UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 27, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ________ .
COMMISSION FILE NUMBER 0-18548
XILINX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
77-0188631
(I.R.S. Employer Identification No.)
2100 LOGIC DRIVE, SAN JOSE, CA 95124
(Address of principal executive offices) (Zip Code)
(408) 559-7778
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such requirements for the past 90 days.
YES [ X ] NO [ ]
Class Shares Outstanding at September 27, 1997
- ----- ----------------------------------------
Common Stock, $.01 par value 73,986,865
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except per share amounts)
Three Months Ended Six Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 150,272 $ 130,579 $ 311,033 $ 280,779
Costs and expenses:
Cost of revenues 56,048 50,658 116,954 103,983
Write-off of discontinued product family - 5,000 - 5,000
Research and development 19,950 16,748 39,888 34,585
Marketing, general and administrative 31,226 28,709 63,892 58,257
----------- ----------- ----------- -----------
Operating costs and expenses 107,224 101,115 220,734 201,825
----------- ----------- ----------- -----------
Operating income 43,048 29,464 90,299 78,954
Interest income and other 5,303 5,407 11,089 9,767
Interest expense (3,496) (3,437) (6,987) (6,912)
----------- ----------- ----------- -----------
Income before provision for taxes on income 44,855 31,434 94,401 81,809
Provision for taxes on income 13,905 10,216 30,007 28,099
----------- ----------- ----------- -----------
Net income $ 30,950 $ 21,218 $ 64,394 $ 53,710
=========== =========== =========== ===========
Net income per share $ 0.38 $ 0.27 $ 0.79 $ 0.68
=========== =========== =========== ===========
Weighted average common and common equivalent
shares used in computing per share amounts 81,416 79,378 81,371 79,161
=========== =========== =========== ===========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands except per share amounts)
Sept. 27, March 29,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 260,372 $ 215,903
Short-term investments 174,241 209,944
Accounts receivable, net 65,985 72,248
Inventories 54,313 62,367
Advances for wafer purchases 37,000 -
Deferred income taxes and other current assets 44,641 41,093
----------- -----------
Total current assets 636,552 601,555
Property, plant and equipment, at cost 163,096 154,443
Accumulated depreciation and amortization (79,381) (67,863)
----------- -----------
Net property, plant and equipment 83,715 86,580
Restricted investments 36,263 36,257
Investment in joint venture 101,116 35,286
Advances for wafer purchases 53,000 60,000
Developed technology and other assets 25,641 28,015
----------- -----------
$ 936,287 $ 847,693
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,391 $ 16,758
Accrued payroll, other accrued liabilities and interest payable 31,361 33,282
Income taxes payable 7,840 10,858
Deferred income on shipments to distributors 46,881 36,355
----------- -----------
Total current liabilities 113,473 97,253
Long-term debt 250,000 250,000
Deferred tax liabilities 10,753 9,760
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, $.01 par value 740 733
Additional paid-in capital 123,273 114,530
Retained earnings 442,275 377,881
Treasury Stock, at cost - (1,847)
Cumulative translation adjustment (4,227) (617)
----------- -----------
Total stockholders' equity 562,061 490,680
----------- -----------
$ 936,287 $ 847,693
=========== ===========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
Six Months Ended
Sept. 27, Sept. 28,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 64,394 $ 53,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,768 12,770
Undistributed earnings of joint venture (1,028) (408)
Changes in assets and liabilities:
Accounts receivable 6,263 12,153
Inventories 8,054 (15,206)
Deferred income taxes and other 6,752 (1,041)
Accounts payable, accrued liabilities and income taxes payable 5,694 16,768
Deferred income on shipments to distributors 10,526 1,620
----------- -----------
Total adjustments 52,029 26,656
----------- -----------
Net cash provided by operating activities 116,423 80,366
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (234,495) (178,216)
Proceeds from sale or maturity of short-term available-for-sale investments 270,154 135,134
Purchases of restricted held-to-maturity investments (36,136) (36,109)
Proceeds from maturity of restricted held-to maturity investments 36,130 36,092
Advances for wafer purchases (30,000) (30,000)
Property, plant and equipment (10,556) (17,151)
Investment in joint venture (67,422) -
----------- -----------
Net cash used in investing activities (72,325) (90,250)
Cash flows from financing activities:
Acquisition of Treasury Stock (15,164) -
Principal payments on capital lease obligations - (478)
Proceeds from issuance of common stock 15,535 13,550
----------- -----------
Net cash provided by financing activities 371 13,072
----------- -----------
Net increase in cash and cash equivalents 44,469 3,188
Cash and cash equivalents at beginning of period 215,903 110,893
----------- -----------
Cash and cash equivalents at end of period $ 260,372 $ 114,081
=========== ===========
Schedule of non-cash transactions:
Tax benefit from stock options $ 10,252 $ 4,345
Issuance of Treasury Stock under employee stock plans 17,011 -
Receipts against advances for wafer purchases - 8,963
Supplemental disclosures of cash flow information:
Interest paid 6,480 6,068
Income taxes paid $ 26,087 $ 22,773
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
XILINX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
should be read in conjunction with the Xilinx, Inc. ("Xilinx" or the
"Company") consolidated financial statements for the year ended March 29,
1997. The balance sheet at March 29, 1997 is derived from audited financial
statements, although certain prior period amounts have been reclassified to
conform to the fiscal 1998 presentation. The interim financial statements are
unaudited but reflect all adjustments which are in the opinion of management
of a normal, recurring nature necessary to present fairly the statements of
financial position, results of operations and cash flows for the interim
periods presented. The results for the six-month period ended September 27,
1997 are not necessarily indicative of the results that may be expected for
the year ending March 28, 1998.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at September 27, 1997
and March 29, 1997 are as follows:
<TABLE>
<CAPTION>
September 27, March 29,
1997 1997
-------------- ----------
<S> <C> <C>
Raw materials $ 5,915 $ 4,952
Work-in-process 23,754 30,898
Finished goods 24,644 26,517
-------------- ----------
$ 54,313 $ 62,367
============== ==========
</TABLE>
3. The Company, United Microelectronics Corporation ("UMC") and other
parties have entered into a joint venture to construct a wafer fabrication
facility in Taiwan, known as United Silicon Inc. ("USI"). In July 1997, the
Company invested additional equity of $67.4 million in USI. The Company will
retain its 25% equity ownership in the joint venture. UMC has committed to
and is supplying the Company with wafers manufactured in an existing facility
until capacity is available in the new facility.
4. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which the Company will be required to
adopt during the quarter ending December 31, 1997. At that time, the Company
will be required to change the method currently used to compute net income per
share and to restate all prior periods. The new requirements will include a
calculation of "basic" net income per share, which will exclude the dilutive
effect of stock options. The restated calculations of basic net income per
share for the second quarter and first six months of fiscal 1998 result in net
income per share of $0.42 and $0.87 respectively. Fiscal 1997's comparable
periods resulted in net income per share of $0.29 and $0.74, respectively. A
calculation of "diluted" net income per share will also be required. However,
this calculation is not expected to differ materially from the primary net
income per share amounts reported for the periods presented.
5. The Company is currently involved in patent litigation with Altera
Corporation (see Part II, Item 1, Legal Proceedings). Due to the uncertain
nature of the litigation with Altera and because the lawsuits are still in the
pre-trial stage, the ultimate outcome of these matters cannot be determined at
this time. Management believes that it has meritorious defenses to Altera's
claims, is defending them vigorously, and has not recorded a provision for the
ultimate outcome of these matters in its financial statements. The foregoing
is a forward-looking statement subject to risks and uncertainties, and the
future outcome could differ materially due to the uncertain nature of the
litigation with Altera and because the lawsuits are still in the pre-trial
stage.
6. Subsequent to September 27, 1997, the Company entered into a lease
agreement for a facility to be built on property adjacent to the Company's
corporate facilities. Building construction and occupancy is expected to be
completed in calendar 1998. Upon signing the lease agreement, the Company
paid the lessor $31.3 million for prepaid rent and an option to purchase. The
rent prepayment covers one full year, and was discounted to its present value.
Additionally, the Company can exercise the lease agreement's purchase option
between the sixth and twelfth month following the commencement date of the
lease term. If the Company elects to exercise the option, the prepaid
purchase option will be considered payment in full. However, if the Company
decides not to exercise the purchase option, the prepaid option will be
returned without interest at the end of the first year lease.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements which involve
numerous risks and uncertainties. Actual results may differ materially.
Certain of these risks and uncertainties are discussed under "Risk Factors".
RESULTS OF OPERATIONS - SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1998
COMPARED TO THE SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1997
Revenues
- --------
Revenues for the second quarter of fiscal 1998 were $150.3 million, which
represented a $19.7 million, or 15.1%, increase from the corresponding period
of fiscal 1997. In addition, revenues for the first six months of fiscal 1998
were $311.0 million, up 10.8% from the corresponding period of 1997. The
revenue increase during the second quarter of fiscal 1998 as compared to the
same quarter in the prior year was primarily attributable to increases in the
volume of shipments relating to each of the Company's XC4000, XC4000X (which
includes the Company's XC4000EX and XC4000XL devices) and XC5200 field
programmable gate array ("FPGA") product families. The XC4000, XC4000X and
XC5200 integrated circuits represented 60.2% of aggregate revenues in the
second quarter of fiscal 1998 as compared to 51.5% of aggregate revenues in
the comparable quarter of the prior fiscal year. The year to year percentage
increase was primarily due to the growth in the Company's XC4000EX and
XC4000XL devices. These high density devices were shipped in volume in the
third quarter of fiscal 1997 and in the first quarter of fiscal 1998,
respectively, and together represented $11.7 million during the second quarter
of fiscal 1998. In comparison to the immediately preceding quarter, the
133.0% sequential growth in revenues achieved by the Company's XC4000X
products only partially offset the decline in revenues and unit volumes for
the Company's older XC4000 products. Revenues for the XC4000 family decreased
$12.3 million, or 16.5%, in comparison to the first quarter of fiscal 1998.
The decrease from the first quarter of fiscal 1998 is a function of the
slowing requirements for these mature products and the increasing demand for
the functionality and performance provided by the higher density XC4000X
products. Total revenues in the second quarter of fiscal 1998 as compared to
the immediately preceding quarter decreased $10.5 million, or 6.5%, and were
adversely impacted by a general slowdown in the global CMOS programmable logic
industry, a seasonal slowdown in Europe, reduced demand for the Company's
mature FPGA products, distributor inventory balancing and continued decreases
in selling prices.
Revenues for the Company's XC2000, XC3000 and XC3100 product families,
represented 26.7% of aggregate revenues in the second quarter of fiscal 1998,
compared to 36.8% of aggregate revenues during the comparable quarter of the
prior fiscal year. The decrease is a function of the slowing requirements for
these products and the increasing demand for the functionality and performance
provided by the Company's higher density FPGA devices.
Other products, consisting primarily of the complex programmable logic device
("CPLD") families, HardWire Arrays and serial proms, represented 13.1% of
aggregate revenues in the second quarter of fiscal 1998 compared to 11.7% of
aggregate revenues for the comparable quarter of the prior year. Proprietary
products constituted 94.4% of revenues for the second quarter of fiscal 1998,
as compared to 88.9% in the comparable quarter last year. Additionally,
software revenues represented approximately 3% of total revenues for the
second quarter of 1998, representing approximately 2200 revenue seats. In the
second quarter of fiscal 1997, software revenues represented approximately 3%
of total revenues, representing approximately 1100 revenue seats. The
increase in revenue seats from the prior year quarter resulted from increased
demand for the Company's lower cost, easier to use Foundation Series software,
and increased demand in the software utilized to design high volume logic
devices, as well as a decrease in average selling prices.
International revenues constituted approximately 37% of total revenues in the
second quarter of fiscal 1998 in comparison to approximately 36% in the prior
year quarter. International revenues are primarily derived from customers in
Europe, Japan and Southeast Asia, which represent approximately 21%, 11% and
5% of the Company's worldwide sales, respectively. Revenue growth in the
European, Japanese and Southeast Asian markets was 11.4%, 19.2% and 56.1%,
respectively, in the second quarter of 1998 as compared to the second quarter
in 1997.
Gross Margin
- -------------
Cost of revenues was $56.0 million, or 37.3% of revenues, and $117.0 million
or 37.6% of revenues for the second quarter and first six months of fiscal
1998, respectively. Costs of revenues for the comparable periods of fiscal
1997 were $50.7 million, or 38.8% of revenues, and $104.0 million, or 37.0% of
revenues, respectively, excluding the impact of a $5.0 million write-off of
the XC8100 product family of one-time programmable antifuse devices (see
below). The decrease in the cost of revenues as a percentage of revenues from
the prior year second quarter was primarily attributable to ongoing yield
improvements and the favorable impact of lower wafer costs, including the
impact of favorable movement in the yen exchange rate, partially offset by
selling price reductions. In the past, Xilinx has also been able to offset
much of the erosion in gross margin percentages on more mature integrated
circuits with increased volumes of newer, proprietary, higher margin products.
The Company recognizes that ongoing manufacturing cost reductions for its
integrated circuits, which assist the Company in its efforts to lower selling
prices while maintaining historical margins, represent a significant element
in expanding the market for its products. Company management believes that
future gross margin objectives in the range of 60% to 62% of revenues are
consistent with expanding market share while realizing acceptable returns,
although there can be no assurance that future gross margins will be in this
range.
During the second quarter of fiscal 1997, the Company discontinued the XC8100
family of one-time programmable antifuse devices. As a result, the Company
recorded a pretax charge against earnings of $5.0 million. This charge
primarily related to the write-off of inventory and for termination charges
related to purchase commitments to foundry partners for work-in-process wafers
which had not completed the manufacturing process.
Research and Development
- --------------------------
Research and development expenditures were $20.0 million for the second
quarter and $39.9 million for the first six months of fiscal 1998, or 13.3%
and 12.8% of revenues, respectively. The expenditures for the comparable
periods in the prior year were $16.7 million and $34.6 million, or 12.8% and
12.3% of revenues, respectively. The 19.1% and 15.3% increase in expenditures
over the prior year second quarter and six month periods, respectively,
resulted primarily from increased testing of development products and
labor-related expenses partially offset by a decline in engineering wafer
purchases. The Company remains committed to a significant level of research
and development effort in order to continue to compete aggressively in the
programmable logic marketplace.
Marketing, General and Administrative
- ----------------------------------------
Marketing, general and administrative expenses decreased as a percentage of
revenue from 22.0% and 20.7% of revenues, or $28.7 million and $58.3 million,
respectively, during the second quarter and first six months of fiscal 1997 to
20.8% and 20.5% of revenues, or $31.2 million and $63.9 million, respectively,
during the second quarter and first six months of fiscal 1998. These expenses
have increased in amount primarily as a result of increased staffing and
labor-related expenses as well as increased legal costs. The Company remains
committed to controlling administrative expenses and believes that most of
these expenses should grow at a lower rate than revenue growth. However, the
timing and extent of future legal costs associated with the ongoing
enforcement of the Company's intellectual property rights are not readily
predictable and may significantly increase the level of general and
administrative expenses in the future.
Operating Income
- -----------------
Operating income of $43.0 million, or 28.6% of revenues, was generated during
the second quarter of fiscal 1998, an increase of 46.1% from the $29.5 million
or 22.6% of revenues, for the prior year comparable period. Excluding the
impact of the $5.0 million non-recurring write-off of the XC8100 product
family in the second quarter of fiscal 1997, the second quarter of fiscal 1998
operating income increased 24.9% from $34.5 million, or 26.4% of revenues. In
addition, operating income for the first six months of fiscal 1998 increased
14.4% to $90.3 million, or 29.0% of revenues, from $79.0 million or 28.1% of
revenues in the comparable fiscal 1997 period. Excluding the impact of the
$5.0 million non-recurring write-off, the first six months of fiscal 1998
operating income was 7.6% higher than the operating income for the comparable
prior year period. The increase in operating income in the second quarter of
1998 compared to the second quarter of 1997 is primarily a result of the 15.1%
revenue growth, the impact of the non-recurring write-off and lower growth in
marketing, general and administrative expenses. Operating income as a
percentage of revenues could be adversely impacted in future years by the
factors noted under "Risk Factors".
Interest and Other, net
- --------------------------
The Company earns interest income on its cash, cash equivalents, short-term
investments and restricted investments. The amount of interest earned is a
function of the balance of cash invested as well as prevailing interest rates.
The Company incurs interest expense on the $250 million of 5 1/4% convertible
subordinated notes issued in November 1995. The Company's investment
portfolio contains tax-advantaged municipal securities, which have pretax
yields that are less than the interest rate on the convertible subordinated
notes. For financial reporting purposes, the Company effectively records the
difference between the pretax and tax-equivalent yields as a reduction in
provision for taxes on income.
The Company also records 25% of the net income of United Silicon Inc. ("USI"),
a wafer fabrication joint venture in which the Company participates, as joint
venture equity income. To date, USI's net income has resulted primarily from
interest earned on its investment portfolio. The Company expects that as the
USI wafer fabrication facility begins to ramp up operations over the next year
the Company may incur joint venture equity losses.
Net interest and other income was relatively constant in the second quarter of
fiscal 1998 compared to the second quarter of fiscal 1997. For the first six
months of fiscal 1998, net interest income was up $1.2 million to $4.1 million
as compared to the prior year six-month period. The increased interest and
other income for the first six months of fiscal 1998 over the prior year
period is primarily attributable to joint venture equity income. As a result
of the difference in interest income and expense yields, future uses of the
Company's investment portfolio and operating results for USI, levels of net
interest and other income could decrease in the future.
Provision for Income Taxes
- -----------------------------
The Company recorded a tax provision of $13.9 million (31.0% of income before
taxes) for the second quarter of fiscal 1998 as compared to $10.2 million
(32.5% of income before taxes) in the comparable prior year period. For the
first six months of fiscal 1998 the Company recorded a provision of $30.0
million (31.8% of income before taxes) as compared to $28.1 million (34.3% of
income before taxes) for the first six months of fiscal 1997. The lower tax
rate for the first six months of fiscal 1998 is primarily due to legislation
extending the R&D Tax Credit as well as increased profits in foreign
operations.
RISK FACTORS
The following risk factors are associated with the Company's business:
Factors Affecting Future Operating Results
- ----------------------------------------------
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions, conditions relating to technology companies,
conditions specific to the semiconductor industry, decreases in average
selling prices over the life of any particular product, the timing of new
product introductions (by the Company, its competitors and others), the
ability to manufacture sufficient quantities of a given product in a timely
manner, the timely implementation of new manufacturing technologies, the
ability to safeguard patents and intellectual property from competitors, and
the impact of new technologies resulting in rapid escalation of demand for
some products in the face of equally steep decline in demand for others.
Market demand for the Company's products, particularly for those most recently
introduced, can be difficult to predict, especially in light of customers'
demands to shorten product lead times and minimize inventory levels.
Unpredictable market demand could lead to revenue volatility if the Company
were unable to provide sufficient quantities of specified products in a given
quarter. In addition, any difficulty in achieving targeted wafer production
yields could adversely impact the Company's financial condition and results of
operations. The Company attempts to identify changes in market conditions as
soon as possible; however, the dynamics of the market make prediction of and
timely reaction to such events difficult. Due to the foregoing and other
factors, past results, including those described in this report, are much less
reliable predictors of the future than is the case in many older, more stable
and less dynamic industries. Based on the factors noted herein, the Company
may experience substantial period-to-period fluctuations in future operating
results.
The semiconductor industry has historically been cyclical and subject to, at
various times, significant economic downturns characterized by diminished
product demand, limited visibility to demand for products further out than
three to six months, accelerated erosion of average selling prices and
overcapacity. The Company may experience substantial period-to-period
fluctuations in future operating results due to general semiconductor industry
conditions, overall economic conditions or other factors.
The Company's future success depends in large part on the continued service of
its key technical, sales, marketing and management personnel and on its
ability to continue to attract and retain qualified employees. Particularly
important are those highly skilled design, process and test engineers involved
in the manufacture of existing products and the development of new products
and processes. The competition for such personnel is intense, and the loss of
key employees could have a material, adverse effect on the Company's financial
condition and results of operations.
Sales and operations outside of the United States subject the Company to risks
associated with conducting business in foreign economic and regulatory
environments. The Company's financial condition and results of operations
could be adversely impacted by unfavorable economic conditions in countries in
which it does significant business and by changes in foreign currency exchange
rates affecting those countries. Additionally, risks include government
regulation of exports, tariffs and other potential trade barriers, reduced
protection for intellectual property rights in some countries, and generally
longer receivable collection periods. The Company's business is also subject
to the risks associated with the imposition of legislation and regulations
relating specifically to the import or export of semiconductor products. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions will be imposed by the United States or other countries upon the
importation or exportation of the Company's products in the future or what, if
any, effect such actions would have on the Company's financial condition and
results of operations.
In order to expand international sales and service, the Company will need to
maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect the Company's financial
condition and results of operations. There can be no assurance that the
Company will be successful in its maintenance or expansion of existing foreign
operations, in its establishment of new foreign operations or in its efforts
to maintain or expand its relationships with international distributors or
sales representatives.
Many of the Company's operations are centered in an area of California that
has been seismically active. Should there be a major earthquake in this area,
the Company's operations may be disrupted resulting in the inability of the
Company to ship products in a timely manner, thereby materially adversely
affecting the Company's financial condition and results of operations.
In addition, the securities of many high technology companies have
historically been subject to extreme price and volume fluctuations, which may
adversely affect the market price of the Company's common stock.
Dependence Upon Independent Manufacturers
- --------------------------------------------
The Company does not manufacture the wafers used for its products. During the
past two years, most of the Company's wafers have been manufactured by Seiko
Epson Corporation ("Seiko Epson") and United Microelectronics Corporation
("UMC"). The Company has depended upon these suppliers and others to produce
wafers with competitive performance and cost attributes, including
transitioning to advanced process technologies, producing wafers at acceptable
yields, and delivering them to the Company in a timely manner. While the
timeliness, yield and quality of wafer deliveries have met the Company's
requirements to date, there can be no assurance that the Company's wafer
suppliers will not experience future manufacturing problems, including delays
in the realization of advanced process technologies. The Company is also
dependent on subcontractors to provide semiconductor assembly services. Any
prolonged inability to obtain wafers or assembly services with competitive
performance and cost attributes, adequate yields or timely deliveries from
these manufacturers/subcontractors, or any other circumstance that would
require the Company to seek alternative sources of supply, could delay
shipments, and have a material adverse effect on the Company's financial
condition and results of operations.
The Company's long-term growth will depend in large part on the Company's
ability to obtain increased wafer fabrication capacity from suppliers. A
significant increase in general industry demand or any interruption of supply
could reduce the Company's supply of wafers or increase the Company's cost of
such wafers, thereby materially adversely affecting the Company's financial
condition and results of operations.
In order to secure additional wafer capacity, the Company from time to time
considers alternatives, including, without limitation, equity investments in,
or loans, deposits, or other financial commitments to, independent wafer
manufacturers to secure production capacity, or the use of contracts which
commit the Company to purchase specified quantities of wafers over extended
periods. Although the Company is currently able to obtain wafers from
existing suppliers in a timely manner, the Company has at times been unable,
and may in the future be unable, to fully satisfy customer demand because of
production constraints, including the ability of suppliers and subcontractors
to provide materials and services in satisfaction of customer delivery dates,
as well as the ability of the Company to process products for shipment. The
Company's future growth will depend in part on its ability to locate and
qualify additional suppliers and subcontractors and to increase its own
capacity to ship products, and there can be no assurance that the Company will
be able to do so. Any increase in these constraints on the Company's
production could result in a material adverse impact on the Company's
financial condition and results of operations. In this regard, the Company
has entered into the USI joint venture with UMC and other parties to obtain
wafer capacity from a new wafer fabrication facility. However, there are many
risks associated with the construction of a new facility, and there can be no
assurance that such facility will become operational and/or cost effective in
a timely manner. In addition, the Company has entered into an agreement with
Seiko Epson to obtain additional capacity from a facility currently under
construction and expected to provide wafers in calendar 1998. If the Company
requires additional capacity and such capacity is unavailable, or unavailable
on reasonable terms, the Company's financial condition and results of
operations could be materially adversely affected.
Litigation
- ----------
The Company is currently engaged in patent litigation with Altera Corporation
("Altera"). See "Legal Proceedings" in Part II.
Dependence on New Products
- -----------------------------
The Company's future success depends in large part on its ability to develop
and introduce on a timely basis new products which address customer
requirements and compete effectively on the basis of price and performance.
The success of new product introductions is dependent upon several factors,
including timely completion of new product designs, the ability to utilize
advanced process technologies, achievement of acceptable yields, availability
of supporting design software and market acceptance. No assurance can be
given that the Company's product development efforts will be successful or
that its new products will achieve market acceptance. Revenues relating to
the Company's mature FPGA products are expected to continue to decline in the
future as a percentage of aggregate revenues, and the Company will be
increasingly dependent on revenues derived from newer product generation
FPGAs, other existing products and future generation products. In addition,
the average selling price for any particular product tends to decrease rapidly
over the product's life. To offset such decreases, the Company relies
primarily on obtaining yield improvements and corresponding cost reductions in
the manufacture of existing products and on introducing new products which
incorporate advanced features and other price/performance factors such that
higher average selling prices and higher margins are achievable relative to
mature product lines. To the extent that such cost reductions and new product
introductions do not occur in a timely manner, or the Company's products do
not achieve market acceptance at prices with higher margins, the Company's
financial condition and results of operations could be adversely affected.
Competition
- -----------
The Company's FPGA and CPLD products compete in the programmable logic
marketplace, with a substantial majority of the Company's revenues derived
from its FPGA product families. The industries in which the Company competes
are intensely competitive and are characterized by rapid technological change,
rapid product obsolescence and continuous price erosion. The Company expects
significantly increased competition both from existing competitors and from a
number of companies that may enter its market.
Xilinx believes that important competitive factors in the programmable logic
market include price, product performance and reliability, adaptability of
products to specific applications, ease of use and functionality of design
software, and the ability to provide timely customer service and support. The
Company's strategy for expansion in the programmable logic market includes
continued price reductions commensurate with the ability to lower the cost of
manufacture for established products and continued introduction of new product
architectures which address high volume, low cost applications as well as high
performance, leading edge density applications. However, there can be no
assurance that the Company will be successful in achieving these strategies.
The Company's major sources of competition are comprised of three elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures and other
providers of programmable logic products. The Company competes with custom
gate array manufacturers on the basis of lower design costs, shorter
development schedules and reduced inventory risks. The primary attributes of
custom gate arrays are high density, high speed and low production costs in
high volumes. The Company continues to develop lower cost architectures
intended to narrow the gap between current custom gate array production costs
(in high volumes) and FPGA production costs. The Company competes with high
density programmable logic suppliers on the basis of performance, the ability
to deliver complete solutions to customers and customer support, taking
advantage of the primary characteristics of flexible, high speed
implementation and quick time-to-market capabilities of the Company's PLD
product offerings. In addition, the Company competes with manufacturers of
other programmable logic products on the basis of price, performance, design
and software utility. Some of the Company's current or potential competitors
have substantially greater financial, manufacturing, marketing and technical
resources than Xilinx. To the extent that such efforts to compete are not
successful, the Company's financial condition and results of operations could
be materially adversely affected.
Intellectual Property
- ----------------------
The Company relies upon patent, trademark, trade secret and copyright law to
protect its intellectual property. There can be no assurance that such
intellectual property rights can be successfully asserted in the future or
will not be invalidated, circumvented or challenged. From time to time, third
parties, including competitors of the Company, have asserted exclusive patent,
copyright and other intellectual property rights to technologies that are
important to the Company. There can be no assurance that third parties will
not assert infringement claims against the Company in the future, that
assertions by third parties will not result in costly litigation or that the
Company would prevail in such litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial cost and
diversion of resources of the Company. Any infringement claim or other
litigation against or by the Company could materially, adversely affect the
Company's financial condition and results of operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at September 27, 1997 remained strong.
Total current assets exceeded total current liabilities by 5.6 times, compared
to 6.2 times at March 29, 1997. Since its inception, the Company has used a
combination of equity and debt financing and cash flow from operations to
support on-going business activities, make acquisitions and investments in
complementary technologies, obtain facilities and capital equipment and
finance inventory and accounts receivable.
The Company continued to generate positive cash flow from operations during
the first six months of fiscal 1998. As of September 27, 1997, the Company
had cash, cash equivalents and short-term investments of $434.6 million and
working capital of $523.1 million. Cash generated by operations of $116.4
million for the first six months of fiscal 1998 was $36.1 million higher than
the $80.4 million generated for the first six months of fiscal 1997. The
increase in cash generated by operations during the first six months of fiscal
1998 over the comparable fiscal 1997 period resulted primarily from the
favorable cash flow impact of net income, changes in deferred income on
shipments to distributors and reduced inventories, which were partially offset
by the unfavorable cash flow impact of changes in accounts payable, accrued
liabilities and income taxes payable.
Cash flows used for investing activities for the six months ended September
27, 1997, included an additional equity investment of $67.4 million in the USI
joint venture (see Note 3 of Notes to Consolidated Condensed Financial
Statements), a $30.0 million advance to Seiko Epson for wafer purchases, and
$10.6 million of property, plant and equipment acquisitions, which were
partially offset by the net maturities of $35.7 million in short-term
investments. In the first six months of fiscal 1997, investing activities
used funds for an advance to Seiko Epson for wafer purchases of $30.0 million,
in addition to net purchases of $43.1 million in short-term investments, and
acquisitions in property, plant and equipment of $17.2 million. Capital
additions in the first six months of fiscal 1998 decreased $6.6 million from
the comparable fiscal 1997 period, primarily due to reduced expenditures
relating to the Company's facility constructed last year in Boulder, Colorado.
Net cash flows provided by financing activities were $0.4 million in the first
six months of fiscal 1998 as the proceeds from the issuance of common stock
under employee stock plans of $15.5 million were almost completely offset by
the acquisition of Treasury Stock during the six month period of $15.2
million. For the comparable fiscal 1997 period, financing activities included
$13.6 million in proceeds from issuance of common stock under corporate stock
plans.
Stockholders' equity increased by $71.4 million at September 27, 1997,
principally as a result of the net income for the six months ended September
27, 1997. In addition, proceeds from the issuance of common stock under
employee stock plans and related tax benefits from stock options contributed
to the increase in equity, which was partially offset by the foreign exchange
cumulative translation adjustment in the period. The increase during the
first six months of fiscal 1998 of $3.6 million in the cumulative translation
adjustment resulted primarily from changes in the exchange rate of the New
Taiwan dollar and the resulting impact on the USI financial statements upon
translation from New Taiwan dollars into U.S. dollars.
The Company has available credit line facilities for up to $46.2 million of
which $6.2 million is intended to meet occasional working capital requirements
for the Company's wholly owned Irish subsidiary. At September 27, 1997, no
borrowings were outstanding under the lines of credit.
In July 1997, the Company invested additional equity of $67.4 million towards
the construction of the USI wafer fabrication facility in Taiwan. UMC has
committed to supply the Company with wafers manufactured in an existing
facility until capacity is available in the new facility. Subsequent to
September 27, 1997, a fire occurred at a UMC related facility. The Company
currently does not anticipate that this event will have an adverse effect on
its ability to obtain wafers from UMC in the near future, nor that this event
will adversely impact the USI joint venture, although there can be no
assurance of this.
In addition, during the second quarter of fiscal 1997, the Company entered
into an agreement with Seiko Epson. The agreement provides for an advance to
Seiko Epson of up to $200.0 million to be used in the construction of a wafer
fabrication facility in Japan. Through September 27, 1997, the Company has
advanced a total of $90.0 million to Seiko Epson under the agreement.
Additional $30.0 million installments are currently scheduled for November 1,
1997 and February 1, 1998 or upon the start of mass production, whichever is
later. The final installment for the advance payment of $50.0 million is due
on or after the later of April 1, 1998 or the date the outstanding balance of
the advance payment is less than $125.0 million, as a function of wafer
deliveries against the amounts advanced. In addition to the advance payments,
the Company may also provide further funding to Seiko Epson in the amount of
$100.0 million. This additional funding would be paid after the final
installment of the advance and the form of the additional funding will be
negotiated at that time.
The Company anticipates that existing sources of liquidity and cash flow from
operations will be sufficient to satisfy the Company's cash needs for the
foreseeable future. The Company will continue to evaluate opportunities for
investments to obtain additional wafer supply capacity, procure additional
capital equipment and facilities, develop new products, and potential
acquisitions of businesses, products or technologies that would complement the
Company's businesses and may use available cash or other sources of funding
for such purposes.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 7, 1993, the Company filed suit against Altera Corporation ("Altera")
in the United States District Court for the Northern District of California
for infringement of certain of the Company's patents. Subsequently, Altera
filed suit against the Company, alleging that certain of the Company's
products infringe certain Altera patents. Fact and expert discovery has been
completed in both cases, which have been consolidated. On April 20, 1995,
Altera filed an additional suit against the Company in the Federal District
Court in Delaware, alleging that the Company's XC5200 family infringes an
Altera patent. The Company answered the Delaware suit denying that the XC5200
family infringes the patent in suit, asserting certain affirmative defenses
and counterclaiming that the Altera Max 9000 family infringes certain of the
Company's patents. The Delaware suit was transferred to the United States
District Court for the Northern District of California and is also before the
same judge. In October 1997, the Court held a hearing with respect to
construction of the claims of the various patents in suit. The ultimate
outcome of these matters cannot be determined at this time. Management
believes that it has meritorious defenses to such claims and is defending them
vigorously. The foregoing is a forward-looking statement subject to risks and
uncertainties, and the future outcome could differ materially due to the
uncertain nature of the litigation with Altera and because the lawsuits are
still in the pre-trial stage.
There are no other pending legal proceedings of a material nature to which the
Company is a party or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders in
conjunction with the Annual Meeting of Stockholders of Xilinx held on August
7, 1997.
(a) Election of directors
Votes For Votes Withheld
---------- --------------
Bernard V. Vonderschmitt 65,959,933 831,136
Willem P. Roelandts 66,354,782 436,287
John L. Doyle 66,317,244 473,825
Philip T. Gianos 66,332,609 458,460
William G. Howard, Jr. 66,350,052 441,017
(b) To ratify and approve the Company's 1997 Stock Option Plan.
For Against Abstain No Vote
---------- ---------- ------- ---------
44,112,354 16,290,413 564,893 5,823,409
(c) To ratify and approve an amendment to the Company's 1990 Employee
Qualified Stock Purchase Plan to increase the number of shares reserved for
issuance thereunder by 1,000,000 shares.
For Against Abstain No Vote
---------- --------- ------- ---------
59,295,963 1,524,118 147,579 5,823,409
(d) To ratify and approve an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of Common Stock of
the Company from 200,000,000 to 300,000,000 shares.
For Against Abstain No Vote
---------- --------- ------- -------
64,476,331 2,162,711 152,027 --
(e) To ratify the appointment of Ernst & Young LLP as independent
Auditors of the Company for the fiscal year ended March 28, 1998.
For Against Abstain No Vote
---------- ------- ------- -------
66,672,104 45,652 73,313 --
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.17: Lease dated October 8, 1997 for an additional
Facility on Logic Drive, San Jose, California
Exhibit 11: Statement of Computation of Net Income Per Share
Exhibit 12: Statement of Computation of Ratio of Earning to
Fixed Charges
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date November 7, 1997 XILINX, INC.
------------------ ---------------------
/s/ Gordon M. Steel
---------------------
Gordon M. Steel
Senior Vice President of Finance and
Chief Financial Officer
(as principal accounting and financial officer
and on behalf of Registrant)
<PAGE>
EXHIBIT 10.17
STANDARD FORM LEASE
PARTIES: This Lease, executed in duplicate at Cupertino, California, on
October 8, 1997, by and between Berg & Berg Enterprises, Inc., a California
Corporation, and Xilinx, Inc., a Delaware Corporation, hereinafter called
respectively Lessor and Lessee, without regard to number or gender.
USE: Witnesseth: That Lessor hereby leases to Lessee, and Lessee hires from
Lessor, for the purpose of conducting therein office, research and
development, light manufacturing, and warehouse activities, and any other
legal activity; and for no other purpose without obtaining the prior written
consent of Lessor.
PREMISES: The real property with appurtenances as shown on Exhibit A (the
"Premises") situated in the City of San Jose, County of Santa Clara, State of
California, and more particularly described as follows:
The Premises includes 180,000 square feet of building, including all
improvements thereto, as shown on Exhibit A including the right to use all the
parking spaces at the Premises. The address for the Premises is _____ Logic
Drive, San Jose, California. Lessee's pro-rata share of the Premises is 100%.
TERM: The term shall be for one hundred twenty (120) months unless extended
pursuant to Section 35 of this Lease (the "Lease Term"), commencing on the
Commencement Date as defined in Section 1 and ending one hundred twenty (120)
months thereafter.
RENT: Base rent shall be payable in monthly installments as follows:
Base rent
---------
Months 1 through 12 $253,350
Monthly base rent to increase by 3% on the annual anniversary of the
Commencement Date each year during the Lease Term over the prior year's rent.
Base rent as scheduled above shall be payable in advance on or before the
first day of each calendar month during the Lease Term. The term "Rent," as
used herein, shall be deemed to be and to mean the base monthly rent and all
other sums required to be paid by Lessee pursuant to the terms of this Lease.
Rent shall be paid in lawful money of the United States of America, without
offset or deduction, and shall be paid to Lessor at such place or places as
may be designated from time to time by Lessor. Rent for any period less than
a calendar month shall be a pro rata portion of the monthly installment. Upon
execution of this Lease, Lessee shall deposit with Lessor the sum of Two
Million Nine Hundred Forty-Nine Thousand Dollars ($2,949,000) representing
full payment of the first year's rent, discounted to present value.
LATE CHARGES: Lessee hereby acknowledges that a late payment made by Lessee to
Lessor of Rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges, which may be imposed on
Lessor according to the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of Rent or any other sum due from
Lessee is not received by Lessor or Lessor's designee within ten (10) days
after such amount is due, Lessee shall pay to Lessor a late charge equal to
five (5%) percent of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payments made by Lessee. Acceptance of such late
charges by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor shall it prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
Notwithstanding the above, Lessee shall not be required to pay a late charge
if it is the result of a non-recurring unusual event such as a accounting
error.
SECURITY DEPOSIT: Lessee shall deposit with Lessor the sum of Two Hundred
Fifty-Three Thousand Three Hundred Fifty Dollars ($253,350) (the "Security
Deposit"). The Security Deposit shall be held by Lessor as security for the
faithful performance by Lessee of all of the terms, covenants, and conditions
of this Lease applicable to Lessee. If Lessee commits a default as provided
for herein, including but not limited to a default with respect to the
provisions contained herein relating to the condition of the Premises, Lessor
may (but shall not be required to) use, apply or retain all or any part of the
Security Deposit for the payment of any amount which Lessor may spend by
reason of default by Lessee. If any portion of the Security Deposit is so
used or applied, Lessee shall, within ten days after written demand therefor,
deposit cash with Lessor in an amount sufficient to restore the Security
Deposit to its original amount. Lessee's failure to do so shall be a default
by Lessee. Any attempt by Lessee to transfer or encumber its interest in the
Security Deposit shall be null and void. Upon execution of this Lease, Lessee
shall deposit with Lessor the Security Deposit. Notwithstanding the above,
Lessor agrees to waive the requirement for Lessee to make a Security Deposit
provided Lessee's shareholder's equity exceeds $100 million. If at any time
during this Lease, Lessee's shareholder's equity is less than $100 million,
Lessee shall deposit with Lessor the Security Deposit referenced above within
ten days after the issuance of Lessee's financial statements indicating the
reduction in shareholder's equity below $100 million. If Lessee fails to make
the Security Deposit as required, Lessee shall be deemed to be in default per
Section 14.1 (a) of this Lease.
QUIET ENJOYMENT: Lessor covenants and agrees with Lessee that upon Lessee
paying Rent and performing its covenants and conditions under this Lease,
Lessee shall and may peaceably and quietly have, hold and enjoy the Premises
for the Lease Term, subject, however, to the rights reserved by Lessor
hereunder.
IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. POSSESSION: Possession shall be deemed tendered and the term shall commence
upon the first to occur of the following (the "Commencement Date"): (i) the
Premises are Substantially Complete or (ii) Lessee occupies the Premises and
commences to conduct business operations or (iii) if Lessor is prevented from
or delayed in completing its work under this Lease due to Lessee Delays, such
work will be deemed Substantially Complete as of the date on which it would
have been Substantially Complete had it not been for such Lessee Delays or
(iv) 90 days after Lessee is advised in writing that the Lessee Interior
Improvements as defined in Section 2 may be started by Lessee. It is the
intention of Lessee and Lessor that the Commencement Date shall be no later
than July 31, 1998.
"Substantially Complete" shall mean that: (i) Lessor has tendered possession
of Premises to Lessee, (ii) Lessor has met all legal requirements for
occupancy, (iii) The Lessee Interior Improvements are materially complete per
the approved plans, exclusive of telephone or other communication systems,
punchlist items and there remains no incomplete or defective items of work
which would materially adversely affect Lessee's intended use of the Premises,
and (iv) said interior of the building is in a "broom clean" condition.
1.1 COMMENCEMENT DATE MEMORANDUM: When the actual Commencement Date is
determined, the parties shall execute a Commencement Date Memorandum setting
forth the Commencement Date, the expiration date of the Lease Term and the
actual square footage of the Premises and any required adjustments to base
rent and CAC, but failure to do so shall not affect the continuing validity
and enforceability of this Lease, which shall remain in full force and effect.
2. BUILDING SHELL: The "Building Shell", as defined in the attached Exhibit B
shall be constructed at Lessor's sole cost and expense by independent
contractors to be employed by and under the supervision of Lessor in
accordance with the site plan, elevations, plans, specifications, and working
drawings to be prepared by Lessor, approved by Lessee, and thereafter attached
hereto as Exhibit C (collectively the "Shell Plans"). Lessor shall be
obligated to finish all of the Building Shell prior to the Commencement Date.
Lessee and its designated representatives, shall at all times during the
construction of the Building Shell have access to the Premises to monitor the
progress of construction and Lessor's compliance with its obligation
hereunder; provided however, that such access shall not unreasonably interfere
with the activities of Lessor or its contractors. Lessor shall be responsible
for ensuring that the Building Shell conforms to the approved plans and all
applicable statutes, rules, regulations, ordinances, and San Jose Building
Department interpretations necessary for occupancy. Lessor shall assign all
its normal material and construction warranties from sub-contractors to
Lessee.
2.1 LESSEE'S INTERIOR IMPROVEMENTS:
Lessee and Lessor agree to the following with respect to Lessee Interior
Improvements to be constructed by Lessee at the Premises:
a. Lessee shall be responsible for designing, contracting, and completing the
Lessee Interior Improvements. Lessor shall have no responsibility or
liability for: (i) the Lessee Interior Improvements except for payment of the
TI Allowance as specified below, (ii) for any delay of the Commencement Date,
(iii) Lessee's obligation to commence paying Rent on the Commencement Date,
(iv) claims asserted by Lessee or Lessee's Agents related to the Lessee
Interior Improvements, and (v) any claims, responsibility, or liability owner
may assume by signing for building permits for the Lessee Interior
Improvements.
b. Lessor shall review and approve all plans and specifications for the Lessee
Interior Improvements to be made to the Premises within 5 business days of
delivery to Lessor and if unacceptable, Lessor shall advise Lessee of the item
or items that are unacceptable and that must be removed and the Premises
restored at the end of the Lease Term at the sole cost and expense of Lessee.
c. Lessee shall be responsible for ensuring the Lessee Interior Improvements
conform to the approved plans and all applicable statutes, rules, regulations,
ordinances, and the City of San Jose Building Department interpretations
necessary for occupancy.
d. The Lessee Interior Improvements shall be completed in a good and
workmanlike manner, in compliance with all government codes, requirements and
regulations, and with all necessary permits.
e. Lessor and its designated representatives, shall at all times during the
construction of the Lessee Interior Improvements have access to the Premises
to monitor the progress of construction, but Lessor shall have no obligation
to verify Lessee's work or compliance with Lessee's obligations herein;
provided however, that such access shall not unreasonably interfere with the
activities of Lessee or its contractors.
f. All of Lessor's reimbursements to Lessee for Lessee Interior Improvements
shall be paid by Lessor within ten (10) days after receipt of the following
from Lessee and subject to the limitations set forth in h below: (a) Lessee
providing Lessor with evidence of the costs paid by Lessee for the Lessee
Interior Improvements to the Premises, (b) Lessee providing Lessor with copies
of final unconditional lien releases from all suppliers, subcontractors, and
the general contractor applicable to the Lessee Interior Improvements, and (c)
Lessee, on completion, providing Lessor with a copy of the final inspections
and certificate of occupancy from the City of San Jose applicable to the
Lessee Interior Improvements at the Premises.
g. Lessor shall reimburse Lessee for the cost of the Lessee Interior
Improvements to be constructed by Lessee in an amount not to exceed Three
Million Six Hundred Thousand Dollars ($3,600,000) (the "TI Allowance"), being
Twenty Dollars $20.00 per square foot times 180,000. In the event the cost of
the Lessee Interior Improvements is more than the TI Allowance, such costs for
the Lessee Interior Improvements shall be paid in cash by Lessee. Lessee
shall, at its sole cost and expense, pay any and all costs necessary to
complete the project per the approved plans and specifications less
reimbursements stated herein from Lessor.
h. Lessee acknowledges that Lessor shall cause a notice of non-responsibility
to be posted at the Premises and Lessor shall cause a notice of
non-responsibility to be recorded in the Santa Clara County public records
related to Lessee's Interior Improvements.
i. Lessee and Lessee's Agents shall not change or affect the structural
components or structural characteristics of the Premises without signed
engineering drawings and specific written approval of Lessor.
j. The Lessee Interior Improvements shall at a minimum, include the following:
1. HVAC system with VAV units that services 95% of the Premises.
2. Minimum electric requirements of 3,000 amps, 480 volt, 3 phase service
with open office distribution.
3. Open office lighting and drop ceiling in 90% of the Premises.
k. Lessee and its general contractor shall provide Lessor with evidence of
general liability insurance in the amount of not less than Five Million
Dollars ($5,000,000) naming Lessor as an additional insured prior to Lessee
starting any work at the Premises and prior to taking possession of the
Premises.
l. Lessee shall, within 30 days after final inspection of the Lessee Interior
Improvements provide Lessor with one complete set of all "as-built" drawings
from the architect, plumber, mechanical and electrical contractors as blue
line drawings and one set of "as-built" Auto-Cad diskettes from each trade.
m. In addition to Lessee's indemnity obligations set forth in Section 38 of
the Lease, Lessee shall defend, indemnify and hold Lessor harmless from and
against any and all obligations, losses, costs, expenses, claims, demands,
attorney's fees, investigation costs or liabilities on account of, or arising
out of Lessee or Lessee's Agent's design, contracting, construction, and
completion of the Lessee Interior Improvements at the Premises and any act or
omission to act of Lessee or Lessee's Agents with respect to the design,
contracting, construction, and completion of the Lessee Interior Improvements
at the Premises. It is understood that Lessee is and shall be in control and
possession of the Premises effective on the TI Date and that Lessor shall in
no event be responsible or liable for any injury or damage or injury to any
person whatsoever, happening on, in, about, or in connection with the
Premises, or for any injury or damage to the Premises or any part thereof.
The provisions of this Lease permitting Lessor to enter and inspect the
Premises are for the purpose of enabling Lessor to become informed as to
whether Lessee is complying with the terms of this Lease and Lessor shall be
under no duty to enter, inspect or to perform any of Lessee's covenants set
forth in this Lease.
2.2 ACCEPTANCE OF PREMISES AND COVENANTS TO SURRENDER: Lessee agrees on the
last day of the Lease Term, or on the sooner termination of this Lease, to
surrender the Premises to Lessor in Good Condition and Repair. Good Condition
and Repair ("Good Condition and Repair") shall not mean original condition,
but shall mean that the Premises are in a commercially acceptable condition
suitable for occupancy by a reasonable lessee. The interior walls of all
office and warehouse areas, the floors of all office and warehouse areas, all
suspended ceilings and any carpeting are to be cleaned and in Good Condition
and Repair. Lessee, on or before the end of the Lease Term or sooner
termination of this Lease, shall remove all its personal property and trade
fixtures from the Premises, and all such property not so removed shall be
deemed to be abandoned by Lessee. Lessee shall reimburse Lessor for all
disposition costs incurred by Lessor relative to Lessee's abandoned property.
If the Premises are not surrendered at the end of the Lease Term or earlier
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from any delay caused by Lessee in surrendering the
Premises including, without limitation, any claims made by any succeeding
Lessee founded on such delay.
3. USES PROHIBITED: Lessee shall not commit, or suffer to be committed, any
waste upon the Premises, or any nuisance, or other act or thing which may
disturb the quiet enjoyment of any other tenant in or around the buildings in
which the subject Premises are located or allow any sale by auction upon the
Premises, or allow the Premises to be used for any improper, immoral, unlawful
or objectionable purpose, or place any loads upon the floor, walls, or ceiling
which may endanger the structure, or use any machinery or apparatus which will
in any manner vibrate or shake the Premises or the building of which it is a
part, or place any harmful liquids in the drainage system of the building. No
waste materials or refuse shall be dumped upon or permitted to remain upon any
part of the Premises outside of the building proper. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain on any
portion of the Premises outside of the building structure, unless approved by
the local, state federal or other applicable governing authority. Lessor
consents to Lessee's use of materials which are incidental to the normal,
day-to-day operations of any office user, such as copier fluids, cleaning
materials, etc., but this does not relieve Lessee of any of its obligations
not to contaminate the Premises and related real property or violate any
Hazardous Materials Laws.
4. ALTERATIONS AND ADDITIONS: Lessee shall not make, or suffer to be made, any
alteration or addition to said Premises, or any part thereof, without the
express, advance written consent of Lessor; any addition or alteration to said
Premises, except movable furniture and trade fixtures, shall become at once a
part of the realty and belong to Lessor at the end of the Lease Term or
earlier termination of this Lease. Alterations and additions which are not
deemed as trade fixtures shall include HVAC systems, lighting systems,
electrical systems, partitioning, carpeting, or any other installation which
has become an integral part of the Premises. Lessee agrees that it will not
proceed to make such alterations or additions until all required government
permits have been obtained and after having obtained consent from Lessor to do
so, until five (5) days from the receipt of such consent, so that Lessor may
post appropriate notices to avoid any liability to contractors or material
suppliers for payment for Lessee's improvements. Lessee shall at all times
permit such notices to be posted and to remain posted until the completion of
work. At the end of the Lease Term or earlier termination of this Lease,
Lessee shall remove and shall be required to remove its special tenant
improvements, all related equipment, and any additions or alterations
installed by Lessee at or during the Lease Term and Lessee shall return the
Premises to the condition that existed before the installation of the tenant
improvements. Notwithstanding the above, Lessor agrees to allow any
reasonable alterations and improvements and will use its best efforts to
notify Lessee at the time of approval if such improvements or alterations are
to be removed at the end of the Lease Term or earlier termination of this
Lease. Notwithstanding the above, Lessee shall have the right, during the
term of this Lease, to make improvements to the Premises at their sole cost
and expense of Five Hundred Thousand Dollars ($500,000) with no approval from
Lessor, provided they are not structural and subject to the requirement to
remove the subject improvements at the end of the Lease Term.
5. MAINTENANCE OF PREMISES:
(a) Lessor shall at its sole cost and expense keep, repair, and maintain the
interior of the Premises, including, but not limited to, all lighting systems,
temperature control systems, and plumbing systems in Good Condition and
Repair, including any required replacements. Lessee shall maintain all wall
surfaces and floor coverings in Good Condition and Repair, free of holes,
gouges, or defacements and provide interior and exterior window washing as
needed.
(b) Lessee shall, at Lessee's expense, keep, repair, and maintain in Good
Condition and Repair including replacements (based on a pro-rata share of (i)
costs based on square footage or (ii) costs directly related to Lessee's use
of the Premises) the following:
1. The exterior of the building, any appurtenances and every part thereof,
including but not limited to, glazing, sidewalks, parking areas, electrical
systems, HVAC systems, roof membrane, and painting of exterior walls.
2. The HVAC by a service contract with a licensed air conditioning and heating
contractor which contract shall provide for a minimum of quarterly maintenance
of all air conditioning and heating equipment at the Premises including HVAC
repairs or replacements which are either excluded from such service contract
or any existing equipment warranties.
3. The landscaping by a landscape contractor to water, maintain, trim and
replace, when necessary, any shrubbery and landscaping at the Premises.
4. The roof membrane by a service contract with a licensed reputable roofing
contractor which contract shall provide for a minimum of semi-annual
maintenance, cleaning of storm gutters, drains, removing of debris, and
trimming overhanging trees, repair of the roof and application of a finish
coat every five years to the building at the Premises.
5. Exterior pest control.
6. Fire monitoring services.
7. Pro-rata share of Logic Drive maintenance and repair costs.
(c) Lessee hereby waives any and all rights to make repairs at the expense of
Lessor as provided in Section 1942 of the Civil Code of the State of
California, and all rights provided for by Section 1941 of said Civil Code.
(d) Lessor shall be responsible for the repair of any structural defects in
the Premises including the roof structure (not membrane), exterior walls and
foundation during the Lease Term.
6. INSURANCE:
6. INSURANCE:
A) HAZARD INSURANCE: Lessee shall not use, or permit said Premises, or any
part thereof, to be used, for any purpose other than that for which said
Premises are hereby leased; and no use shall be made or permitted to be made
of the Premises, nor acts done, which may cause a cancellation of any
insurance policy covering said building, or any part thereof, nor shall Lessee
sell or permit to be kept, used or sold, in or about said Premises, any
article which may be prohibited by an all risk insurance policy. Lessee
shall, at its sole cost and expense, comply with any and all requirements,
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable all risk insurance, covering said
building and appurtenances. Lessee agrees to purchase and keep in force all
risk insurance, not including earthquake and flood, covering loss or damage to
the Premises in an amount equal to the full replacement cost of the Premises
as determined by Lessor, with proceeds payable to Lessor. Lessee acknowledges
that the insurance referenced above does not include coverage for Lessee's
personal property. In the event of a loss per the insurance provisions of
this paragraph, Lessee shall be responsible for all deductibles. It is agreed
that the full replacement cost of the Premises as of the Commencement Date is
eighteen million dollars ($18,000,000).
B) LOSS OF RENTS INSURANCE: Lessee shall maintain in full force and effect at
Lessee's sole cost, a policy of rental loss insurance, in an amount equal to
the amount of Rent payable by Lessee commencing on the date of loss for the
next ensuing one (1) year, as reasonably determined by Lessor with proceeds
payable to Lessor ("Loss of Rents Insurance"). It is agreed that as of the
Commencement Date the amount of Rent payable under the Loss of Rents Insurance
coverage shall be three million five hundred thousand dollars ($3,500,000).
C) LIABILITY AND PROPERTY DAMAGE INSURANCE: Lessee, as a material part of the
consideration to be rendered to Lessor, hereby waives all claims against
Lessor and Lessor's Agents for damages to goods, wares and merchandise, and
all other personal property in, upon or about said Premises, and for injuries
to persons in, upon or about said Premises, from any cause arising at any
time, and Lessee will hold Lessor and Lessor's Agents exempt and harmless from
any damage or injury to any person, or to the goods, wares and merchandise and
all other personal property of any person, arising from the use or occupancy
of the Premises by Lessee, or from the failure of Lessee to keep the Premises
in Good Condition and Repair, as herein provided. Lessee shall, at Lessee's
sole cost, secure and keep in force a standard policy of commercial general
liability insurance and property damage policy covering the Premises and all
related areas insuring the Lessee having a combined single limit for both
bodily injury, death and property damage in an amount not less than five
million dollars ($5,000,000.00). The limits of said insurance shall not,
however, limit the liability of Lessee hereunder. Lessee shall, at its sole
cost and expense, comply with all of the insurance requirements of all local,
municipal, state and federal authorities now in force, or which may hereafter
be in force, pertaining to Lessee's use and occupancy of the said Premises.
D) PERSONAL PROPERTY INSURANCE: Lessee shall obtain, at Lessee's sole cost and
expense, a policy of fire and extended coverage insurance including coverage
for direct physical loss special form, and a sprinkler leakage endorsement
insuring the personal property of Lessee. The proceeds from any personal
property damage policy shall be payable to Lessee.
All insurance policies required above shall: (i) provide for a certificate of
insurance evidencing the insurance required herein, being deposited with
Lessor ten (10) days prior to the Commencement Date, and upon each renewal,
such certificates shall be provided 30 days prior to the expiration date of
such coverage, (ii) be in a form reasonably satisfactory to Lessor and shall
provide the coverage required by Lessee in this Lease, (iii) be carried with
companies with a Best Rating of A+ minimum, (iv) specifically provide that
such policies shall not be subject to cancellation, reduction of coverage, or
other change except after 30 days prior written notice to Lessor, and (v) name
Lessor, Lessor's lender, and any other party with an insurable interest in the
Premises as additional insureds by endorsement to policy.
Lessor and Lessee hereby waive any rights each may have against the other
related to any loss or damage caused to Lessor or Lessee as the case may be,
or to the Premises or its contents, and which may arise from any risk
generally covered by all risk insurance policy. The parties shall provide
that their respective insurance policies insuring the property or the personal
property include a waiver of any right of subrogation which said insurance
company may have against Lessor or Lessee, as the case may be.
7. ABANDONMENT: Lessee shall not vacate or abandon the Premises at any time
during the Lease Term; and if Lessee shall abandon, vacate or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned, at the option of Lessor. Notwithstanding the above, the Premises
shall not be considered vacated or abandoned if Lessee maintains the Premises
in Good Condition and Repair, provides security and is not in default.
8. FREE FROM LIENS: Lessee shall keep the subject Premises and the property in
which the subject Premises are situated, free from any and all liens including
but not limited to liens arising out of any work performed, materials
furnished, or obligations incurred by Lessee. However, the Lessor shall allow
Lessee to contest a lien claim, so long as the claim is discharged prior to
any foreclosure proceeding being initiated against the property and provided
Lessee provides Lessor a bond if the lien exceeds $5,000.
9. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Lessee shall, at its sole cost
and expense, comply with all of the requirements of all local, municipal,
state and federal authorities now in force, or which may hereafter be in
force, pertaining to the Premises, and shall faithfully observe in the use
and occupancy of the Premises all local and municipal ordinances and state and
federal statutes now in force or which may hereafter be in force.
10. INTENTIONALLY OMITTED.
11. ADVERTISEMENTS AND SIGNS: Lessee shall not place or permit to be placed,
in, upon or about the Premises any unusual or extraordinary signs, or any
signs not approved by the city, local, state, federal or other applicable
governing authority. Lessee shall not place, or permit to be placed upon the
Premises, any signs, advertisements or notices without the written consent of
the Lessor, and such consent shall not be unreasonably withheld. A sign so
placed on the Premises shall be so placed upon the understanding and agreement
that Lessee will remove same at the end of the Lease Term or earlier
termination of this Lease and repair any damage or injury to the Premises
caused thereby, and if not so removed by Lessee, then Lessor may have the same
removed at Lessee's expense.
12. UTILITIES: Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities supplied to the Premises. Any charges for sewer
usage, PG&E, and telephone site service or related fees shall be the
obligation of Lessee and paid for by Lessee. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion of all
charges which are jointly metered, the determination to be made by Lessor
acting reasonably and on any equitable basis. Lessor and Lessee agree that
Lessor shall not be liable to Lessee for any disruption in any of the utility
services to the Premises.
13. ATTORNEY'S FEES: In case suit should be brought for the possession of the
Premises, for the recovery of any sum due hereunder, because of the breach of
any other covenant herein, or to enforce, protect, or establish any term,
conditions, or covenant of this Lease or the right of either party hereunder,
the losing party shall pay to the Prevailing Party reasonable attorney's fees
which shall be deemed to have accrued on the commencement of such action and
shall be enforceable whether or not such action is prosecuted to judgment.
The term "Prevailing Party" shall mean the party that received substantially
the relief requested, whether by settlement, dismissal, summary judgment,
judgment, or otherwise.
14.1 DEFAULT: The occurrence of any of the following shall constitute a
default and breach of this Lease by Lessee: a) Any failure by Lessee to pay
Rent or to make any other payment required to be made by Lessee hereunder when
due if not cured within ten (10) days after written notice thereof by Lessor
to Lessee; b) The abandonment or vacation of the Premises by Lessee except as
provided in Section 7; c) A failure by Lessee to observe and perform any other
provision of this Lease to be observed or performed by Lessee, where such
failure continues for thirty days after written notice thereof by Lessor to
Lessee; provided, however, that if the nature of such default is such that the
same cannot be reasonably cured within such thirty (30) day period, Lessee
shall not be deemed to be in default if Lessee shall, within such period,
commence such cure and thereafter diligently prosecute the same to completion;
d) The making by Lessee of any general assignment for the benefit of
creditors; the filing by or against Lessee of a petition to have Lessee
adjudged a bankrupt or of a petition for reorganization or arrangement under
any law relating to bankruptcy; e) the appointment of a trustee or receiver to
take possession of substantially all of Lessee's assets or Lessee's interest
in this Lease, or the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease.
14.2 SURRENDER OF LEASE: In the event of any such default by Lessee, then in
addition to any other remedies available to Lessor at law or in equity, Lessor
shall have the immediate option to terminate this Lease before the end of the
Lease Term and all rights of Lessee hereunder, by giving written notice of
such intention to terminate. In the event that Lessor terminates this Lease
due to a default of Lessee, then Lessor may recover from Lessee: a) the worth
at the time of award of any unpaid Rent which had been earned at the time of
such termination; plus b) the worth at the time of award of unpaid Rent which
would have been earned after termination until the time of award exceeding the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; plus c) the worth at the 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 the Lessee proves could have been
reasonably avoided; plus d) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to perform his
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom; and e) at Lessor's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to
time by applicable California law. As used in (a) and (b) above, the "worth
at the time of award" is computed by allowing interest at the rate of Wells
Fargo's prime rate plus two percent (2%) per annum. As used in (c) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
14.3 RIGHT OF ENTRY AND REMOVAL: In the event of any such default by Lessee,
Lessor shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Lessee.
14.4 ABANDONMENT: In the event of the vacation or abandonment, except as
provided in Section 7, of the Premises by Lessee or in the event that Lessor
shall elect to re-enter as provided in paragraph 14.3 above or shall take
possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, and Lessor does not elect to terminate this Lease as
provided in Section 14.2 above, then Lessor may from time to time, without
terminating this Lease, either recover all Rent as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental rates
and upon such other terms and conditions as Lessor, in its sole discretion,
may deem advisable with the right to make alterations and repairs to the
Premises. In the event that Lessor elects to relet the Premises, then Rent
received by Lessor from such reletting shall be applied; first, to the payment
of any indebtedness other than Rent due hereunder from Lessee to Lessor;
second, to the payment of any cost of such reletting; third, to the payment of
the cost of any alterations and repairs to the Premises; fourth, to the
payment of Rent due and unpaid hereunder; and the residue, if any, shall be
held by Lessor and applied to the payment of future Rent as the same may
become due and payable hereunder. Should that portion of such Rent received
from such reletting during any month, which is applied by the payment of Rent
hereunder according to the application procedure outlined above, be less than
the Rent payable during that month by Lessee hereunder, then Lessee shall pay
such deficiency to Lessor immediately upon demand therefor by Lessor. Such
deficiency shall be calculated and paid monthly. Lessee shall also pay to
Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
14.5 NO IMPLIED TERMINATION: No re-entry or taking possession of the Premises
by Lessor pursuant to Section 14.3 or Section 14.4 of this Lease shall be
construed as an election to terminate this Lease unless a written notice of
such intention is given to Lessee or unless the termination thereof is decreed
by a court of competent jurisdiction. Notwithstanding any reletting without
termination by Lessor because of any default by Lessee, Lessor may at any time
after such reletting elect to terminate this Lease for any such default.
15. SURRENDER OF LEASE: The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Lessor, terminate all or any existing subleases or sub
tenancies, or may, at the option of Lessor, operate as an assignment to him of
any or all such subleases or sub tenancies.
16. TAXES: Lessee shall pay and discharge punctually and when the same shall
become due and payable without penalty, all real estate taxes, personal
property taxes, taxes based on vehicles utilizing parking areas in the
Premises, taxes computed or based on rental income (other than federal, state
and municipal net income taxes), environmental surcharges, privilege taxes,
excise taxes, business and occupation taxes, school fees or surcharges, gross
receipts taxes, sales and/or use taxes, employee taxes, occupational license
taxes, water and sewer taxes, assessments (including, but not limited to,
assessments for public improvements or benefit), assessments for local
improvement and maintenance districts, and all other govern-mental impositions
and charges of every kind and nature whatsoever, regardless of whether now
customary or within the contemplation of the parties hereto and regardless of
whether resulting from increased rate and/or valuation, or whether
extraordinary or ordinary, general or special, unforeseen or foreseen, or
similar or dissimilar to any of the foregoing (all of the foregoing being
hereinafter collectively called "Tax" or "Taxes") which, at any time during
the Lease Term, shall be applicable or against the Premises, or shall become
due and payable and a lien or charge upon the Premises under or by virtue of
any present or future laws, statutes, ordinances, regulations, or other
requirements of any governmental authority whatsoever. The term
"Environmental Surcharge" shall include any and all expenses, taxes, charges
or penalties imposed by the Federal Department of Energy, Federal
Environmental Protection Agency, the Federal Clean Air Act, or any regulations
promulgated thereunder, or any other local, state or federal governmental
agency or entity now or hereafter vested with the power to impose taxes,
assessments or other types of surcharges as a means of controlling or abating
environmental pollution or the use of energy in regard to the use, operation
or occupancy of the Premises. The term "Tax" shall include, without
limitation, all taxes, assessments, levies, fees, impositions or charges
levied, imposed, assessed, measured, or based in any manner whatsoever (i) in
whole or in part on the Rent payable by Lessee under this Lease, (ii) upon or
with respect to the use, possession, occupancy, leasing, operation or
management of the Premises, (iii) upon this transaction or any document to
which Lessee is a party creating or transferring an interest or an estate in
the Premises, (iv) upon Lessee's business operations conducted at the
Premises, (v) upon, measured by or reasonably attributable to the cost or
value of Lessee's equipment, furniture, fixtures and other personal property
located on the Premises or the cost or value of any leasehold improvements
made in or to the Premises by or for Lessee, regardless of whether title to
such improvements shall be in Lessor or Lessee, or (vi) in lieu of or
equivalent to any Tax set forth in this Section 16. In the event any such
Taxes are payable by Lessor and it shall not be lawful for Lessee to reimburse
Lessor for such Taxes, then the Rent payable thereunder shall be increased to
net Lessor the same net rent after imposition of any such Tax upon Lessor as
would have been payable to Lessor prior to the imposition of any such Tax. It
is the intention of the parties that Lessor shall be free from all such Taxes
and all other governmental impositions and charges of every kind and nature
whatsoever. However, nothing contained in this Section 16 shall require
Lessee to pay any Federal or State income, franchise, estate, inheritance,
succession, transfer or excess profits tax imposed upon Lessor. If any
general or special assessment is levied and assessed against the Premises,
Lessor agrees to use its best reasonable efforts to cause the assessment to
become a lien on the Premises securing repayment of a bond sold to finance the
improvements to which the assessment relates which is payable in installments
of principal and interest over the maximum term al-lowed by law. It is
understood and agreed that Lessee's obligation under this paragraph will be
prorated to reflect the Commencement Date and the end of the Lease Term. It
is further understood that if Taxes cover the Premises and Lessee does not
occupy the entire Premises, the Taxes will be allocated to the portion of the
Premises occupied by Lessee based on a pro-rata square footage or other
equitable basis, as determined by Lessor.
Subject to any limitations or restrictions imposed by any deeds of trust or
mortgages now or hereafter covering or affecting the Premises, Lessee shall
have the right to contest or review the amount or validity of any Tax by
appropriate legal proceedings but which is not to be deemed or construed in
any way as relieving, modifying or extending Lessee's covenant to pay such Tax
at the time and in the manner as provided in this Section 16. However, as a
condition of Lessee's right to contest, if such contested Tax is not paid
before such contest and if the legal proceedings shall not operate to prevent
or stay the collection of the Tax so contested, Lessee shall, before
instituting any such proceeding, protect the Premises and the interest of
Lessor and of the beneficiary of a deed of trust or the mortgagee of a
mortgage affecting the Premises against any lien upon the Premises by a
surety bond, issued by an insurance company acceptable to Lessor and in an
amount equal to one and one-half (1 1/2) times the amount contested or, at
Lessor's option, the amount of the contested Tax and the interest and
penalties in connection therewith. Any contest as to the validity or amount
of any Tax, whether before or after payment, shall be made by Lessee in
Lessee's own name, or if required by law, in the name of Lessor or both Lessor
and Lessee. Lessee shall defend, indemnify and hold harmless Lessor from and
against any and all costs or expenses, including attorneys' fees, in
connection with any such proceedings brought by Lessee, whether in its own
name or not. Lessee shall be entitled to retain any refund of any such
contested Tax and penalties or interest thereon which have been paid by
Lessee. Nothing contained herein shall be construed as affecting or limiting
Lessor's right to contest any Tax at Lessor's expense.
17. NOTICES: Unless otherwise provided for in this Lease, any and all written
notices or other communication (the "Communication") to be given in connection
with this Lease shall be given in writing and shall be given by personal
delivery, facsimile transmission or by mailing by registered or certified mail
with postage thereon or recognized overnight courier, fully prepaid, in a
sealed envelope addressed to the intended recipient as follows:
(a) to the Lessor at: 10050 Bandley Drive
Cupertino, California 95014
Attention: Carl E. Berg
Fax No: (408) 725-1626
(b) to the Lessee at: 2100 Logic Drive
San Jose, California
Attention: David Granoff
Fax No: (408) 377-6137
or such other addresses, facsimile number or individual as may be designated
by a Communication given by a party to the other parties as aforesaid. Any
Communication given by personal delivery shall be conclusively deemed to have
been given and received on a date it is so delivered at such address provided
that such date is a business day, otherwise on the first business day
following its receipt, and if given by registered or certified mail, on the
day on which delivery is made or refused or if given by recognized overnight
courier, on the first business day following deposit with such overnight
courier and if given by facsimile transmission, on the day on which it was
transmitted provided such day is a business day, failing which, on the next
business day thereafter.
18. ENTRY BY LESSOR: Lessee shall permit Lessor and its agents to enter into
and upon said Premises at all reasonable times using the minimum amount of
interference and inconvenience to Lessee and Lessee's business, subject to any
security regulations of Lessee, for the purpose of inspecting the same or for
the purpose of maintaining the building in which said Premises are situated,
or for the purpose of making repairs, alterations or additions to any other
portion of said building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, without any rebate
of Rent and without any liability to Lessee for any loss of occupation or
quiet enjoyment of the Premises; and shall permit Lessor and his agents, at
any time within ninety (90) days prior to the end of the Lease Term, to place
upon said Premises any usual or ordinary "For Sale" or "For Lease" signs and
exhibit the Premises to prospective tenants at reasonable hours.
19. DESTRUCTION OF PREMISES: In the event of a partial destruction of the said
Premises during the Lease Term from any cause which is covered by Lessor's
property insurance, Lessor shall forthwith repair the same, provided such
repairs can be made within ninety (90) days after receipt of building permit
under the laws and regulations of State, Federal, County, or Municipal
authorities, but such partial destruction shall in no way annul or void this
Lease, except that Lessee shall be entitled to a proportionate reduction of
Rent while such repairs are being made to the extent of payments received by
Lessor under its Loss of Rents Insurance coverage. With respect to any
partial destruction which Lessor is obligated to repair or may elect to repair
under the terms of this paragraph, the provision of Section 1932, Subdivision
2, and of Section 1933, Subdivision 4, of the Civil Code of the State of
California are waived by Lessee. In the event that the building in which the
subject Premises may be situated is destroyed to an extent greater than
thirty-three and one-third percent (33 1/3%) of the replacement cost thereof,
Lessor may, at its sole option, elect to terminate this Lease, whether the
subject Premises is insured or not. A total destruction of the building in
which the subject Premises are situated shall terminate this Lease.
Notwithstanding the above, Lessor is only obligated to repair or rebuild to
the extent of available insurance proceeds including any deductible amount.
Should Lessor determine that insufficient or no insurance proceeds are
available for repair or reconstruction of Premises, Lessor, at its sole
option, may terminate the Lease. Lessee shall have the option of continuing
this Lease by agreeing to pay all repair costs to the subject Premises.
20. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease, or any
interest therein, and shall not sublet the said Premises or any part thereof,
or any right or privilege appurtenant thereto, or cause any other person or
entity (a bona fide subsidiary or affiliate of Lessee excepted) to occupy or
use the Premises, or any portion thereof, without the advance written consent
of Lessor. Any such assignment or subletting without such consent shall be
void, and shall, at the option of the Lessor, terminate this Lease. This
Lease shall not, or shall any interest therein, be assignable, as to the
interest of Lessee, by operation of law, without the written consent of
Lessor. Notwithstanding Lessor's obligation to provide reasonable approval,
Lessor reserves the right to withhold its consent for any proposed sublessee
or assignee of Lessee if the proposed sublessee or assignee is a user or
generator of Hazardous Materials. If Lessee desires to assign its rights
under this Lease or to sublet, all or a portion of the subject Premises to a
party other than a bona fide subsidiary or affiliate of Lessee, Lessee shall
first notify Lessor of the proposed terms and conditions of such assignment or
subletting. Lessor shall have the right of first refusal to enter into a
direct Lessor-lessee relationship with such party under such proposed terms
and conditions, in which event Lessee shall be relieved of its obligations
hereunder to the extent of the Lessor-lessee relationship entered into between
Lessor and such third party. Notwithstanding the foregoing, Lessee may assign
this Lease to a successor in interest, whether by merger or acquisition,
provided there is no substantial reduction in the net worth of the resulting
entity and the resulting entity is not a user or generator of Hazardous
Materials. Whether or not Lessor's consent to a sublease or assignment is
required, in the event of any sublease or assignment, Lessee shall be and
shall remain primarily liable for the performance of all conditions,
covenants, and obligations of Lessee hereunder and, in the event of a default
by an assignee or sublessee, Lessor may proceed directly against the original
Lessee hereunder and/or any other predecessor of such assignee or sublessee
without the necessity of exhausting remedies against said assignee or
sublessee. Notwithstanding the above, Lessor hereby agrees that Lessee may
sublease up to 90,000 square feet of the Premises without Lessor's approval on
a one time basis for a maximum period of sixty (60) months with no extensions.
21. 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 a part thereof remains which is susceptible of
occupation hereunder, this Lease shall as to the part so taken, terminate as
of the date title vests in the condemnor or purchaser, and the Rent payable
hereunder shall be adjusted so that the Lessee shall be required to pay for
the remainder of the Lease Term only that portion of Rent as the value of the
part remaining. The rental adjustment resulting will be computed at the same
Rental rate for the remaining part not taken; however, Lessor shall have the
option to terminate this Lease as of the date when title to the part so taken
vests in the condemnor or purchaser. 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 thereupon terminate. If a part or all
of the Premises be taken, all compensation awarded upon such taking shall be
payable to the Lessor. Lessee may file a separate claim and be entitled to
any award granted to Lessee.
22. EFFECTS OF CONVEYANCE: The term "Lessor" as used in this Lease, means only
the owner for the time being of the land and building constituting the
Premises, so that, in the event of any sale of said land or building, or in
the event of a Lease of said building, Lessor shall be and hereby is entirely
freed and relieved of all covenants and obligations of Lessor hereunder, and
it shall be deemed and construed, without further agreement between the
parties and the purchaser of any such sale, or the Lessor of the building,
that the purchaser or lessor of the building has assumed and agreed to carry
out any and all covenants and obligations of the Lessor hereunder. If any
security is given by Lessee to secure the faithful performance of all or any
of the covenants of this Lease on the part of Lessee, Lessor may transfer and
deliver the security, as such, to the purchaser at any such sale of the
building, and thereupon the Lessor shall be discharged from any further
liability.
23. SUBORDINATION: This Lease, in the event Lessor notifies Lessee in writing,
shall be subordinate to any ground lease, deed of trust, or other
hypothecation for security now or hereafter placed upon the real property at
which the Premises are a part and to any and all advances made on the security
thereof and to renewals, modifications, replacements and extensions thereof.
Lessee agrees to promptly execute any documents which may be required to
effectuate such subordination. Notwithstanding such subordination, if Lessee
is not in default and so long as Lessee shall pay the Rent and observe and
perform all of the provisions and covenants required under this Lease,
Lessee's right to quiet possession of the Premises shall not be disturbed or
effected by any subordination.
24. WAIVER: The waiver by Lessor of any breach of any term, covenant or
condition, herein contained shall not be construed to be a waiver of such
term, covenant or condition or any subsequent breach of the same or any other
term, covenant or condition therein contained. The subsequent acceptance of
Rent hereunder by Lessor shall not be deemed to be a waiver of Lessee's breach
of any term, covenant, or condition of the Lease.
25. HOLDING OVER: Any holding over after the end of the Lease Term requires
Lessor's written approval prior to the end of the Lease Term, which,
notwithstanding any other provisions of this Lease, Lessor may withhold. Such
holding over shall be construed to be a tenancy at sufferance from month to
month. Lessee shall pay to Lessor monthly base rent equal to one and one-half
(1.5) times the monthly base rent installment due in the last month of the
Lease Term and all other additional rent and all other terms and conditions of
the Lease shall apply, so far as applicable. Holding over by Lessee without
written approval of Lessor shall subject Lessee to the liabilities and
obligations provided for in this Lease and by law, including, but not limited
to those in Section 2 of this Lease. Lessee shall indemnify and hold Lessor
harmless against any loss or liability resulting from any delay caused by
Lessee in surrendering the Premises, including without limitation, any claims
made or penalties incurred by any succeeding lessee or by Lessor. No holding
over shall be deemed or construed to exercise any option to extend or renew
this Lease in lieu of full and timely exercise of any such option as required
hereunder.
26. LESSOR'S LIABILITY: If Lessee should recover a money judgment against
Lessor arising in connection with this Lease, the judgment shall be satisfied
only out of the Lessor's interest in the Premises and neither Lessor or any of
its partners shall be liable personally for any deficiency.
27. ESTOPPEL CERTIFICATES: Lessee shall at any time during the Lease Term,
upon not less than ten (10) days prior written notice from Lessor, execute and
deliver to Lessor a statement in writing certifying that, this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification) and the dates to which the Rent and other charges have
been paid in advance, if any, and acknowledging that there are not, to
Lessee's knowledge, any uncured defaults on the part of Lessor hereunder or
specifying such defaults if they are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Lessee's failure to deliver such a statement within such time shall
be conclusive upon the Lessee that (a) this Lease is in full force and effect,
without modification except as may be represented by Lessor; (b) there are no
uncured defaults in Lessor's performance.
28. TIME: Time is of the essence of the Lease.
29. CAPTIONS: The headings on titles to the paragraphs of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof. This instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other manner than by an agreement in writing signed
by all of the parties hereto or their respective successors in interest.
30. PARTY NAMES: Landlord and Tenant may be used in various places in this
Lease as a substitute for Lessor and Lessee respectively.
31. EARTHQUAKE INSURANCE: As a condition of Lessor agreeing to waive the
requirement for earthquake insurance, Lessee agrees that it will pay, as
additional Rent, which shall be included in the monthly CAC, an amount not to
exceed Seventy-Two Thousand Dollars ($72,000) per year for earthquake
insurance if Lessor desires to obtain some form of earthquake insurance in the
future, if and when available, on terms acceptable to Lessor as determined in
the sole and absolute discretion of Lessor.
32. HABITUAL DEFAULT: Notwithstanding anything to the contrary contained in
Section 14 herein, Lessor and Lessee agree that if Lessee shall have defaulted
in the payment of Rent for three or more times during any twelve month period
during the Lease Term, then such conduct shall, at the option of the Lessor,
represent a separate event of default which cannot be cured by Lessee. Lessee
acknowledges that the purpose of this provision is to prevent repetitive
defaults by the Lessee under the Lease, which constitute a hardship to the
Lessor and deprive the Lessor of the timely performance by the Lessee
hereunder.
33. HAZARDOUS MATERIALS
33.1 DEFINITIONS: As used in this Lease, the following terms shall have the
following meaning:
a. The term "Hazardous Materials" shall mean (i) polychlorinated
biphenyls; (ii) radioactive materials and (iii) any chemical, material or
substance now or hereafter defined as or included in the definitions of
"hazardous substance" "hazardous water", "hazardous material", "extremely
hazardous waste", "restricted hazardous waste" under Section 25115, 25117 or
15122.7, or listed pursuant to Section 25140 of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as "hazardous substance" under Section 25316 of the California Health
and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substances Account Act), (iii) defined as "hazardous material", "hazardous
substance", or "hazardous waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release,
Response, Plans and Inventory), (iv) defined as a "hazardous substance" under
Section 25181 of the California Health and Safety Code, Division 20l, Chapter
6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vi)
asbestos, (vii) listed under Article 9 or defined as "hazardous" or "extremely
hazardous" pursuant to Article II of Title 22 of the California Administrative
Code, Division 4, Chapter 20, (viii) defined as "hazardous substance" pursuant
to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C. 1251 et
seq. or listed pursuant to Section 1004 of the Federal Water Pollution Control
Act (33 U.S.C. 1317), (ix) defined as a "hazardous waste", pursuant to Section
1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., (x) defined as "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Responsibility Compensations, and Liability Act,
42 U.S.C. 9601 et seq., or (xi) regulated under the Toxic Substances Control
Act, 156 U.S.C. 2601 et seq.
b. The term "Hazardous Materials Laws" shall mean any local, state and
federal laws, rules, regulations, or ordinances relating to the use,
generation, transportation, analysis, manufacture, installation, release,
discharge, storage or disposal of Hazardous Material.
c. The term "Lessor's Agents" shall mean Lessor's agents,
representatives, employees, contractors, subcontractors, directors, officers
and partners.
d. The term "Lessee's Agents" shall mean Lessee's agents,
representatives, employees, contractors, subcontractors, directors, officers,
partners, invitees or any other person in or about the Premises.
33.2 LESSEE'S RIGHT TO INVESTIGATE: Lessee shall be entitled to cause such
inspection, soils and ground water tests, and other evaluations to be made of
the Premises as Lessee deems necessary regarding (i) the presence and use of
Hazardous Materials in or about the Premises, and (ii) the potential for
exposure to Lessee's employees and other persons to any Hazardous Materials
used and stored by previous occupants in or about the Premises. Lessee shall
provide Lessor with copies of all inspections, tests and evaluations. Lessee
shall indemnify, defend and hold Lessor harmless from any cost, claim or
expense arising from such entry by Lessee or from the performance of any such
investigation by such Lessee.
33.3 LESSOR'S REPRESENTATIONS: Lessor hereby represents and warrants to the
best of Lessor's knowledge that the Premises are, as of the date of this
Lease, in compliance with all Hazardous Material Laws.
33.4 LESSEE'S OBLIGATION TO INDEMNIFY: Lessee, at its sole cost and expense,
shall indemnify, defend, protect and hold Lessor and Lessor's Agents harmless
from and against any and all cost or expenses, including those described under
subparagraphs i, ii and iii herein below set forth, arising from or caused in
whole or in part, directly or indirectly by:
a. Lessee's or Lessee's Agents' use, analysis, storage, transportation,
disposal, release, threatened release, discharge or generation of Hazardous
Material to, in, on, under, about or from the Premises; or
b. Lessee's or Lessee's Agents failure to comply with Hazardous Material
laws; or
c. Any release of Hazardous Material to, in, on, under, about, from or
onto the Premises caused by or occurring as a result of acts or omissions of
Lessee or Lessee's Agents or occurring during the Lease Term, except ground
water contamination from other parcels where the source is from off the
Premises not arising from or caused by Lessee or Lessee's Agents.
The cost and expenses indemnified against include, but are not limited to the
following:
i. Any and all claims, actions, suits, proceedings, losses, damages,
liabilities, deficiencies, forfeitures, penalties, fines, punitive damages,
cost or expenses;
ii. Any claim, action, suit or proceeding for personal injury (including
sickness, disease, or death), tangible or intangible property damage,
compensation for lost wages, business income, profits or other economic loss,
damage to the natural resources of the environment, nuisance, pollution,
contamination, leaks, spills, release or other adverse effects on the
environment;
iii. The cost of any repair, clean-up, treatment or detoxification of the
Premises necessary to bring the Premises into compliance with all Hazardous
Material Laws, including the preparation and implementation of any closure,
disposal, remedial action, or other actions with regard to the Premises, and
expenses (including, without limitation, reasonable attorney's fees and
consultants fees, investigation and laboratory fees, court cost and litigation
expenses).
33.5 LESSEE'S OBLIGATION TO REMEDIATE CONTAMINATION: Lessee shall, at its sole
cost and expense, promptly take any and all action necessary to remediate
contamination of the Premises by Hazardous Materials during the Lease Term.
33.6 OBLIGATION TO NOTIFY: Lessor and Lessee shall each give written notice to
the other as soon as reasonably practical of (i) any communication received
from any governmental authority concerning Hazardous Material which related to
the Premises and (ii) any contamination of the Premises by Hazardous Materials
which constitutes a violation of any Hazardous Material Laws.
33.7 SURVIVAL: The obligations of Lessee under this Section 33 shall survive
the Lease Term or earlier termination of this Lease.
33.8 CERTIFICATION AND CLOSURE: On or before the end of the Lease Term or
earlier termination of this Lease, Lessee shall deliver to Lessor a
certification executed by Lessee stating that, to the best of Lessee's
knowledge, there exists no violation of Hazardous Material Laws resulting from
Lessee's obligation in Paragraph 33. If pursuant to local ordinance, state or
federal law, Lessee is required, at the expiration of the Lease Term, to
submit a closure plan for the Premises to a local, state or federal agency,
then Lessee shall furnish to Lessor a copy of such plan.
33.9 PRIOR HAZARDOUS MATERIALS: Lessee shall have no obligation to clean up or
to hold Lessor harmless with respect to, any Hazardous Material or wastes
discovered on the Premises which were not introduced into, in, on, about, from
or under the Premises during the Lease Term or ground water contamination from
other parcels where the source is from off the Premises not arising from or
caused by Lessee or Lessee's Agents.
34. BROKERS: Lessor and Lessee represent that they have not utilized or
contacted a real estate broker or finder with respect to this Lease and Lessee
agrees to indemnify and hold Lessor harmless against any claim, cost,
liability or cause of action asserted by any broker or finder claiming through
Lessee. Lessor shall pay no brokerage commission in connection with this
transaction. Lessor represents and warrants that it has not utilized or
contacted a real estate broker or finder with respect to this Lease and Lessor
agrees to indemnify and hold Lessee harmless against any claim, cost,
liability or cause of action asserted by any broker or finder claiming through
Lessor.
35. OPTION TO EXTEND
A. Option: Lessor hereby grants to Lessee one (1) option to extend the Lease
Term, with the extended term to be for a period of five (5) years, on the
following terms and conditions:
(i) Lessee shall give Lessor written notice of its exercise of its option to
extend no earlier than twenty-four (24) calendar months, nor later than six
(6) calendar months before the Lease Term would end but for said exercise.
Time is of the essence.
(ii) Lessee may not extend the Lease Term pursuant to any option granted by
this Section 35 if Lessee is in default as of the date of the exercise of its
option. If Lessee has committed a default by Lessee as defined in Section 14
or 32 that has not been cured or waived by Lessor in writing by the date that
any extended term is to commence, then Lessor may elect not to allow the Lease
Term to be extended, notwithstanding any notice given by Lessee of an exercise
of this option to extend.
(iii) All terms and conditions of this Lease shall apply during the extended
term, except that the base rent and rental increases for each extended term
shall be determined as provided in Section 35 (B) below
(iv) Lessee must provide Lessor written notice of its exercise of its option
as provided hereunder at least nine (9) months before the Lease Term would end
but for said exercise for purposes of negotiating rental terms. Lessee may
withdraw its notice of exercise of an extension option for any reason prior to
six (6) months before the Lease Term would end but for said exercise.
Lessor shall provide Lessee with Lessor's proposed base monthly rent for the
option period within twenty (20) days of Lessee's written request. However,
once Lessee delivers a notice of exercise of an option to extend the Lease
Term it may not be withdrawn unless notice in writing is provided to Lessor at
least six (6) months before the Lease Term would end but for said exercise
and, subject to the provisions of this Section 35, such notice shall operate
to extend the Lease Term. Upon any extension of the Lease Term pursuant to
this Section 35, the term "Lease Term" as used in this Lease shall thereafter
include the then extended term.
(v) The option rights of Xilinx, Inc. granted under this Section 35 are
granted for Xilinx, Inc.'s personal benefit and may not be assigned or
transferred by Xilinx, Inc. or exercised if Xilinx, Inc. is not occupying the
Premises at the time of exercise.
B. Extended Term Rent - Option Period: The monthly Rent for the Premises
during the extended term shall equal ninety-five percent (95%) of the fair
market monthly Rent for the Premises as of the commencement date of the
extended term, but in no case, less than the Rent during the last month of the
prior Lease term. Promptly upon Lessee's exercise of the option to extend,
Lessee and Lessor shall meet and attempt to agree on the fair market monthly
Rent for the Premises as of the commencement date of the extended term. In
the event the parties fail to agree upon the amount of the monthly Rent for
the extended term prior to commencement thereof, the monthly Rent for the
extended term shall be determined by appraisal in the manner hereafter set
forth; provided, however, that in no event shall the monthly Rent for the
extended term be less than in the immediate preceding period. Annual base
rent increases during the extended term shall be three percent (3%) per year.
In the event it becomes necessary under this paragraph to determine the fair
market monthly Rent of the Premises by appraisal, Lessor and Lessee each shall
appoint a real estate appraiser who shall be a member of the American
Institute of Real Estate Appraiser ("AIREA") and such appraisers shall each
determine the fair market monthly Rent for the Premises taking into account
the value of the Premises and the amenities provided by the outside areas, the
common areas, and the Building, and prevailing comparable Rentals in the area.
Such appraisers shall, within twenty (20) business days after their
appointment, complete their appraisals and submit their appraisal reports to
Lessor and Lessee. If the fair market monthly Rent of the Premises
established in the two (2) appraisals varies by five percent (5%) or less of
the higher Rent, the average of the two shall be controlling. If said fair
market monthly Rent varies by more than five percent (5%) of the higher
Rental, said appraisers, within ten (10) days after submission of the last
appraisal, shall appoint a third appraiser who shall be a member of the AIREA
and who shall also be experienced in the appraisal of Rent values and
adjustment practices for commercial properties in the vicinity of the
Premises. Such third appraiser shall, within twenty (20) business days after
his appointment, determine by appraisal the fair market monthly Rent of the
Premises taking into account the same factors referred to above, and submit
his appraisal report to Lessor and Lessee. The fair market monthly Rent
determined by the third appraiser for the Premises shall be controlling,
unless it is less than that set forth in the lower appraisal previously
obtained, in which case the value set forth in said lower appraisal shall be
controlling, or unless it is greater than that set forth in the higher
appraisal previously obtained in which case the Rent set for in said higher
appraisal shall be controlling. If either Lessor or Lessee fails to appoint
an appraiser, or if an appraiser appointed by either of them fails, after his
appointment to submit his appraisal within the required period in accordance
with the foregoing, the appraisal submitted by the appraiser properly
appointed and timely submitting his appraisal shall be controlling. If the
two appraisers appointed by Lessor and Lessee are unable to agree upon a third
appraiser within the required period in accordance with the foregoing,
application shall be made within twenty (20) days thereafter by either Lessor
or Lessee to AIREA, which shall appoint a member of said institute willing to
serve as appraiser. The cost of all appraisals under this subparagraph shall
be borne equally be Lessor and Lessee.
36. APPROVALS: Whenever in this Lease the Lessor's or Lessee's consent is
required, such consent shall not be unreasonably or arbitrarily withheld or
delayed. In the event that the Lessor or Lessee does not respond to a request
for any consents which may be required of it in this Lease within ten business
days of the request of such consent in writing by the Lessee or Lessor, such
consent shall be deemed to have been given by the Lessor or Lessee.
37. AUTHORITY: Each party executing this Lease represents and warrants that he
or she is duly authorized to execute and deliver the Lease. If executed on
behalf of a corporation, that the Lease is executed in accordance with the
by-laws of said corporation (or a partnership that the Lease is executed in
accordance with the partnership agreement of such partnership), that no other
party's approval or consent to such execution and delivery is required, and
that the Lease is binding upon said individual, corporation (or partnership)
as the case may be in accordance with its terms.
38. INDEMNIFICATION OF LESSOR: Except to the extent caused by the sole
negligence or willful misconduct of Lessor or Lessor's Agents, Lessee shall
defend, indemnify and hold Lessor harmless from and against any and all
obligations, losses, costs, expenses, claims, demands, attorney's fees,
investigation costs or liabilities on account of, or arising out of the use,
condition or occupancy of the Premises or any act or omission to act of Lessee
or Lessee's Agents or any occurrence in, upon, about or at the Premises,
including, without limitation, any of the foregoing provisions arising out of
the use, generation, manufacture, installation, release, discharge, storage,
or disposal of Hazardous Materials by Lessee or Lessee's Agents. It is
understood that Lessee is and shall be in control and possession of the
Premises and that Lessor shall in no event be responsible or liable for any
injury or damage or injury to any person whatsoever, happening on, in, about,
or in connection with the Premises, or for any injury or damage to the
Premises or any part thereof. This Lease is entered into on the express
condition that Lessor shall not be liable for, or suffer loss by reason of
injury to person or property, from whatever cause, which in any way may be
connected with the use, condition or occupancy of the Premises or personal
property located herein. The provisions of this Lease permitting Lessor to
enter and inspect the Premises are for the purpose of enabling Lessor to
become informed as to whether Lessee is complying with the terms of this Lease
and Lessor shall be under no duty to enter, inspect or to perform any of
Lessee's covenants set forth in this Lease. Lessee shall further indemnify,
defend and hold harmless Lessor from and against any and all claims arising
from any breach or default in the performance of any obligation to Lessee's
part to be performed under the terms of this Lease. The provisions of Section
38 shall survive the Lease Term or earlier termination of this Lease with
respect to any damage, injury or death occurring during the Lease Term.
40. OPTION TO PURCHASE: Lessor grants to Lessee an option to purchase the
Premises in accordance with the following terms and conditions:
(a) In order to exercise this option to purchase, Lessee must notify Lessor in
writing of such exercise between the sixth and twelfth months following the
Commencement Date of the initial Lease Term of any property. This option
shall be null and void if not exercised as stated herein before the expiration
of the twelfth month of the initial Lease Term.
(b) The purchase price shall be payable in cash or other immediately
available funds, at close of escrow, which shall occur on a date chosen by
Lessor but in any event (i) no earlier than thirty (30) days after Lessee has
exercised its option to purchase and (ii) not later than the sixth month after
Lessee has exercised its option to purchase.
(c) Upon payment of said purchase price, Lessor shall deliver title to Lessee
by grant deed, free and clear of all claims, liens, restrictions and
encumbrances, other than current taxes, assessments, easements (all as of the
date of Lessee's exercise of its option) and anything of record or not of
record resulting from the acts or omissions of Lessee, and such other matters
as Lessor and Lessee may mutually agree upon.
(d) Upon execution of this Lease, Lessee shall deposit with Lessor an amount
equal to Twenty-Eight Million Three Hundred Fifty-One Thousand Dollars
($28,351,000) (the "Option Deposit"). This deposit shall be in addition to
all other deposits required hereunder. If Lessee elects to exercise this
option to purchase, the purchase price shall be $28,351,000, and Lessor shall
credit the Option Deposit against such purchase price as payment in full. In
addition, if Lessee elects to exercise this option to purchase, the prepaid
first year's rent shall be forfeited to Lessor, and Lessor shall have no
obligation to refund any of such prepaid rent to Lessee regardless of when the
close of escrow shall occur. If Lessee elects not to exercise the option to
purchase, Lessor shall refund the Option Deposit in full to Lessee on the
first anniversary of the Commencement Date, without interest.
(e) Both Lessor and Lessee agree to cooperate with each other in effectuating
a tax-deferred exchange of the Property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended. Each party agrees to fully
cooperate with any such exchange, provided that each party's obligation to the
other shall be limited to its purchase or sale of the Property, as the case
may be, in accordance with this paragraph 40 and the purchase and sale
agreement to be executed by the parties as herein provided; neither party
shall have any greater or different obligations and no lesser or different
rights from those set forth in this paragraph and such purchase and sale
agreement; neither party shall be put to any additional cost or expense on
account of any such exchange undertaken by the other party; and neither party
shall have any responsibility whatsoever for the tax or nontax consequences of
an exchange undertaken by the other party, or any liability arising out of
holding title to facilitate such exchange (for which the exchanging party
shall indemnify the cooperating party), including without limitation whether
the tax effects of any such exchange contemplated by such party and/or any
third party to the exchange are in fact successfully realized. No such
exchange shall delay or excuse any of the time periods specified in this
paragraph or in the purchase and sale agreement to be executed by the parties
as herein provided. Accordingly, if an exchange is contemplated but is not,
for whatever reason, completed on the closing date agreed upon by the parties
for the consummation of the sale of the Premises, the party which has
undertaken such exchange (or both parties, if both parties have undertaken
exchanges) nevertheless shall be obligated to close on the purchase and sale
of the Premises at the time and in the manner such close would have occurred
had such party (or both parties, if both parties have undertaken an exchange)
not undertaken an exchange.
(f) There shall be no prorations as of the close of escrow and Lessee shall
assume any assessments and Lessee shall pay all closing costs, transfer taxes,
and escrow fees.
(g) Lessee shall purchase the Premises in an "as is" condition without
warranty or representation from Lessor.
(h) Concurrently herewith Lessee and Lessor have entered an Option to Purchase
which will be recorded by Lessor.
40. SUCCESSORS AND ASSIGNS: The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of all of the parties
hereto; and all of the parties hereto shall be jointly and severally liable
hereunder.
41. MISCELLANEOUS PROVISIONS: All rights and remedies hereunder are cumulative
and not alternative to the extent permitted by law and are in addition to all
other rights or remedies in law and in equity.
42. CHOICE OF LAW: This lease shall be construed and enforced in accordance
with the substantive laws of the State of California. The language of all
parts of this lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Lessor or Lessee.
43. ENTIRE AGREEMENT: This Lease is the entire agreement between the parties,
and there are no agreements or representations between the parties except as
expressed herein. Except as otherwise provided for herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
IN WITNESS WHEREOF, Lessor and Lessee have executed these presents, the day
and year first above written.
LESSOR LESSEE
BERG & BERG ENTERPRISES, INC. XILINX, INC.
By: /s/ Carl E. Berg By: /s/ Willem P. Roelandts
- -------------------------------------- --------------------------------------
signature of authorized representative signature of authorized representative
Carl E. Berg Willem P. Roelandts
- -------------------------------------- --------------------------------------
printed name printed name
President CEO, President
- -------------------------------------- --------------------------------------
Title Title
October 8, 1997 October 8, 1997
- -------------------------------------- --------------------------------------
date date
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
XILINX, INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of
common shares outstanding 73,921 72,853 73,708 72,515
Incremental common shares
attributable to outstanding options 7,495 6,525 7,663 6,646
---------- ---------- ----------- ----------
Total shares 81,416 79,378 81,371 79,161
========== ========== =========== ==========
Net income $ 30,950 $ 21,218 $ 64,394 $ 53,710
========== ========== =========== ==========
Net income per share $ 0.38 $ 0.27 $ 0.79 $ 0.68
========== ========== =========== ==========
FULLY DILUTED
Weighted average number of
common shares outstanding 73,921 72,853 73,708 72,515
Incremental common shares
attributable to outstanding options 7,495 6,874 7,663 6,821
---------- ---------- ----------- ----------
Total shares 81,416 79,727 81,371 79,336
========== ========== =========== ==========
Net income $ 30,950 $ 21,218 $ 64,394 $ 53,710
========== ========== =========== ==========
Net income per share $ 0.38 $ 0.27 $ 0.79 $ 0.68
========== ========== =========== ==========
<FN>
Note: The convertible debt is not included in the calculation of fully diluted net income per share
since its inclusion would have had an anti-dilutive effect.
</TABLE>
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
XILINX, INC.
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Three Months Ended Six Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Income before taxes $ 44,855 $ 31,434 $ 94,401 $81,809
Add fixed charges 3,679 3,616 7,359 7,254
---------- ---------- -------- -------
Earnings (as defined) $ 48,534 $ 35,050 $101,760 $89,063
========== ========== ======== =======
Fixed charges
Interest expense $ 3,278 $ 3,219 $ 6,551 $ 6,471
Amortization of debt issuance costs 218 218 436 441
Estimated interest component of rent expenses 183 179 372 342
---------- ---------- -------- -------
Total fixed charges $ 3,679 $ 3,616 $ 7,359 $ 7,254
========== ========== ======== =======
Ratio of earnings to fixed charges 13.2 9.7 13.8 12.3
========== ========== ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-28-1998 MAR-28-1998
<PERIOD-START> JUN-29-1997 MAR-30-1997
<PERIOD-END> SEP-27-1997 SEP-27-1997
<CASH> 260,372 260,372
<SECURITIES> 174,241 174,241
<RECEIVABLES> 72,542 72,542
<ALLOWANCES> 6,557 6,557
<INVENTORY> 54,313 54,313
<CURRENT-ASSETS> 636,552 636,552
<PP&E> 163,096 163,096
<DEPRECIATION> 79,381 79,381
<TOTAL-ASSETS> 936,287 936,287
<CURRENT-LIABILITIES> 113,473 113,473
<BONDS> 250,000 250,000
0 0
0 0
<COMMON> 740 740
<OTHER-SE> 561,321 561,321
<TOTAL-LIABILITY-AND-EQUITY> 936,287 936,287
<SALES> 150,272 311,033
<TOTAL-REVENUES> 150,272 311,033
<CGS> 56,048 116,954
<TOTAL-COSTS> 56,048 116,954
<OTHER-EXPENSES> 51,176 103,780
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,496 6,987
<INCOME-PRETAX> 44,855 94,401
<INCOME-TAX> 13,905 30,007
<INCOME-CONTINUING> 30,950 64,394
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,950 64,394
<EPS-PRIMARY> 0.38 0.79
<EPS-DILUTED> 0.38 0.79
</TABLE>
