided Tenant is made aware of such unavailability,
(v) Tenant's failure to make a progress payment for Tenant Improvement costs as
provided in Section 5.F, (vi) Tenant's request for more than one (1) rebidding
of the cost of all or a portion of the work, and (vii) any errors or omissions
in the Tenant Improvement Plans provided by Tenant's architect. Notwithstanding
anything to the contrary set forth in this Lease, and regardless of the actual
date the Premises are Substantially Complete, the Commencement Date shall be
deemed to be the date the Commencement Date would have occurred if no Tenant
Delay had occurred as reasonably determined by Landlord. In addition, if a
Tenant Delay results in an increase in the cost of the labor or materials,
Tenant shall pay the cost of such increases.
K. Insurance: Landlord shall cause the General Contractor to procure (as a
cost of the Building Shell) a "Broad Form" liability insurance policy in the
amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as
a cost of the Building Shell) builder's risk insurance for the full replacement
cost of the Building Shell and Tenant Improvements while the Building Shell and
Tenant Improvements are under construction, up until the date that the casualty
insurance policy described in Section 9 is in full force and effect.
L. Punch List & Warranty: After the Building Shell and Tenant Improvements
are Substantially Complete, Landlord shall cause the General Contractor to
immediately correct any construction defect or other "punch list" item which
Tenant brings to General Contractor's attention. All such work shall be
performed so as to reasonably minimize the interruption to Tenant and its
activities on the Premises. Landlord and
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General Contractor shall provide a standard contractor's warranty with respect
to the Building Shell and the Tenant Improvements for one (1) year from the
Commencement Date. Such warranty shall exclude routine maintenance, damage
caused by Tenant's negligence or misuse, and acts of God.
M. Other Work by Tenant: All work not described in the Shell Plans and
Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant's cost. Prior to
Substantial Completion, Tenant shall be obligated to (i) providing active phone
lines to any elevators, and (ii) contract with a firm to monitor the fire
system. When the construction of the Tenant Improvements has proceeded to the
point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date (and without any obligation to pay Base
Monthly Rent and other expenses associated with the Lease) for the purpose of
installing Tenant's trade fixtures and equipment. Any such installation work by
Tenant or its authorized representatives and contractor shall be undertaken upon
the following conditions: (i) the entry into the Premises by Tenant or its
representatives or contractors shall not interfere with or delay General
Contractor's work, and (ii) any contractor used by Tenant in connection with
such entry and installation shall use union labor.
N. Landlord's Failure to Complete Construction: If the Building is not
Substantially Complete in accordance with the Building Shell Plans and
Specifications and Tenant Improvements Plans and Specifications by November 30,
2001, then Tenant, upon written notice to Landlord, shall be entitled to
complete construction of the Building and offset the cost of construction for
which Landlord is responsible under this Lease, plus interest at the Agreed
Interest Rate, against Tenant's obligation for the initial Base Monthly Rent due
under this Lease. The completion by Tenant of Landlord's construction
obligations as provided in this Section 5.N. shall be the sole and exclusive
remedy of Tenant with respect to the failure by Landlord to achieve Substantial
Completion of the Building by November 30, 2001. In the event that Tenant shall
be required to complete Landlord's Work, Landlord agrees to promptly assign to
Tenant upon demand all plans and specifications relating to construction for
which Landlord is responsible under this Lease in order to effectuate the
completion thereof, and to cooperate with Tenant in connection with the
completion of such work. Nothing herein shall diminish Landlord's obligation to
act in good faith to promptly commence and diligently prosecute the Landlord's
Work.
The foregoing notwithstanding, the November 30, 2001 date shall be extended one
day for every day of Force Majeure Delay or Tenant Delay as defined in Sections
5.H and 5.J above.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, subject to all Restrictions and without
representation or warranty by Landlord except as provided in Section 5.L. above.
Tenant's taking possession of any part of the Premises shall be deemed to be an
acceptance of any work of improvement done by Landlord in such part as complete
and in accordance with the terms of this Lease except for "Punch List" type
items of which Tenant has given Landlord written notice prior to the time Tenant
takes possession. At the time Landlord delivers possession of the Premises to
Tenant, Landlord and Tenant shall together execute an acceptance agreement.
Landlord shall have no obligation to deliver possession, nor shall Tenant be
entitled to take
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occupancy, of the Premises until such acceptance agreement has been executed,
and Tenant's obligation to pay Base Monthly Rent and Additional Rent shall not
be excused or delayed because of Tenant's failure to execute such acceptance
agreement. Within one hundred fifty (150) days after the Commencement Date,
Tenant agrees that it or its subtenant(s) will be in occupancy of at least fifty
percent (50%) of the rentable square footage of the Premises.
B. Condition Upon Surrender: Tenant further agrees on the Expiration Date
or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the best standards for maintenance, repair replacement, and
janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the Expiration Date or sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed shall
be deemed as abandoned by Tenant. At the expiration of the Lease Term, Landlord
shall not have the right to require that Tenant remove from the Premises any
Alterations made with Landlord's consent unless Landlord, at the time of
granting such consent, indicates that the subject Alteration must be removed
upon the expiration of the Lease Term. With respect to Permitted Alterations as
defined in Section 7A. below, Tenant shall ascertain from Landlord within ninety
(90) days before the Expiration Date whether Landlord desires to have such
Permitted Alterations removed. Tenant shall repair any damage to the Building
which results from Tenant's removal of any Alteration or removal of any
improvements and/or Tenant's equipment, fixtures, and components. Such repair
and restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work.
C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay and costs incurred by Landlord in returning the Premises
to the required condition, plus interest at the Agreed Interest Rate. Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession of
the Premises after the Expiration Date or sooner termination of this Lease
without Landlord's consent, Tenant's continued
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possession shall be on the basis of a tenancy at sufferance and Tenant shall pay
as rent during the holdover period an amount equal to one hundred fifty percent
(150%) of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. This
provision shall survive the termination or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent and delivering to Landlord
the proposed architectural and structural plans for all such Alterations at
least fifteen (15) days prior to the start of construction. If such Alterations
affect the structure of the Building, Tenant additionally agrees to reimburse
Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant's
plans. After obtaining Landlord's consent, which consent shall state whether or
not Landlord will require Tenant to remove such Alteration at the expiration or
earlier termination of this Lease, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably approved
by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees
to provide Landlord (i) written notice of the anticipated and actual start-date
of the work, (ii) a complete set of half-size (15" X 21") vellum as-built
drawings, and (iii) a certificate of occupancy for the work upon completion of
the Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense. Notwithstanding the foregoing,
Tenant shall be entitled, without obtaining Landlord's consent, to make
Alterations which do not affect the structure of the Building and which do not
cost more than Fifty Thousand Dollars ($50,000.00) per Alteration ("Permitted
Alterations"); provided, however, that Tenant shall still be required to comply
with all other provisions of this paragraph, and such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6.B.
above at the expiration or earlier termination of the Lease.
B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Laws or Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders now
in force or hereafter enacted, promulgated, or issued. The term also includes
government measures regulating or enforcing public access, traffic mitigation,
occupational, health, or safety standards for employers, employees, landlords,
or tenants. Tenant, at Tenant's sole expense shall make all repairs,
replacements, alterations, or improvements needed to comply with all
Governmental Regulations. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action or proceeding against Tenant (whether
Landlord be a party thereto or not) that Tenant has violated any such law,
regulation or other requirement in its use of the Premises shall be conclusive
of that fact as between Landlord and Tenant.
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8. MAINTENANCE OF PREMISES:
A. Landlord's Obligations: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv)
all windows, door entrances, plate glass and glazing systems including caulking,
and skylights, (v) all electrical facilities and equipment, (vi) all automatic
fire extinguisher equipment, (vii) the parking lot and all underground utility
facilities servicing the Premises, (viii) all elevator equipment, (ix) the roof
membrane system, and (x) all waterscape, landscaping and shrubbery. All wall
surfaces and floor tile are to be maintained in an as good a condition as when
Tenant took possession free of holes, gouges, or defacements. With respect to
items (ii), (viii) and (ix) above, Tenant shall provide Landlord a copy of a
service contract between Tenant and a licensed service contractor providing for
periodic maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord a copy of such
preventive maintenance contracts and paid invoices for the recommended work if
requested by Landlord.
C. Landlord and Tenant's Obligations Regarding Reimbursable Operating
Costs: In addition to the direct payment by Tenant of expenses as provided in
Sections 8.B, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord
for Tenant's Allocable Share (as defined in Section 8.E below) of Reimbursable
Operating Costs (as defined in Section 8.D below) resulting from Landlord
payment of expenses related to the ownership and operation of the Building or
Project which are not otherwise paid by Tenant directly. Tenant agrees to pay
its Allocable Share of the Reimbursable Operating Costs as additional rental
within thirty (30) days of written invoice from Landlord.
D. Reimbursable Operating Costs: For purposes of calculating Tenant's
Allocable Share of Building and Project Costs, the term "Reimbursable Operating
Costs" is defined as all costs and expenses of the nature hereinafter described
which are incurred by Landlord in connection with ownership and operation of the
Building or the Project in which the Premises are located, together with such
additional facilities as may be determined by Landlord to be reasonably
desirable or necessary to the ownership and operation of the Building and/or
Project. All costs and expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied (with
accruals appropriate to Landlord's business), including but not limited to the
following: (i) common area utilities, including water, power, telephone,
heating, lighting, air conditioning, ventilating, and Building utilities to the
extent not separately metered; (ii) common area maintenance and service
agreements for the Building and/or Project and the equipment therein, including
without limitation, common area janitorial services, alarm and security
services, exterior window cleaning, and maintenance of the sidewalks,
landscaping, waterscape, roof membrane, parking areas, driveways, service areas,
mechanical rooms, elevators, and the building exterior; (iii) insurance premiums
and costs, including without limitation, the premiums and cost of fire, casualty
and liability coverage and rental abatement and, if elected by Landlord,
earthquake insurance applicable to the Building or Project; (iv) repairs,
replacements and general maintenance (excluding repairs and general maintenance
paid by proceeds of insurance or by Tenant or other third parties, and repairs
or alterations attributable solely to tenants of the Building or Project other
than Tenant); and (v) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Building or Project, upon the
occupancy of the Building or Project and including any substitute or additional
charges which may be
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imposed during, or applicable to the Lease Term including real estate tax
increases due to a sale, transfer or other change of ownership of the Building
or Project, as such taxes are levied or appear on the City and County tax bills
and assessment rolls. Landlord shall have no obligation to provide guard
services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to
Landlord absolutely net of all costs and expenses. The provision for payment of
Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable
Share of Building and/or Project Costs is intended to pass on to Tenant and
reimburse Landlord for all costs of operating and managing the Building and/or
Project.
E. Tenant's Allocable Share: For purposes of prorating Reimbursable
Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable
Operating Costs shall be computed by multiplying the Reimbursable Operating
Costs by a fraction, the numerator of which is the rentable square footage of
the Premises and the denominator of which is either the total rentable square
footage of the Building if the service or cost is allocable only to the
Building, or the total square footage of the Project if the service or cost is
allocable to the entire Project. Tenant's obligation to share in Reimbursable
Operating Costs shall be adjusted to reflect the Lease Commencement and
Expiration dates and is subject to recalculation in the event of expansion of
the Building or Project.
F. Waiver of Liability: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to either
person or property, nor be construed as an eviction of Tenant, nor cause an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery utilized in supplying the
services listed herein break down or for any cause cease to function properly,
upon receipt of written notice from Tenant of any deficiency or failure of any
services, Landlord shall use reasonable diligence to repair the same promptly,
but Tenant shall have no right to terminate this Lease and shall have no claim
for rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Tenant waives the provisions of
California Civil Code Sections 1941 and 1942 concerning the Landlord's
obligation of tenantability and Tenant's right to make repairs and deduct the
cost of such repairs from the rent. Landlord shall not be liable for a loss of
or injury to person or property, however occurring, through or in connection
with or incidental to furnishing, or its failure to furnish, any of the
foregoing, unless due to the active negligence or willful misconduct of
Landlord.
9. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any purpose other than that for which the Premises are
hereby leased; and no use of the Premises shall be made or permitted, nor acts
done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance
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company's appraisers. At Landlord's election, such fire and property damage
insurance may be endorsed to cover loss caused by such additional perils against
which Landlord may elect to insure, including earthquake and/or flood, and shall
contain reasonable deductibles. Additionally Landlord may maintain a policy of
(i) commercial general liability insurance insuring Landlord (and such others
designated by Landlord) against liability for personal injury, bodily injury,
death and damage to property occurring or resulting from an occurrence in, on or
about the Premises or Project in an amount as Landlord determines is reasonably
necessary for its protection, and (ii) rental lost insurance covering a twelve
(12) month period. Tenant agrees to pay Landlord as additional rent, on demand,
the full cost of said insurance as evidenced by insurance billings to Landlord,
and in the event of damage covered by said insurance, the amount of any
deductible under such policy. Payment shall be due to Landlord within thirty
(30) days after written invoice to Tenant. It is understood and agreed that
Tenant's obligation under this Section will be prorated to reflect the Lease
Commencement and Expiration Dates.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000.00).
Tenant's liability insurance shall be primary insurance containing a
cross-liability endorsement, and shall provide coverage on an "occurrence"
rather than on a "claims made" basis. Tenant shall name Landlord and Landlord's
lender as an additional insured and shall deliver a copy of the policies and
renewal certificates to Landlord. All such policies shall provide for thirty
(30) days' prior written notice to Landlord of any cancellation, termination, or
reduction in coverage. Notwithstanding the above, Landlord retains the right to
have Tenant provide other forms of insurance which may be reasonably required to
cover future risks.
D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The Parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. All real
estate taxes shall be prorated to reflect the Lease Commencement and Expiration
Dates. If, at any time during the Lease Term a tax, excise on rents, business
license tax or any other tax, however described, is levied or assessed against
Landlord as a substitute or addition, in whole or in part, for taxes assessed or
imposed on land or Buildings, Tenant shall pay and discharge its pro rata share
of such tax or excise on rents or other tax before it becomes delinquent; except
that this provision is not intended to cover net income taxes, inheritance, gift
or estate tax imposed upon Landlord. In the event that a tax is placed, levied,
or assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact
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amount of such tax and Tenant shall pay such increase. If by virtue of any
application or proceeding brought by Landlord, there results a reduction in the
assessed value of the Premises during the Lease Term, Tenant agrees to pay
Landlord a fee consistent with the fees charged by a third party appeal firm for
such services.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and in such
event Tenant shall not be entitled to abatement or reduction of any portion of
Base Monthly Rent or any other amount payable under this Lease. The foregoing
notwithstanding, if the Premises are not supplied with any or all of the
Utilities and such failure is due to the active negligence or willful misconduct
of Landlord, Tenant shall be entitled to an abatement of rent unless such
utility or utilities are restored within two (2) business days.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Without the prior written consent of Landlord,
Tenant or Tenant's agents, employees, contractors and invitees ("Tenant's
Agents") shall not bring, use, or permit upon the Premises, or generate, create,
release, emit, or dispose (nor permit any of the same) from the Premises any
chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or toxicity or substances or materials
which are listed on any of the Environmental Protection Agency's lists of
hazardous wastes or which are identified in Division 22 Title 26 of the
California Code of Regulations as the same may be amended from time to time or
any wastes, materials or substances which are or may become regulated by or
under the authority of any applicable local, state or federal laws, judgments,
ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials") except for
those substances customary in typical office uses for which no consent shall be
required. In order to obtain consent, Tenant shall deliver to Landlord its
written proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or such
consent is not required, Tenant represents and warrants that it shall comply
with all Governmental Regulations applicable to Hazardous Materials including
doing the following: (i) adhere to all reporting and inspection requirements
imposed by Federal, State, County or Municipal laws, ordinances or regulations
and will provide Landlord a copy of any such reports or agency inspections; (ii)
obtain and provide Landlord copies of all necessary permits required for the use
and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous
Materials handling and disposal practices consistent with industry standards;
(iv) surrender the Premises free from any Hazardous Materials arising from
Tenant's bringing, using, permitting, generating, creating, releasing, emitting
or disposing of Hazardous Materials; and (v) properly close the facility with
regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches which
have come into contact with Hazardous Materials and obtain a closure certificate
from the local administering agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its
sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the
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bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or Tenant's Agents, employees or invitees through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal
law, ordinance or regulation now or hereafter in effect; (ii) claims,
liabilities, costs or expenses pertaining to the identification, monitoring,
cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water source;
(iii) all costs of defending such claims; (iv) losses attributable to diminution
in the value of the Premises or the Building; (v) loss or restriction of use of
rentable space in the Building; (vi) Adverse effect on the marketing of any
space in the Building; and (vi) all other liabilities, obligations, penalties,
fines, claims, actions (including remedial or enforcement actions of any kind
and administrative or judicial proceedings, orders or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This Section 12.B shall survive the expiration or termination of this
Lease.
Landlord shall indemnify, defend and hold Tenant harmless from losses arising
from Hazardous Materials on, in or under the Premises: (i) prior to the
Commencement Date; or (ii) as a result of Landlord action after the Commencement
Date. In no event, however, shall Landlord be liable for any consequential
damages suffered or incurred by Tenant as a result of any such presence of
Hazardous Materials.
C. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without limiting
the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days
after receipt thereof, any written notices from any governmental agency alleging
a material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which or
failure to comply with poses a foreseeable and material risk of contamination of
the ground water or injury to humans (other than injury solely to Tenant or
Tenant's Agents).
In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or Tenant's Agents,
Tenant agrees to comply, at its sole cost, with all laws, regulations,
ordinances and orders of any federal, state or local agency relating to the
monitoring or remediation of such Hazardous Materials. In the event of any such
release of Hazardous Materials Tenant shall immediately give verbal and follow-
up written notice of the release to Landlord, and Tenant agrees to meet and
confer with Landlord and its Lender to attempt to eliminate and mitigate any
financial exposure to such Lender and resultant exposure to Landlord under
California Code of Civil Procedure Section 736(b) as a result of such release,
and promptly to take reasonable monitoring, cleanup and remedial steps given,
inter alia, the historical uses to which the Property has and continues to be
used, the risks to public health posed by the release, the then available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable customary practices for the type and severity of such contamination
and all applicable laws. Nothing in the preceding sentence shall eliminate,
modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify,
defend and hold
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Landlord harmless from any claims liabilities, costs or expenses incurred or
suffered by Landlord. Tenant shall provide Landlord prompt written notice of
Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.
D. Environmental Monitoring: Landlord and its agents shall have the right
to inspect, investigate, sample and monitor the Premises including any air,
soil, water, ground water or other sampling or any other testing, digging,
drilling or analysis to determine whether Tenant is complying with the terms of
this Section 12. If Landlord discovers that Tenant is not in compliance with the
terms of this Section 12, any such costs incurred by Landlord, including
attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord
within five (5) days following Landlord's written demand therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
the Base Monthly Rent including additional rent or any other payment due under
this Lease, where such failure continues for ten (10) days beyond Tenant's
receipt of written notice from Landlord that such amount is due, (ii) the
abandonment or vacation of the Premises by Tenant; (iii) Tenant's failure to
observe and perform any other required provision of this Lease, where such
failure continues for thirty (30) days after written notice from Landlord,
provided that if the nature of the default is such that it cannot reasonably be
cured within the 30-day period, Tenant shall not be deemed in default if it
commences within such period to cure, and thereafter diligently prosecutes the
same to completion; (iv) Tenant's making of any general assignment for the
benefit of creditors; (v) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed after the filing); (vi) the appointment of
a trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (vii) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
A. Remedies: In the event of any such default by Tenant, then in addition
to other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as
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taxes, insurance premiums, utilities and security precautions; and (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted by applicable California law. The term "rent", as
used herein, is defined as the minimum monthly installments of Base Monthly Rent
and all other sums required to be paid by Tenant pursuant to this Lease, all
such other sums being deemed as additional rent due hereunder. As used in (i)
and (ii) above, "worth at the time of award" shall be computed by allowing
interest at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at
the time of award" 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
(1%) percent.
B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if
any, shall be held by Landlord and applied in payment of future Base Monthly
Rent as the same may become due and payable hereunder. Landlord shall the
obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during any
month be less than the rent payable during that month by Tenant hereunder, then
Tenant shall pay such deficiency to Landlord immediately upon demand. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate this
Lease unless written notice of such intention is given to Tenant or unless the
termination is decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant
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when the Tenant is holding over without express written consent does not convert
Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No
waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy for the violation of that provision, even if that
violation continues or is repeated. Any waiver by Landlord of any provision of
this Lease must be in writing. Such waiver shall affect only the provision
specified and only for the time and in the manner stated in the writing. No
delay or omission in the exercise of any right or remedy by Landlord shall
impair such right or remedy or be construed as a waiver thereof by Landlord. No
act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute acceptance of the surrender of the
Premises by Tenant before the Expiration Date. Only written notice from Landlord
to Tenant of acceptance shall constitute such acceptance of surrender of the
Premises. Landlord's consent to or approval of any act by Tenant which requires
Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, after ten (10) days prior written notice to Tenant, without
waiving any rights or remedies and without releasing Tenant from its obligations
hereunder, perform such obligation, in which event Tenant shall pay Landlord as
additional rent all sums paid by Landlord in connection with such substitute
performance, including interest at the Agreed Interest Rate (as defined in
Section 19.J) within ten (10) days of Landlord's written notice for such
payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) monetary term or condition of this Lease for four or
more times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose of
this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
14. LANDLORD'S LIABILITY:
A. Limitation on Landlord's Liability: In the event of Landlord's failure
to perform any of its covenants or agreements under this Lease, Tenant shall
give Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim for breach or
resultant damages, provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with notice of its interest in the Premises, and shall provide
Mortgagee a reasonable opportunity to cure such failure, including such time to
obtain possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been assigned is an expressed third-party
beneficiary hereof. Tenant waives any right under California Civil Code Section
1950.7 or any other present or future law to the collection of any payment or
deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's
interest unless Mortgagee or such purchaser shall have actually received and not
refunded the applicable payment or deposit. Tenant further waives any right to
terminate this Lease and to vacate the Premises on Landlord's default under this
Lease. Tenant's sole remedy on Landlord's default is an action for damages or
injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint
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venture, unincorporated association or other form of business entity, then (i)
the obligations of Landlord shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals or representatives except to the extent of
their interest in the Premises. Tenant shall have recourse only to the interest
of Landlord in the Premises or for the satisfaction of the obligations of
Landlord and shall not have recourse to any other assets of Landlord for the
satisfaction of such obligations.
C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, except
to the extent caused by the willful misconduct or active negligence of Landlord
or from the failure of Tenant to keep the Premises in good condition and repair
as herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord and Tenant. In no event shall Landlord be required to replace or
restore Alterations, Tenant Improvements paid for by Tenant from sources other
than the Work Allowance or Tenant's fixtures or personal property. With respect
to a destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section 1932,
and Section 1933, Subdivision 4, of the Civil Code of the State of California,
and any other similarly enacted statute, and the provisions of this Section 15
shall govern in the case of such destruction.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord, (iv)
the damage or destruction occurs in the last twenty four (24) months of the
Lease Term (unless Tenant has exercised or exercises, within five (5) business
days, an option to extend the Lease Term), (v) Tenant is in default pursuant to
the provisions of Section 13, or (vi) Tenant has vacated the Premises for more
than ninety (90) days. In any such event Landlord may elect either to (i)
complete the repair or restoration, or (ii) terminate this Lease by providing
Tenant written notice of its election within sixty (60) days following the
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damage or destruction. In the event of the occurrence of (i) or (iv) above,
Tenant also shall have the right to terminate this Lease by providing Landlord
written notice of its election within sixty (60) days following the damage or
destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. Further, in the event of such partial
taking, Landlord shall have the option to terminate this Lease as of the Vesting
Date to the part of the Premises condemned. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall terminate on the Vesting Date. If part or
all of the Premises be taken, all compensation awarded upon such taking shall go
to Landlord, and Tenant shall have no claim thereto. Notwithstanding the
foregoing, Tenant: (i) shall be entitled to a separate award for any increased
rent Tenant becomes obligated to pay as a result of such taking for the
remainder of the Lease Term, and (ii) shall have the right to make a separate
claim in any condemnation proceeding for the taking of the unamortized or
undepreciated value of the Tenant Improvements and Alterations owned by Tenant
which Tenant may remove at the expiration or earlier termination of this Lease,
reasonable removal and relocation costs for any improvements Tenant has the
right to remove and elects to remove, relocation costs, the claim for which
Tenant may pursue by separate action independent of this Lease and any other
amount that does not reduce the amount of the award payable to Landlord. Tenant
shall have the right to negotiate directly with the condemnor for the recovery
of the portion of the award that Tenant is entitled to under subsection (ii)
above. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue, and the
provisions of this Section 16 shall govern in the case of a taking.
17. ASSIGNMENT OR SUBLEASE:
A. Consent by Landlord: Except as specifically provided in Section 17.E.
below, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord. In the event
Tenant desires to assign this Lease or any interest herein or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years, (iii) the nature of the proposed transferee's
business to be carried on in the Premises, (iv) a statement outlining all
consideration to be given on account of the Transfer, and (v) a current
financial statement of Tenant. Landlord may condition its approval of any
Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have ten (10) business
days following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease for such part of the
Premises (provided, however, that Landlord shall have no such right to terminate
for any sublease or assignment expiring more than two (2) years prior to the
Lease Expiration Date); (ii) permit Tenant to assign or sublet such space to the
named assignee/subtenant on the terms and conditions set forth in the notice; or
(iii) refuse consent. If Landlord should fail to notify Tenant in writing of
such election within the 10 business-day period, Landlord shall be deemed to
have elected option (iii) above. In the event Landlord elects option (i) above,
this Lease shall expire with respect to such part of the Premises on the date
upon which the proposed sublease or transfer was
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to commence, and from such date forward, Base Monthly Rent and Tenant's
Allocable Share of all other costs and charges shall be adjusted based upon the
proportion that the rentable area of the Premises remaining bears to the total
rentable area of the Building. In the event Landlord elects option (ii) above,
Landlord's written consent to the proposed assignment or sublease shall not be
unreasonably withheld, provided and upon the condition that: (i) the proposed
assignee or subtenant is engaged in a business that is limited to the use
expressly permitted under this Lease; (ii) the proposed assignee or subtenant is
a company with sufficient financial worth and management ability to undertake
the financial obligation of this Lease and Landlord has been furnished with
reasonable proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) the amount of the aggregate rent to be
paid by the proposed subtenant is not less than the then current "Fair Market
Rental" as defined in Section 18.A below; (v) Tenant reimburses Landlord on
demand for any costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent; and (vi) Tenant shall not
have advertised or publicized in any way the availability of the Premises
without prior notice to Landlord. In the event all or any one of the foregoing
conditions are not satisfied, Landlord shall be considered to have acted
reasonably if it withholds its consent.
B. Assignment or Subletting Consideration: Landlord and Tenant hereby agree
that fifty percent (50%) of any rent or other economic consideration (i)
realized by Tenant under any sublease or assignment, or (ii) realized by any
subtenant under any sub-sublease of the Premises, in excess of the Base Monthly
Rent payable hereunder and reasonable subletting and assignment costs, and other
costs incurred as a direct result of the sublease or assignment, shall be paid
to Landlord. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The above
provisions relating to Landlord's right to terminate the Lease and relating to
the allocation of excess rent are independently negotiated terms of the Lease
which constitute a material inducement for the Landlord to enter into the Lease,
and are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.
C. No Release: Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant. Tenant
shall indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other
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reorganization of or affecting Tenant, where Tenant is not the surviving
corporation, or (ii) there is a sale or transfer to one person or entity (or to
any group of related persons or entities) of stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors, and after such
sale or transfer of stock Tenant's stock is no longer publicly traded. In a
transaction under clause (i) the surviving corporation shall promptly execute
and deliver to Landlord an agreement in form reasonably satisfactory to Landlord
under which such surviving corporation assumes the obligations of Tenant
hereunder, and in a transaction under clause (ii) the transferee or buyer shall
promptly execute and deliver to Landlord an agreement in form reasonably
satisfactory to Landlord under which such transferee or buyer assumes the
obligations of Tenant under the Lease.
E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination if
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon the transferor shall be discharged
from any further liability in reference thereto.
F. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
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18. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Provided Tenant simultaneously exercises
its options for Buildings A, B, C, and D, Landlord grants to Tenant, subject to
the terms and conditions set forth in this Section 18.A, two (2) options (the
"Options") to extend the Lease Term for an additional term (the "Option Term").
Each Option Term shall be for a period of eighty four (84) months and shall be
exercised, if at all, by written notice to Landlord no earlier than eighteen
(18) months prior to the date the Lease Term would expire but for such exercise
but no later than twelve (12) months prior to the date the Lease Term would
expire but for such exercise, time being of the essence for the giving of such
notice. If Tenant exercises the Option, all of the terms, covenants and
conditions of this Lease except for the grant of additional Options pursuant to
this Section, provided that Base Monthly Rent for the Premises payable by Tenant
during the Option Term shall be the greater of (i) the Base Monthly Rent
applicable to the period immediately prior to the commencement of the Option
Term, and (ii) ninety five percent (95%) of the Fair Market Rental as
hereinafter defined. Notwithstanding anything herein to the contrary, (i) if
Tenant is in monetary or material non-monetary default under any of the terms,
covenants or conditions of this Lease either at the time Tenant exercises the
Option or at any time thereafter prior to the commencement date of the Option
Term, or (ii) if the net worth of Tenant as reported in Tenant's most recent
financial statements is less than the net worth of Tenant as of the date of
execution of this Lease, then Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the Lease Term shall
not be extended pursuant to this Section 18.A. As used herein, the term "Fair
Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the same real estate submarket as the Building. The appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to offset
comparable rents that include the following costs which Landlord will not incur
in the event Tenant exercises its option (i) brokerage commissions, (ii) tenant
improvement allowances, (iii) building improvement costs, and (iv) vacancy
costs.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 18.C and
such procedures are not concluded prior to the commencement date of the Option
Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental
as determined by Landlord in the manner provided above. If the Fair Market
Rental as finally determined pursuant to Section 18.C is greater than Landlord's
determination, Tenant shall pay Landlord the difference between the amount paid
by Tenant and the Fair Market Rental as so determined in Section 18.C within
thirty (30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the difference
between the amount paid by Tenant
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and the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of Base Monthly Rent due from Tenant to Landlord
hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a
determination of Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the 30-day consultation
period described above.
3. If only one appraisal is submitted within the requisite time period,
it shall be deemed as Fair Market Rental. If both appraisals are submitted
within such time period and the two appraisals so submitted differ by less than
ten percent (10%), the average of the two shall be deemed as Fair Market Rental.
If the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be members
of the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to Nvidia Corporation and are not exercisable by any third
party should Tenant assign or sublet all or a portion of its rights under this
Lease, unless Landlord consents to permit exercise of any option by any assignee
or subtenant, in Landlord's sole and absolute discretion. In the event Tenant
has multiple options to extend this Lease, a later option to extend the Lease
cannot be exercised unless the prior option has been properly exercised.
19. General Provisions:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than CPS
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Commercial Real Estate and Tenant agrees to indemnify, defend and hold Landlord
harmless against any claim, cost, liability or cause of action asserted by any
other broker or finder claiming through Tenant.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code ss. 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING
RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE
SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE
ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN
APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES
OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO
PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION
PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CAlIFORNIA
ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA
CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE
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MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"MEDIATION AND ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO
THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. Entire Agreement: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the Parties hereto and may not
be modified orally or in any other manner other than by written agreement signed
by all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of Landlord under the Lease
including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (v) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (vi) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within one
hundred eighty (180) days prior to the Expiration Date (or at any time during
the Lease if Tenant is in default hereunder), to place upon the Premises "For
Lease" signs and exhibit the Premises to real estate brokers and prospective
tenants at reasonable hours.
H. Estoppel Certificates: At any time during the Lease Term, Tenant shall,
within ten (10) days following written notice from Landlord, execute and deliver
to Landlord a written statement certifying, if true, the following: (i) that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification); (ii) the date to which rent and other charges
are paid in advance, if any; (iii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on Landlord's part hereunder (or specifying such
defaults if they are claimed); and (iv) such other information as Landlord may
reasonably request. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of Landlord's interest in the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon the Tenant that this Lease is in full force and effect without
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modification, except as may be represented by Landlord, and that there are no
uncured defaults in Landlord's performance. Tenant agrees to provide, within
five (5) days of Landlord's request, Tenant's most recent three (3) years of
audited financial statements for Landlord's use in financing or sale of the
Premises or Landlord's interest therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.
K. Modifications Required by Lender: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand, agree
and acknowledge that this Lease has been freely negotiated by both Parties; and
that in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. Notices: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section 1161 or any similar or successor statute. When a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) shall replace and satisfy
the statutory service-of-notice procedures, including those required by Code of
Civil Procedure Section 1162 or any similar or successor statute.
N. Property Management: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of two
percent (2%) of the Base Monthly Rent.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties or
promises with respect to the Premises or with respect to present
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or future rents, expenses, operations, tenancies or any other matter. Except as
herein expressly set forth herein, Tenant relied on no statement of Landlord or
its employees or agents for that purpose.
Q. Rights and Remedies: Subject to Section 14 above, All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.
T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrances ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default and continues to pay Base Monthly Rent and
additional rent and observes and performs all required provisions of this Lease.
Within ten (10) days after Landlord's written request, Tenant shall execute any
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance. If Tenant fails to do so, then in addition to such
failure constituting a default by Tenant, it shall be deemed that this Lease is
so subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.
U. Survival of Indemnities: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency
or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by Landlord with such costs being
included as
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additional rent and reimbursed to Landlord by Tenant within thirty (30) days
after demand. If TDM facilities and programs are instituted on a Project wide
basis, Tenant shall pay its proportionate share of such costs in accordance with
Section 8 above.
X. Waiver of Right to Jury Trial: Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
21. RIGHT OF FIRST OFFER TO PURCHASE:
A. Grant and Exercise of Option: In the event Landlord elects to
sell the Building either separately or as part of a larger sale including other
building(s) within the Project ("Offered Property"), Landlord (referred
hereinafter in this Section 21 as "Seller") hereby grants Tenant a right of
first offering to purchase. Prior to Seller committing to sell its interest in
the Offered Property to a third party, Seller shall give Tenant written notice
of such desire and the terms and other information under which Seller intends to
sell the Offered Property. Provided at the time of such written notice: (i)
Tenant leases at least two buildings within the Project; and (ii) Tenant is not
in default under the Lease beyond the expiration of any applicable cure period,
Tenant shall have the option, which must be exercised, if at all, by written
notice to Seller within thirty (30) days after Tenant's receipt of Seller's
notice, to purchase its interest in the Offered Property at the sales price and
terms of sale specified in the notice. In the event Tenant timely exercises such
option to purchase its interest in the Offered Property, Seller shall sell its
interest in the Offered Property to Tenant, and Tenant shall purchase its
interest in the Offered Property from Seller in accordance with the price and
terms specified in Seller's notice. Seller and Tenant shall, in good faith,
attempt to reach agreement on the terms of a mutually acceptable purchase
agreement consistent with the terms set forth in Seller's notice within thirty
(30) days of Seller's notice. In the event (i) Seller and Tenant are unable to
reach agreement on a mutually acceptable purchase agreement within such thirty
(30) day period or (ii) Tenant fails to exercise Tenant's option within said
thirty (30) day period, Seller shall have one hundred eighty (180) days
thereafter to sell its interest in the Offered Property at no less than ninety
five percent (95%) of the sales price and upon substantially the same other
terms of sale as specified in the notice to Tenant. In the event Seller fails to
sell its interest in the Offered Property within said one hundred eighty (180)
day period or in the event Seller proposes to sell its interest in the Offered
Property at less than ninety five percent (95%) of the sales price or on other
material terms which are more favorable to the prospective buyer than that
proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in
accordance with this Right of First Offering except that Tenant shall be
required to respond to any resubmission within a seven (7) day period.
B. Exclusions: This Right of First Offering shall automatically
terminate, (i) upon the expiration or sooner termination of the Lease, or (ii)
in the event of a foreclosure or other involuntary transfer of Landlord's
interest in the Building. Further, this Right of First Offering shall not apply
to transfers (but shall survive such transfers ) of all or a portion of the
Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually
and collectively "Sobrato"), and (ii) any immediate family member of Sobrato,
and (iii) any trust established, in whole or in art, for the benefit of Sobrato
and/or any immediate family member of Sobrato, (iv) any partnership in which
Sobrato or any immediate family member, either directly or indirectly (e.g.,
through a partnership or corporate entity or a trust) retains a general partner
interest, and/or (v) any corporation under the control, either directly or
indirectly, by Sobrato or any immediate family member of Sobrato.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord: Sobrato Interests III, Tenant: Nvidia Corporation,
a California Limited Partnership a Delaware Corporation
By: /s/ John Michael Sobrato * By: /s/ Jen-Hsun Huang
_____________________________ _____________________________
Its: Its:
_____________________________ _____________________________
* By: /s/ Christine B. Hoberg
_____________________________
Its:
_____________________________
* NOTE: This lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president, or a vice president, and the
other being the secretary, an assistant secretary, the chief financial officer
or an assistant treasurer. If one (1) individual is signing in two (2) of the
foregoing capacities, that individual must sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
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EXHIBIT "A" - BUILDING AND PROJECT
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EXHIBIT "B" - Declaration of Covenants, Codes and Restrictions
(to be attached)
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EXHIBIT "C" - Draft Letter of Credit
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EXHIBIT "D" - Building Shell Definition
1. Building Structure
(a) Foundations including footings, grade beams, or other building foundation
components required to support the building structure.
(b) Five inch (5") thick concrete slab on grade with welded wire mesh and any
other reinforcing or structural connections that may be necessary or required as
specified by structural engineer.
(c) Complete structural framing system comprised of rolled steel beams,
columns, and braced-frame steel construction with corrugated metal deck and
concrete fill, all members required by code to be fireproofed. Upper floor
systems provide a minimum of 3" concrete over metal deck and are designed for an
80 lb. live load plus 20 lb. partition load. Structural framing will include
intermediate beams for HVAC units at the roof, and for major shafts on each
floor.
(d) Performance glass with GFRC, stone, aluminum and stainless steel exterior
building skin. All exterior doors, door closer and locking devices as necessary.
(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and
all flashings over a perlite board and corrugated metal deck roof assembly.
Title 24 code required roof insulation is included.
(f) Exterior painting of all non-finished metals and caulking of all exterior
joints.
(g) Concrete pan-filled stairs in the interior core of each building, and two
(2) concrete pan-filled stair sets at the Building perimeter.
(h) Riser for building sprinkler system (no sprinkler grid or drops).
2. Sitework
(a) All work outside the building perimeter walls shall be considered site work
for the Building Shell and
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shall include asphalt concrete paving, parking (including a parking structure),
landscaping, landscape irrigation, storm drainage, utility service laterals,
curbs, gutters, sidewalks, retaining walls, planters, trash enclosures, parking
lot and landscape lighting and other exterior lighting per code.
(b) Paving sections for automobile and truck access shall be according to the
Geologic Soils Report.
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the city storm
system main.
3. Plumbing
(a) Underground sanitary sewer laterals connected to the city sewer main in the
street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street and
stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site storm
drainage system.
(d) Gas lines connected to the city or public utility mains and run to gas
meters adjacent to, and in close proximity to the building. Meter supplied by
utility company.
4. Electrical
(a) A primary and secondary electrical service from the street to the building
electrical room limited to underground conduit, pull-string, and transformer
pad. Transformer supplied by utility company.
(b) Two 4" underground conduit from the street to the building for telephone
trunk lines by Pacific Bell.
(c) An electrically operated landscape irrigation system, with controller, that
is a complete and functioning system.
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(d) Underground conduit with pull-string from the building to the main fire
protection system post indicated valve (PIV) for installation of supervisory
alarm wiring.
6. General
(a) All construction shall conform to State and Local Building Codes, Title 24
Regulations, and shall be ADA Compliant.
All other costs shall be deemed Tenant Improvements.
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EXHIBIT 10.4
Lease between
Sobrato Interests III and Nvidia Corporation
<TABLE>
<CAPTION>
Section Page #
<S> <C>
Parties............................................................................................................. 1
Premises............................................................................................................ 1
Definitions...................................................................................................... 1
Description...................................................................................................... 2
Use................................................................................................................. 2
Permitted Uses................................................................................................... 2
Uses Prohibited.................................................................................................. 2
Advertisements and Signs......................................................................................... 3
Covenants, Conditions and Restrictions........................................................................... 3
Term and Rental..................................................................................................... 3
Base Monthly Rent................................................................................................ 3
Late Charges..................................................................................................... 3
Security Deposit................................................................................................. 4
Construction........................................................................................................ 5
Building Shell Construction...................................................................................... 5
Tenant Improvement Construction.................................................................................. 5
Pricing.......................................................................................................... 6
Change Orders.................................................................................................... 6
Building Shell Costs............................................................................................. 7
Tenant Improvement Costs......................................................................................... 7
Force Majeure.................................................................................................... 8
General Contractor Overhead & Profit............................................................................. 8
Tenant Delays.................................................................................................... 8
Insurance........................................................................................................ 8
Punch List & Warranty............................................................................................ 8
Other Work by Tenant............................................................................................. 9
Landlord's Failure to Complete Construction...................................................................... 9
Acceptance of Possession and Covenants to Surrender................................................................. 9
Delivery and Acceptance.......................................................................................... 9
Condition Upon Surrender......................................................................................... 10
Failure to Surrender............................................................................................. 10
Alterations and Additions........................................................................................... 11
Tenant's Alterations............................................................................................. 11
Free From Liens.................................................................................................. 11
Compliance With Governmental Regulations......................................................................... 11
</TABLE>
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<TABLE>
<S> <C>
Maintenance of Premises............................................................................................... 12
Landlord's Obligations............................................................................................. 12
Tenant's Obligations............................................................................................... 12
Landlord and Tenant's Obligations Regarding Reimbursable Operating Costs........................................... 12
Reimbursable Operating Costs....................................................................................... 12
Tenant's Allocable Share........................................................................................... 13
Waiver of Liability................................................................................................ 13
Hazard Insurance...................................................................................................... 13
Tenant's Use....................................................................................................... 13
Landlord's Insurance............................................................................................... 13
Tenant's Insurance................................................................................................. 14
Waiver............................................................................................................. 14
Taxes................................................................................................................. 14
Utilities............................................................................................................. 15
Toxic Waste and Environmental Damage.................................................................................. 15
Tenant's Responsibility............................................................................................ 15
Tenant's Indemnity Regarding Hazardous Materials................................................................... 15
Actual Release by Tenant........................................................................................... 16
Environmental Monitoring........................................................................................... 17
Tenant's Default...................................................................................................... 17
Remedies........................................................................................................... 17
Right to Re-enter.................................................................................................. 18
Abandonment........................................................................................................ 18
No Termination..................................................................................................... 18
Non-Waiver......................................................................................................... 18
Performance by Landlord............................................................................................ 19
Habitual Default................................................................................................... 19
Landlord's Liability.................................................................................................. 19
Limitation on Landlord's Liability................................................................................. 19
Limitation on Tenant's Recourse.................................................................................... 19
Indemnification of Landlord........................................................................................ 20
Destruction of Premises............................................................................................... 20
Landlord's Obligation to Restore................................................................................... 20
Limitations on Landlord's Restoration Obligation................................................................... 20
Condemnation.......................................................................................................... 21
Assignment or Sublease................................................................................................ 21
Consent by Landlord................................................................................................ 21
Assignment or Subletting Consideration............................................................................. 22
No Release......................................................................................................... 22
Reorganization of Tenant........................................................................................... 22
Permitted Transfers................................................................................................ 23
Effect of Default.................................................................................................. 23
Effects of Conveyance.............................................................................................. 23
Successors and Assigns............................................................................................. 23
</TABLE>
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<TABLE>
<S> <C>
Option to Extend the Lease Term....................................................................................... 24
Grant and Exercise of Option....................................................................................... 24
Determination of Fair Market Rental................................................................................ 24
Resolution of a Disagreement over the Fair Market Rental........................................................... 25
Personal to Tenant................................................................................................. 25
General Provisions.................................................................................................... 25
Attorney's Fees.................................................................................................... 25
Authority of Parties............................................................................................... 25
Brokers............................................................................................................ 25
Choice of Law...................................................................................................... 26
Dispute Resolution................................................................................................. 26
Entire Agreement................................................................................................... 27
Entry by Landlord.................................................................................................. 27
Estoppel Certificates.............................................................................................. 27
Exhibits........................................................................................................... 28
Interest........................................................................................................... 28
Modifications Required by Lender................................................................................... 28
No Presumption Against Drafter..................................................................................... 28
Notices............................................................................................................ 28
Property Management................................................................................................ 28
Rent............................................................................................................... 28
Representations.................................................................................................... 28
Rights and Remedies................................................................................................ 29
Severability....................................................................................................... 29
Submission of Lease................................................................................................ 29
Subordination...................................................................................................... 29
Survival of Indemnities............................................................................................ 29
Time............................................................................................................... 29
Transportation Demand Management Programs.......................................................................... 29
Waiver of Right to Jury Trial...................................................................................... 30
Right of First Offer to Purchase...................................................................................... 30
Grant and Exercise of Option....................................................................................... 30
Exclusions......................................................................................................... 30
EXHIBIT A - Building and Project...................................................................................... 32
EXHIBIT B - CC&R Declaration.......................................................................................... 33
EXHIBIT C - Draft Letter of Credit.................................................................................... 34
EXHIBIT D - Building Shell Definition................................................................................. 35
EXHIBIT E - Building Shell Plans and Specifications................................................................... 38
EXHIBIT F - Tenant Improvement Plans and Specifications............................................................... 39
</TABLE>
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1. PARTIES: THIS LEASE, is entered into on this 4th day of April, 2000,
("Effective Date") between Sobrato Interests III, a California Limited
Partnership, whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino, CA 95014 and Nvidia Corporation, a Delaware Corporation, whose
address is 3535 Monroe Street, Santa Clara, California, 95051, hereinafter
called respectively Landlord and Tenant.
2. PREMISES:
A. Definitions.
i. Building D. The term "Building D" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
and all Tenant Improvements installed therein to be constructed by Landlord and
leased by Tenant pursuant to the terms of this Lease in the location labeled as
Building D on Exhibit "A" attached hereto and commonly known as 2701 San Tomas
----------
Expressway, Santa Clara, California.
ii. Building B. The term "Building B" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building B on
Exhibit "A" and commonly known as 2731 San Tomas Expressway, Santa Clara,
- ----------
California.
iii. Building C. The term "Building C" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building C on
Exhibit "A" and commonly known as 2711 San Tomas Expressway, Santa Clara,
- ----------
California.
iv. Building A. The term "Building A" shall mean that three (3)
story steel frame building containing approximately 125,000 rentable square feet
which Landlord intends to construct in the location labeled as Building A on
Exhibit "A" and commonly known as 2721 San Tomas Expressway, Santa Clara,
- ----------
California.
v. Common Area. The term "Common Area" shall initially mean that
certain real property and all improvements thereon surrounding Building A,
Building C and Building D, including surface parking, a multi-level parking
structure to accommodate approximately 550 cars, and all landscaped areas. At
completion of Building B, the term "Common Area" shall mean that certain real
property and all improvements thereon surrounding the Building A, Building B,
Building C, and Building D, including surface parking to accommodate
approximately 1,150 cars, a multi-level parking structure estimated to cost Five
Million Dollars ($5,000,000.00) to accommodate approximately 550 cars, and all
landscaped areas. Tenant shall have the non-exclusive right to utilize the
Common Area as specifically set forth in a Declaration of Covenants, Conditions
and Restrictions (" CC&R Declaration") to be prepared by Landlord and attached
to the Lease as Exhibit "B" within thirty (30) days following Lease execution.
----------
The CC&R Declaration shall be subject to Tenant's approval, which approval shall
not be unreasonably withheld or delayed.
vi. Project. The term "Project" shall be that certain real
property consisting of approximately 19.2 acres at the corner of San Tomas
Expressway and Walsh Avenue in Santa Clara, California, and all improvements
constructed thereon consisting, at full buildout, of Building A, Building B,
Building C, Building D, and the Common Area as shown in Exhibit "A". Tenant
----------
shall be responsible to ensure that the total number of vehicles parked in the
Project by employees and invitees of Tenant pursuant to this
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Lease does not exceed 425.
vii. Premises. The term "Premises" shall mean Building D, also
referred to herein as "Building", and a non-exclusive right to use the Common
Area. Unless expressly provided otherwise, the term Premises as used herein
shall include the Tenant Improvements (defined in Section 5.B) constructed by
Tenant pursuant to Section 5.B. Tenant acknowledges Landlord's right to and
hereby consents to Landlord's construction of the Project and Common Area.
B. Grant: Landlord hereby leases the Premises to Tenant, and Tenant
hires the Premises from Landlord.
C. Recordation of Parcel Map and Declaration: Tenant consents to
recordation by Landlord of a Parcel Map ("Parcel Map") and CC&R Declaration
provided, however, that Landlord shall not record the Parcel Map and CC&R
Declaration until Tenant has had fifteen (15) business days to review. Landlord
is seeking approval of the Parcel Map and CC&R Declaration to subdivide the
existing parcel into smaller lots to facilitate Landlord's operation,
construction, financing, lease and/or sale of the Project in parts. Landlord's
failure to obtain approval of the Parcel Map or CC&R Declaration shall in no way
invalidate this Lease. In the event the Parcel Map and CC&R Declaration are
recorded by Landlord, the Section 2.A.vi shall be replaced by following: The
term "Premises" shall mean (i) the Building; and (ii) the nonexclusive right to
use the Common Area in accordance with the terms and conditions of the CC&R
Declaration and this Lease. This Lease shall be subject and subordinate in all
respects to the CC&R Declaration, as the same may be amended from time to time.
Tenant covenants and agrees to refrain from doing or causing to be done, or
permitting any thing or act to be done, which would constitute a default under
the CC&R Declaration or which would or might make Landlord liable for any
damages, claims or penalty. All assessments charged to the Premises pursuant to
the CC&R Declaration shall constitute a part of Tenant's Allocable Share of
Reimbursable Operating Costs pursuant to Section 8 of this Lease.
3. USE:
A. Permitted Uses: Tenant shall use the Premises as permitted under
applicable zoning laws only for the following purposes and shall not change the
use of the Premises without the prior written consent of Landlord: Office,
research and development, sales, testing, marketing, production, distribution,
failure analysis, light manufacturing, ancillary storage and other incidental
and similar uses. Tenant shall use only the number of parking spaces allocated
to Tenant under this Lease. All commercial trucks and delivery vehicles shall
(i) be parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the Project,
and (iii) permitted to remain within the Project only so long as is reasonably
necessary to complete the loading and unloading. Landlord makes no
representation or warranty that any specific use of the Premises desired by
Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be committed on
the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the Premises, (ii) attach, hang or suspend anything from the ceiling, walls
or columns of the building or set any load on the floor in excess of the load
limits for which such items are designed, or (iii) generate dust, fumes or waste
products which create a fire or health hazard or damage the Premises or any
portion of the Project, including without limitation the soils or ground water
in or around the Project. No materials, supplies, equipment, finished products
or semi-finished products, raw materials or articles of any nature, or any waste
materials, refuse, scrap or debris, shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building without
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Landlord's prior approval, which approval may be withheld in its sole
discretion.
C. Advertisements and Signs: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city and
other governing authority having jurisdiction. Tenant will not place or permit
to be placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred
twenty nine (129) months, commencing on substantial completion of construction
as determined pursuant to Section 5.B (the "Commencement Date") estimated to
occur on June 1, 2001 and ending one hundred twenty nine (129) months
thereafter, ("Expiration Date"). Notwithstanding the Parties agreement that the
Lease Term begins on the Commencement Date, this Lease and all of the
obligations of Landlord and Tenant shall be binding and in full force and effect
from and after the Effective Date. In addition to all other sums payable by
Tenant under this Lease, Tenant shall pay base monthly rent ("Base Monthly
Rent") for the Premises according to the following schedule:
Months 01 - 12: $375,000.00 ($3.00 p.s.f.)
Months 13 - 24: $388,750.00 ($3.11 p.s.f.)
Months 25 - 36: $401,250.00 ($3.21 p.s.f.)
Months 37 - 48: $416,250.00 ($3.33 p.s.f.)
Months 49 - 60: $430,000.00 ($3.44 p.s.f.)
Months 61 - 72: $445,000.00 ($3.56 p.s.f.)
Months 73 - 84: $461,250.00 ($3.69 p.s.f.)
Months 85 - 96: $477,500.00 ($3.82 p.s.f.)
Months 97 - 108: $493,750.00 ($3.95 p.s.f.)
Months 109 - 120: $511,250.00 ($4.09 p.s.f.)
Months 121 - 129: $528,750.00 ($4.23 p.s.f.)
Upon Substantial Completion of construction, the Building shall be measured by
Tenant's Architect (as defined in Section 5.B) from outside wall/glass to
outside wall/glass of each floor, without deductions, to arrive at the actual
rentable square footage ("Rentable Square Footage"). If the Rentable Square
Footage differs from 125,000 square feet, the Base Monthly Rent for each year of
the Lease Term shall be modified so as to equal the product of (i) the Rentable
Square Footage, and (ii) the price-per-square-foot rate for each year as shown
in the above schedule.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated in writing by Landlord during the Lease Term. Base Monthly Rent for
any period less than a calendar month shall be a pro rata portion of the monthly
installment. Concurrently with Tenant's execution of this Lease, Tenant shall
pay to Landlord the sum of One Hundred Eighty Seven Thousand Five Hundred
Dollars ($187,500.00) as prepaid rent for one half of the first month of the
Lease. The remaining half ($187,500.00) shall be paid by Tenant to Landlord no
later than December 20, 2000.
B. Late Charges: Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Monthly Rent and other sums
Page 3
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due hereunder will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which is extremely difficult to ascertain. Such costs
include but are not limited to: administrative, processing, accounting, and late
charges which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee within five (5) days after Tenant has
received written notice from Landlord of non-payment, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.J following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
D. Security Deposit: Unless Tenant elects to post a Letter of Credit as
provided below, Tenant shall deposit with Landlord prior to the Commencement
Date the sum of Three Hundred Seventy Five Thousand Dollars ($375,000.00)
("Security "Deposit"). Landlord shall not be deemed a trustee of the Security
Deposit, may use the Security Deposit in business, and shall not be required to
segregate it from its general accounts. Tenant shall not be entitled to interest
on the Security Deposit. If Tenant defaults with respect to any provisions of
the Lease, including but not limited to the provisions relating to payment of
Base Monthly Rent or other charges, Landlord may, to the extent reasonably
necessary to remedy Tenant's default, use any or all of the Security Deposit
towards payment of the following: (i) Base Monthly Rent or other charges in
default; (ii) any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default including, but not limited to Tenant's
failure to restore or clean the Premises following vacation thereof. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord. If Tenant shall be in monetary default more than
three (3) times in any twelve (12) month period, irrespective of whether or not
such default is cured, then the Security Deposit shall, within ten (10) days
after demand by Landlord, be increased by Tenant to an amount equal to three (3)
times the Base Monthly Rent. Tenant may not assign or encumber the Security
Deposit without the consent of Landlord. Any attempt to do so shall be void and
shall not be binding on Landlord. The Security Deposit shall be returned to
Tenant within thirty (30) days after the Expiration Date and surrender of the
Premises to Landlord, less any amount deducted in accordance with this Section,
together with Landlord's written notice itemizing the amounts and purposes for
such deduction. In the event of termination of Landlord's interest in this
Lease, Landlord may deliver or credit the Security Deposit to Landlord's
successor in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Security Deposit.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached hereto
as Exhibit "C". Landlord shall be entitled to draw against the Letter of Credit
-----------
at any time provided only that Landlord certifies to the issuer of the Letter of
Credit that Tenant is in default under the Lease. Tenant shall keep the
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letter of credit in effect during the entire Lease Term, as the same may be
extended, plus a period of four (4) weeks after expiration of the Lease Term. At
least thirty (30) days prior to expiration of any Letter of Credit, the term
thereof shall be renewed or extended for a period of at least one (1) year.
Tenant's failure to so renew or extend the Letter of Credit shall be a material
default of this Lease by Tenant. In the event Landlord draws against the Letter
of Credit, Tenant shall replenish the existing Letter of Credit or cause a new
Letter of Credit to be issued such that the aggregate amount of letters of
credit available to Landlord at all times during the Lease Term is the amount of
the Security Deposit originally required.
5. CONSTRUCTION:
A. Building Shell Construction: Landlord shall cause the Building Shell
(as defined on the Building Shell Definition attached as Exhibit "D") and
----------
certain Building Core Improvements (as defined below) to be constructed by
Landlord's affiliated construction company, Sobrato Construction Corporation
("General Contractor") in accordance with the Building Shell plans and guideline
specifications prepared by Form 4 Associates ("Landlord's Architect") and
attached as Exhibit "E" ("Building Shell Plans and Specifications"). The
----------
Building Shell Plans and Specifications include certain elements of the Building
core ("Building Core Improvements") which is defined as those items typically
associated in the industry with an office building core including elevators,
restrooms, fire sprinklers, HVAC and electrical systems distributed to each
floor, exiting stair finishes, and a finished building lobby. Although certain
Building Core Improvements have been designed by Landlord's Architect and
incorporated into the Building Shell Plans and Specifications, it is understood
and agreed that Building Core Improvements are classified as part of Tenant
Improvements and all costs associated with the design and construction thereof
shall be paid by Tenant pursuant to Section 5.F. below. The Building Shell and
Building Core Improvements shall be constructed in a good and workmanlike
fashion and in compliance with all codes, laws, rules and regulations of
applicable governmental authority. Landlord shall assign to Tenant any
warranties related to the Building Shell and Building Core Improvements which
would reduce Tenant's maintenance obligations hereunder and shall cooperate with
Tenant to enforce all such warranties.
B. Tenant Improvement Construction: Tenant, at Tenant's sole cost and
expense, shall retain an interior architect ("Tenant's Architect") to prepare
plans and outline specifications to be attached as Exhibit "F" ("Tenant
----------
Improvement Plans and Specifications") with respect to the construction of the
balance of the improvements to the interior of the Premises ("Tenant
Improvements") necessary for Tenant's use and occupancy of the Building.
Landlord shall cause Tenant Improvements to be constructed by the General
Contractor in accordance with the Tenant Improvement Plans and Specifications.
The Tenant Improvement Plans and Specifications shall be completed for all
aspects of the work by October 31, 2000 with all detail necessary for submittal
to the city for issuance of building permits and for construction and shall
include any information required by the relevant agencies regarding Tenant's use
of Hazardous Materials if applicable. The Tenant Improvements shall consist of
all items not included within the scope of the Building Shell Definition,
including all Building Core Improvements. All Tenant Improvements shall be
subject to Landlord's approval, which shall not be unreasonably withheld,
conditioned or delayed. The Tenant Improvement Plans and Specifications shall
provide for a minimum build-out in all areas of the Premises consisting of: (i)
fire sprinklers, (ii) floor coverings, (iii) t-bar suspended ceiling (iv)
distribution of the HVAC system, (v) 2' x 4' drop-in florescent lighting, and
(vi) any other work required by the City of Santa Clara necessary to obtain a
Certificate of Occupancy. Tenant shall not have the right to delay the
completion of the foregoing minimum Tenant Improvement build-out. The Tenant
Improvement Plans and Specifications shall be prepared in sufficient detail to
allow General Contractor to construct the Tenant Improvements. The Tenant
Improvements shall not be removed or altered by
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Tenant without the prior written consent of Landlord as provided in Section 7
below. Tenant shall have the right to depreciate and claim and collect any
investment tax credits related to the Tenant Improvements. Upon expiration of
the Lease Term or any earlier termination of the Lease, the Tenant Improvements
shall become the property of Landlord and shall remain upon and be surrendered
with the Premises, and title thereto shall automatically vest in Landlord
without any payment therefore.
Landlord shall use its reasonable best efforts to obtain a building permit from
the City of Santa Clara for the Tenant Improvements as soon as possible after
submittal of the Tenant Improvement Plans and Specifications, and thereafter to
cause the General Contractor to Substantially Complete the Tenant Improvements.
The Tenant Improvements shall be deemed substantially complete when: (i) Tenant
Improvements have been substantially completed in accordance with the Tenant
Improvement Plans and Specifications, as evidenced by the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority, and (ii) Tenant's Architect has certified that the Tenant
Improvements have been completed in accordance with the Tenant Improvement Plans
and Specifications. Installation of (i) Tenant's data and phone cabling, (ii)
Tenant's furniture, or (iii) the exterior landscaping shall not be required in
order to deem the Tenant Improvements Substantially Complete.
C. Pricing: Within ten (10) days after completion of the Tenant
Improvements Plans and Specifications, Landlord shall cause the General
Contractor to submit to Tenant competitive bids from at least three (3)
subcontractors for each aspect of the work in excess of Fifty Thousand and
No/100 Dollars ($50,000.00) related to the Tenant Improvements specified on the
Tenant Improvements Plans and Specifications. Landlord shall cause the General
Contractor to utilize the low bid in each case unless Tenant approves General
Contractor's use of another subcontractor. The cost of the Tenant Improvements
shall be based upon construction expenses equal to (i) the bid amounts as
approved by Tenant, (ii) a five percent (5%) contingency to protect the General
Contractor against cost overruns, and (iii) the general contractor fee specified
in Section 5.I. below ("Tenant Improvement Budget"). Upon Tenant's written
approval of the Tenant Improvement Budget, which approval shall not be
unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have
given their respective approvals of the final Tenant Improvement Plans and
Specifications on which the cost estimate was made, and the General Contractor
shall proceed with the construction of the Tenant Improvements in accordance
with the terms of this Section 5. If Tenant does not specifically approve or
disapprove the bids within seven (7) days of submittal to Tenant, Tenant shall
be deemed to have approved the bids.
D. Change Orders: Other than changes in the Building Core Improvements,
Tenant shall have the right to order changes in the manner and type of
construction of the Tenant Improvements. Upon request and prior to Tenant's
submitting any binding change order, Landlord shall cause the General Contractor
to promptly provide Tenant with written statements of the cost to implement and
the time delay and increased construction costs associated with any proposed
change order, which statements shall be binding on General Contractor. If no
time delay or increased construction cost amount is noted on the written
statement, the parties agree that there shall be no adjustment to the
construction cost or the Commencement Date associated with such change order. If
ordered by Tenant, Landlord shall cause the General Contractor to implement such
change order and the cost of constructing the Tenant Improvements shall be
increased or decreased in accordance with the cost statement previously
delivered by General Contractor to Tenant for any such change order.
Notwithstanding the foregoing, Tenant not be liable for time delays or
construction cost increases associated with change orders under this Section
5.D. which are the result of errors on the part of Landlord or General
Contractor.
E. Building Shell Costs: Landlord shall
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pay all costs and expenses associated with construction of the Building Shell.
The Building Shell Definition shall be the governing document in specifying the
costs associated with the Building Shell.
F. Tenant Improvement Costs: Within thirty (30) days of the Lease
Commencement Date, Landlord shall reimburse Tenant up to Eighty Seven Thousand
Five Hundred Dollars ($87,500.00) towards Tenant Improvement costs associated
with: (i) exterior upgrades related to the cafeteria; and (ii) covered walkways
connecting the Buildings. Other than the foregoing, Tenant shall pay all costs
associated with the Tenant Improvements (which includes Building Core
Improvements) including, but not limited to: construction costs, all permit
fees, all fees associated with Tenant's Architect, engineers and consultants,
construction taxes or other costs imposed by governmental authorities related to
the Tenant Improvements, and the General Contractor overhead as described in
Section 5.I. below. During the course of construction of the Tenant
Improvements, Landlord shall cause the General Contractor to deliver to Tenant
not more than once each calendar month a written request for payment ("Progress
Invoice") which shall include and be accompanied by General Contractor's
certified statements setting forth the amount requested, certifying the
percentage of completion of each item for which reimbursement is requested.
Tenant shall have a right of reasonable review and approval of the Progress
Invoice, including the right to review all applicable backup documentation.
Tenant shall pay directly to the General Contractor the amount due pursuant to
the Progress Invoice, within fifteen (15) business days after Tenant's receipt
of the above items. All costs for Tenant Improvements shall be fully documented
to Tenant and subject to verification by Tenant.
G. Letter of Credit to Secure Tenant Improvement Construction: On or
before the date Landlord commences construction of the Building Shell, Tenant
shall deposit with Landlord a letter of credit ("Construction Letter of Credit")
substantially in the form attached hereto as Exhibit "C" in an initial amount of
----------
Three Million Five Hundred Thousand Dollars ($3,500,000.00), which amount shall
be increased upon commencement of construction of Tenant Improvements by an
additional Three Million Five Hundred Thousand Dollars ($3,500,000.00) (less any
amounts already paid by that date by Tenant to General Contractor for Tenant
Improvements), to secure Tenant's obligation to complete Tenant Improvements
pursuant to this Lease. The Construction Letter of Credit shall thereafter be
reduced upon presentation to Landlord no more than once every sixty (60) days of
evidence reasonably satisfactory to Landlord that a percentage of the Tenant
Improvements equal to the requested reduction has been satisfactorily completed
and paid for including partial lien waivers and architects' certificates. Upon
Landlord's receipt of reasonably satisfactory evidence that the Tenant
Improvements have been completed free of liens and that Tenant has fully paid
for the cost of all of Tenant Improvements, the Construction Letter of Credit
shall be cancelled and returned to Tenant by Landlord. Landlord shall be
entitled to draw against the full amount of the Construction Letter of Credit at
any time provided only that Landlord certifies to the issuer of the Construction
Letter of Credit that Tenant has failed to make a payment for Tenant Improvement
costs as provided in 5.F, that Tenant has failed to timely renew or extend the
Construction Letter of Credit as required by this paragraph, or that Tenant has
failed to amend the Construction Letter of Credit or obtain a new Construction
Letter of Credit as required by this paragraph. Tenant shall keep the
Construction Letter of Credit in effect at all times prior to payment in full
for the Tenant Improvements. At least sixty (60) days prior to expiration of any
Construction Letter of Credit, the term thereof shall be renewed or extended for
a period that extends until Tenant has paid in full for the Tenant Improvements.
Tenant's failure to so renew or extend the Construction Letter of Credit shall
be a material default of this Lease by Tenant entitling Landlord to draw down on
the entire amount of the Construction Letter of Credit. Any amounts drawn on the
Construction Letter of Credit shall be used to pay for the cost of the Tenant
Improvements. In the event the Construction Letter of Credit is drawn by
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Landlord, and the proceeds used to pay for the completion of the Tenant
Improvements, then promptly following Landlord's completion of the Tenant
Improvements Landlord shall refund to Tenant any excess proceeds from the
Construction Letter of Credit. In the event of termination of Landlord's
interest in this Lease, Landlord may deliver the Construction Letter of Credit
and/or the unused proceeds of any draw against the Construction Letter of Credit
to Landlord's successor in interest in the Premises and thereupon be relieved of
further responsibility with respect to the Construction Letter of Credit.
H. Force Majeure: Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuel or reasonable substitutes therefor, governmental restrictions,
regulations, controls, civil commotion, fire or other act of God, and another
causes beyond the reasonable control of Landlord (except financial inability),
each a "Force Majeure Delay", shall extend the dates contained in Section 4 and
this Section 5 by a period equal to the period of any said prevention, delay or
stoppage. If Landlord cannot obtain building permits or Substantially Complete
construction by the dates set forth herein, this Lease shall not be void or
voidable nor shall Landlord be liable for any loss or damage resulting
therefrom.
I. General Contractor Overhead & Profit: As compensation to General
Contractor for its services related to construction of the Tenant Improvements,
General Contractor shall receive a fee of seven percent (7%) of the cost of
construction to cover all of the following: construction supervision and
administration, temporary on-site facilities, home office administration,
supervision, and coordination and construction profit. Except as provided
therein, Landlord or General Contractor shall not receive any other fee or
payment from Tenant in connection with General Contractor's services.
J. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial
Completion of the Building as a result of any of the following: (i) Tenant's
failure to complete or approve the Tenant Improvement Plans by October 31, 2000;
(ii) Tenant's failure to approve the bids for construction by the dates set
forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay
the progress of the work, unless such changes are a result of Landlord or
General Contractor error, (iv) Tenant's request for materials components, or
finishes which are not available in a commercially reasonable time given the
target Commencement Date, provided Tenant is made aware of such unavailability,
(v) Tenant's failure to make a progress payment for Tenant Improvement costs as
provided in Section 5.F, (vi) Tenant's request for more than one (1) rebidding
of the cost of all or a portion of the work, and (vii) any errors or omissions
in the Tenant Improvement Plans provided by Tenant's architect. Notwithstanding
anything to the contrary set forth in this Lease, and regardless of the actual
date the Premises are Substantially Complete, the Commencement Date shall be
deemed to be the date the Commencement Date would have occurred if no Tenant
Delay had occurred as reasonably determined by Landlord. In addition, if a
Tenant Delay results in an increase in the cost of the labor or materials,
Tenant shall pay the cost of such increases.
K. Insurance: Landlord shall cause the General Contractor to procure (as
a cost of the Building Shell) a "Broad Form" liability insurance policy in the
amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as
a cost of the Building Shell) builder's risk insurance for the full replacement
cost of the Building Shell and Tenant Improvements while the Building Shell and
Tenant Improvements are under construction, up until the date that the casualty
insurance policy described in Section 9 is in full force and effect.
L. Punch List & Warranty: After the Building Shell and Tenant
Improvements are Substantially Complete, Landlord shall cause the General
Contractor to immediately correct any construction defect or other "punch list"
item which Tenant brings to General Contractor's attention. All such work shall
be performed so as to reasonably minimize the interruption to Tenant and its
activities on the Premises. Landlord and General Contractor shall provide a
standard
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contractor's warranty with respect to the Building Shell and the Tenant
Improvements for one (1) year from the Commencement Date. Such warranty shall
exclude routine maintenance, damage caused by Tenant's negligence or misuse, and
acts of God.
M. Other Work by Tenant: All work not described in the Shell Plans and
Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant's cost. Prior to
Substantial Completion, Tenant shall be obligated to (i) providing active phone
lines to any elevators, and (ii) contract with a firm to monitor the fire
system. When the construction of the Tenant Improvements has proceeded to the
point where Tenant's work of installing its fixtures and equipment in the
Premises can be commenced, General Contractor shall notify Tenant and shall
permit Tenant and its authorized representatives and contractors access to the
Premises before the Commencement Date (and without any obligation to pay Base
Monthly Rent and other expenses associated with the Lease) for the purpose of
installing Tenant's trade fixtures and equipment. Any such installation work by
Tenant or its authorized representatives and contractor shall be undertaken upon
the following conditions: (i) the entry into the Premises by Tenant or its
representatives or contractors shall not interfere with or delay General
Contractor's work, and (ii) any contractor used by Tenant in connection with
such entry and installation shall use union labor.
N. Landlord's Failure to Complete Construction: If the Building is not
Substantially Complete in accordance with the Building Shell Plans and
Specifications and Tenant Improvements Plans and Specifications by October 31,
2001, then Tenant, upon written notice to Landlord, shall be entitled to
complete construction of the Building and offset the cost of construction for
which Landlord is responsible under this Lease, plus interest at the Agreed
Interest Rate, against Tenant's obligation for the initial Base Monthly Rent due
under this Lease. The completion by Tenant of Landlord's construction
obligations as provided in this Section 5.N. shall be the sole and exclusive
remedy of Tenant with respect to the failure by Landlord to achieve Substantial
Completion of the Building by October 31, 2001. In the event that Tenant shall
be required to complete Landlord's Work, Landlord agrees to promptly assign to
Tenant upon demand all plans and specifications relating to construction for
which Landlord is responsible under this Lease in order to effectuate the
completion thereof, and to cooperate with Tenant in connection with the
completion of such work. Nothing herein shall diminish Landlord's obligation to
act in good faith to promptly commence and diligently prosecute the Landlord's
Work.
The foregoing notwithstanding, the October 31, 2001 date shall be extended one
day for every day of Force Majeure Delay or Tenant Delay as defined in Sections
5.H and 5.J above.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, subject to all Restrictions and without
representation or warranty by Landlord except as provided in Section 5.L. above.
Tenant's taking possession of any part of the Premises shall be deemed to be an
acceptance of any work of improvement done by Landlord in such part as complete
and in accordance with the terms of this Lease except for "Punch List" type
items of which Tenant has given Landlord written notice prior to the time Tenant
takes possession. At the time Landlord delivers possession of the Premises to
Tenant, Landlord and Tenant shall together execute an acceptance agreement.
Landlord shall have no obligation to deliver possession, nor shall Tenant be
entitled to take occupancy, of the Premises until such acceptance
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agreement has been executed, and Tenant's obligation to pay Base Monthly Rent
and Additional Rent shall not be excused or delayed because of Tenant's failure
to execute such acceptance agreement. Within one hundred fifty (150) days after
the Commencement Date, Tenant agrees that it will be in occupancy of at least
fifty percent (50%) of the rentable square footage of the Premises.
B. Condition Upon Surrender: Tenant further agrees on the Expiration Date
or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the best standards for maintenance, repair replacement, and
janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the Expiration Date or sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed shall
be deemed as abandoned by Tenant. At the expiration of the Lease Term, Landlord
shall not have the right to require that Tenant remove from the Premises any
Alterations made with Landlord's consent unless Landlord, at the time of
granting such consent, indicates that the subject Alteration must be removed
upon the expiration of the Lease Term. With respect to Permitted Alterations as
defined in Section 7A. below, Tenant shall ascertain from Landlord within ninety
(90) days before the Expiration Date whether Landlord desires to have such
Permitted Alterations removed. Tenant shall repair any damage to the Building
which results from Tenant's removal of any Alteration or removal of any
improvements and/or Tenant's equipment, fixtures, and components. Such repair
and restoration shall include causing the Premises to be brought into compliance
with all applicable building codes and laws in effect at the time of the removal
to the extent such compliance is necessitated by the repair and restoration
work.
C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay and costs incurred by Landlord in returning the Premises
to the required condition, plus interest at the Agreed Interest Rate. Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession of
the Premises after the Expiration Date or sooner termination of this Lease
without Landlord's consent, Tenant's continued possession shall be on the basis
of a tenancy at
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sufferance and Tenant shall pay as rent during the holdover period an amount
equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the
month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the termination
or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. Tenant's Alterations: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent and delivering to Landlord
the proposed architectural and structural plans for all such Alterations at
least fifteen (15) days prior to the start of construction. If such Alterations
affect the structure of the Building, Tenant additionally agrees to reimburse
Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant's
plans. After obtaining Landlord's consent, which consent shall state whether or
not Landlord will require Tenant to remove such Alteration at the expiration or
earlier termination of this Lease, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably approved
by Landlord, to protect Landlord against mechanics' lien claims. Tenant agrees
to provide Landlord (i) written notice of the anticipated and actual start-date
of the work, (ii) a complete set of half-size (15" X 21") vellum as-built
drawings, and (iii) a certificate of occupancy for the work upon completion of
the Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and expense. Notwithstanding the foregoing,
Tenant shall be entitled, without obtaining Landlord's consent, to make
Alterations which do not affect the structure of the Building and which do not
cost more than Fifty Thousand Dollars ($50,000.00) per Alteration ("Permitted
Alterations"); provided, however, that Tenant shall still be required to comply
with all other provisions of this paragraph, and such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6.B.
above at the expiration or earlier termination of the Lease.
B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within ten (10) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Laws or
Governmental Regulations shall include all federal, state, county, city or
governmental agency laws, statutes, ordinances, standards, rules, requirements,
or orders now in force or hereafter enacted, promulgated, or issued. The term
also includes government measures regulating or enforcing public access, traffic
mitigation, occupational, health, or safety standards for employers, employees,
landlords, or tenants. Tenant, at Tenant's sole expense shall make all repairs,
replacements, alterations, or improvements needed to comply with all
Governmental Regulations. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action or proceeding against Tenant (whether
Landlord be a party thereto or not) that Tenant has violated any such law,
regulation or other requirement in its use of the Premises shall be conclusive
of that fact as between Landlord and Tenant.
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8. MAINTENANCE OF PREMISES:
A. Landlord's Obligations: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv)
all windows, door entrances, plate glass and glazing systems including caulking,
and skylights, (v) all electrical facilities and equipment, (vi) all automatic
fire extinguisher equipment, (vii) the parking lot and all underground utility
facilities servicing the Premises, (viii) all elevator equipment, (ix) the roof
membrane system, and (x) all waterscape, landscaping and shrubbery. All wall
surfaces and floor tile are to be maintained in an as good a condition as when
Tenant took possession free of holes, gouges, or defacements. With respect to
items (ii), (viii) and (ix) above, Tenant shall provide Landlord a copy of a
service contract between Tenant and a licensed service contractor providing for
periodic maintenance of all such systems or equipment in conformance with the
manufacturer's recommendations. Tenant shall provide Landlord a copy of such
preventive maintenance contracts and paid invoices for the recommended work if
requested by Landlord.
C. Landlord and Tenant's Obligations Regarding Reimbursable Operating
Costs: In addition to the direct payment by Tenant of expenses as provided in
Sections 8.B, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord
for Tenant's Allocable Share (as defined in Section 8.E below) of Reimbursable
Operating Costs (as defined in Section 8.D below) resulting from Landlord
payment of expenses related to the ownership and operation of the Building or
Project which are not otherwise paid by Tenant directly. Tenant agrees to pay
its Allocable Share of the Reimbursable Operating Costs as additional rental
within thirty (30) days of written invoice from Landlord.
D. Reimbursable Operating Costs: For purposes of calculating Tenant's
Allocable Share of Building and Project Costs, the term "Reimbursable Operating
Costs" is defined as all costs and expenses of the nature hereinafter described
which are incurred by Landlord in connection with ownership and operation of the
Building or the Project in which the Premises are located, together with such
additional facilities as may be determined by Landlord to be reasonably
desirable or necessary to the ownership and operation of the Building and/or
Project. All costs and expenses shall be determined in accordance with generally
accepted accounting principles which shall be consistently applied (with
accruals appropriate to Landlord's business), including but not limited to the
following: (i) common area utilities, including water, power, telephone,
heating, lighting, air conditioning, ventilating, and Building utilities to the
extent not separately metered; (ii) common area maintenance and service
agreements for the Building and/or Project and the equipment therein, including
without limitation, common area janitorial services, alarm and security
services, exterior window cleaning, and maintenance of the sidewalks,
landscaping, waterscape, roof membrane, parking areas, driveways, service areas,
mechanical rooms, elevators, and the building exterior; (iii) insurance premiums
and costs, including without limitation, the premiums and cost of fire, casualty
and liability coverage and rental abatement and, if elected by Landlord,
earthquake insurance applicable to the Building or Project; (iv) repairs,
replacements and general maintenance (excluding repairs and general maintenance
paid by proceeds of insurance or by Tenant or other third parties, and repairs
or alterations attributable solely to tenants of the Building or Project other
than Tenant); and (v) all real estate taxes and assessment installments or other
impositions or charges which may be levied on the Building or Project, upon the
occupancy of the Building or Project and including any substitute or additional
charges which may be
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imposed during, or applicable to the Lease Term including real estate tax
increases due to a sale, transfer or other change of ownership of the Building
or Project, as such taxes are levied or appear on the City and County tax bills
and assessment rolls. Landlord shall have no obligation to provide guard
services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project. This is a "Net" Lease, meaning that Base Monthly Rent is paid to
Landlord absolutely net of all costs and expenses. The provision for payment of
Reimbursable Operating Costs by means of periodic payment of Tenant's Allocable
Share of Building and/or Project Costs is intended to pass on to Tenant and
reimburse Landlord for all costs of operating and managing the Building and/or
Project.
E. Tenant's Allocable Share: For purposes of prorating Reimbursable
Operating Costs which Tenant shall pay, Tenant's Allocable Share of Reimbursable
Operating Costs shall be computed by multiplying the Reimbursable Operating
Costs by a fraction, the numerator of which is the rentable square footage of
the Premises and the denominator of which is either the total rentable square
footage of the Building if the service or cost is allocable only to the
Building, or the total square footage of the Project if the service or cost is
allocable to the entire Project. Tenant's obligation to share in Reimbursable
Operating Costs shall be adjusted to reflect the Lease Commencement and
Expiration dates and is subject to recalculation in the event of expansion of
the Building or Project.
F. Waiver of Liability: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to either
person or property, nor be construed as an eviction of Tenant, nor cause an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery utilized in supplying the
services listed herein break down or for any cause cease to function properly,
upon receipt of written notice from Tenant of any deficiency or failure of any
services, Landlord shall use reasonable diligence to repair the same promptly,
but Tenant shall have no right to terminate this Lease and shall have no claim
for rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom. Tenant waives the provisions of
California Civil Code Sections 1941 and 1942 concerning the Landlord's
obligation of tenantability and Tenant's right to make repairs and deduct the
cost of such repairs from the rent. Landlord shall not be liable for a loss of
or injury to person or property, however occurring, through or in connection
with or incidental to furnishing, or its failure to furnish, any of the
foregoing, unless due to the active negligence or willful misconduct of
Landlord.
9. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any purpose other than that for which the Premises are
hereby leased; and no use of the Premises shall be made or permitted, nor acts
done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance
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company's appraisers. At Landlord's election, such fire and property damage
insurance may be endorsed to cover loss caused by such additional perils against
which Landlord may elect to insure, including earthquake and/or flood, and shall
contain reasonable deductibles. Additionally Landlord may maintain a policy of
(i) commercial general liability insurance insuring Landlord (and such others
designated by Landlord) against liability for personal injury, bodily injury,
death and damage to property occurring or resulting from an occurrence in, on or
about the Premises or Project in an amount as Landlord determines is reasonably
necessary for its protection, and (ii) rental lost insurance covering a twelve
(12) month period. Tenant agrees to pay Landlord as additional rent, on demand,
the full cost of said insurance as evidenced by insurance billings to Landlord,
and in the event of damage covered by said insurance, the amount of any
deductible under such policy. Payment shall be due to Landlord within thirty
(30) days after written invoice to Tenant. It is understood and agreed that
Tenant's obligation under this Section will be prorated to reflect the Lease
Commencement and Expiration Dates.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000.00).
Tenant's liability insurance shall be primary insurance containing a
cross-liability endorsement, and shall provide coverage on an "occurrence"
rather than on a "claims made" basis. Tenant shall name Landlord and Landlord's
lender as an additional insured and shall deliver a copy of the policies and
renewal certificates to Landlord. All such policies shall provide for thirty
(30) days' prior written notice to Landlord of any cancellation, termination, or
reduction in coverage. Notwithstanding the above, Landlord retains the right to
have Tenant provide other forms of insurance which may be reasonably required to
cover future risks.
D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The Parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. All real
estate taxes shall be prorated to reflect the Lease Commencement and Expiration
Dates. If, at any time during the Lease Term a tax, excise on rents, business
license tax or any other tax, however described, is levied or assessed against
Landlord as a substitute or addition, in whole or in part, for taxes assessed or
imposed on land or Buildings, Tenant shall pay and discharge its pro rata share
of such tax or excise on rents or other tax before it becomes delinquent; except
that this provision is not intended to cover net income taxes, inheritance, gift
or estate tax imposed upon Landlord. In the event that a tax is placed, levied,
or assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact
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amount of such tax and Tenant shall pay such increase. If by virtue of any
application or proceeding brought by Landlord, there results a reduction in the
assessed value of the Premises during the Lease Term, Tenant agrees to pay
Landlord a fee consistent with the fees charged by a third party appeal firm for
such services.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and in such
event Tenant shall not be entitled to abatement or reduction of any portion of
Base Monthly Rent or any other amount payable under this Lease. The foregoing
notwithstanding, if the Premises are not supplied with any or all of the
Utilities and such failure is due to the active negligence or willful misconduct
of Landlord, Tenant shall be entitled to an abatement of rent unless such
utility or utilities are restored within two (2) business days.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Without the prior written consent of Landlord,
Tenant or Tenant's agents, employees, contractors and invitees ("Tenant's
Agents") shall not bring, use, or permit upon the Premises, or generate, create,
release, emit, or dispose (nor permit any of the same) from the Premises any
chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or toxicity or substances or materials
which are listed on any of the Environmental Protection Agency's lists of
hazardous wastes or which are identified in Division 22 Title 26 of the
California Code of Regulations as the same may be amended from time to time or
any wastes, materials or substances which are or may become regulated by or
under the authority of any applicable local, state or federal laws, judgments,
ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials") except for
those substances customary in typical office uses for which no consent shall be
required. In order to obtain consent, Tenant shall deliver to Landlord its
written proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or such
consent is not required, Tenant represents and warrants that it shall comply
with all Governmental Regulations applicable to Hazardous Materials including
doing the following: (i) adhere to all reporting and inspection requirements
imposed by Federal, State, County or Municipal laws, ordinances or regulations
and will provide Landlord a copy of any such reports or agency inspections; (ii)
obtain and provide Landlord copies of all necessary permits required for the use
and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous
Materials handling and disposal practices consistent with industry standards;
(iv) surrender the Premises free from any Hazardous Materials arising from
Tenant's bringing, using, permitting, generating, creating, releasing, emitting
or disposing of Hazardous Materials; and (v) properly close the facility with
regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches which
have come into contact with Hazardous Materials and obtain a closure certificate
from the local administering agency prior to the Expiration Date.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its
sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the
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bringing, using, permitting, generating, emitting or disposing of Hazardous
Materials by Tenant or Tenant's Agents, employees or invitees through the
surface soils of the Premises during the Lease Term or the violation of any
Governmental Regulation or environmental law, by Tenant or Tenant's Agents.
Tenant's indemnification, defense, and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal, State, County or Municipal
law, ordinance or regulation now or hereafter in effect; (ii) claims,
liabilities, costs or expenses pertaining to the identification, monitoring,
cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or
aquifers including the provision of an alternative public drinking water source;
(iii) all costs of defending such claims; (iv) losses attributable to diminution
in the value of the Premises or the Building; (v) loss or restriction of use of
rentable space in the Building; (vi) Adverse effect on the marketing of any
space in the Building; and (vi) all other liabilities, obligations, penalties,
fines, claims, actions (including remedial or enforcement actions of any kind
and administrative or judicial proceedings, orders or judgments), damages
(including consequential and punitive damages), and costs (including attorney,
consultant, and expert fees and expenses) resulting from the release or
violation. This Section 12.B shall survive the expiration or termination of this
Lease.
Landlord shall indemnify, defend and hold Tenant harmless from losses arising
from Hazardous Materials on, in or under the Premises: (i) prior to the
Commencement Date; or (ii) as a result of Landlord action after the Commencement
Date. In no event, however, shall Landlord be liable for any consequential
damages suffered or incurred by Tenant as a result of any such presence of
Hazardous Materials.
C. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without limiting
the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days
after receipt thereof, any written notices from any governmental agency alleging
a material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which or
failure to comply with poses a foreseeable and material risk of contamination of
the ground water or injury to humans (other than injury solely to Tenant or
Tenant's Agents).
In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or Tenant's Agents,
Tenant agrees to comply, at its sole cost, with all laws, regulations,
ordinances and orders of any federal, state or local agency relating to the
monitoring or remediation of such Hazardous Materials. In the event of any such
release of Hazardous Materials Tenant shall immediately give verbal and
follow-up written notice of the release to Landlord, and Tenant agrees to meet
and confer with Landlord and its Lender to attempt to eliminate and mitigate any
financial exposure to such Lender and resultant exposure to Landlord under
California Code of Civil Procedure Section 736(b) as a result of such release,
and promptly to take reasonable monitoring, cleanup and remedial steps given,
inter alia, the historical uses to which the Property has and continues to be
used, the risks to public health posed by the release, the then available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable customary practices for the type and severity of such contamination
and all applicable laws. Nothing in the preceding sentence shall eliminate,
modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify,
defend and hold
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Landlord harmless from any claims liabilities, costs or expenses incurred or
suffered by Landlord. Tenant shall provide Landlord prompt written notice of
Tenant's monitoring, cleanup and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.
D. Environmental Monitoring: Landlord and its agents shall have the right
to inspect, investigate, sample and monitor the Premises including any air,
soil, water, ground water or other sampling or any other testing, digging,
drilling or analysis to determine whether Tenant is complying with the terms of
this Section 12. If Landlord discovers that Tenant is not in compliance with the
terms of this Section 12, any such costs incurred by Landlord, including
attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord
within five (5) days following Landlord's written demand therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
the Base Monthly Rent including additional rent or any other payment due under
this Lease, where such failure continues for ten (10) days beyond Tenant's
receipt of written notice from Landlord that such amount is due, (ii) the
abandonment or vacation of the Premises by Tenant; (iii) Tenant's failure to
observe and perform any other required provision of this Lease, where such
failure continues for thirty (30) days after written notice from Landlord,
provided that if the nature of the default is such that it cannot reasonably be
cured within the 30-day period, Tenant shall not be deemed in default if it
commences within such period to cure, and thereafter diligently prosecutes the
same to completion; (iv) Tenant's making of any general assignment for the
benefit of creditors; (v) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed after the filing); (vi) the appointment of
a trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (vii) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
A. Remedies: In the event of any such default by Tenant, then in addition
to other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as
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taxes, insurance premiums, utilities and security precautions; and (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted by applicable California law. The term "rent", as
used herein, is defined as the minimum monthly installments of Base Monthly Rent
and all other sums required to be paid by Tenant pursuant to this Lease, all
such other sums being deemed as additional rent due hereunder. As used in (i)
and (ii) above, "worth at the time of award" shall be computed by allowing
interest at a rate equal to the discount rate of the Federal Reserve Bank of San
Francisco plus five (5%) percent per annum. As used in (iii) above, "worth at
the time of award" 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
(1%) percent.
B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if
any, shall be held by Landlord and applied in payment of future Base Monthly
Rent as the same may become due and payable hereunder. Landlord shall the
obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during any
month be less than the rent payable during that month by Tenant hereunder, then
Tenant shall pay such deficiency to Landlord immediately upon demand. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the Premises
pursuant to 13.B or 13.C shall not be construed as an election to terminate this
Lease unless written notice of such intention is given to Tenant or unless the
termination is decreed by a court of competent jurisdiction. Notwithstanding any
reletting without termination by Landlord because of any default by Tenant,
Landlord may at any time after such reletting elect to terminate this Lease for
any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant
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when the Tenant is holding over without express written consent does not convert
Tenant's Tenancy from a tenancy at sufferance to a month to month tenancy. No
waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy for the violation of that provision, even if that
violation continues or is repeated. Any waiver by Landlord of any provision of
this Lease must be in writing. Such waiver shall affect only the provision
specified and only for the time and in the manner stated in the writing. No
delay or omission in the exercise of any right or remedy by Landlord shall
impair such right or remedy or be construed as a waiver thereof by Landlord. No
act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute acceptance of the surrender of the
Premises by Tenant before the Expiration Date. Only written notice from Landlord
to Tenant of acceptance shall constitute such acceptance of surrender of the
Premises. Landlord's consent to or approval of any act by Tenant which requires
Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, after ten (10) days prior written notice to Tenant, without
waiving any rights or remedies and without releasing Tenant from its obligations
hereunder, perform such obligation, in which event Tenant shall pay Landlord as
additional rent all sums paid by Landlord in connection with such substitute
performance, including interest at the Agreed Interest Rate (as defined in
Section 19.J) within ten (10) days of Landlord's written notice for such
payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) monetary term or condition of this Lease for four or
more times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose of
this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
14. LANDLORD'S LIABILITY:
A. Limitation on Landlord's Liability: In the event of Landlord's failure
to perform any of its covenants or agreements under this Lease, Tenant shall
give Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim for breach or
resultant damages, provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with notice of its interest in the Premises, and shall provide
Mortgagee a reasonable opportunity to cure such failure, including such time to
obtain possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been assigned is an expressed third-party
beneficiary hereof. Tenant waives any right under California Civil Code Section
1950.7 or any other present or future law to the collection of any payment or
deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's
interest unless Mortgagee or such purchaser shall have actually received and not
refunded the applicable payment or deposit. Tenant further waives any right to
terminate this Lease and to vacate the Premises on Landlord's default under this
Lease. Tenant's sole remedy on Landlord's default is an action for damages or
injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint
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venture, unincorporated association or other form of business entity, then (i)
the obligations of Landlord shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals or representatives except to the extent of
their interest in the Premises. Tenant shall have recourse only to the interest
of Landlord in the Premises or for the satisfaction of the obligations of
Landlord and shall not have recourse to any other assets of Landlord for the
satisfaction of such obligations.
C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, except
to the extent caused by the willful misconduct or active negligence of Landlord
or from the failure of Tenant to keep the Premises in good condition and repair
as herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with Tenant's business in the Premises, as reasonably determined by
Landlord and Tenant. In no event shall Landlord be required to replace or
restore Alterations, Tenant Improvements paid for by Tenant from sources other
than the Work Allowance or Tenant's fixtures or personal property. With respect
to a destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section 1932,
and Section 1933, Subdivision 4, of the Civil Code of the State of California,
and any other similarly enacted statute, and the provisions of this Section 15
shall govern in the case of such destruction.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered by the insurance maintained by Landlord, (iv)
the damage or destruction occurs in the last twenty four (24) months of the
Lease Term (unless Tenant has exercised or exercises, within five (5) business
days, an option to extend the Lease Term), (v) Tenant is in default pursuant to
the provisions of Section 13, or (vi) Tenant has vacated the Premises for more
than ninety (90) days. In any such event Landlord may elect either to (i)
complete the repair or restoration, or (ii) terminate this Lease by providing
Tenant written notice of its election within sixty (60) days following the
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damage or destruction. In the event of the occurrence of (i) or (iv) above,
Tenant also shall have the right to terminate this Lease by providing Landlord
written notice of its election within sixty (60) days following the damage or
destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. Further, in the event of such partial
taking, Landlord shall have the option to terminate this Lease as of the Vesting
Date to the part of the Premises condemned. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall terminate on the Vesting Date. If part or
all of the Premises be taken, all compensation awarded upon such taking shall go
to Landlord, and Tenant shall have no claim thereto. Notwithstanding the
foregoing, Tenant: (i) shall be entitled to a separate award for any increased
rent Tenant becomes obligated to pay as a result of such taking for the
remainder of the Lease Term, and (ii) shall have the right to make a separate
claim in any condemnation proceeding for the taking of the unamortized or
undepreciated value of the Tenant Improvements and Alterations owned by Tenant
which Tenant may remove at the expiration or earlier termination of this Lease,
reasonable removal and relocation costs for any improvements Tenant has the
right to remove and elects to remove, relocation costs, the claim for which
Tenant may pursue by separate action independent of this Lease and any other
amount that does not reduce the amount of the award payable to Landlord. Tenant
shall have the right to negotiate directly with the condemnor for the recovery
of the portion of the award that Tenant is entitled to under subsection (ii)
above. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue, and the
provisions of this Section 16 shall govern in the case of a taking.
17. ASSIGNMENT OR SUBLEASE:
A. Consent by Landlord: Except as specifically provided in Section 17.E.
below, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord. In the event
Tenant desires to assign this Lease or any interest herein or sublet the
Premises or any part thereof, Tenant shall deliver to Landlord (i) executed
counterparts of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years, (iii) the nature of the proposed transferee's
business to be carried on in the Premises, (iv) a statement outlining all
consideration to be given on account of the Transfer, and (v) a current
financial statement of Tenant. Landlord may condition its approval of any
Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have ten (10) business
days following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) terminate this Lease for such part of the
Premises (provided, however, that Landlord shall have no such right to terminate
for any sublease or assignment expiring more than two (2) years prior to the
Lease Expiration Date); (ii) permit Tenant to assign or sublet such space to the
named assignee/subtenant on the terms and conditions set forth in the notice; or
(iii) refuse consent. If Landlord should fail to notify Tenant in writing of
such election within the 10 business-day period, Landlord shall be deemed to
have elected option (iii) above. In the event Landlord elects option (i) above,
this Lease shall expire with respect to such part of the Premises on the date
upon which the proposed sublease or transfer was
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to commence, and from such date forward, Base Monthly Rent and Tenant's
Allocable Share of all other costs and charges shall be adjusted based upon the
proportion that the rentable area of the Premises remaining bears to the total
rentable area of the Building. In the event Landlord elects option (ii) above,
Landlord's written consent to the proposed assignment or sublease shall not be
unreasonably withheld, provided and upon the condition that: (i) the proposed
assignee or subtenant is engaged in a business that is limited to the use
expressly permitted under this Lease; (ii) the proposed assignee or subtenant is
a company with sufficient financial worth and management ability to undertake
the financial obligation of this Lease and Landlord has been furnished with
reasonable proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) the amount of the aggregate rent to be
paid by the proposed subtenant is not less than the then current "Fair Market
Rental" as defined in Section 18.A below; (v) Tenant reimburses Landlord on
demand for any costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent; and (vi) Tenant shall not
have advertised or publicized in any way the availability of the Premises
without prior notice to Landlord. In the event all or any one of the foregoing
conditions are not satisfied, Landlord shall be considered to have acted
reasonably if it withholds its consent.
B. Assignment or Subletting Consideration: Landlord and Tenant hereby agree
that fifty percent (50%) of any rent or other economic consideration (i)
realized by Tenant under any sublease or assignment, or (ii) realized by any
subtenant under any sub-sublease of the Premises, in excess of the Base Monthly
Rent payable hereunder and reasonable subletting and assignment costs, and other
costs incurred as a direct result of the sublease or assignment, shall be paid
to Landlord. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The above
provisions relating to Landlord's right to terminate the Lease and relating to
the allocation of excess rent are independently negotiated terms of the Lease
which constitute a material inducement for the Landlord to enter into the Lease,
and are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.
C. No Release: Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant. Tenant
shall indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other
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reorganization of or affecting Tenant, where Tenant is not the surviving
corporation, or (ii) there is a sale or transfer to one person or entity (or to
any group of related persons or entities) of stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors, and after such
sale or transfer of stock Tenant's stock is no longer publicly traded. In a
transaction under clause (i) the surviving corporation shall promptly execute
and deliver to Landlord an agreement in form reasonably satisfactory to Landlord
under which such surviving corporation assumes the obligations of Tenant
hereunder, and in a transaction under clause (ii) the transferee or buyer shall
promptly execute and deliver to Landlord an agreement in form reasonably
satisfactory to Landlord under which such transferee or buyer assumes the
obligations of Tenant under the Lease.
E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination if
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit to the purchaser at any such sale or the
master tenant of the Premises, and thereupon the transferor shall be discharged
from any further liability in reference thereto.
F. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
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18. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Provided Tenant simultaneously exercises
its options for Buildings A, B, C, and D, Landlord grants to Tenant, subject to
the terms and conditions set forth in this Section 18.A, two (2) options (the
"Options") to extend the Lease Term for an additional term (the "Option Term").
Each Option Term shall be for a period of eighty four (84) months and shall be
exercised, if at all, by written notice to Landlord no earlier than eighteen
(18) months prior to the date the Lease Term would expire but for such exercise
but no later than twelve (12) months prior to the date the Lease Term would
expire but for such exercise, time being of the essence for the giving of such
notice. If Tenant exercises the Option, all of the terms, covenants and
conditions of this Lease except for the grant of additional Options pursuant to
this Section, provided that Base Monthly Rent for the Premises payable by Tenant
during the Option Term shall be the greater of (i) the Base Monthly Rent
applicable to the period immediately prior to the commencement of the Option
Term, and (ii) ninety five percent (95%) of the Fair Market Rental as
hereinafter defined. Notwithstanding anything herein to the contrary, (i) if
Tenant is in monetary or material non-monetary default under any of the terms,
covenants or conditions of this Lease either at the time Tenant exercises the
Option or at any time thereafter prior to the commencement date of the Option
Term, or (ii) if the net worth of Tenant as reported in Tenant's most recent
financial statements is less than the net worth of Tenant as of the date of
execution of this Lease, then Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the Lease Term shall
not be extended pursuant to this Section 18.A. As used herein, the term "Fair
Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the same real estate submarket as the Building. The appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to offset
comparable rents that include the following costs which Landlord will not incur
in the event Tenant exercises its option (i) brokerage commissions, (ii) tenant
improvement allowances, (iii) building improvement costs, and (iv) vacancy
costs.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 18.C and
such procedures are not concluded prior to the commencement date of the Option
Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental
as determined by Landlord in the manner provided above. If the Fair Market
Rental as finally determined pursuant to Section 18.C is greater than Landlord's
determination, Tenant shall pay Landlord the difference between the amount paid
by Tenant and the Fair Market Rental as so determined in Section 18.C within
thirty (30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the difference
between the amount paid by Tenant
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and the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of Base Monthly Rent due from Tenant to Landlord
hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a
determination of Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the 30-day consultation
period described above.
3. If only one appraisal is submitted within the requisite time period,
it shall be deemed as Fair Market Rental. If both appraisals are submitted
within such time period and the two appraisals so submitted differ by less than
ten percent (10%), the average of the two shall be deemed as Fair Market Rental.
If the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be members
of the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to Nvidia Corporation and are not exercisable by any third
party should Tenant assign or sublet all or a portion of its rights under this
Lease, unless Landlord consents to permit exercise of any option by any assignee
or subtenant, in Landlord's sole and absolute discretion. In the event Tenant
has multiple options to extend this Lease, a later option to extend the Lease
cannot be exercised unless the prior option has been properly exercised.
19. GENERAL PROVISIONS:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real
estate broker or finder
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with respect to this Lease other than CPS Commercial Real Estate and Tenant
agrees to indemnify, defend and hold Landlord harmless against any claim, cost,
liability or cause of action asserted by any other broker or finder claiming
through Tenant.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code ss. 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL
AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING
RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE
SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE
ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY
CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID STATUTES THEN
APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES
OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO
PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION
PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CALIFORNIA
ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA
CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
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ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND
ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU
ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION
IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. Entire Agreement: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the Parties hereto and may not
be modified orally or in any other manner other than by written agreement signed
by all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; (iv) performing any obligations of Landlord under the Lease
including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (v) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (vi) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within one
hundred eighty (180) days prior to the Expiration Date (or at any time during
the Lease if Tenant is in default hereunder), to place upon the Premises "For
Lease" signs and exhibit the Premises to real estate brokers and prospective
tenants at reasonable hours.
H. Estoppel Certificates: At any time during the Lease Term, Tenant shall,
within ten (10) days following written notice from Landlord, execute and deliver
to Landlord a written statement certifying, if true, the following: (i) that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification); (ii) the date to which rent and other charges
are paid in advance, if any; (iii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on Landlord's part hereunder (or specifying such
defaults if they are claimed); and (iv) such other information as Landlord may
reasonably request. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of Landlord's interest in the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon the Tenant that this
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Lease is in full force and effect without modification, except as may be
represented by Landlord, and that there are no uncured defaults in Landlord's
performance. Tenant agrees to provide, within five (5) days of Landlord's
request, Tenant's most recent three (3) years of audited financial statements
for Landlord's use in financing or sale of the Premises or Landlord's interest
therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.
K. Modifications Required by Lender: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand, agree
and acknowledge that this Lease has been freely negotiated by both Parties; and
that in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.
M. Notices: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section 1161 or any similar or successor statute. When a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this Lease) shall replace and satisfy
the statutory service-of-notice procedures, including those required by Code of
Civil Procedure Section 1162 or any similar or successor statute.
N. Property Management: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of two
percent (2%) of the Base Monthly Rent.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties or
promises with
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respect to the Premises or with respect to present or future rents, expenses,
operations, tenancies or any other matter. Except as herein expressly set forth
herein, Tenant relied on no statement of Landlord or its employees or agents for
that purpose.
Q. Rights and Remedies: Subject to Section 14 above, All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.
T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrances ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default and continues to pay Base Monthly Rent and
additional rent and observes and performs all required provisions of this Lease.
Within ten (10) days after Landlord's written request, Tenant shall execute any
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance. If Tenant fails to do so, then in addition to such
failure constituting a default by Tenant, it shall be deemed that this Lease is
so subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.
U. Survival of Indemnities: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency
or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by
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Landlord with such costs being included as additional rent and reimbursed to
Landlord by Tenant within thirty (30) days after demand. If TDM facilities and
programs are instituted on a Project wide basis, Tenant shall pay its
proportionate share of such costs in accordance with Section 8 above.
X. Waiver of Right to Jury Trial: Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
21. RIGHT OF fIRST oFFER TO PURCHASE:
A. Grant and Exercise of Option: In the event Landlord elects to
sell the Building either separately or as part of a larger sale including other
building(s) within the Project ("Offered Property"), Landlord (referred
hereinafter in this Section 21 as "Seller") hereby grants Tenant a right of
first offering to purchase. Prior to Seller committing to sell its interest in
the Offered Property to a third party, Seller shall give Tenant written notice
of such desire and the terms and other information under which Seller intends to
sell the Offered Property. Provided at the time of such written notice: (i)
Tenant leases at least two buildings within the Project; and (ii) Tenant is not
in default under the Lease beyond the expiration of any applicable cure period,
Tenant shall have the option, which must be exercised, if at all, by written
notice to Seller within thirty (30) days after Tenant's receipt of Seller's
notice, to purchase its interest in the Offered Property at the sales price and
terms of sale specified in the notice. In the event Tenant timely exercises such
option to purchase its interest in the Offered Property, Seller shall sell its
interest in the Offered Property to Tenant, and Tenant shall purchase its
interest in the Offered Property from Seller in accordance with the price and
terms specified in Seller's notice. Seller and Tenant shall, in good faith,
attempt to reach agreement on the terms of a mutually acceptable purchase
agreement consistent with the terms set forth in Seller's notice within thirty
(30) days of Seller's notice. In the event (i) Seller and Tenant are unable to
reach agreement on a mutually acceptable purchase agreement within such thirty
(30) day period or (ii) Tenant fails to exercise Tenant's option within said
thirty (30) day period, Seller shall have one hundred eighty (180) days
thereafter to sell its interest in the Offered Property at no less than ninety
five percent (95%) of the sales price and upon substantially the same other
terms of sale as specified in the notice to Tenant. In the event Seller fails to
sell its interest in the Offered Property within said one hundred eighty (180)
day period or in the event Seller proposes to sell its interest in the Offered
Property at less than ninety five percent (95%) of the sales price or on other
material terms which are more favorable to the prospective buyer than that
proposed to Tenant, Seller shall be required to resubmit such offer to Tenant in
accordance with this Right of First Offering except that Tenant shall be
required to respond to any resubmission within a seven (7) day period.
B. Exclusions: This Right of First Offering shall automatically
terminate, (i) upon the expiration or sooner termination of the Lease, or (ii)
in the event of a foreclosure or other involuntary transfer of Landlord's
interest in the Building. Further, this Right of First Offering shall not apply
to transfers (but shall survive such transfers ) of all or a portion of the
Building or Project to (i) John A. Sobrato and/or John M. Sobrato (individually
and collectively "Sobrato"), and (ii) any immediate family member of Sobrato,
and (iii) any trust established, in whole or in art, for the benefit of Sobrato
and/or any immediate family member of Sobrato, (iv) any partnership in which
Sobrato or any immediate family member, either directly or indirectly (e.g.,
through a partnership or corporate entity or a trust) retains a general partner
interest, and/or (v) any corporation under the control, either directly or
indirectly, by Sobrato or any immediate family member of Sobrato.
Page 30
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord: Sobrato Interests III, Tenant: Nvidia Corporation,
a California Limited Partnership a Delaware Corporation
By: /s/John Michael Sobrato * By: /s/ Jen-Hsun Huang
______________________________ ______________________________
Its: _____________________________ Its: ______________________________
* By: /s/ Christine B. Hoberg
______________________________
Its: ______________________________
* NOTE: This lease must be signed by two (2) officers of such corporation: one
being the chairman of the board, the president, or a vice president, and the
other being the secretary, an assistant secretary, the chief financial officer
or an assistant treasurer. If one (1) individual is signing in two (2) of the
foregoing capacities, that individual must sign twice; once as one officer and
again as the other officer and in such event, Tenant must deliver to Landlord a
certified copy of a corporate resolution authorizing the signatory to execute
this Lease.
Page 31
<PAGE>
Exhibit "A" - BUILDING AND PROJECT
Page 32
<PAGE>
EXHIBIT "B" - Declaration of Covenants, Codes and Restrictions
(to be attached)
Page 33
<PAGE>
EXHIBIT "C" - Draft Letter of Credit
Page 34
<PAGE>
EXHIBIT "D" - Building Shell Definition
1. Building Structure
(a) Foundations including footings, grade beams, or other building foundation
components required to support the building structure.
(b) Five inch (5") thick concrete slab on grade with welded wire mesh and any
other reinforcing or structural connections that may be necessary or required as
specified by structural engineer.
(c) Complete structural framing system comprised of rolled steel beams,
columns, and braced-frame steel construction with corrugated metal deck and
concrete fill, all members required by code to be fireproofed. Upper floor
systems provide a minimum of 3" concrete over metal deck and are designed for an
80 lb. live load plus 20 lb. partition load. Structural framing will include
intermediate beams for HVAC units at the roof, and for major shafts on each
floor.
(d) Performance glass with GFRC, stone, aluminum and stainless steel exterior
building skin. All exterior doors, door closer and locking devices as necessary.
(e) Four (4) ply built up roofing by Owens-Corning, John Manville, or equal and
all flashings over a perlite board and corrugated metal deck roof assembly.
Title 24 code required roof insulation is included.
(f) Exterior painting of all non-finished metals and caulking of all exterior
joints.
(g) Concrete pan-filled stairs in the interior core of each building, and two
(2) concrete pan-filled stair sets at the Building perimeter.
(h) Riser for building sprinkler system (no sprinkler grid or drops).
2. Sitework
(a) All work outside the building perimeter walls shall be considered site work
for the Building Shell and
Page 35
<PAGE>
shall include asphalt concrete paving, parking (including a parking structure),
landscaping, landscape irrigation, storm drainage, utility service laterals,
curbs, gutters, sidewalks, retaining walls, planters, trash enclosures, parking
lot and landscape lighting and other exterior lighting per code.
(b) Paving sections for automobile and truck access shall be according to the
Geologic Soils Report.
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the city storm
system main.
3. Plumbing
(a) Underground sanitary sewer laterals connected to the city sewer main in the
street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street and
stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site storm
drainage system.
(d) Gas lines connected to the city or public utility mains and run to gas
meters adjacent to, and in close proximity to the building. Meter supplied by
utility company.
4. Electrical
(a) A primary and secondary electrical service from the street to the building
electrical room limited to underground conduit, pull-string, and transformer
pad. Transformer supplied by utility company.
(b) Two 4" underground conduit from the street to the building for telephone
trunk lines by Pacific Bell.
(c) An electrically operated landscape irrigation system, with controller, that
is a complete and functioning system.
Page 36
<PAGE>
(d) Underground conduit with pull-string from the building to the main fire
protection system post indicated valve (PIV) for installation of supervisory
alarm wiring.
6. General
(a) All construction shall conform to State and Local Building Codes, Title 24
Regulations, and shall be ADA Compliant.
All other costs shall be deemed Tenant Improvements.
Page 37
<PAGE>
EXHIBIT "E" - Building Shell Plans and Specifications
(sheet references to be attached)
Page 38
<PAGE>
EXHIBIT "F" - Tenant Improvement Plans and Specifications
(sheet references to be attached)
Page 39
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation herein of our report dated March 6, 2000,
relating to the balance sheets of NVIDIA Corporation as of January 31, 1999
and January 30, 2000 and the related statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1997, the one-month
period ended January 31, 1998, and each of the years in the two-year period
ended January 30, 2000, and the related schedule, which report appears in the
January 30, 2000, annual report on Form 10-K of NVIDIA Corporation and herein
and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 20, 2000
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
_______________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(B)(2)
_________________________
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4655078
(I.R.S. Employer Identification No.)
101 California Street, San Francisco, California
(Address of principal executive offices)
94111
(Zip Code)
__________________
NVIDIA Corporation
(Exact name of Obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-3177549
(I.R.S. Employer Identification No.)
3535 Monroe Street
Santa Clara, California
(Address of principal executive offices)
95051
(Zip Code)
________________________________
Debt Securities
(Title of Indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
Exhibit 1. Articles of Association of the Trustee as Now in Effect (see
Exhibit 1 to Form T-1 filed in connection with Registration
Statement No. 333-41329 which is incorporated by reference).
Exhibit 2. Certificate of Authority of the Trustee to Commence Business
(see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 333-41329, which is incorporated by reference).
Exhibit 3. Authorization of the Trustee to Exercise Corporate Trust Powers
(contained in Exhibit 2).
Exhibit 4. Existing By-Laws of the Trustee (see Exhibit 4 to Form T-1
filed in connection with Registration Statement No. 333-41329,
which is incorporated by reference).
Exhibit 5. Not Applicable
Exhibit 6. The consent of the Trustee required by Section 321 (b) of the
Act (see Exhibit 6 to Form T-1 filed in connection with
Registration Statement No. 333-41329, which is incorporated by
reference).
Exhibit 7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable
Exhibit 9. Not Applicable
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Manhattan Bank and Trust Company, National Association, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of San
Francisco, and State of California, on the 23rd day of March, 2000.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By /s/ James Nagy
-----------------------
James Nagy
Assistant Vice President
<PAGE>
Exhibit 7. Report of Condition of the Trustee.
================================================================================
Consolidated Report of Condition of Chase Manhattan Bank and Trust Company, N.A.
--------------------------------------------
(Legal Title)
Located at 1800 Century Park East, Ste. 400 Los Angeles, CA 94111
--------------------------------------------------------------------
(Street) (City) (State) (Zip)
as of close of business on December 31, 1999
-----------------
================================================================================
================================================================================
ASSETS DOLLAR AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Cash and balances due from
a. Noninterest-bearing balances and currency and coin (1,2) 4,258
b. Interest bearing balances (3) 0
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 0
b. Available-for-sale securities (from Schedule RC-B, column D) 1,089
3. Federal Funds sold (4) and securities purchased agreements to resell 82,900
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C) 68
b. LESS: Allowance for loan and lease losses 0
c. LESS: Allocated transfer risk reserve 0
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 68
5. Trading assets 0
6. Premises and fixed assets (including capitalized leases) 142
7. Other real estate owned (from Schedule RC-M) 0
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 0
9. Customers liability to this bank on acceptances outstanding 0
10. Intangible assets (from Schedule RC-M) 1,026
11. Other assets (from Schedule RC-F) 1,996
12a. TOTAL ASSETS 91,479
</TABLE>
(1) includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b
(3) includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a "Loans and
leases, net of unearned income" and in Schedule RC-C, part 1.
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E) 59,457
(1) Noninterest-bearing 7,509
(2) Interest-bearing 51,948
b. In foreign offices, Edge and Agreement subsidiaries, and IBF'
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased (2) and securities sold under agreements to
repurchase 0
15. a. Demand notes issued to the U.S. Treasury 0
b. Trading liabilities 0
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less 0
b. With a remaining maturity of more than one year through three years 0
c. With a remaining maturity of more than three years 0
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 0
19. Subordinated notes and Debentures (3) 0
20. Other liabilities (from Schedule RC-G) 5,756
21. Total liabilities (sum of items 13 through 20) 65,213
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 0
24. Common stock-- 600
25. Surplus (exclude all surplus related to preferred stock) 12,590
26. a. Undivided profits and capital reserves 13,076
b. Net unrealized holding gains (losses) on available-for-sale securities 0
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 26,266
29. Total liabilities, equity capital, and losses deferred pursuant to 12
U.S.C. 1823 (j) (sum of items 21 and 28.c) 91,479
========================================================================================
</TABLE>
5
